Valuation Tribunal for England (Council Tax and Rating Appeals) (Procedure) (Amendment) Regulations 2017
Motion to Regret
That this House regrets that the Non-Domestic Rating (Alteration of Lists and Appeals) (England) (Amendment) Regulations 2017 and the Valuation Tribunal for England (Council Tax and Rating Appeals) (Procedure) (Amendment) Regulations 2017 have been introduced without adequate regard for the concerns of experts in rating appeals, following incomplete testing, and on a truncated timescale (SI 2017/155 and SI 2017/156). 30th Report from the Secondary Legislation Scrutiny Committee, Session 2016–17.
My Lords, in moving this Motion, I draw attention to my interests as a vice-president of the LGA, as a practising chartered surveyor and as a former Valuation Office employee. I am very grateful to the usual channels for finding a slot for this, to my two valiant external advisers for all their help and to the Minister for meeting us earlier in the year.
Noble Lords will know that the Valuation Office Agency, or VOA, is an executive agency of HMRC with responsibility for compiling the rating list on which business rates are based. Section 41 of the Local Government Finance Act 1988 stipulates that the list shall be accurate and that revaluations shall take place every five years. Business rates raise, I believe, around £28 billion annually. I am told that the 2010 list has been the subject of more than a million appeals and, at 30 June 2017, 223,430 of them were said to be still outstanding.
When deferring the 2015 revaluation, the Government undertook to have a thorough review of business rates. The deferral was claimed to give business ratepayers certainty. The 2014 Treasury/DCLG discussion paper also stated:
“The next step is to improve the business rates system in England so that it works better in the 21st century. We want to find ways to make the business rates system simpler, more transparent and more responsive to economic circumstances”.
However, ratepayer certainty included continued unfair 2010 rating list levels of assessment based on values at the peak of the market but applied to the economic climate of a crash. The certain purpose was the maintenance of the business rate yield. Furthermore, since 2010 there has been a process of blocking the sharing of valuation information, the shrinking of avenues for challenge and appeal, and an increase in the costs and complexity for ratepayers to the point of “like it or lump it”.
In 2016 a consultation on the check, challenge and appeal, or CCA, proposals received virtually no ratepayer support. Following repeated demands, the Government did not release the responses, as noted rather critically by the Secondary Legislation Scrutiny Committee, or SLSC, in its 30th report of 2016-17, and despite reassurances given to me by the Minister. The responses finally appeared just before the summer recess and only following further freedom of information requests. No matter; the VOA had already embarked on the changes, regardless of views. I suggest that the entire consultation was something of a waste of taxpayers’ money and possibly an affront to public expectations.
On 17 March this year, just two weeks before the new rating lists were due to come into force, the Government laid the two SIs before Parliament to implement virtually unchanged the scheme as first proposed, and, as noted by the SLSC, curtailing parliamentary scrutiny in order to salvage the government timetable.
In theory, a web-based CCA system could and should be relatively simple. HMRC has a good record of building robust online platforms for such things as VAT, PAYE and income tax, so when, still as a beta test, CCA went live on 1 April, rather surprisingly it demonstrated overcomplexity and substandard IT architecture, with inferior user accessibility and convenience.
To access CCA, you first have to create a new Government gateway account. You must provide detailed personal information which relates to your identity and is unconnected with the business ratepayer or the premises. Given that the property itself is fixed and that the billing authority generally knows both its location and the ratepayer identity, this seems excessive and intrusive. Tough luck if you do not have a UK passport, because then it is down to a fully manual process.
The key to checking one’s assessment is adequate information, but online CCA does not apply to all rateable property types. The first stage involves confirming the physical facts, which would be fine were it not for decades of poor data input and property inspections by the VOA. So, from April is added the requirement for the ratepayer to do the job for it, including providing answers to unknown and possibly unknowable construction history matters going back as far as 1900, and topped off with a £500 fine on VOA say-so for any false information, courtesy of the Enterprise Act 2016.
Whatever the business use, one must claim properties individually, and I am told that CCA cannot cater for ratepayers with large numbers of assessments; for them, the system is all but inaccessible, as each property must be separately and manually entered. Only when registered can one obtain the so-called additional information and appoint an agent to handle one’s case. The agent must perform the same sort of account-forming process with proof of identity. I am told that it can take up to an hour for each and that it is an iterative process, to be completed for each ratepayer client. Registration is not instantaneous. Once logged on, the degree of additional information is minimal. So, for a business to get a reasonable sense of whether its rateable value is likely to be correct, the task is labyrinthine, costly of time and inherently uncertain. No wonder the Federation of Small Businesses described the system as a “shambles” in its press release of 25 July.
Suffice to say that the CCA website has met with a hail of complaints: that it simply does not do what it claims, frequently crashes, is full of glitches and involves significant delays in verification of registrations, and so on. For ratepayers seeking temporary reductions for material changes in circumstances, this matters, with a real risk of injustice because of their inability to lodge a challenge within the timescale. For billing authority requests it is the same issue, with potentially costly write-offs. At the beginning of August, four months after the website’s introduction, the VOA admitted that the matter needed attention and brought in staff from HMRC digital to help deal with it. Meanwhile, CCA remains partially operative at best.
Assuming that you achieve the check stage, things can move on to the challenge stage, and that is the prelude to a reference to the Valuation Tribunal for England, or VTE. But here, in SI 156, there is a further hurdle: the need to provide detailed evidence of a valuation. This new requirement now amounts to nothing short of a proof of evidence by or on behalf of the ratepayer sufficient to justify the challenge. The burden of proof is on the appellant; the VOA does not have to prove anything, despite the fact that it has unique access to all rental returns and transaction data to enable it to compile the list. Moreover, the VOA is required to respond only to the matters contained in the challenge deposition. There is no requirement, as in previous times, for it to justify the wider accuracy of the assessment. Newer or additional evidence may not be added at a later date, other than in very exceptional circumstances. So a great deal of up-front work is necessary just to tease out whether the VOA has got its sums right or used acceptable or appropriate evidence.
Worse, the VOA since 2010 cites confidentiality under the Commissioners for Revenues and Customs Act 2005 as the basis for withholding valuation information from ratepayers, notwithstanding the specific provisions of Section 18 which allow disclosure in relevant circumstances. It is a convenient gagging provision. One supposes that the VOA would never knowingly use questionable evidence and that it employs men and women of utmost integrity, but mistakes do happen. Its parent, by contrast, might be disposed towards any other means available to it to maximise revenue.
There is supposed to be a separation of the revenue and valuation functions but I wonder whether that still pertains. The Government, quite reasonably, point to the large number of unmeritorious appeals against 2010 list assessments. Many made by relatively few claims firms were blanket appeals. Some use highly questionable tactics, even leaving ratepayers with large bills for incompetent advice and lousy service. I suggest that poor maintenance and management of the tax base also creates opportunities for such activities. However, apart from that, does abuse on one side ever justify a Government impeding fair redress for the taxpayer in a country where it is supposed that the rule of law prevails? It can only get worse if, as planned, VOA manpower shrinks by 20% in the next three years.
SI 156 also introduces a new system of charges for appealing cases to the VTE. I suppose the Government felt that reducing appeals to employment tribunals by introducing fees was a good precedent but after the recent Supreme Court decision I am doubtful. At least the employee has the alternative of workplace mediation but nothing similar exists for the business ratepayer.
Some rating assessments are very small but none the less highly significant for those who pay the rates and do not necessarily get small business exemption. Even a modest level of fees matters if your business involves a lot of very small assessments. I submit that the new fees are inappropriate and unreasonably fetter access to justice for no demonstrable public benefit, the point made eloquently by the VTE itself in response to the 2016 consultation but apparently ignored.
Additionally, there is a subtle shift in how the VTE is to treat valuation evidence. The VOA is charged with maintaining an “accurate” rating list. Compare and contrast that with the new test of “reasonable” valuation in rating appeals. The VOA maintains these terms mean in effect the same thing, but if this SI passes into law the argument must surely follow from some eminent member of the Bar that Parliament clearly meant something different. After all, the terms “accurate” and “reasonable” are clearly not the same and one can quite reasonably reach a valuation conclusion that later proves manifestly inaccurate, as everyone knows. It is bad policy to leave such things to the courts.
I leave to one side the issue of secondary legislation attempting to overturn a definition in primary legislation, but it looks to me slightly suspect.
In so far as these new factors compound to fetter ratepayer access to a fair means of redress, my attention has been drawn to the case of Daly v the Home Secretary in which the Judicial Committee of this House on 23 May 2001 approved a 1999 Privy Council decision to adopt a three-stage test in determining whether a limitation by an Act, rule or decision is arbitrary or excessive. These stages, in summary, are: first, that the legislative objective is sufficiently important to justify limiting a fundamental right; secondly, that the measures are designed to meet that objective and are relevant to it; and, thirdly, that the means used are no more than is necessary. I find little if any evidence that such tests have been applied to these statutory instruments. Furthermore, many decisions taken by the VOA which are clearly adverse to ratepayers in their implementation appear to be based on VOA policy rather than the law. If this is administrative convenience dressed up as precedent to overcome decades of poor management, then I suggest there is more legal turmoil to come.
This was an avoidable state of affairs that looks like faulty departmental thinking and cost cutting. It is bad public relations, as evidenced by the widespread criticism of the new system, and appears to be designed to frustrate fair redress. It appears to be consistent with a longer-term policy beyond these SIs alone—ergo, not just a bedding-in problem, which I am sure the Minister may wish to pray in aid. It raises doubts over the stability of the tax yield given the likelihood of more concerted appeals in a system seen as increasingly unjust; it necessitates continued large provisions by billing authorities against list alterations—the last figure I was given was £2.5 billion—and it offends the basic understandings between taxpayer and taxman that underpin the rule of law.
Her Majesty’s Government have not addressed unfair transition, the illogical system of reliefs, the several questionable exemptions or the pitfalls for the unwary. Public conveniences and graveyards attract business rates; a public park does not. Charity shops sell new goods, often in direct competition with other high street premises, yet command 80% mandatory business rates relief. Web-based retailers often contribute little or nothing and yet put vans on streets and create waste streams that have to be dealt with. It all shows that little has been done to give effect to any meaningful reform of a creaking business tax, and if not in time for this latest revaluation, then when are we going to see it?
The question remains, “What are business rates for?” That has been ignored and so at present a modest office occupier, as I have said before in this House, still pays more than twice the council tax on a larger and much higher-value home and yet receives virtually no services. This country has the highest such annually recurring business property tax of any of our European neighbours.
This is not an example of pulling together but of tearing apart a once-respected system. It is for these reasons that I have tabled this regret Motion.
My Lords, I defer to the noble Earl’s long experience in dealing with issues of this kind, as would many other Members of your Lordships’ House. His professional background is obviously important.
I declare my interests as a Newcastle city councillor and as an honorary vice-president of the Local Government Association. Over the years as a councillor, like many other of your Lordships who have served in that capacity, I have become familiar with the current rating system.
The complexity of the situation facing us is most clearly illustrated by the title of the documents that we are supposed to be debating: the Non-Domestic Rating (Alteration of Lists and Appeals) (England) (Amendment) Regulations 2017 and the Valuation Tribunal for England (Council Tax and Rating Appeals) (Procedure) (Amendment) Regulations 2017. The titles are enough to deter almost anyone from looking any further into the matter—that, of course, is entirely the Government’s responsibility and not that of the noble Earl.
There is a history to this, particularly to the process we have just gone through. The noble Earl referred to the Secondary Legislation Scrutiny Committee’s report, and it is unfortunate that, once again, the committee has had to draw attention to the Government’s failure, frankly, to behave responsibly in relation to dealing with secondary legislation. I refer to paragraphs 9 and 10 of its report. Paragraph 9 states:
“In our view, now that the Regulations have been laid before Parliament, the Department should make all the consultation responses available”.
It is remarkable that it did not do so at that time. The committee concluded by saying:
“We understand the sequence of events that preceded the laying of the Regulations, but we find it very regrettable that the Government have curtailed the opportunity for effective Parliamentary scrutiny in order to salvage their own timetable”.
Time and time again, Members from all sides of the House have complained about the way in which the Government are dealing with secondary legislation, which is potentially a hot issue given what is happening now at the other end of the Corridor in relation to Europe. I hope the Government will improve on this approach in future.
On the substance of the matters, the noble Earl referred to the substantial amount of money that local authorities estimated had been lost in having still 225,000 appeals outstanding as at 30 June. Obviously, quite a substantial number had been dealt with, but it is a long time since these evaluations were made and it is a terrible failure on the part of the Government not to have been able to ensure that there is a process which councils could deal with. The problem for councils is that they have to put substantial amounts of money aside—some £2.5 billion, according to the Local Government Association—against the risk of losing appeals which have been running on for years. It is an intolerable situation, and one hopes that it will not continue under the new system. Perhaps the Minister can give us some assurances in that respect.
The association asked the Government to ensure that the outstanding appeals would be resolved within 12 months of the new list coming into force, which effectively is 12 months’ time from now. Can the Minister say whether the Government have acceded to that request or will accede to it? It would be ridiculous to have that process ongoing at the same time as the new system is bedding in.
The association also asked for assurances that the Valuation Office Agency would have sufficient resources to deliver the proposals. At the moment, it clearly does not. What assurances can the Minister give in that respect? Have the Government decided on a figure, and if so, when will they announce it? If they are not prepared to make that decision, how on earth are councils and indeed ratepayers supposed to deal with the situation?
The LGA also referred to the time period for the appeal process. It suggested a time limit of six months from the time the list comes into force, albeit with exceptions for any material change of circumstances and new ratepayers. The Government have made no announcement, as far as I am aware, that they will bring in any form of time limit for appeals and no further information has been provided. Again, I hope that the Minister will be able to enlighten us and to clear the way for dealing with these matters expeditiously and fairly to both sides. The association supports a time limit of six months from when the list comes into force, and I wonder whether the Government can give an explicit judgment on that today.
The association also pointed out its concerns about local authorities being unable to make or join proposals which do not relate to their own premises, as had previously been the case. Again, perhaps the noble Lord could say whether the Government are prepared to reconsider that matter.
The association also makes the point that the penalties for submitting false information are very low: £500 or £200 for small businesses. One can sympathise with small businesses, but why should larger organisations face a penalty of only £500 if they submit false information? It seems quite extraordinary.
The association also supported proposals to limit the scope of the Valuation Tribunal Service to cases where the valuation is outside the bounds of reasonable professional judgment. I do not know that the noble Earl is necessarily sympathetic to that, but it is one aspect which the Government seem to have got right among many that they have not.
Perhaps I may address the broader issue here. We are talking here about what the noble Earl referred to as business rates. Of course they are not all business rates; they are non-domestic rates, although essentially the concern is about business rates. We are now at a time when the Government are proposing to devolve the entire business rate income from the centre to local government. I have always had doubts about that process, because it would need a considerable amount of redistribution to ensure that the financial burdens faced by local authorities were being met equitably. It is not at all clear when discussions about these matters will take place, so again I would ask the noble Lord to indicate what the current situation is and whether we might have a resolution of it—one hopes on the basis that there will be a redistributive element within the new system.
Finally, the noble Earl referred to shops in the high street and the like. Of course, one of the major problems for those shops is the very large concerns that operate, generally speaking, in low-rated rural areas where they put up massive sheds and provide their services not across the counter but by mail and delivery. The dreadful outfit which the owner of Newcastle United, I am afraid to say, is involved with is one example. There are others, such as Amazon and the like, which are somewhat more reputable but as a proportion of their turnover are not paying anything like the same percentage as a large store in a town or city is likely to pay. Do the Government have any intention of reviewing a system that affects normal high-street businesses and industrial premises in inner-city areas rather more than it does remote organisations like Sports Direct and Amazon? They pay relatively little in the way of rates, in effect at the expense of other ratepayers.
The noble Earl has given noble Lords an opportunity to speak in this debate and has also given the Minister an opportunity to clarify where the Government are going and, it is hoped, to indicate that the concerns raised today will be taken seriously.
My Lords, I pay tribute to the noble Earl for giving us an opportunity to clarify the current situation on business rates. My noble friend on the Front Bench will know that I have been asking questions about business rates for a decade now, so I have got a little bit of background in this issue.
I am a marketing man by profession: I looked after the advertising and marketing of a number of retail chains prior to coming to your Lordships’ House and, indeed, prior to entering the other place. Twenty years ago, retailing was conducted entirely on the high street or in retail parks; today, one-third of it—and growing—happens online. In this morning’s Daily Telegraph, it is reported that Ipsos MORI has noted that the crash in footfall since 2007 is well over 20%. That is a huge drop. We have seen a number of chains collapse, including Woolworths and BHS. That is a problem. It is that plunge in footfall and the need to invest in digital technology that is creating a big challenge for small and medium-sized retailers. Moreover, there is a forecast from the British Retail Consortium that 80,000 more shops are likely to close. These are horrendous problems.
I will not repeat any of the points made by the noble Earl in his speech except for one, and that concerns the beta testing stage of the online CCA system early in 2017. We know that there were many shortcomings, but amazingly the whole thing has gone live with nothing having been rectified. I do not think that that is acceptable in today’s world, and I hope that my noble friend can reassure me that something is being done to sort it out.
I am not sure whether I am right in saying this, but my understanding from Answers given by my noble friend to earlier Questions was that the net result of the changes would be revenue neutral. Now we read in the newspapers and professional journals that the system may not be revenue neutral but something closer to £2.5 billion to £3 billion to the benefit of the Treasury. So I would ask my noble friend to put on the record whether it is the Government’s objective that this system should be revenue neutral. If that is the case, can we have an assurance that, if the figures show that all of a sudden the Treasury has picked up £2.5 billion or £3 billion, somehow or other the money will be fed back into the system? That is absolutely vital for the future.
I would just add that the latest figures on empty shops, an issue I have raised on many occasions, are now twice as high as they were before the recession and are running at well over 20%, along with store openings and relettings now down by over 20%.
I would like to add one further point. Why does the UK have the highest property taxes in the whole of the OECD? Property taxes are going up in this country and down elsewhere in the OECD. We are in a situation where they are at 4.1% of GDP; in France, they are at 3.9%, whereas they are at 2.8% in the US and 1.9% across the whole of the OECD. In all of those countries, they have fallen: for us, they are going up.
As an applied practical economist, I know that to make economic sense of Brexit the UK will urgently need to become one of the most business-friendly places in the world. Achieving that requires a low-tax deregulatory agenda, but we seem to be heading in exactly the opposite direction with these SIs that we are debating. Frankly, if that is the way things are going, that will create considerable peril to all our businesses, particularly those in the retail trade, which after all remains the biggest employer in this country. Those businesses are the wealth creators for our future.
Before I forget, I must declare an interest, in that I do have a member of my family in the retail trade.
I hesitate to contribute to this debate because I have nothing like the expertise of the noble Earl, Lord Lytton, or indeed the knowledge of the noble Lord, Lord Beecham, of how these systems operate in practice.
The burden of what the noble Earl was saying is twofold: first, the appeals system in England and Wales is verging on out of control, given the huge backlog that he mentioned. That in itself is a real challenge for the Government to sort out. The second point I take from his speech is that the way in which the Government have tried to address this problem is resulting in unfairness to ratepayers and their advisers, in trying to challenge the valuations that the valuation officer has asked to be entered in the roll. In that respect, he raises what I would respectfully suggest is a very serious issue, which I hope the Minister will feel able to comment on.
I have picked up two points, one in each of the regulations, where I am inclined to think that the regulations as drafted point in the right direction. The first is in SI 155. In Regulation 16, which introduces new regulation 13A, the grounds on which a proposer may appeal to the Valuation Tribunal for England are said to be,
“(a) the valuation for the hereditament is not reasonable;
(b) the list is inaccurate in relation to the hereditament (other than in relation to the valuation).”
I may be wrong, but I took from the noble Earl’s speech that he is criticising the use of the language in that provision and suggesting that it is inconsistent with the primary legislation, which, in Section 42, describes what the local rating list is to provide. Section 41(4) says that before a list is compiled, the valuation officer must take such steps as are reasonably practicable to ensure that it is accurately compiled on 1 April.
There are two issues here. The first is the accuracy of the entry in the list, which describes the hereditament itself. I think “accuracy” is a perfectly correct adjective to use. Whichever side he is on, the valuer must know precisely what the hereditament is that is to be valued. The other side is the valuation side, and it is in relation to that aspect that the adjective “reasonable” is used. It seems to me that that is a proper use of language too. To require that the valuation should be accurate may be asking too much, because a valuation is, after all, an expression of the valuer’s opinion, expertly using his art as best as he can to arrive at a valuation that meets the statutory standard. So, with great respect to the noble Earl, I think that the language in SI 155 is correct and I do not see any grounds for criticism.
SI 156 contains a provision in Regulation 9 that inserts a new regulation, 17A, on the admission of new evidence on appeal. I suspect that this is where the noble Earl is saying that the lines are being so tightly drawn that the appellant is in difficulty in mounting his appeal. My impression, although I speak as a layman in this regard, is that the regulation is quite carefully drafted. It says,
“the VTE may only admit evidence that was not included in the notice of appeal or any document accompanying the notice”
in certain circumstances, which include where the additional evidence,
“was not known to the party and could not reasonably have been acquired by the party before the proposal was determined … or (b) all the parties to the appeal agree in writing to the party providing the new evidence.”
I venture to suggest that the two ways in which the sharpness of the provision is modified by that regulation are well drafted. In the first way, the opportunity for the parties to agree to the admission of new evidence speaks for itself. The other way is the test of whether the party knew of the evidence and could reasonably have acquired that knowledge before the proposal was determined. That formula fits very well with the way in which—in the criminal field, for example—additional evidence may be admitted by the Court of Appeal criminal division in looking at fresh evidence in a criminal appeal. The formula is well tested and well known to lawyers who deal with appeals, so although I am sure the noble Earl is right that there are other aspects of unfairness, I do not find that particular provision inconsistent with one’s sense of fairness.
Broadly speaking, the picture presented by the noble Earl is a disturbing one: a system of appeals under real pressure, and the Government trying to react to that pressure in a way that creates hazards for the ratepayer which inhibit the proper and just treatment of the right of appeal.
My Lords, I draw the House’s attention to my interests as a councillor on Kirklees Council and a vice-president of the Local Government Association. I thank the noble Earl, Lord Lytton, for raising these important issues and for describing them in such great detail that we are able to have a good debate.
The regret Motion draws attention to the difficulties that businesses and local authorities have with the current appeal system against valuations. What is more regrettable, in my view, is that a root-and-branch reform of the business rates system is still awaited, despite widespread support for the necessity for a major change in the way in which business property is taxed. The business rating system, which started in Elizabethan England—under the first Elizabeth—was consolidated in 1988 but has failed to reflect the significant changes in the way in which businesses operate, the premises they use and their location, as described by the noble Lord, Lord Beecham. The consequences of a failed system are compounded by the inadequacies of the current appeals process.
The matter is made worse by the extended time between valuations, which has resulted in a significant impact on many businesses which saw their rates rise dramatically. It is difficult for many small businesses, particularly in the retail sector, to plan or readily absorb such increases. It is hardly surprising that more than 1 million businesses have challenged their business rates bills since 2010. The Government’s response has been to impose significant changes to the appeals system with the intention of reducing the number of appeals. They have made it more difficult and put restrictions in the way.
On the other side of the balancing act, local government increasingly relies on business rate income to fund services. The appeals system that existed prior to the April 2017 changes often resulted in many months passing before the appeal was decided. As we heard, this resulted in local government having to set aside £2.5 billion to cover the risks of appeals as local authorities are required to fund half the cost of backdated refunds. This is a very inefficient use of scarce public resources. That has been brought into sharp relief as government grants for local services continue to suffer very deep cuts. Setting aside desperately needed funds to cover the risks of appeals is, in the circumstances, totally unacceptable.
We have a dilemma: businesses need a fairer method of business property valuation and taxation, and local government, which is in receipt of the business rate income, desperately needs to avoid having to set aside significant funding to cover risks of successful appeals. Meanwhile, the appeal system that is devised is seen by many businesses to lack fairness and transparency. Something needs to, and should, change.
The difficulty for businesses, especially SMEs, is that there appears to them to be a lack of clarity as to how valuations are determined, and how these compare with similar businesses in the same location and with those in different parts of the country. Businesses have traditionally resorted to the appeal process in very large numbers, as we have heard. The Government’s decision to impose the new system has inevitably led to scrutiny highlighting the consequent inequities.
It is therefore not surprising that the Secondary Legislation Scrutiny Committee received evidence that,
“the current proposal as to grounds of appeal is unlawful and inadequately drafted”,
and continues by pointing to the fact that the Government have abandoned the principle that the rating list be accurate, rather than have a reasonable valuation as the Government wish. With all due respect to the noble and learned Lord, Lord Hope, who knows much more about interpretation of those two words than I, it seems that the use of those words can lead only to legal challenge and more delay for all concerned—for the businesses appealing their valuations and for local government, which requires the income to provide services for local residents.
All this is the consequence of bolting a more restrictive appeal system on to the business rates framework, which is itself outmoded and broken. The way forward is for the Government to consider a fundamental reform of the business rates valuation system. Perhaps the Minister will be able to indicate whether there is any likelihood of that happening. Not to do so will lead only to increasing disquiet in the business sector and in local government. Both want and need a transparent and obviously fair system.
My Lords, before I make my remarks I shall make a number of declarations of interest. Obviously, I am a councillor in the London Borough of Lewisham and a vice-president of the Local Government Association. I also declare that I am a member of the Co-op, which has a number of convenience stores around the country, and I am a member of CAMRA, the Campaign for Real Ale, an organisation that has been campaigning about business rates, as has the All-Party Beer Group, which I am also a member of.
I thank the noble Earl, Lord Lytton, for tabling the regret Motion. As noble Lords have heard, the noble Earl speaks with great authority on these matters. It is very good that he brought this to your Lordships’ attention so we can have a debate and get a response from the noble Lord, Lord Bourne. As I said, the noble Earl is extremely knowledgeable. We are very grateful to him. We have seen his expertise in this debate.
I say right at the start that I agreed with the noble Baroness, Lady Pinnock, that we need a root-and-branch reform of business rates. In some ways the problems we have heard about are a symptom of the fact we do not have that root-and-branch reform. We are just tinkering with the system and it needs to be dealt with properly.
As we have heard, these two SIs relate to the introduction of the new rating lists, containing the updated rateable values on the basis of which business rates are charged; and the amended appeals process known as check, challenge, appeal or CCA. As the noble Earl has told the House, these SIs were first laid on 17 March. They were intended to come into effect on 1 April. That is an unusually short period between laying regulations and their coming into force. I will come back to that later. The noble Earl tabled his regret Motion. The general election intervened and Parliament was dissolved. Of course, we could not bring these instruments back until Parliament resumed. The noble Earl did that.
There has been considerable press coverage of the new rating lists and appeals. It is fair to say it has not all been positive. We need to look at it very carefully. As we have heard, businesses are very worried about the action the Government are taking in this respect. Claims made by the Government that this is an improved and fairer system are certainly questionable. We have heard a number of contributions from noble Lords that support that. Some businesses are certainly very unhappy with the new system.
The problem is that the entire tax base has not been reviewed at all. The noble Earl raised the question of what business rates are for. As we have heard, they are of course to provide council services. We need to look at that. In many respects they provide services, as does council tax. They have been very welcome in recent years because council tax has not risen very much but, as we have heard, that has not been the case in respect of business rates, which have gone up year on year by quite significant amounts. That is causing problems for businesses.
Many years ago—a very long time ago now—I worked in retail. You have your fixed costs, rent, rates, other utility costs and stuff, then you have your business, you trade and you look to make profit. These constant rises make that difficult because you cannot always be passing them on to your customers. That is a significant problem that the Government need to address. These changes appeared to be only cosmetic and do not raise the important issues we heard earlier on.
The noble Earl raised the issue of check, challenge, appeal, and I hope that the noble Lord, Lord Bourne, will respond. The noble Earl’s points were also raised by the Association of Convenience Stores. As we have heard, it represents 35,000 convenience stores. These small businesses are particularly affected by these things. It is disturbing that we have heard about problems with the website. It is not the first website from a Government or a government agency that has had some problems, but we have heard the following from members of the association. The portal often crashes during working hours, requiring ratepayers to manage the case at impractical times. Presumably that means that they are doing it in the middle of the night. That is not very good. Details about properties, previous appeals and digital certificates are not assessable. Ratepayers cannot search or filter claims or properties, which costs time for retailers with a large property portfolio. Retailers report poor customer support when facing problems with the portal. Ratepayers must manually appoint an agent to each property and cannot do it in bulk for their property estate. Those seem quite shocking. You would hope that any modern-day portal would get those things sorted out—they are pretty basic—but it clearly has not. Given that this is a government agency, it is not good enough. I can certainly see a business being very frustrated by the whole process. I hope that the Minister will tell us what the Government are going to do about it, because it is totally unacceptable for businesses to have to suffer those problems.
The noble Earl also referred to the legal case that came before your Lordships’ House before the establishment of the Supreme Court. I would be interested to hear the Minister’s response on that.
That brings me on to the report of the Secondary Legislation Scrutiny Committee. I am sad to say that this department has a bit of form here. It is not the first time that I have stood here and talked about consultation. I recall all the discussions about the metro mayors, when the consultation was less than adequate. Here we are again: poor consultation, questions raised, one or two weeks given and poor responses. I know that it is not the Minister’s fault—I have a lot of respect for him; he is a very nice man whom I like very much—but I hope he can go back to his department and say, “Look, we’re getting this desperately wrong”. That the Secondary Legislation Scrutiny Committee, a respected committee of your Lordships’ House, regularly has to report that the department fails systematically on these matters is just not good enough. I hope the Minister will agree to talk to whoever is responsible for this and make it much better in the future.
The noble and learned Lord, Lord Hope, talked about “accurate” and “reasonable”. I bow to his experience in those matters, so there is need to go any further there.
The consultation was poor. There were FOI requests and the Government simply refused to release the information. Why have the Government refused those requests? Again, the committee certainly thinks that the information should be released. I hope the Minister can tell us tonight that the Government will now release it or, if not, outline the process.
It is a damning report from the committee. The whole thing has been very badly handled. The Government should go back over this issue very carefully.
My Lords, I thank noble Lords who have participated in this debate and particularly the noble Earl, Lord Lytton, for tabling the Motion on this important topic. I am grateful for the contributions that he and other noble Lords made. I also thank the noble Earl for the helpful discussions we had prior to today’s debate. He is of course a considerable expert in this field and I am very grateful for his views and input.
It is important that we keep this in perspective and do not indulge in what could be interpreted as slightly wild hyperbole in terms of one or two matters that have been referred to. For example, reference was made to a “damning report” from the Secondary Legislation Scrutiny Committee. There are criticisms there, but it states:
“We understand the sequence of events that preceded the laying of the Regulations”.
It is important that we keep these things within acceptable bounds when we look at them.
Perhaps I may deal first with the context of the debate, because much comment was made in relation not to the content of the statutory instruments but to the wider issue of the possible rebalancing of the business rating system. I understand the point made by all noble Lords who participated about online retail and the high street—I pay particular tribute to my noble friend Lord Naseby, who I know has championed this issue well ahead of other people and has been a pioneer in the field. It presents serious challenges. There is an international aspect to it. We are leading with the OECD and the G20 on this matter and have been active in the debate on it. We look forward to receiving a report on it by spring 2018. That may well provide the context that we need to look at this issue. I accept that it needs to be looked at.
I hope noble Lords are in agreement that we need to look at the basis on which we tackle the whole issue of appeals. Under the previous system, large numbers of speculative appeals were made, accompanied by little or no supporting evidence—that is a fact and I see the noble Lord, Lord Beecham, acknowledging it, for which I am grateful. Almost 1.1 million challenges have been made to the 2010 list, covering a huge proportion of the total number of rateable properties, yet 72% of those challenges led to no change to the ratings list, with a large proportion eventually withdrawn. It cannot be right that appeals are made as a matter of routine, often backed by little or no supporting evidence. It clearly cannot be right that a significant number of appeals began with entirely spurious claims that the valuation of a property should be reduced to £1. More importantly, this huge volume of appeals served only to clog up the system—reference was made to that. That has an effect on genuine cases—there are some, of course—delaying receipt of any backdated refunds that they may be due.
The Valuation Office Agency has cleared on average 45,000 appeals per quarter over the past nine months and continues to clear outstanding appeals at a steady rate. The number of outstanding appeals partly reflects the large number of speculative appeals made with limited evidence, and shows why the system was in need of reform.
The noble Lord, Lord Beecham, quite fairly asked whether the Government would introduce a time limit for appeals. The Government’s response to the consultation stated that there are clear benefits to introducing a cut-off point for appeals. We intend to review the early implementation of the new system before bringing forward proposals before April 2018 for setting a fixed time limit for appeals.
It is not just ratepayers who suffer from speculative appeals. Such appeals and the delays that result from them waste public resources in the Valuation Office Agency and Valuation Tribunal, and cause uncertainty for local authorities—a point made very fairly by the noble Baroness, Lady Pinnock—which are heavily reliant on business rates to help fund local services.
The reforms introduced in April this year were an important and necessary step to deal with some of the serious flaws in the previous system. Through the three-stage check, challenge and appeal framework, they provide a more structured process to promote early engagement between the parties and help genuine cases to be resolved more efficiently. This will provide a clear framework for the exchange of evidence between the Valuation Office Agency and the ratepayer so that, where possible, cases can be resolved before reaching tribunal.
Quite rightly, the Government have sought to raise the bar in terms of the need for challenges to be backed by clear arguments and evidence. While there is no charge for engaging with the Valuation Office Agency, the reforms introduce small fees for making an appeal to the Valuation Tribunal—£300 is the standard, with a £150 fee for smaller businesses—to incentivise early engagement and help tackle the speculative appeals driven by the no-win no-fee end of the ratings market. The fees are refundable upon a successful appeal and are reduced from £300 to £150 for smaller businesses.
Regarding the supposedly no-win no-fee sector of the market, noble Lords may be interested in a recent case where an agent claimed a fee from a small business following a reduction in its bill that was entirely a result of the national revaluation. Having signed the ratepayer up to a complex and confusing contract, the agent is now seeking payment of £400, for having done little to no actual work, I expect. These are important reforms that aim to improve the system for all involved.
While I hope that we can agree that change was necessary, I am grateful to the noble Earl, Lord Lytton, and other noble Lords for sharing their views about the new system in this debate. Before turning to some of the themes and issues raised, I should address the specific points raised by his Motion. He contends that the reforms were introduced without adequate regard for the concerns of experts in rating appeals. I take issue with that. I should reassure noble Lords that the policy was developed through an extensive process of engagement with stakeholders. The Government have run and responded to two formal consultations, one on the overall policy approach and one specifically on the draft regulations. In parallel, officials in my department have held a number of formal and informal meetings with groups of business representatives, local authorities and ratings experts. This has included, for example, direct discussions with the CBI, the Federation for Small Businesses, the Local Government Association and numerous major surveying and property firms.
While I accept that there may be matters on which the Government and some representatives of the ratings sector have not reached full agreement, I reassure noble Lords that their views have been given due regard. I do not intend to repeat the detail of all these matters but refer noble Lords to the formal published responses to consultations that clearly set out the Government’s decisions and the reasons for them. I will write to noble Lords with links to the relevant publications.
Secondly, the Motion of the noble Earl, Lord Lytton, suggests that the new system was introduced without adequate testing. I reassure noble Lords that the Valuation Office Agency carried out user research with large and small businesses, and with agents, when building the service. The functionality of the systems was tested prior to launch. However, while pre-launch testing was carried out, I fully accept that there have been some challenges around the online portal of the new system.
As well as these technical IT problems, I understand that there were concerns that the system could work more effectively for some users, particularly ratepayers with large property portfolios represented by agents. The Government’s overriding priority is to make sure the system works and businesses pay the right rates. For smaller businesses, I understand that the system operates effectively to enable them to check their detailed valuation. However, I recognise that there may be scope for further improvements to better support agents acting for larger ratepayers. The Valuation Office Agency is working closely with business leaders and the rating industries to understand their priorities for improving the system. The department and I will keep a close watch on this. The VOA also brought in additional IT expertise from HMRC to assist with the development of solutions and to ensure that they are delivered as quickly as possible. I am happy to engage with the noble Earl on this matter and to ensure that any messages are passed on to the VOA.
Following discussions with rating agents and businesses, noble Lords will be reassured to know that the Valuation Office Agency has now also provided them with a clear plan setting out key improvements over the coming year. This includes, for example, work to develop the necessary software to enable rating agents with large portfolios to exchange information more efficiently with the Valuation Office Agency. As I said, the Government will continue to monitor progress in implementing the new system and expect the Valuation Office Agency to continue to engage with stakeholders to identify and speedily address any delivery issues.
The noble Earl’s Motion refers to the introduction of regulations to a truncated timescale. I expect this is a reference to the breach of the 21-day rule. I do not intend to dwell on this point, given the detailed explanation for the breach provided in the Explanatory Memorandum accompanying the regulations. In summary, however, in the context of significant scrutiny of the business rates system in March, the Government considered it necessary to consider carefully the views and issues raised before finalising the regulations.
It may be helpful if I turn to some of the main themes of the debate and the concerns around the system highlighted by noble Lords. One was the issue in relation to “online”, if I may put it that way, which I have dealt with. It is worth stating in this context that the Government made available £435 million to deal with some of the transitional difficulties and other difficulties experienced by particular industries. I accept that there remain concerns.
On other issues raised, the first relates to the transparency of the information on which valuations are based and an appetite, particularly from the rating agents sector, for much greater disclosure of information held by the VOA. I am entirely sympathetic to the need for businesses to understand their valuation. Under the new system, ratepayers are able to check the valuation of their property online and obtain a detailed breakdown of how that valuation has been made, including the valuation of different parts of the property and any relevant adjustments. They are able to obtain this information without having to make a formal appeal or to incur any fees.
On a specific point about freedom of information raised by the noble Lord, Lord Kennedy, we have of course made the consultation documents available. I am very happy to pick up with the noble Lord if he thinks other matters relating to freedom of information have not been dealt with but I think that answers his point.
Where a business makes a challenge to the valuation, there are then clear legal duties for the Valuation Office Agency to provide the ratepayer with relevant information that it holds. I hope noble Lords would agree that the provision of information needs to be proportionate and balanced with the interests of other taxpayers, whose information may be used to assess values. There is that issue about disclosing other people’s information. That is why the system provides for a structured process of engagement, the disclosure of information relevant to the case in hand and a registration process intended to ensure that information is provided only to those with a valid interest.
The second issue previously discussed with the noble Earl and raised this evening is the concern over the use of the term “reasonable valuation” as part of the appeal process. Noble Lords will know this issue was perhaps the most contentious during the development of these regulations. It led to concerns—unfounded in my view—that the Government were introducing some kind of margin of error for the Valuation Office Agency. There are two important points to make on this matter. First, the Government listened carefully to the concerns raised during the consultation and subsequently amended the regulations to change their original approach by referring simply to whether a valuation is reasonable rather than using the more contentious term,
“outside the bounds of reasonable professional judgment”.
Secondly, all this provision does is make clear that, in determining an appeal, the Valuation Tribunal should consider whether the current valuation is reasonable. There is no fixed margin applied here. It will be for the independent tribunal to assess, based on the available evidence, whether the valuation is reasonable. The noble and learned Lord, Lord Hope, correctly said that it is entirely consistent that the primary legislation refers to the accuracy of the list and that the secondary legislation refers to the fact that it should be a reasonable valuation based on available evidence. As noble Lords will no doubt be aware, the general concept of “reasonableness” is well established and used throughout the law of negligence and in many other areas of law.
I am also grateful to the noble and learned Lord in relation to the issues in adducing fresh evidence. I think it allows fresh evidence to be adduced; it is not a crude, blanket ban. Again, it is consistent with other areas of law that if there is a situation where the party could not have reasonably known about particular evidence, that evidence can be adduced, also with the consent of other parties. This is not unusual and is entirely fair. The early submission of evidence to support a challenge is an important part of the new system and provides the basis for early and meaningful engagement between the Valuation Office Agency and ratepayers. As I mentioned, it cannot be preferable that under the old system thousands of speculative appeals were made with absolutely no supporting facts.
The changes introduced by these regulations were an important step to fixing a previous appeals system that was clearly in need of reform. I recognise the point about the backlog, which I hope I dealt with. I recognise the issue about an appeals limit, which, as I say, we will address in the spring of next year. I hope noble Lords will agree that the new system will deliver an improved process and have been reassured on the specific issues discussed today.
I will pick up one additional point that I just remembered, raised by my noble friend Lord Naseby on whether there will be neutrality. It will be difficult to hit that spot on but it was and remains the Government’s intention.
With the assurances I hope I have been able to provide to the noble Earl of being very willing to look at some of these process issues on some of the IT problems and so on, and to look closely at what the Valuation Office Agency is doing about the concerns raised about the backlog and the computing system, I hope he will be able to withdraw his Motion.
I made some general comments about consultation with respect to the Minister’s department, which perhaps he could address. I also refer him to paragraph 10 in the report of the Secondary Legislation Scrutiny Committee. It said:
“It is clear that many business ratepayers continue to have serious concerns about the nature of the reforms to the business rates appeals system made by these Regulations, despite the consultation processes which”,
“has pursued over the last 18 months. The degree of controversy about these reforms may well explain why the Department was unable to lay the Regulations by the end of last year, as it undertook to do seven months ago, and indeed why it considered it necessary to allow only two weeks between the dates of laying and coming into force”.
The committee went on to say:
“We understand the sequence of events that preceded the laying of the Regulations, but we find it very regrettable that the Government have curtailed the opportunity for effective Parliamentary scrutiny in order to salvage their own timetable”.
That may not be damning but it certainly is not good.
My Lords, I am not sure whether that was a question or just an observation on what I said. But if the noble Lord is asking whether I will look at that report and take it seriously then, as he rightly says, it is a respected committee and of course we take its views very seriously, as indeed we do the views of noble Lords around the House.
My Lords, I apologise for missing that point. I am not sure whether it was made when I slipped out—it conceivably was—but it is a fair point anyway. If I may, I will write to the noble Lord about it and copy that to other noble Lords who participated in the debate.
My Lords, I am extremely grateful to the Minister for the comprehensive answer he has given to the Motion. I am also most grateful to all other noble Lords who have spoken in this short debate. I would never go so far as to try to question matters of reasonableness and accuracy, or to cross swords with the noble and learned Lord, Lord Hope, especially as he is the Convenor of our Cross-Bench group—and a much cherished and honoured Convener as well.
However, two things come out of this. First, there is an urgent need to sort out CCA online. I am particularly grateful to the Minister for inviting me to discuss the process issues, because they are numerous. If I could arrange to come and see him with a team of people who could explain what the issues are and why they are so grindingly irritating to ratepayers, and give such a bad impression of the whole thing, then trying to clear the air on that would be very good.
Secondly, yes, the overall system needs fixing and there is to some degree a focus on these SIs in that context. But various things follow from that: there has to be proper finance for it overall—a point mentioned by the noble Lord, Lord Beecham; there has to be a justification of the impost in absolute and relative terms, compared with other things, and we have lost sight of that a little; and there has to be in the change in the style of management. We are to some extent in this together and if the Government are serious in saying, “We are pro-business”, we cannot have a situation where businesses are set on edge by such a system. It is entirely negative and unnecessary, so there has to be a change in the style of management.
Part of the key to this is the transparency of information. As soon as people start thinking that information is being concealed from them, they become suspicious that there is some malevolence hiding behind it. The proof of the pudding will obviously be in the eating here. The whole point about a non-domestic tax, particularly since it affects so many businesses, is that it must rest on the taxpayer’s confidence that it is being dealt with efficiently, expeditiously and, above all, fairly. We should bear in mind that business rates have a long and cherished heritage. When I started dealing with rating matters back in 1975, it was one of the lowest cost and most efficient means of collecting money for local government purposes. If we do not get that right, the alternative is mounting further appeals. If this provision eliminates individual appeals and starts giving rise to a whole series of class actions, the impediment—the drag—that it will cause in the system will be the same.
This has been a very welcome opportunity to air these views. There are certain things that I dare say the Minister and I are probably destined never quite to agree on. It would be almost inconceivable if that were the case. I appreciate that an effort is being made here, but we need the financial resource and manpower to go into that to try to sort this out. If it is not sorted out, it will continue to cause us problems. Having said that, and with thanks to all noble Lords who have spoken and to the Minister, I beg leave to withdraw the Motion.
House adjourned at 7.25 pm.