Non-Domestic Rating Bill

Lord Shipley Excerpts

2nd reading
Monday 19th June 2023 Lords Chamber

[Lord Shipley (LD)]

My Lords, I declare my interest as vice-president of the Local Government Association. I am very grateful to the Minister for her introduction to this Bill. It had a speedy and uncontroversial passage in the House of Commons, but there are several matters which this House will need to discuss in Committee. I will identify some of them.

There has been a lot of concern about the business rates system in recent years. That relates partly to Covid, partly to the rise in internet purchasing and partly to the very high cost of business rates. There have been several reviews. Some of the conclusions of the recent one by the Government are now part of the Bill, which I welcome. I concede that business rating is not an easy issue. Business rates form a substantial element in a business’s costs and in a council’s income. There is a balance to be struck. I remember that when business rates were decided locally there was a campaign by major businesses—particularly high street retailers, notably John Lewis—for a national system. At the time, things were so chaotic, with some councils trying to increase business rates to make up a shortfall in government grant, that I supported that change. But that was 30 years ago and times have changed.

The Government have a proposal to lower the period between valuations from five years to three years, which certainly is better than the current five-year rule. I would prefer two years, and I look forward to seeing whether any other Members of your Lordships’ House feel similarly. Maybe we need to discuss this in Committee, but in an ideal world it might be better to have a one-year revaluation. However, for the time being I prefer two years. I hope that the Minister agrees that, even if we end up with three years, we could look in the medium term at that reduction. That would help.

The 2019 Conservative manifesto promised to reduce the burden of business rates by

“a fundamental review of the system”.

There has not really been a fundamental review of the system, and I suspect that is because any fundamental reform is inevitably long-term. The aim of the review started in March 2020 was to reduce the overall burden on businesses, improve the business rates system and consider more fundamental reform in the medium to long term. It is true that there have been reductions in the overall burden for some businesses and that, in some cases, what is being proposed in the Bill will improve the business rates system, but I do not think that the more fundamental reform is being delivered in the medium to long term.

Currently, local authorities keep 50% of business rates. Some have 100% retention and there are various pilots of different amounts taking place. As we know from the recent announcement, the West Midlands will retain its business rates for 10 years and that trend towards a return to devolved responsibility for business rates as a fiscal policy is welcome.

I have always felt that rentable value—and, hence, rateable value—is a sound method for assessing value. For the time being at least, it is important that it stays, because it seems to be the preference of all those who were recently consulted. I support rates relief for improvements to property and for heat networks, and welcome what the Minister said about that. I support the proposal to give businesses the immediate benefit of a rate reduction while keeping transitional relief for increases; that is helpful.

I wonder about the thresholds, and again we might test this in Committee. Business rates are not paid on properties with a rateable value of less than £12,000, and there are tapered reductions up to £15,000. I wonder why those figures are not being raised and whether the Minister, when she replies, could tell us what assessment has been made of increasing the threshold level. That could be very helpful to a large number of small businesses.

The Minister and the Bill say that there are all kinds of increased powers for the Valuation Office Agency. There is a question of whether businesses should have to notify the valuation office of changes that could impact a property’s rateable value, and my view is that they should. If it is simply as the Minister described a few minutes ago—taking a moment or two to sign off that nothing has changed—I cannot see a problem with it. As long as the publicity around that requirement is effective, all should be well. But, if it is not done that way, the Government need to be very careful about penalising businesses that have not understood the rule.

When I read the Bill and the relevant briefings on it, notably the Library briefing, it occurred to me that everybody else paying business rates had all kinds of obligations being placed on them, but I did not see many obligations being placed on the Valuation Office Agency to respond effectively within time limits and by doing the right thing by the person inquiring. I would like the Minister to confirm that the Government have plans to impose standards of performance on the Valuation Office Agency, because there have been complaints about it in the past, particularly about notifications of valuation level and the transparency of the decisions it has made. It is very important to be able to have a quick dialogue with a business rate payer. We need to test that the Valuation Office Agency is being open and transparent, and is applying quality standards. I hope the Minister agrees that that would be useful.

The Minister might also wish to comment on the small business multiplier, which is 49.9p in the pound at the moment. I wonder whether there is a case for having a slightly lower multiplier for small businesses. Taken in the round, that relates to the £12,000 threshold. In the end, the aim would be to encourage small businesses to thrive, and to generate jobs and greater economic activity. I would be interested to know how the Minister feels about that.

I read a suggestion that there should be a licensing, or maybe a regulatory, system for business rate advisers. There are apparently some setting themselves up to give business rates advice to small businesses. What steps might the Government take to license or regulate such advisers?

In conclusion—almost—I believe in the business rates system being composed of three elements, at least for the short to medium term. One is property, because a building may attract the fire service or police support if it were to be burgled, so property is one element. The second element is the value of the land on which a building is built, which is lower in some places than others, and this should be reflected in the business rate levy. The third element is online sales. I believe that that has been understated for some considerable time. I would like a high street retail outlet to pay equivalent business rate levels to an online company because, in 2019-20, only 5% of retail sector income was raised by online retailers; 95% was, broadly speaking, from high street locations. The Government said that they would make a fundamental change to the business rate system in the medium to long term; that is one of the fundamental changes that I think should be investigated.

I wonder whether we need a comprehensive register of freehold property ownership. Without it, it is difficult to locate ownership. I do not know what the Government think about that.

My last point relates to material change of circumstance. There is a debate about whether, if the Government legislate on something, that can or cannot be a material change of circumstance. As I understand it, that debate derives from the Covid pandemic. I have thought about it and think we need to test this in Committee, because there is a case for saying that, if the Government legislate on something, it may force some business rate payers to face a material change of circumstances. We need to understand better the Government’s thinking on an MCC. Overall, I welcome this move and what is happening, and all of what I have said is an attempt to make the Bill even better.