Motion of Regret
That this House regrets that the Non-Domestic Rating (Collection and Enforcement) (Local Lists) (Amendment) (England) Regulations 2009 (SI 2009/204), laid before the House on 10 February, will not prevent several port companies from becoming insolvent.
Relevant Documents: 8th report from the Merits Committee.
My Lords, I want to make it clear that I am not opposing the principle of the order, which seeks to give more time for certain port occupiers to pay a backdated and retrospective non-domestic rates liability, in order to avoid an immediate collapse of many, certainly in normal times, healthy businesses. The problem is that many businesses will become balance-sheet insolvent as soon as they receive their rate demands. For this reason, some local authorities have delayed issuing rate demands because they are waiting for this SI and its regulations. The situation is unusual. When matters go awry, it is usually due to the errors and omissions of Ministers some time ago. This is not the case today. The problem is that the Ministers are unwilling or unable to put the situation right.
It may be helpful if I explain the background to the problem. In the beginning, at the time of the nationalisation of the ports, it was decided that it would be appropriate for the Secretary of State to prescribe the rateable value of the whole port. The local authorities raised a rate demand on the whole port based upon the prescribed rateable value. When the 55 statutory ports were privatised, prescription continued. The businesses within the port did not pay rates; they occupied premises within the port, under a licence, as part of a commercial contract with the port owner. The terms and conditions of those contracts would vary depending on the nature of the operation of the occupier. For example, it may have been a crane hire company, a stevedoring company, a storage company, a freight-forwarding company or any one of the numerous operations that take place within a port.
However, rates were not an issue as they were covered by the port owner. Quite properly, the Government decided to return all 55 statutory ports to what are termed “normal rating principles”; in other words, the same principle which every business in the United Kingdom works under. This was fine, but in 2000 the then junior Minister at the DETR, Beverley Hughes, had to prolong prescription until 2005, and there were good reasons for that. The Valuation Office Agency has a statutory duty to compile and maintain accurate rating lists, which for the port businesses had to come into force on 1 April 2005. The VOA obviously had to undertake this valuation of the ports before that point. Unfortunately, the VOA woke up to its obligations only in 2006, and while it may have informed the port operators and owners, the port businesses and occupiers were not informed in advance of any change in the system or any increase in rates.
We are not talking about one isolated firm being out of the loop; this affects many different businesses in many different ports. Businesses in ports are now receiving massive retrospective and totally unexpected rate demands. In many cases these are financially devastating. Of course, for some port businesses these increases are modest and they have been able to pay the rate demand without any serious difficulty. I have no doubt the Minister will draw your Lordships’ attention to this.
Let me give a few examples to illustrate the magnitude of the problem. I have been informed that for each of the past four years TTS (Shipping) Limited has paid corporation tax, national insurance contributions and PAYE of between £425,000 and £860,000 a year. In 2007 its retained profit was less than £40,000 and it believes it has a backdated liability for rates of more than £1 million. If your Lordships should uncharitably think that TTS is a small firm which would benefit from improved information acquisition, how about DFDS Tor Line plc, which has a backdated rates demand of £9.9 million and an increased annual liability of £3 million. The MD of DFDS Tor Line has written to me indicating that his main board is considering relocating the business outside the UK. The rates bill of Freshney Cargo Services has gone from £48,000 to over £850,000, far more than its best ever year’s profit, and its retrospective liability is £2.4 million, something it never expected to have.
All these businesses will have had proper plans and a proper cash-flow forecast. They had commercial arrangements with the port owners and their own customers and they thought they knew what their cost of operation was. Without the SI, these retrospective rate demands will have to be paid almost immediately. The effect of the SI to which my Motion refers is to give the companies concerned up to eight years to pay the rate demand. This demonstrates that a very serious problem exists, otherwise why would the Minister have done it? I am not opposing the order, because it will solve the problem for a few, but for many it will only prolong the agony in that on their balance sheet their liability will exceed their assets.
However, if directors of affected businesses reasonably believe that they can trade through the problem, it might be legal to continue trading. Expensive legal advice will have to be taken—and often—because presumably every time they have a setback it will increase their liability on the balance sheet, and being balance-sheet insolvent will mean banking covenants may be breached; it will be even harder to raise finance, which is extremely difficult in any case; and if finance can be raised, it will be very dear. For many, the financial strain will be too much and the business will collapse, with the attendant loss of employment.
Your Lordships will have noticed that the SI experienced a rough passage through this House’s Merits Committee. I will not rehearse the committee’s concerns in detail, but it was extremely disappointed about the amount of information accompanying the order and, therefore, the ability of Parliament to properly consider the regulations. There was also concern about European state aid rules being breached, but I shall not weary your Lordships with that argument.
The situation I have described is serious. The regulations do not solve the problem; the solution is to revert to the old system of prescription and the original rating lists. It is important to understand that it is not as if the ports, and the businesses within them, were exempt from rates; it was just a different system. I am sure that the Minister will not tell us that no rating system was in place prior to 2005, and I hope that she will not suggest that I am proposing to write off the debt; I am not. I am suggesting reverting to the original system. Ministers constantly say that these retrospective rates are due under the law, which is quite right, but the law implemented by the Government is having completely unintended consequences that arise not from ministerial failings but, frankly, from incompetence at the VOA. Ministers need to go for primary legislation, delay implementing normal rating principles until April next year, and continue to use the old rating lists.
I fully appreciate the difficulties that the DCLG and transport Ministers find themselves in. Even in normal times, it is not easy to find a slot for primary legislation. It will be even more difficult now; my noble friend Lord Bates will say a little more on this point from the Front Bench. I am convinced that, at some stage, the Minister will have to return to this House with primary legislation. I urge her to do that sooner rather than later. The Minister will not come to the Dispatch Box unarmed; she will tell your Lordships that many businesses are relisted during the year, and the ratings change. That is right, but the ports are different.
If an ordinary business takes on new or altered business premises inland and is subject to the normal rating principles, any competent surveyor can indicate, reasonably accurately, what their rateable value will be, and hence the rates to be paid. An allowance for those rates can be made in the company’s business plan and cash-flow forecasts. If the local authority, for any reason, delays or omits to issue a rate demand, the business will not be able to organise a party. The estimated rates will have to be shown on the balance sheet as an accrual, and provision will have to be made in the cash-flow forecast. The ports, however, are different. The commercial arrangements between the port owners and port businesses were predicated upon the pre-2005 rating arrangements, so, for those businesses, rates were not an issue. They simply did not need to be considered by a port business, as long as the port was operating under the prescribed rather than normal rating rules.
The Minister will say that to write off debt would be unfair to other ratepayers. First, I have already explained that I am not proposing a write-off. Secondly, to which other ratepayers would it be unfair, since there was always a rating system for the ports? Finally, the favourite phrase at the moment is “in the current economic circumstances”. These circumstances are not good; shipping is already badly affected, as the ports will be. We cannot save every business, but let us avoid making it unnecessarily difficult for those companies to survive our current economic problems. I beg to move.
My Lords, I support the noble Earl, Lord Attlee. I have no interest in ports, apart from being a harbour commissioner in the port of Fowey in Cornwall, which is not significantly affected by this, but from going around the country talking to people in ports I hear the concern that they have about these regulations. I shall not repeat all the excellent examples that the noble Earl, Lord Attlee, gave the House, but I have heard them too.
My worry is that these businesses, which have sometimes been operating in the ports for many years, are in strong competition with each other and with other ports and, as the noble Earl said, they have had no means of assessing what their future rate demands would be because the Valuation Office Agency had not got around to telling them. They have ended up not being able to charge their customers or make provisions, as they do not know how much to charge, but they receive these massive bills three or four years later.
I agree with the noble Earl; I am not suggesting that the rates should be written off, or anything else, but can my noble friend explain why the Government have not followed the recommendations of the House of Commons Treasury Committee? The committee suggested, as the noble Earl has said, that the Government should,
“consider the proposal to maintain the rateable values of premises in statutory docks and harbours at the levels published in the April 2005 rating lists until the new rating list is published in 2010”.
That seems perfectly reasonable; they will still have to pay rates, but at least it will be on the basis that they understood before. This issue happened on the railways five or 10 years ago; I think that has been resolved now, but I agree with the noble Earl about the increased rate demands faced by these companies. Companies will be going into liquidation. They may have eight years to pay, but if they cannot pay anyway it does not help matters much.
We are in a situation of severe economic problems. We have a Department for Business, Enterprise and Regulatory Reform that is trying to help companies survive and prosper. I would hope that this matter could be resolved by some good joined-up government between my noble friend’s department, the Department for Business, Enterprise and Regulatory Reform, and the Treasury. I fear that enough companies will be going into liquidation without those poor people operating at the ports joining them—and it is not just the port companies but the ports themselves. Associated British Ports tells me that its demand has gone up really dramatically because of this revaluation, by 100 per cent to £7 million a year. Now, it is a big company, but I hope that my noble friend will agree that a 100 per cent increase, backdated again, is difficult for companies to suffer. I look forward to what she will say, but at the moment my inclination is to join the noble Earl if he puts the Question to the House.
My Lords, I support the Motion of regret moved by the noble Earl, Lord Attlee. Both noble Lords who have spoken covered how this situation arose, but it is unfortunate that the Government did not take a leaf out of Scotland’s book. There, they saw the problem arising, instituted proper consultation and did something about it. This problem could easily have been got around and, as the noble Earl said, it was only due to the inefficiency of the Valuation Office Agency, which did not complete its statutory obligation to produce new rating valuations by April 2005.
The noble Earl mentioned a number of companies which have been affected. I can add three to that list, in Tilbury, which have already gone bankrupt. Another company on Merseyside, which has a turnover—not profit—of £1.8 million has received a rating bill for £1 million. Some of these companies simply cannot exist under this, despite what the Government are trying to do about it. One might almost say that it is too little, too late.
Our ports industry is one of the best in the world; it is certainly the largest in Europe. It handles something approaching 600 million tonnes of cargo a year and facilitates the transit of some 30 million passengers. It is big business. It employs large numbers of people who work not only in the ports but in the ancillary businesses connected with them. DFDS Tor Line, which was mentioned, has been considering whether it should take some of its business elsewhere. It is a very large operator in the North Sea area. P&O is also looking to change things; no doubt we will hear more about that from the noble Lord, Lord Sterling, a former distinguished chairman of that company.
This is a matter of great regret; it should not have happened. The noble Earl, Lord Attlee, is quite right to bring forward this Motion, and I support it.
My Lords, I want to add a somewhat different dimension to the debate. First, I am totally against anything retrospective in principle, but where the ports are concerned, on a more positive note, I should like to paint a picture of what is happening out there at the moment. We are heavily involved in the trade routes of this country. To declare my interest, I ran P&O for 22 years. We had probably the largest fleet by far in Europe and also controlled many of the ports worldwide, so I am speaking with that experience behind me. I am still life president of P&O and also chairman of Swan Hellenic ships.
I suggest to the Government that this is a great opportunity. The great shipping companies can choose anywhere to land their goods. If you take the far eastern trade, you have the choice of going to our ports, or to Le Havre, Zeebrugge, Rotterdam, Antwerp, Bremen, Hamburg, and so on. But at the moment, the weakness in sterling, which in a strange way might be a strength, gives us an opportunity to offer a service which will entice many of these companies to bring their ships to our ports.
At the moment, many of us are very troubled about what is happening in the City of London and what we might be losing abroad. But it is often not realised that the ports of this country are extremely vibrant. Those ships have the effect of creating massive businesses in the surrounding areas of our great ports. This is a marvellous opportunity to give these companies the chance to bring further business to this country. It is not, therefore, the time to burden them with having to pay extra moneys in this form.
My Lords, the noble Earl, Lord Attlee, does well to bring this Motion to the House, and I support it. He set out very clearly the history and background to this, and there is no point in any of us repeating that. However, I should like to speak about the position of local authorities in some of these ports. They are under a statutory duty to send out these bills and collect the money, yet there are councillors, including my colleagues in Hull and Liverpool, who are extremely unhappy about this because their first interest is the health of their port, its value to the local economy and to the economy of the country.
Our view is that this mess that has been caused by the Government and the Valuation Office Agency for which they are responsible. The Government therefore have to take full responsibility for finding a satisfactory solution to the problem. The Treasury Committee proposed a solution, which the noble Earl recommended, of port ratings being maintained at the levels published in the 2005 lists until the next scheduled revaluation of statutory ports is undertaken in 2010. Whether that is the right way forward is for the Government to decide, but it seems sensible. If they do not adopt this proposal, they have to come up with a solution that is not simply telling companies they have eight years to pay the money back.
The ports industry is vital to the British economy. To penalise this vital industry in a recession is economic madness and will only hinder any recovery. Cancelling back payments does not set a precedent for other business rates, but it will be a powerful reminder to Government and their agencies of the terrible impact mistakes can have on British companies and consumers. We all know that mistakes can be made and in modern organisations, mistakes will be made. The important thing is that when that happens, solutions are found.
We on the Liberal Democrat Benches support this Motion. If the noble Earl puts it to the Vote, I shall advise such of my colleagues who are in the House to vote with him.
My Lords, I, too, support my noble friend Lord Attlee in this Motion. At a time when seldom a week goes by without a Minister coming to the Dispatch Box to announce some initiative to rescue the car industry, the banks or the housing industry, it seems like a classic own goal to allow this measure, which will cost real jobs, to go through. As we have heard from the noble Lord, Lord Greenway, there are some businesses for which it is already too late—they have gone into receivership. Many are clinging on by their fingernails. CAT UK, a company based in Grangetown in the north-east of England is doing good business in very tough times, importing cars from Renault. It has been faced with a tax bill of £500,000. That is a huge sum; even if it is repaid over eight years, it still amounts to something like £40,000 per year.
I do not know whether the Minister is aware of how many of these businesses are at the tipping point, where something like this will tip them over the edge. Is she aware of the difficult relationship that many of these companies have with their banks? The fact that a liability has to be crystallised and recognised on their balance sheet will cause great difficulties with the banks and in accessing appropriate credit. The Government’s Insolvency Service has warned Ministers that the liability will remain even if the debt is repaid by instalments. It wrote to John Healey on 9 February 2009, saying:
“The debt, like any other, would need to have to be booked immediately. Depending on the company’s overall financial strength, it may not have the assets to cover this additional liability. In such circumstances, the company would be balance sheet insolvent”.
These are very serious charges.
If this was due to the recklessness of the companies themselves—some 1,600 in 55 ports are affected by this—of course one could not expect the Government to go round bailing people out left, right and centre. But this was not a result of the recklessness of those 1,600 businesses; this was a result of the recklessness and failure of the Valuation Office Agency, as has been acknowledged.
The fault does not stop at the Valuation Office Agency. It was responsible for not consulting, but under the Treasury’s own guidelines, no impact assessment was made, as stated in Hansard on 7 October 2008 at col. 594W; no consultation was undertaken, again in line with Treasury guidance, as stated in Hansard on 6 October 2008 at col. 351W; no assessment had been made of the effect on the wider economy, a charge which was acknowledged by the Government in Hansard on 14 January 2009 at col. 761W; and the policy contravenes the Treasury’s own guidance on retrospective taxation, as stated in Hansard on 9 October 2008 at col. 802W.
There is an irrefutable case for rethinking this policy before it is too late. It will cost jobs in many business that are really struggling at the present time. It will be a catastrophic own goal. We shall drive business offshore. My noble friend Lord Sterling spoke about the options that shipping companies have. Those apply not only to the companies that were mentioned. I mentioned CAT UK. Renault is talking to it about the possibility of relocating its operations to Zeebrugge and shipping cars across as they are needed to order, rather than storing them port side. On the negative side, this is an own goal. However, on the positive side, it is a marvellous opportunity for the Government to come to the rescue.
My Lords, that is a positive note on which to end. I am very grateful to the noble Earl, Lord Attlee, for giving me an opportunity to set out the Government’s concerns on this issue and the reasons for our having come forward with our propositions. I am grateful, too, to all noble Lords who have spoken in the debate. It has been a measured debate, which the noble Earl, Lord Attlee, introduced extremely clearly. A spread of expertise has been shown around the House which has aided the debate.
I completely understand that the debate has aroused considerable concerns and accept that noble Lords’ anxiety is well placed. The issues were raised in the context of the Non-Domestic Rating (Collection and Enforcement) (Local Lists) (Amendment) (England) Regulations 2009 that were laid before the House on 10 February. Concern is not confined to this House: there have been two Adjournment debates in the other place. Much of what I say will reflect what Ministers in the other place have said, and I shall refer to some of the correspondence between Ministers and the Insolvency Service, to which the noble Lord, Lord Bates, has already referred.
Before I address the arguments put by noble Lords, I should put the regulations and their aim in their policy and regulatory context—I shall perhaps address some of the grievances raised by the Merits Committee in doing so. The noble Earl, Lord Attlee, gave a good summary of the history of why we are in this position.
Although the debate has been largely about ports, the relevant regulations are not aimed exclusively at ports; they apply equally across England to all businesses, sectors, and areas which now find themselves with a significant and unexpected backdated rates liability incurred by their property being separately rated by the VOA—I shall use the short term to save time. Therefore, although the debate is concerned primarily with ports, there is certainly a wider concern, which has obviously been made worse by the current economic situation. The regulations are designed to ease the pain and go beyond ports alone. For example, in the current financial year up to 31 October, 1,666 properties had a backdated adjustment to their rates liability of more than 33 months, including some in ports.
I start by saying that the Government are deeply concerned. Those concerns were set out in a letter from the right honourable Stephen Timms and the right honourable John Healey, from my own department, to the Treasury Sub-Committee on 10 February. They said:
“We have consistently said, in the current economic conditions, the Government is concerned about the impact of backdated rates liability on the trading prospects of businesses and we believe that there is a general case to assist businesses receiving large, unexpected backdated liabilities that have to be paid immediately, as the position for a number of port occupiers has demonstrated”.
We are providing such assistance. That is why the regulations allow businesses in such circumstances the unprecedented scope to schedule payment of backdated business rates over eight years. I shall come to why we have arrived at that position rather than some of the other options put forward by noble Lords.
The current situation in law is that each of our 55 major ports and container terminals in England and Wales is run by a designated port operator which has overall responsibility for business rates, except where any part falls to be separately rated. Properties have been separately rated over the years depending primarily on whether the occupier of that separate part is in “paramount” control; for example, a port chandler’s shop independently controlled of the port operator. There has therefore always been a mixed economy within the ports: it is a rather murky picture economically.
There were 1,600 separate assessments within 45 ports in England, and more than 250 assessments within 10 ports in Wales, on the list at 1 April 2005 before the ports review commenced—I shall come back to that. The situation now facing port occupiers stems from two separate developments which I need to put on the record.
The first issue, as the noble Earl pointed out, was the move away from prescribed rating for the statutory port operators. The larger statutory docks and harbours were, until 31 March 2005, subject to a methodology for valuation—prescription—by which the valuation was determined by reference to a formula set by the Secretary of State. The Government decided in the Local Government Act 2003 to end prescription and replace it with conventional rating. That formed part of the long-term policy to apply conventional rating to ports and other utilities, which meant essentially that we were anxious to ensure that everyone was rated on the same independent basis. As with all other forms of rating, the Valuation Office Agency relies on the provision of accurate information to assess the rateable value of property.
The second issue was the review of ports, which became necessary after a change to the Southampton Container Terminal valuation in 2004 identified some properties which should have been rated separately from the port operator’s assessment. The physical, in situ review of ports by the VOA which commenced in 2006 was able to establish the full nature of the situation in all ports and ensure that all individual businesses within and outside of ports were treated in the same way. It was clear that the same situation could exist elsewhere, so, in May 2006, once the Southampton appeal was settled, which took some time, and the status of some port tenants was clarified, the VOA immediately began its review across all 55 major ports in England and Wales.
Noble Lords might well ask why that physical inspection had not been done previously and why the VOA had been content to take the information unchallenged. The VOA is reliant in all its work on information that it receives to keep the ratings list accurate. It was only when it discovered an inaccuracy that might have been replicated that it was under an obligation to conduct a proper and full review.
The review discovered that there were many properties eligible for separate rating which had never been listed, and the result was to increase from 1,643 to 2,248 the number of properties in ports separately assessed for business rates. They were rated with a rateable value of around £53 million from 1 April 2005. It is those properties that now find themselves with significant and unexpected backdated liabilities. Noble Lords have put on the record the scale of some of those unexpected liabilities.
That is not the whole story, however, because the rating review has not had the same impact on every business in every port; indeed, it has been reported by local authorities that some £1.7 million of backdated liability has been paid. However, I can say to the noble Lord, Lord Bates, in particular, in view of his powerful summing-up, that there is a case to be answered where businesses have been badly affected.
The VOA is not under the control of my department, which is responsible for the collection and distribution of business rates; it is the responsibility of the Treasury and HMRC. The VOA has acknowledged, in response to the Treasury Select Committee, that there were serious failures of communication, particularly with the occupiers, and by implication that too much reliance was placed on information being provided by the port operators. Andrew Hudson, head of the VOA, indicated to the Select Committee:
“With the benefit of hindsight we have learned a lesson and please God this does not come up again: if it were to, we would seek to improve our communications with the occupiers as well as the operators”.
Indeed, Mr Hudson accepted that,
“in practice some of the people who have written in were not aware that this work was going on”.
So the VOA has put its hands up and said that yes, there was a communications failure.
I do not think that apologies are often sufficient. However, there is another explanation of why the review took so long—because it did take a long time. It was a slow process. Part of that explanation is that deciding which operators should be separately rated was not straightforward. It was not just a matter of going out and looking at the properties; it was a matter of trying to establish the exact degree of control exercised by either port operator or port occupier. It was also complicated by the varying nature of ports and continuing changes in operational practice. The VOA said that some operators were more helpful and co-operative in that regard than others. The review would have been completed sooner if operators and occupiers, some of them large businesses with professional advisers, had supplied information more willingly. That point is important, because it was the length of time that the review took that made the bills accumulate.
The VOA recognises that its communications could have been better. The Director of Rating accepted:
“Perhaps with hindsight we should have done more investigative work”.
Yes, I think that it should have done. However, The VOA wrote to all port operators in May 2006 advising that a full review of assessments would need to be undertaken, and followed this up in October 2006 when detailed replies had not been received. The letter explained the background and requested that the operators ensured that their tenants, whose identity would not necessarily be known to the VOA, because of the previous inclusive formula basis of valuation, were alerted. There seems to have been a lack of communication between operators and occupiers as well.
Another issue has been raised in another place, which I should also like to put on record. Many commentators have indicated that it is doubly unfair on the occupiers that these companies have to pay their rates liability as some port occupiers claim they had already paid their rates via their fees to the port operators. It is described as the Cumulo system. Port occupiers have told CLG that, when the designated port operator was regarded as liable to pay business rates, the contractual arrangements between the port operators and port occupiers typically contained explicit or implicit fee elements to cover the business rates incurred by the port operator. The Treasury Select Committee indicated that payments should be taken into account. However, it is not all that simple; nothing in this story is simple.
First, the liable party for business rates is the business in occupation of a property, not the landlord. Secondly, there is a serious absence of evidence that the port occupier’s fees made a specific contribution to rates. We have asked the CLG for that evidence; the only contract that we have seen is ambiguously worded, saying that when the property is separately rated the occupier is liable for rates. Clearly that is a matter between the port operators and the occupiers—between the landlords and tenants. It is part of the background of why the situation is so murky.
I quite understand that the grievance felt by the port occupiers is compounded by the fact that, with independent rating, the rates payable by the port operators themselves have in some cases declined. Although the review has resulted in an increase in the aggregate rateable value from around £201 million to about £211 million, the main issue for the newly assessed port occupiers is backdating the effect of the review. The port operators’ liability has in some cases reduced. I merely raise the question of whether there is not a moral issue here for the port operators themselves.
That is the background. I hope that I can be forgiven for putting that on the record, because it is very important that we understand the complexity of the situation. I turn now to what can be done to ease the situation, and the options that have been put forward. The suggestions put forward, outside this House and by the noble Earl and other noble Lords, include the suggestion to waive liabilities entirely by postponing or changing the alteration and its effect to the ratings list until 2010; to prescribe, as the noble Earl, Lord Attlee, suggested, the value of the separately assessed properties as zero; or to return to prescription of the statutory ports. The noble Earl has not raised the question of a waiver, and it is sensible not to do so, because it would raise some massive issues about the ratings system. It is worth saying that the integrity of the ratings system, to which we all subscribe, is that it has to be fair and equitable and that, therefore, any solution must not confer a disadvantage among other rate payers who have paid rates and were billed on time.
It is also inescapable, as the noble Earl said, that valuation officers are required by law to maintain accurate rating lists. When they become aware that a change is needed, as they did in the ports, they must make the alteration and specify the date when the change should take place. The date of the change is governed by legislation. When the correction is to insert into the rating list property that existed prior to the compilation of the 2005 list, backdating to the beginning of the list is required. Backdating is an integral part of the system of non-domestic rates; it reflects the volatility of the constant changes in the commercial property market.
Furthermore, no discretion is given to either the Valuation Office Agency or Ministers to waive a liability to taxation. I think that that is right, as it would not be in the interests of fair competition or in line with the principles of taxation for such a liability to be waived. It is because of this, and the fact that we cannot now pretend that we do not have the full facts of the case, that we cannot undo what has been done and maintain the list as at 1 April 2005 and hold off until 2010 when the next rating list comes along. That proposition introduces a much bigger issue; it would mean that, unlike all other tenants across England liable for rates, including the separately assessed properties in ports identified from the start of the 2005 list, these newly rated businesses would be given a directly favoured tax advantage over assessed properties. That is where the unfairness would lie in this context.
The second option is that the Government should prescribe the values of the separately assessed properties. I return to the Treasury Select Committee recommendation. In effect, it would be a return to prescription, but maintaining the rateable values of properties as at 1 April 2005 would require these newly assessed properties to be given a zero rating as from 1 April 2005. In effect, it is still tantamount to a waiver. There are other serious problems with doing that, as it would not solve the problem that noble Lords identified.
The Secretary of State still has the power to prescribe rules for ascertaining rateable values and, in theory, she could use those powers to prescribe rateable values for the individual businesses at ports. However, it is very difficult to see how it would assist, because, first, the businesses within ports would still be rated separately from the port as they should be and, in some instances, were prior to 1 April 2005; the power is not retrospective, so she cannot prescribe a value which is to apply for the purposes of ascertaining rateable values for a day before the order prescribing the formula was made; and the businesses within ports would still be faced with three years’ backdated liability, payable immediately on top of the liability for this year and next year; and to deliver some benefit to the businesses, she would need to prescribe a value which generated results below the market rental value.
None of the other 1.7 million properties on the business rating list is valued other than on the basis of market rent and there is no clear rationale for special treatment. In particular, there is no basis on which a low rateable value could be established. If the valuation methodology were challenged in the courts by any other ratepayer whose property is valued conventionally, it would be difficult to defend in rationality and reasonableness terms.
With regard to prescribing the statutory ports by a formula again, even if we were to return to prescription—the old system, as the noble Earl explained it—the properties now separately identified for rates would nevertheless continue to be separately rated, because that is what the legislation requires, and the only effect would be to alter the rating method for the port operator.
I know that this is disappointing in many respects because it would seem that some of these options offer a solution. In fact, we have come to the limits of what the Government can do in what we have done. Following the Chancellor's announcement in the Pre-Budget Report, we have quite exceptionally put in place a scheme to help all businesses, which may include some occupiers of ports, pay significant and unexpected backdated liabilities over eight years. We have never done that before: it is a long period of time. The Government have estimated that that will benefit up to 1,500 properties a year across England both within and outside ports and will help with cash-flow problems faced by some companies.
If we were simply to say that it is all too difficult and let the law take its course, the port occupiers and other businesses would still be liable for a backdated rates liability, but that liability would apply from the end of March and would have to be paid within two weeks. That would be the effect of revoking the regulations as well, which why we were so pleased to hear the noble Earl say that he was in favour of the principle of the regulations. Furthermore, local authorities will, in order to act diligently, have to bill the businesses and take collection and enforcement action. Otherwise, they may be required to fund the required contribution themselves to central government.
What else are we doing? The Valuation Office Agency is playing its part. It has put in place a fast track for appeals so that businesses that face significant bills can challenge their assessments. I understand that 70 have already done so. Local authorities, once they knew that this was likely to come their way, began to gear up immediately and they have been given information by the CLG so that they can prepare schedules of payments. They are very organised.
I can also give some assurances about technical insolvency, which I hope will be of some help. I am aware that many businesses have said that, despite this exceptional arrangement to spread payments, they will have to add this liability to their balance sheets. That will mean that they will become technically insolvent, and as a result, although they may be in a position to continue their businesses, technically they will have to cease trading. That is a serious matter. The department has taken advice from experts in the Insolvency Service and the Department for Business, Enterprise and Regulatory Reform. Clearly, the outcome will depend on the individual circumstance of each business on a case-by-case basis, but it will depend on the level of both the existing assets and liabilities when the backdated rates bill was received and the directors’ reasonable expectations of being able to meet their liabilities as they fall due in the future. The advice that the department has received is clear on the fact that the additional liability is not in and of itself a de facto reason for a company becoming insolvent. We want to ensure that that is widely understood, so that companies can continue trading where there is a reasonable expectation of being able to meet their liabilities in the future.
The substance of that was put in a letter from my right honourable friends John Healey and Stephen Timms to the Treasury Select Committee. I shall put that letter in the Library and I hope that noble Lords will feel that they can make use of it. We will also see whether we can put it on government websites so that it will be accessible. In addition, companies can of course get advice from legal support, qualified accountants, authorised insolvency practitioners and so forth.
I am sorry to have taken the time of the House at such length. Nobody would deny that this is an extremely difficult matter. It is one that we wish had not arisen and certainly not at this time. We do not deny that. We have done what we can do to assist within the current law and system of business rates. I hope that noble Lords who have spoken will accept that and will not press their case to a vote.
My Lords, I am extremely grateful to all noble Lords who have taken part in the debate, particularly the Minister for making herself available at short notice for such an important issue. She has given us a much more detailed explanation of the problem than Parliament has had before from Ministers.
The Minister has skilfully tried to tempt me to withdraw my Motion but I cannot do so because it is accurate. The regulations will not prevent insolvencies from occurring. In the later stages of her response, the Minister touched on the insolvency issue, but I anticipated her response. Businesses will still experience the problems that I described. They will find it extremely difficult to raise finance. She also touched on seeking professional advice. In these circumstances, professional advice would be very expensive. The Minister pointed out that the regulations benefit not only port occupiers but the whole business community. That is just as well, otherwise the regulations would definitely fall foul of EU state aid rules.
The Minister indicated that the problem is largely a commercial problem between the port operator and the port businesses. She is suggesting renegotiating a commercial contract after the supply of the goods and services in question, so that the port operator can pay money to the port business, even though that was not provided in the original contract. I do not know how many commercial negotiations the Minister has taken part in, but I fear that such negotiations might be a bit tricky. Moreover, I wonder how often central government have paid out money which is not due under a contract. I am certain that Ministers will have to do much more than the regulations provide for at some point in the future. The Minister explained how difficult and how complex these arrangements are; I accept it will not be easy but, at some point, more will have to be done. This is not the time to impose a huge, retrospective financial burden on businesses in an already fragile industry. I should like the House to determine this matter. I beg to move.