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Non-Domestic Rating (Lists) Bill

Volume 662: debated on Monday 17 June 2019

Second Reading

I inform the House that I have considered the Bill, and I have concluded that it does not meet the criteria for EVEL—that is to say, English votes for England laws—certification.

To move the Second Reading, I call not any Minister, but a particular Minister, a perspicacious Minister, a dedicated Minister and, I know, a Minister in a hurry—Rishi Sunak.

I beg to move, That the Bill be now read a Second time.

This Bill makes a major improvement to the rating system that delivers on Government commitments and addresses ratepayers’ concerns. It will ensure that business rates bills will be updated at more frequent revaluations to reflect changes to the rental property market. In doing so, it will ensure that business rates become more responsive to economic changes.

Business representatives such as the CBI, the British Property Federation and the British Chambers of Commerce have all asked for more frequent revaluations. They were promised that by the Chancellor at autumn Budget 2017 and again at the 2018 spring statement. This Bill delivers on those promises.

Business rates bills are based on the rateable value of the property, which, broadly speaking, represents its annual rental value. The rateable value is therefore the tax base for business rates and it is assessed by the Valuation Office Agency, independently of Ministers.

Since the current system of business rates was introduced in 1990, the Government have had regular revaluations of rateable values, to ensure that they remain up to date. These revaluations ensure that the amount paid in business rates—money used to fund important local services—is distributed fairly among all ratepayers, having regard to their rental value.

Regular revaluations are an important part of maintaining fairness in the system, but the Government must strike a balance between the uncertainty created by regular revaluations—because it is inevitable that rate bills will change at that time—and the stability of businesses being able to plan for the future.

The Minister just made an important point about the fact that revaluations are there to ensure fairness in the system. On that basis, does not council tax completely fail the test? If the Minister really wanted to go down in history, would it not be more appropriate to have a non-domestic rating and council tax valuation Bill?

I am not sure I would like to go down in history as the man who revalued people’s homes to tax them more. The Chair of the Select Committee on Housing, Communities and Local Government makes a fair point, but the difference is that the statutory basis for business rates requires that the overall revenue raised remains neutral in real terms, taking account of appeals and increases, so it is necessary to ensure that that happens in practice. As a result of doing that every five years since 1990, the Government have enacted a revaluation.

Following the 2010 revaluation, and in the face of the economic downturn, the planned 2015 revaluation was postponed to 2017. That reflected the need at that difficult time to give businesses more certainty. Quite rightly, however, it also led to renewed interest in business as to how often we should in the future revalue for business rates.

I will not be as mischievous as the Chairman of the Select Committee, but there is an issue that needs to be dealt with. Various Treasury and Ministry of Housing, Communities and Local Government reforms have resulted in many reliefs and opportunities for people to run small businesses without having to pay any business rates at all. Is it not time for a fundamental review of business taxation, to make it fair and reasonable and to ensure that those people who operate online also pay their fair share of business taxation, rather than relying on those businesses that happen to be in situ?

I feel like I am being pincered by the illustrious senior members of the Select Committee. Of course, the issue of business rates vexes many people, but my hon. Friend is right to point out that, because of the various reliefs enacted by this Government, it is the case that fully one third of all businesses pay no business rates at all, and that is to be welcomed.

Notwithstanding the fact that I would be straying far from my brief and treading on the Chancellor’s toes if I addressed the broader structure of business rates taxation, it is worth saying that when the Treasury last looked at the issue a few years ago, there was no consensus among the business community about what might replace it. On digital taxes in general, although it is not quite the same, the digital services tax mooted by the Chancellor goes in part towards addressing the issue raised by my hon. Friend.

To return to the Bill, the response of businesses to the consultations and engagements was very clear: they thought that the revaluation cycle should be shortened, and the most popular option emerged as three years. Therefore, this Bill makes three changes to the rating system in England.

First, the Bill will bring forward the date from which the next revaluation takes effect, from 1 April 2022 to 1 April 2021. Secondly, the Bill will ensure that, thereafter, revaluations will take effect every three years, so the next revaluation after that will be in 2024, and so on. Thirdly, the Bill will change the last date by which draft rateable values must be published in the lead-up to the revaluation, from the preceding 30 September to 31 December. That period, during which new rateable values are published before the list comes into force, is known as the draft rating list.

Business rates is a devolved policy area, but the Bill also applies in part to Wales. As in England, the next revaluation in Wales will be brought forward to 1 April 2021. I understand that the Welsh Government are considering options for the frequency and nature of revaluations thereafter, so the requirement for three-yearly revaluations does not yet apply in Wales. Entirely different legislation applies in Scotland and Northern Ireland, but I understand that both countries are committed to having more frequent revaluations.

Hon. Members who have been following the proceedings of the Select Committee on the Treasury inquiry into the impact of business rates will have seen a range of business groups support the move to more frequent revaluations. I will end with a quote from the evidence provided by the Association of Convenience Stores:

“More frequent revaluations will allow rateable values to link more closely with the non-domestic property market and three-yearly revaluations strike the balance between VOA resource and accuracy for business.”

In conclusion, I am very glad to be able to make this improvement to the rating system, and I commend the Bill to the House.

First, may I refer Members to my entry in the Register of Members’ Financial Interests? I am a vice-president of the Local Government Association. We are very supportive of more frequent revaluations. There are growing calls to make sure that that happens, not only to ensure their relevance but to remove any potential sharp cliff edges—the longer a revaluation is left, the more the valuations between regions drift.

The LGA, though, would like the Government to go further, and asks them specifically to reduce the significant backlog of appeals: there are a staggering 65,000 unresolved appeals from 2010 in the system. That is important because local councils have to have £2.5 billion in reserves, in case those appeals are successful and the risk is carried by council services. The LGA also asks for the appeal period to be capped at six months. Again, that would reduce the financial exposure for which local authorities would have to make provision through their reserves. The LGA believes that that would be more appropriate.

We must consider the impact of revaluations with regard not only to the changing nature of demand—including for retail, office and other types of uses—but to the geographical shift away from our regions to London and the south-east, as shown by the most recent revaluation. The net take for the Treasury has to be broadly the same, and the revaluation reflects the increase in value in London and the reduction in the regions.

In the 2017 revaluation, it was only London that experienced an increase in all values across all sectors: retail was up by 26.2%, industry by 15.1%, office by 21.2%, and other uses by 25.7%. Every other region, bar the south-east, experienced a reduction in retail values, including by 1.2% in the west midlands and by 6.8% in the north-east. Although office values were more mixed, Yorkshire and the Humber experienced a decrease in value of 13.25%, followed by the north-east, which was down by 12.5%. A real shift is taking place away from our regions, primarily in the north, towards London and the south-east.

Let me paint what that picture means in pounds and pence, because that is what the Treasury cares about when it comes to business rates. The square mile of the City of London alone is now valued higher than the whole of Wales. Westminster City Council and Camden Council together are worth more than the whole of the north-west of England. Greater Manchester alone is valued higher than the whole of the north-east of England. We are seeing major shifts in values across the country, focusing not just on the capital but on the city bases away from our towns.

Why is that important? As more local authorities move towards business rate retention schemes, all with varying degrees of retention and because of that different degrees of exposure, there will be an impact on those with 100% retention in particular. Councils will be asking—following the next revaluation in 2021, should the Bill go through—what safety net will be in place to ensure that councils with perhaps weaker economic bases are not disadvantaged because they have opted into a business rate scheme. That is not because they have not been working hard to drive their local base—many have been doing that, which is why they went into the scheme in the first place—but because the nature of demand in those places has changed so much.

In Committee, when we have a bit of time to secure evidence to test some of these ideas out, I hope there will be a spirit of wanting to work together to try to make the system work. We have heard some pushing demands from Members who, quite rightly, recognise that council tax and business rates are both very important property taxes which also have limitations. It is important that both are sustainable and fair on the payers.

The hon. Gentleman provides an analysis, which I recognise, of the changes that took place during the previous revaluation. He also says that there is an opportunity for local authorities to grow their economic base. Has he done any economic analysis of how successful those areas of the country that have seen a greater fall in their valuations have been in attracting businesses, in particular where public services and Government Departments have been devolved to those areas, which can increase the economic basis of those local authorities?

We have done that analysis. We have spoken to local authorities that are part of the retention scheme and where they have managed to capture the uplift in growth of values. I should say, however, that in combined authority areas and city regions, where we take the locality in the round we are seeing a shift away from towns to cities. The cities are performing very well and we are seeing stability in the retail and office markets, but we are not seeing the same repeated in the neighbouring towns that can be only a mile or two up the road. In terms of net gain, a lot of them will have to bring forward their strategic plans to ensure they are developing enough big employment sites, because it will eventually come down to square footage as we see the nature of it shift.

Let us be honest: we are talking about an online sales tax. The Government have really resisted that. There are some legitimate reasons to be cautious, particularly in terms of EU legislation and what that might mean for a potential challenge, but the fact is that we have not addressed, even within the business rate regime, how completely unfair it is for the high street anchor store —John Lewis, Debenhams and so on—which brings in footfall into town centres and supports the other retailers. The Amazon big shed on the edge of the motorway pays a fraction of the business rates to occupy that space, when it is actually a more productive space direct to the consumer. There is a lot of room to go here, not just to rely on an internet sales tax, but to get around a table, work through the detail cross-party and really test what areas are not controversial. Most people who understand this recognise that the system has to catch up with the changing times. That offer has been on the table for a while and perhaps one day it will be taken up.

I draw the House’s attention to my entry in the Register of Members’ Financial Interests. I am the vice-president of the Local Government Association.

I do not want to keep the Minister too long from his exciting bedtime reading, which he was telling us about in questions earlier. In principle, I accept what the Bill tries to do and I think it is a sensible move. The Housing, Communities and Local Government Committee has conducted an inquiry into business rate retention and, more recently, the high street. The view generally has been that business rates should be revalued more often and that three years is a reasonable compromise. Five years is too long, because we get major changes in rating values that we then have to catch up with, and we then have dampening mechanisms, appeals and so on. Any more frequently would be too much change too quickly, so three years is a reasonable compromise on which I think there is general agreement.

I hope the Government really mean it and that we will have three years. In 2015, when we had five years, the valuation was postponed for two years. Why? It was because we were going to have a general election in 2015. That was the reason and everyone knows it. That meant seven years between revaluations, which created an even bigger problem with even bigger changes and a lot more difficulties, from which we are still suffering.

Are there any implications for the business rate retention scheme? Presumably, the Government are still going ahead with the 75% figure. Is it going ahead from next year? We are still not quite sure, in these changed circumstances. Will it have any impact particularly on the issue of resets within the system? Presumably not, particularly if a rolling reset is done. I presume that would be covered and would not be affected, but it would be helpful to have reassurance on that.

I echo the point made by my friend the hon. Member for Harrow East (Bob Blackman). All the evidence we have heard, in our high street inquiry and the business rate retention inquiry—I am currently a guest on the Treasury Committee inquiry into business rates—shows that we just cannot carry on not recognising the change of circumstances, particularly with regard to the high street and 20% of sales now being done online, which is the highest percentage anywhere in the world. At some point, the system will have to change. Amyas Morse, the then Comptroller and Auditor General, made the point to the Committee that simply having a system based on another age and on floor space was taking no account of the changes happening now in modern society. That was not sustainable in the long term and there had to be change.

There could be a complete comprehensive review, moving to a completely different system of raising money from businesses. That is one way. I still think it is hard to avoid taxation on physical buildings and that they are probably a good basis for a system, but there has be some reform and some addition. The Select Committee’s inquiry into the high street recommended that we look at a number of alternatives, including the potential for an online sales tax. That would take the pressure off those elements of business, particularly high street shops, which are most under pressure. That still needs to be looked at.

Finally, appeals are still a problem. We hear that local authorities are holding reserves for very obvious reasons. We have changed the system and we now have a check and challenge. We have been told that it is discouraging businesses from appealing, so there is that disadvantage, compared with having lots of appeals that were bogging down the system. Fundamentally, the evidence showed that the valuation office is understaffed and under-resourced to deal with appeals. That came up in the Treasury Committee inquiry. I hope Ministers will look at that.

Whatever system we have, there has to be a proper appeals system that works expeditiously for the benefit of the appellant and local authorities. A number of issues still need to be considered, but the principle behind this small Bill is a good one that should be supported.

I am extremely grateful for the very incisive comments and questions to the Minister by my hon. Friend the Member for Sheffield South East (Mr Betts) and the hon. Member for Harrow East (Bob Blackman).

Labour supports this reform, not least because it is a part of our five-point plan for our high streets. Labour pledged in February 2017 to introduce more regular revaluations, coupled with simplifications in the business rate system. It is to be welcomed that the Government are at last finally getting on board with this essential reform, but the entire business rate system is in desperate need of comprehensive review. The Government’s consultation on the introduction of more frequent revaluations noted some challenges that are yet to be addressed, including: the increased workload resulting from this reform and the need for significantly skilled staff to undertake this work; and the possibility that the move will result in more appeals by ratepayers, placing additional pressure on the Valuation Office Agency.

According to the latest valuation tribunal statistics, there are still 65,000 unsolved 2010 appeals and councils have had to divert over £2.5 billion from services to deal with the appeals risk. How do the Government intend to deal with that? The explanatory notes state that the Bill’s provisions “may lead” to the Treasury providing additional funding to the VOA, but it does not guarantee to do so, even though additional valuations and perhaps more appeals arising from them will be required.

While we welcome the changes in the Bill, we cannot settle for this tinkering around the edges while the nation’s high street retailers are struggling so much. Nationwide, every type of retail premises—high streets, retail parks and shopping centres—saw the number of occupied units decline at a faster rate in 2018 than in 2017. The high street vacancy rate rose from 11.2% to 11.5% in 2018 and almost 5% of that vacant space has been empty for over two years, which demonstrates the scale of the challenge.

The Confederation of British Industry has warned that the current business rates system is entrenching regional inequalities:

“The lag between the area’s boom in property prices and its latest business rates revaluation has seen firms suddenly having to cope with an almost 50% increase in their bill.”

On the other hand, areas that have suffered from economic downturn, where major industries have left in recent years, have continued to require firms to pay higher business rates. It can also mean that local authorities are underfunded where businesses are on the rise.

These regional inequalities are entrenched by the business rates system in areas that have already had their finances worsened by the Government’s continuing austerity policies. Between 2010 and 2019, Knowsley, the second most deprived area in the country, saw a spending power cut of £1,406 per household. This is simply a disgrace.

Last month, the UK2070 Commission published research showing that the inequalities that blight economic performance and life chances in parts of the UK are likely significantly to worsen, with London “decoupling” from the rest of the UK unless drastic action is taken. The chair of the commission said that what the Government are doing is just a sticking plaster and that it is

“too small, short-lived or disjointed to have a lasting impact.”

When will the Government listen to business and deliver a wholesale review of the system? When, too, will they address the threats to retailers posed by their online competitors and ensure that businesses with physical shops are not at a disadvantage under the business rates system?

We look forward to the Government pressing on further with reform of the business rates system and to hearing what the Minister has to say.

It is an absolute pleasure to give the closing speech to this part of today’s business. The Bill may be narrow and technical in scope, but in practice it will improve the rating system for all ratepayers. It is the culmination of discussion with businesses about how we can improve the rating system. They wanted more frequent revaluations and that is what we are delivering.

I do not need to tell the House how quickly the commercial property market can change. Trends in sectors, locations and types of property can drive changes in the rents paid by businesses. Currently, the rating system picks up on those changes only every five years. Businesses have told us that five years is too much of a lag in the rating system before rateable values can catch up with rents. It results in ratepayers paying rates based on a rateable value that may no longer reflect their rent. That is why businesses want more frequent revaluations and why we are delivering precisely that with this technical Bill.

I very much welcome the Bill. Will the Minister comment on one aspect that is not covered by the detail of it, but which is very important to people in my constituency who own riding stables and particularly those who provide riding services for the disabled as well as commercial riding stables? We often find that the Valuation Office Agency simply does not have the expertise to deliver an accurate valuation for that kind of very specialist activity, where there is not really a rental market.

I thank my hon. Friend for that question. The last time this matter was raised, the Under-Secretary of State for Housing, Communities and Local Government, my hon. Friend the Member for Richmond (Yorks) (Rishi Sunak) facilitated meetings between the professional groups and the people involved. There were ongoing discussions that became very fruitful.

The Bill will ensure that rateable values and therefore business rate bills are more responsive to changes in the rental market. It requires revaluations after 2021 to take place every three years and I am delighted that Opposition Front Benchers have accepted that. Some businesses have asked us to go further and move to annual revaluations, but we are delighted to have peace reigning in the Chamber today.

Let me try to answer the question about business rate retention from the hon. Member for Sheffield South East (Mr Betts), the Chair of the Housing, Communities and Local Government Committee. The revaluation does not affect councils’ local income, as there are adjustments to make sure that that is dealt with. As regards resourcing the VOA, that will form part of the spending review later this year.

The Minister made a commitment that this will be reviewed later this year as part of the spending review. Does that mean that the spending review is going ahead this year?

Very sadly, apparently I am not running to be leader of the Conservative party—[Hon. Members: “Shame!”] How kind! It is subject to that.

The Bill brings forward the next revaluation to 2021 but ratepayers do not have to wait two years to benefit from our reforms to the rating system. Ratepayers are now benefiting from a multiplier linked to CPI rather than RPI and from a small business rate relief scheme that has removed 655,000 small businesses from rating. They are benefiting from a retail discount of one third off small and medium retail properties. I commend the Bill to the House.

Question put and agreed to.

Bill accordingly read a second time.

Non-Domestic Rating (Lists) Bill (Programme)

Motion made, and Question put forthwith (Standing Order No. 83A(7)),

That the following provisions shall apply to the Non-Domestic Rating (Lists) Bill:


(1) The Bill shall be committed to a Public Bill Committee.

Proceedings in Public Bill Committee

(2) Proceedings in the Public Bill Committee shall (so far as not previously concluded) be brought to a conclusion on Tuesday 2 July 2019.

(3) The Public Bill Committee shall have leave to sit twice on the first day on which it meets.

Proceedings on Consideration and up to and including Third Reading

(4) Proceedings on Consideration and any proceedings in legislative grand committee shall (so far as not previously concluded) be brought to a conclusion two hours after the commencement of proceedings on Consideration.

(5) Proceedings on Third Reading shall (so far as not previously concluded) be brought to a conclusion three hours after the commencement of proceedings on Consideration.

(6) Standing Order No. 83B (Programming committees) shall not apply to proceedings on consideration and up to and including Third Reading.

Other proceedings

(7) Any other proceedings on the Bill may be programmed.—(Amanda Milling.)

Question agreed to.

Non-Domestic Rating (Lists) Bill (Money)

Queen’s recommendation signified.

Motion made, and Question put forthwith (Standing Order No. 52(1)(a)),

That, for the purposes of any Act resulting from the Non-Domestic Rating (Lists) Bill, it is expedient to authorise the payment out of money provided by Parliament of any increase attributable to the Act in the sums payable under any other Act out of money so provided.—(Amanda Milling.)

Question agreed to.

Non-Domestic Rating (Lists) Bill (Ways and Means)

Motion made, and Question put forthwith (Standing Order No. 52(1)(a)),

That, for the purposes of any Act resulting from the Non-Domestic Rating (Lists) Bill, it is expedient to authorise provision for, or in connection with, changing the dates on which non-domestic rating lists must be compiled.—(Amanda Milling.)

Question agreed to.