Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill (Second sitting)

Marie Rimmer Excerpts

Committee stage
Tuesday 6th July 2021 Public Bill Committees

[Luke Hall]

Q A lot of the early feedback we received suggested the potential scale of the appeals was causing concern in local government. We started to hear talk from local government about potential savings to frontline services that would need to be made. Could you tell us your experience of the way local government started to approach that potential task, and whether that started to impact on budgeting and forecasts for councils in setting their budgets?

David Magor: Since the introduction of the rates retention scheme, local authorities have had to forecast the impact of changes in the valuation list from year to year when preparing their budgets. You started with 50% retention, and moved to pilot schemes of 75% and 100%. When you have a rates retention scheme that works in that way, if you make a mistake in forecasting the reduction in value, you will significantly affect the finances of the local authority and the budgeting process.

Every chief financial officer has to make a forecast of the impact of a change. They would have to make a provision against that forecast and, of course, provisions prevent you from spending money, because you are providing for an event that is likely to happen. Certainly, as far as forecasting for the 50% rates retention scheme was concerned, every time you looked at your rateable value and the changes in that over the forthcoming year, you were conscious that any forecast you made, 50% of that reduction in value would fall on your budget.

That was the way the retention scheme worked, and it created a great deal of concern because chief financial officers were making very significant provisions. As I said, making provisions curtails the local authority’s ability to spend. Elected members quite rightly get very concerned about that. Then the MCC checks and challenges came in, with the checks first. As Adrian said, the enormous number of checks has now reached half a million, and the challenges emanating from those are well in excess of 100,000. You are talking about a massive impact on the valuation resources of the list. Local authorities have to make provision for that.

Through this Bill you would remove that risk and, as the Chair said, transfer it to central Government, because you would fund it through a relief scheme. The real problem is whether the relief will be sufficient to meet the needs of the ratepayers who are expecting a reduction in rateable value.

Adrian Blaylock: That is right. The risk and the responsibility of a local authority to set aside sufficient funds to cover any potential losses to the rating list could be significant. If I can just give you some indication of where we were: at the end of 2019-20, local government had just short of £3 billion sat in provisions for alterations of lists and appeals. This is all pre-covid. This is nothing to do with the pandemic, just essential changes to the rating list. Every year, they have to forecast what they think they will lose in the forthcoming year and there is roughly £1 billion a year being added to that pot, regardless of covid. So the potential loss on top of those normal everyday changes to the rating list—well, I would not like to think what would happen to local government finances if it went ahead. You would need a significant level of provision to be able to carry that. We have already seen local authorities applying to MHCLG for capitalisation directions because they are struggling to pay the day-to-day costs of running their services. How many more authorities would need to go down that route if that is where we get to? That is what concerns me.

[Ms Marie Rimmer (St Helens South and Whiston) (Lab)]

Q There are three very specific exemptions to the restrictions on appeals set out in clause 1(5), inasmuch as the valuation decision must take into account the effects of covid-19 on the quantity of minerals extracted and the quantity of waste disposal from the property, along with the physical state of the property being affected. Do you think those exemptions are reasonable and are there any other circumstances that you feel should be included?

David Magor: I must admit that the Bill is very well framed. We have looked closely at the Bill, clause by clause, and it meets its specific purpose. The approach to dealing with the material change in circumstances and to withdrawing or removing the covid ones is very sound. I find the provisions of clause 1 fit for purpose and they meet the needs of Government. That is a relief, in the sense that it seems to be fair. Of course, it is important that in making decisions in relation to the clauses that you have mentioned the Valuation Office Agency is transparent and gives the ratepayer and ratepayer’s agent every opportunity to make their case for other matters that are outside the covid situation.

Adrian Blaylock: I have nothing to add to that. I agree with David.

[Ms Rimmer]

Q How will the provisions affect local government income from business rates? I know you said “significant” earlier.

Adrian Blaylock: It is really hard to say because there was a suggestion of what level of reduction ratepayers would see in their rateable value from discussions between the Valuation Office Agency and rating agents. However, it is hard to say. Would that be across the board? Is that for a specific area? Is it for a specific kind of property? Without knowing exactly what the extent of the reductions in rateable values would be through material change of circumstances, it is really hard to say. The other thing to think about is longevity. Is it for the period of the lockdown? Is it from now to perpetuity? Forever? It is hard to say what the actual loss would be. There are too many unknowns, I would suggest.

[Ms Rimmer]

Q I can accept that.

David Magor: The problem with the pot of money is that when the Bill is passed and the relief scheme is released and we have guidance—of course, along with that guidance, one assumes you will have the distribution of the pot as well by individual local authorities—as well as making sure that they fully understand that individual pot and how it is made up, each local authority will then have to develop its own scheme and that scheme will be approved by members. In developing that scheme, you would have to look at the potential eligible properties in your area. From ministerial statements, you can take out RHLG properties, exempt properties and so on, because they will not get any relief, or it is the Government’s intention that they do not get any relief. You will then be left with a number of properties that are entitled to relief. What you do not know is what the economic factor in the distribution will take account of, but one assumes that you will look at the economic factor from individual company to individual company, and a company that has traded satisfactorily through the pandemic will, no doubt, not qualify for relief. One assumes, certainly from the statements that have been made in Parliament, that that is the way the Government wanted it to work.

When you get to that situation, you have to decide exactly how much relief you will pay to each individual ratepayer. There is no indication of what a reasonable amount is. There were some press releases from certain rating agents suggesting reductions as high as 25%. A couple of examples were put forward in statements from the Treasury where the amount of relief granted was a good deal less than 25%, but at the end of the day a local authority has to be really careful because it has a cash-limited pot that it has to distribute fairly to everybody to ensure that it has sufficient resource to meet the needs of every applicant. That in itself will be a challenge.

As Adrian says, you have to know how long the pot will last. The problem is that, if it is a cash-limited pot and you cannot go back for more, local authorities will be in a really difficult situation with those ratepayers who may be entitled but you did not have enough money to go around. You then revert to your other discretionary powers, particularly the hardship power. Then the cost of that starts to fall on the shoulders of the council tax payer, so it really is a massive challenge to local authorities. On top of that, in a practical sense there have already been adverse reports from the ombudsman about a lack of transparency in some local authorities with regard to the grant schemes. That was a significant problem with the grant schemes, and local authorities handled it really well. This problem, I think, is greater.

[Ms Rimmer]

Q Of course, it then has an impact on the resources available to meet the statutory duties, because business rates are much more involved now than when it was grants from the Government. The business rates revaluation is currently taking place, to be concluded in March 2022. The Bill would prevent businesses from retrospectively making an appeal against rateable values as they are now, even when the new system is in place. Is that provision necessary in your opinion?

David Magor: When the new values come into force there will be rights to appeal against them. The effect of the Bill, of course, is to prevent any applications under the check, challenge and appeal process from going forward in relation to the pandemic. That seems to be the intention of the Bill. Due to that being the law—it has closed down that particular area of activity, and the impact of the pandemic on the material change of circumstances definition—they cannot make any more appeals about that, but of course they can still continue to make normal material change of circumstances appeals right up to the closing of the existing list.

[Ms Rimmer]

Q Do you agree, Mr Blaylock?

Adrian Blaylock: Definitely. The way I read it, the Bill prevents any announcements regarding the pandemic from being taking into account, but it does not prevent any other methods of check or challenge from being taken forward by a ratepayer if something different is affecting their rateable value.

[Simon Baynes (Clwyd South) (Con)]

Q I thank our witnesses. Clearly there is widespread support for the restriction on rating appeals, given the trade-off of extra funding for relief from the Government, but picking up on the point about the rate revaluation—[Interruption.]

--- Later in debate ---

[Seema Malhotra]

Q As a slightly different angle on this, I was just wondering about any contact that you may have had, or experience that you may have had, with the Valuation Office Agency at the moment, and whether it has the resources it needs for the work it is currently undertaking—its existing functions—as well. I would be very interested in your perspective on that.

Sarah Pickup: I do not have detailed knowledge of its precise funding at the moment, but over time, we certainly have made a case that we support the Valuation Office Agency being funded adequately to deal with the task in hand, because there has been a very big backlog of appeals on the books. It has been pulling those down, and the change to check, challenge, appeal has impacted on that. Nevertheless, there is still a backlog, and our fears were that if the Agency was not properly resourced, you would end up with overlapping backlogs of appeals from different rating lists creating ever more uncertainty and not really taking away that need for councils to keep assessing the provisions that they need to make on their balance sheets.

One of the things that we certainly would support is a time limit on the time when businesses can put forward checks, challenges, and especially appeals against any given rating list. We think that would help, and it is in place, I believe, in some of the other UK nations.

[Ms Rimmer]

Q The business rate revaluation that is currently taking place should be concluded in March 2022. The Bill would prevent businesses from retrospectively making an appeal against rateable values as they are now, even when the new system is in place. Is that provision necessary?

Sarah Pickup: This was probably picked up by your previous contributors. Because the basis of a valuation is based on rent as of March 2021, that valuation date sits in the middle of the pandemic, so the question is whether any adjustments are made to that or not. You would think that the impact of the pandemic on rental values would be reflected in the valuations going forward for the list starting in 2023, but clearly we will not know that until we go forward.

The other point is that it is a very changeable picture, and businesses will continue to be able to appeal based on changes in circumstances. Things that are currently due to covid could turn out to be long-term impacts on businesses, in which case I think they move into a different category. If you lose trade as a result of covid, that is one thing, but if your business goes into permanent decline, it becomes a very substantial and permanent change in circumstances, and that probably falls into a different category.

[Ms Rimmer]

Q Are you aware that three exemptions to the restriction on appeals are set out in clause 1(5)? They are very specific. The effects of covid-19 may be taken into account in valuation decisions when they affect the physical state of the property, the quantity of materials extracted or the quantity of waste disposal from the property. Those are the three specific reasons—losing trade or someone’s business going down because of covid are not among them. Are you aware of that?

Sarah Pickup: Yes, we are aware, and we think that the exclusions seem reasonable—as you say, they are very specific. They would be limited to very small numbers of businesses. Loss of trade goes across a much wider range of businesses and therefore the scheme is aimed at addressing that.

[Ms Rimmer]

Q Earlier this afternoon, you talked about a backlog of rateable valuation appeals. Do you consider that the rate valuation officers will be resourced enough to catch up with the backlog and get on with everything that comes from this?

Sarah Pickup: That is something that they would have to address. We have had concerns in the past about whether the resource was sufficient to deal with the backlog quickly enough. It is in the interests of local government for there not to be a big backlog and for things to be dealt with as and when they arise. That is much more efficient in the long run.

[Ms Rimmer]

Thank you.

[Jeff Smith]

Q When we get the guidance—I imagine that the LGA would welcome an early indication of what that might look like—there will be quite a job for councils. They will have to design the scheme and agree it with their members. They will then have to do all the eligibility assessments. There might be IT updates to facilitate the new relief and there will presumably be some sort of reporting requirements. That is a lot of extra burden. I am guessing that the LGA might welcome some new burdens funding. Do you have any thoughts on that and what an appropriate amount might be?

Sarah Pickup: I could not give you an estimate of the amount of funding, but it is clearly a new burden. In most of the instances when new burdens have come along during the pandemic, some resourcing has been put in place to help with the design of new schemes.

Of course, revenues and benefits officers—in particular, finance officers in councils—have implemented a huge number of different schemes, some of which they have had to consult on and some of which have been much more directed and put in place by the Government. They have done that throughout the pandemic and this is another instance of something they will have to do.

The key thing, of course, is that those officers are given time. Sometimes, what we have found is that the money is announced, the guidance is passed or the regulations are put in place and then immediately everyone starts asking councils, “Where is the money? Why has it not been put out yet?”. As you said, councils need to be given time to go through due process to put schemes in place. A lot will depend on what the guidance says—and yes, early sight of it or early drafts and indications of the direction of travel, as well as early indications of the sums of money available, would be extremely helpful in helping councils to prepare.

Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill (First sitting)

Marie Rimmer Excerpts

Committee stage
Tuesday 6th July 2021 Public Bill Committees

[Jeff Smith]

Q I am trying to get a picture of the scale of the issue. You mentioned that the Insolvency Service was involved in about 1,0000 cases in the last year. I appreciate that you said that that is a low number for the year. Then you said that there may be around 2,000 cases where the powers to investigate currently do not exist. That sounds like a significant increase in work for the Insolvency Service, and I wonder whether you think that it will be able to cope.

Stephen Pegge: I am not close enough to its work and resource. One thing that I would say is that the Insolvency Service has very good experience in these sorts of investigations. I would also say that the other element of work, if it has found problems that meet the threshold of evidence and it takes action to disqualify a director, does not necessarily need to involve a court process. In most cases, the Insolvency Service will be successful in getting an undertaking from the director involved to be disqualified. It then has the powers to put that into effect, but certainly people may want to consider whether the resources are sufficient to deal with the case.

The other point is that these are situations where dissolution has been successful. We are also looking to these measures to act, to a certain extent, as a deterrent, in order to make it less attractive for those looking to abuse the system to try it on, as it were. So it may be that this event becomes less frequent in due course.

In fact, one of the processes that is clearly available is for creditors to object to an application for dissolution—and, indeed, the Insolvency Service at the moment is also able to object—on the basis of complaints at that earlier stage, where they have evidence of doing so. And because of evidence of significant numbers of attempts here, those objections have been done on a mass basis.

[Ms Marie Rimmer (St Helens South and Whiston) (Lab)]

Q Good morning, Mr Pegge. Clause 2(14) states that the provisions

“have effect in relation to conduct…occurring, and in relation to companies dissolved, at any time before, as well as after, the passing of this Act.”

Do you support making these provisions retrospective and, if so, how should the Insolvency Service make use of these retrospective powers?

Stephen Pegge: As I understand it, the support for this measure was confirmed as early as 2018 and it has really been a lack of parliamentary time that has made it difficult for it to be put in place. Given that we are aware of abuse that has happened in the meantime, I support this measure being retrospective. I appreciate that that retrospectivity is not often applied to such Bills, but we are talking about a fairly high evidence threshold and about situations where natural justice would support this measure being made with retrospective effect.

[The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Paul Scully)]

Q It is good to see you again, Stephen. That is an interesting point about the retrospective nature of the measure, given what you were saying about businesses taking on more debt throughout the pandemic. Obviously, the insolvency practitioners will work through things, as you have rightly said, in order of public interest. What do you think they may look to do to give lenders confidence, by approaching the pandemic response finance first?

Stephen Pegge: Clearly, when lenders are undertaking a credit assessment, they will consider both the willingness to repay and the ability to repay, the probability of default and the loss in the event of default. All those could potentially be, and I would say probably at the margin, factors that could be influenced by the use of dissolution as a means of avoiding liability.

Quite clearly, it is very difficult for a company that has been struck off the register to make payments under a loan, so there will be the avoidance of debt in those circumstances. Given that currently there is time and cost involved in restoring a company to the register, the ability then to take this action against directors after the event both to deter and, if the activity should still carry on, to investigate and take action against directors in a more timely and cost-effective way should reduce the ultimate losses to creditors. I think there has been an estimate that creditors could be saved around £1 billion as a result of this measure, which would be significant in terms of credit assessments.

The net effect is the ability to provide more finance with less time having to be spent on assessment up front, on better terms, and in circumstances that should help the recovery. However, I will emphasise, Minister, that this is only one factor and it is all operating at the margin. Nevertheless, it is certainly something that during the past year has become a matter of concern, especially in relation to bounce back loans.