I am grateful to the noble Lords who have given up their time to discuss the Bill. Their engagement is a recognition of how important these measures will be for people across the country. I am looking forward to hearing the considered and expert views of the House. These views are always welcome, as we work together to ensure our laws are both fair and robust. The Bill is much needed, something recognised in the Commons, where it passed without amendment. We have moved quickly to introduce it, to ensure that ratepayers receive the urgent help that it will provide, and it is designed to address two basic needs. First, it restores previous valuation practice for those hard-working business ratepayers affected by the so-called staircase tax. Secondly, it aims to reduce the number of empty and unused homes, helping those who are struggling to find a place to live.
I turn to the detail of the Bill’s first measure, which relates to the so-called staircase tax. Clause 1 provides clarification to the rates bill for businesses that occupy or own several adjoining properties. Noble Lords will be aware that, for more than 50 years, businesses operating in adjoining units or rooms—accessed from a common corridor or staircase—were assessed as a single property for business rates. This practice was widely understood and accepted by the Valuation Office Agency and rating surveyors. A 2015 Supreme Court decision, in Woolway v Mazars, found this rule to lack a legal basis. Instead, it found that each unit of a property accessed from common areas should have its own rating assessment, regardless of whether the properties are adjoining or part of the same business.
The unexpected consequences of the 2015 judgment have brought unwelcome change and uncertainty for business ratepayers. Some businesses which previously had one rating bill now receive several. In most cases, this has not led to a change in what businesses pay overall, but in two circumstances bills have increased, leading to what has been described by some as a staircase tax. First, when some properties were broken down into individual units, the total rateable value of their holdings also increased as a result. This led to an unexpected increase in bills, which was backdated to 2010 in some cases. Secondly, the change saw some ratepayers lose their small business rate relief, which helps ratepayers who own properties with rateable values of up to £15,000. It ensures that over 600,000 small businesses pay no business rates at all. To ensure that it only helps small businesses, it is targeted at ratepayers with only one property. However, with businesses operating in adjoining units or rooms now receiving two or more rates bills, some ratepayers also lost some or all of their relief. We estimate that the numbers affected are relatively low—fewer than 1,000—but they deserve to have their relief reinstated.
Therefore, Clause 1 restores the widely accepted and understood practice of the Valuation Office Agency, and those affected will be assessed as a single property once again. This will ensure that these businesses, which have already paid their fair share, do not continue to suffer from the unexpected burden imposed by that judgment. This will be a key outcome of Clause 1, and we are implementing change retrospectively—to as far back as 1 April 2010—to ensure that the earlier provision remains throughout. We have been able to bring forward this measure without amendment because of the support we have received in drafting the clause from the Rating Surveyors Association, the Royal Institution of Chartered Surveyors and the Institute of Revenues Rating and Valuation. Their expertise has been invaluable and I am grateful for their assistance, as are the Government.
The second measure of the Bill relates to empty dwellings. A shortage of housing continues to be a barrier to progress in this country, at a time when the average house price in England is almost eight times the average income, and when over 1 million households are on social housing waiting lists. For this reason, the Government are taking action on many fronts. Tackling empty homes is essential to bring more properties on to the market so that we make the best use of the homes we already have.
Clause 2 follows the commitment we made in last year’s housing White Paper to continue to support councils as they encourage efficient use of existing housing stock. As announced in the Autumn Budget, the Bill increases the maximum level of council tax premium that local authorities can charge on long-term empty homes from 50% to 100%. This means that local authorities will have the discretion to double the council tax bills of properties that have been empty for two years or more. This measure adds to existing powers we have given to local authorities to bring homes back into use. These include the 50% council tax premium, the new homes bonus scheme and the ability of councils to charge the full rate of council tax on empty homes.
Following these important interventions, I am pleased to report to the House that the number of properties empty for six months or longer has dropped by a third since 2010, from 300,000 to just over 200,000. In addition, the power to charge a 50% council tax premium has been taken up by nearly nine out of 10 councils, all but three of which applied the full 50% rate in 2017. Where councils have used the power every year since 2013, the number of properties subject to a premium has fallen by 9%. This is welcome, but we can do more. That is why, through the Bill, we are allowing local authorities to strengthen the incentive to bring empty homes back into use.
It is right that decisions on whether to apply a premium and at what rate remain with the local authority concerned. We are not changing these arrangements. Councils know their areas best and will take local priorities into account when deciding whether a premium would be appropriate. There will of course be individual circumstances where to apply a premium would not be right. Under current arrangements, homes that are empty due to the occupant living in Armed Forces accommodation for job-related purposes, for example, are not subject to these rules. They may also be exempt due to annexes being used as part of the main property, as they cannot be separately let.
There are statutory exemptions for properties left empty for a specific purpose, such as the owner going into care. Councils can also apply discretionary discounts as they see fit in cases such as hardship, fire or flooding. Where home owners are struggling to rent or sell a property in a challenging market, I do not doubt that local authorities will wish to reflect carefully when deciding whether to issue a determination, and then to reflect on what that determination should be. Our guidance on this issue, published in 2013, made it clear that the premium should not be used to penalise owners of homes that are genuinely on the market. Only properties that would already have been potentially liable for a premium will be affected by this clause. It will not bring any additional properties within the scope of the premium; it merely increases the potential of the premium.
The Bill is about fairness for business affected by the so-called staircase tax, and about increasing the incentive to bring long-term empty homes back into productive use. I look forward to hearing from noble Lords and I beg to move.
My Lords, I refer to my register of interests as a councillor on Kirklees Council in West Yorkshire and as a vice-president of the Local Government Association.
This short Bill will make two important changes to local taxation. First, there is the proposed change to the definitions of the qualification for business rates. As the Minister said, this is in response to a legal judgment. It is a pity that the Government have not used the opportunity of this minor reform to grasp the bigger nettle of a radical overhaul of business rates. This has been raised several times in your Lordships’ House over the last few years. Each time we are told that the Government agree that reform is needed but we are not getting a proposal for such radical change. The longer the Government delay, the more likely it becomes that high streets up and down the country will see more empty retail properties. What is desperately needed is a level playing field for retail businesses. Global online retailers currently enjoy a significant advantage over high-street retailers. This injustice urgently needs to be addressed and I wonder whether the Minister will be able to say when the Government intend to tackle this problem.
In a more direct response to the Bill, I acknowledge that it seeks to be crystal clear about the definition of “property in common occupation”. However, it may be that further anomalies will result from this definition. Is the Valuation Office Agency satisfied that the proposals will work in practice? Obviously, local authorities now rely on income from business rates in a way that they have not previously. Have the Government assessed the financial changes that might result, and are any individual local authorities significantly affected? Perhaps the Minister will be able to give some indication of the consequences for local authorities. For instance, he has said that about 1,000 businesses are affected. However, if these are all clustered in a couple of areas, that might have a significant impact on those local authorities.
Turning to the second element of the Bill, the proposal for a potential 100% premium on council tax for long-term empty properties is welcome. The huge need for more housing justifies this change. However, tackling the problem of empty homes effectively is more difficult than just making an additional charge on properties. There are too many empty homes, and that applies not just to the well-publicised issue of the buy-to-invest market in London. In some parts of the country—mainly former industrial heartlands—housing is not at a premium, and in these towns and cities additional council tax might not help the problem. In such a case, we seek further remedies which this proposal will not address.
Tackling the problem of homes left empty for more than two years needs more than this single approach. The empty homes development orders have not proved an effective tool for many councils because they are complex and costly to invoke. For example, in my own council area there were—I hope it is “were”— 2,113 empty properties recorded at the beginning of this year out of a total of nearly 200,000 properties. Of those, 722 have been empty for more than two years and 117 for more than 10 years. So the change proposed in the Bill, although an important measure, is applicable for Kirklees in only one-third of the empty homes, and I have seen no evidence that the proportion across the country is not similar. Therefore, the Bill will address the difficulty of tackling the problem of empty homes in relation to probably just one-third of homes that are indeed empty.
The next issue that requires a bit more clarification is the definition of an “empty home”. The Bill describes it as one that is unoccupied and substantially unfurnished for two years or more. Perhaps the Minister can describe in more detail what is meant by “substantially unfurnished” and “unoccupied”. For instance, there is a property in my council ward where the owner stays for the weekend perhaps once or twice a year. Throughout the rest of the year it remains unoccupied and totally unvisited, but furniture has been left in the property. I am told that this has been the case for more than nine years. There needs to be a recognition that, even with this additional council tax premium, it is probably financially beneficial for some properties to be kept empty because of property value increases. If your property is going to increase by more than, say, £2,000 or £3,000 a year, it is beneficial for you to leave it empty and pay the council tax premium.
There is broad support for both elements of this Bill but a feeling that, in both cases, it is a missed opportunity for more significant reform.
My Lords, following what the noble Baroness said, I do not think that this is a missed opportunity; rather, it is a pretty big incremental step in dealing with the issue. That is why, during debates in another place, the Bill received all-party assent and agreement—and I congratulate my noble friend and his colleagues on getting that. Having said that, I do not want to alarm the noble Baroness but I agreed with much of what she said—but that is business for another time. This sort of cross-party agreement is not without precedent. It is reasonably rare, but I hope it will be followed by your Lordships, because this is a good, if short, Bill that addresses two exceptional issues. I will concentrate on the second: empty dwellings.
For a long time in England it has seemed that having at least 300,000-plus empty houses was accepted as being structurally the natural figure needed to balance the housing market. I do not agree with that. It should not have been so and it is good that, since 2010, a concerted effort has resulted in the figure of empty homes being greatly reduced to a bit above 200,000, as the noble Baroness has just said. However, I do not think that that should suddenly be accepted as the new normal, and with these new powers there is absolutely no reason to accept any figure much above 100,000 as the likely structurally reasonable figure at any one time to take into account the needs of people moving in and out, service men and women, the settlement of inheritances, delays in selling due to market conditions and regional differences in those conditions, and all the rest. I wonder whether my noble friend has some such end target clearly in mind or whether the Government accept that 200,000 is about as far as we should go—I must say, I hope not.
Even so, eternal vigilance will be necessary to stop the problem re-emerging. After all, it seems that, as my noble friend said in his excellent introductory speech, about 10% of councils in England today have yet to shake their local stumps and even take up the powers to use the existing premium on empty homes of just 50%, let alone go any further. I say to my noble friend that I trust that they will not be allowed to carry on like this for much longer or be dilatory with the new higher figure of 100%, as proposed in the Bill, which in effect would allow a maximum council tax charge of 200%.
Equally, too few councils—perhaps as low as one in 10—are making use of the empty dwelling management orders that I am told can be used in respect of properties that have been empty for a long period. I am not quite sure why this is: I believe that experts are useful sometimes and I am sure experts will come up with reasons as to why this is. Perhaps it has something to do with the typical English reserve about using powers that may be thought of as confiscatory of property—I do not know. It seems that there may also be striking differences between location to location in the publicly owned stock of councils and housing associations and the percentages of empties in their ownership. Again, I do not understand the reasons for this.
Nor do I understand the surprising spike in the number of empties in areas of very great pressure in the London commuter belt, in council areas such as Harrow, Brentford or Three Rivers—these being exactly where, at the same time, the green belt is under the greatest pressure. It may be a case of that buy-to-leave phenomena, with owners waiting for land values to increase, again promoting redevelopment.
So I conclude that greater, more effective and uniform pressure on all local authority areas would be brought about by the regular six-monthly publication of centrally collected data on these critical aspects of public information, without the need for campaigning bodies to resort to freedom of information requests, the media, me or whoever else to get the facts in front of them. I do not believe that that is right. Facts are of great value and, once published and regularly available, speak for themselves. That is when councillors might shake their stumps in this area. It is not a matter of naming or shaming but rather of naming to inform.
Others would argue that it is a pity that the Bill does not contain provisions for what might be thought of as a later escalator of the maximum council tax charge, pushing it up by another 50% or 100% in areas of extreme pressure. I would have liked to have seen that order-making power in this Bill. But I shall not seek to disturb the smooth surface, for the reasons that the other place concluded. We must always be on guard. Just when public policy seems to be incrementally dealing with an issue such as this, other unforeseen problems may pop up to disturb the surface and increase the number of empties. Let us look at the huge structural changes in retail that are currently overwhelming shops and shopping, devastating high and side streets alike in cities large and market towns small. This may well lead to a new increase in empties suddenly hitting us among the often interconnected residential properties when it is least expected, because of redevelopment in areas where shopping has collapsed. I have seen this myself in a small Somerset town near where I live, where there are many empty shops and many empty residential properties among them.
So eternal policy vigilance is imperative in the never-ending problem of vacant and residential homes. I have thought this for a long time, from when I was first on the old Oxford City Council, as it was then called. Across that chamber, the then yet-to-be-ennobled Lords, Lord Hunt, Lord Liddle and Lord Oakeshott of Seagrove Bay, were busy cutting their ruthless interrupting and barracking teeth on me. It was a problem then and so it remains.
There was a drive in this direction by the Chancellor in his excellent Budget last November to increase the empties premium, which will be combined with whatever action he may take following the conclusions of the review currently being conducted by Sir Oliver Letwin from another place on how to bring forward homebuilding on lands with valid planning permission that are vacant and being hoarded. Indeed, land being hoarded and vacant is the exact mirror image of the empty homes that have already been built. They are part of the same problem that the noble Baroness, Lady Pinnock, has just referred to. If we get those two streams of public policy action in tandem, there will be a clear twin-track more-homes approach by the Government that should be widely welcomed—just like, to me, this Bill should be welcomed.
My Lords, I welcome the opportunity to debate this Bill, narrow though its objectives are. In doing so I declare my interests as a member of RICS and the IRRV and the RSA—the very bodies that the Minister referred to. I also declare a one-time interest as a former employee of the Inland Revenue Valuation Office; I stand before noble Lords guilty as charged. I am also a vice-president of the LGA and a recipient of a small business exemption on one small hereditament down in the West Country.
I thank the Minister for meeting me and a couple of other professionals a few weeks ago to discuss the wider issues of business rates. I was tempted to follow what was said by the noble Baroness, Lady Pinnock, but she has covered most of what I needed to say on that issue, so I will follow the noble Lord, Lord Patten, in not dwelling on it. There is a bigger issue that perhaps needs to be addressed, but this may not be the right place to do so.
The intentions behind the Bill are worthy and its logic, while in some aspects questionable, is clear. The only thing I would say is that getting the implementation correct may be a great deal less straightforward. To put it another way, there is more in this can than is apparent from what is written on the label.
What has become known rather rudely as the staircase tax, otherwise the case known as Woolway v Mazars, has been one of the recent diversions for someone brought up in the traditions of what amounted to the extent of the rateable hereditament. I had that drummed into me by a very eminent rating academic called Roger Emeny, alas now deceased. I was always clear about that and I was also pretty clear that the decision was an aberration that went against the practices that had been created before. It was one of those things that became a really quite unnecessary additional piece of grit in the oyster, because we were dealing with an awful lot of uncertainty and churn as well as a whole new system of handling things as they came on stream. It is right to put that right. The Mazars case was in September 2015 and it has taken us until now to deal with it, while in the meantime the new list came into force in 2017. The system we now have is not well attuned to the rate of churn, change and alteration that is taking place not only on our high streets and the balance between various different categories of business premises but also in our regulatory environment. I do not think that the system is sufficiently fleet of foot, and that is where we need to take a further look.
The right of the ratepayer to ask for the split assessment to be looked at again is welcome and I do not think that anyone would disagree with the principle. However, it does mean that there is the selective reopening of parts of the 2010 rating list which would otherwise effectively be closed. More to the point, as I understand it—the Minister will doubtless correct me if I am wrong—the Government have declined to fund any losses that would be borne by billing authorities as a result of appeals coming through on the old list. This seems a trifle unreasonable, especially in the light of the financial constraints imposed on the billing authorities. I detect a sense that the billing authorities have somehow garaged the winnings of the windfall that came out of Woolway v Mazars, and have them sitting in a shed at the end of the garden for the rainy day when the thing is reversed. Forgive me, but I do not think that local government finance operates in that way, and nor do I think that it is possible for shedloads of money to be stashed away for that purpose. Perhaps the noble Lord, Lord Kennedy, will be able to enlighten me because I am not close to finance at billing authority level. I hope that I will be corrected if I have got that wrong.
A criticism that I have heard on more than one occasion is that billing authority requests for alterations of assessments are often denied or not dealt with quickly enough, so that needs to be looked at. If there is a resource implication, that must be considered quite critically because billing authorities are probably the first port of call, other than the aggrieved ratepayer themselves, for getting assessments put right. If their requests are not being dealt with, there is a risk of unfairness and of loss to local authority coffers.
For ratepayers, the situation is scarcely better in that a successful application under the 2010 list, as proposed in the Bill, does not automatically get translated into the 2017 list, as I understand it. Although the Government say that they will prioritise those 2010 list applications, they clearly do not propose to do so for the 2017 list, for which a de novo registration and an application under the check, challenge and appeal system—I have raised this in the House before—will be necessary, along with all its complexity, systemic drag and uncertainties for billing authorities and ratepayers alike. We should not allow that to happen. Mercifully, even if the Minister is correct, the numbers involved are relatively few, but I am not sure that an audit has been done to identify what is involved in both the 2010 and 2017 lists. That is why the problems with the CCA system are mission critical and why they produce such tremendous negative comment from business sources.
I am sure that the Minister has seen the press reports following the statistics released last week on the numbers of appeals. The Government are extolling the virtues of a 90% reduction in the number of cases under check, challenge and appeal, while rating experts say that that is not surprising because the system is so labyrinthine, complex and liable to error that it is an impediment and effectively a denial of service—a denial of reasonable and fair rights to challenge an assessment. Something needs to be done.
One of the things we were promised is that the new check, challenge and appeal system would squeeze out cowboy rating firms. Last week I received some information and I will be writing to the Minister in response to his very kind letter to me following our meeting. I believe that, unfortunately, the cowboys are still alive and kicking, particularly in the north-west. Why do these people prosper? It is because many businesses cannot get their head round the CCA system. They look for advice and either go to one of the big specialist practices or someone comes along and says, “We can do this for you”. They submit their bill and expect to be paid long before the case gets to the appeal stage, so these people are still creating just as much of a problem as before and getting away with it. I am afraid that they have not been squeezed out of the system; it is a complex factor that ultimately boils down to the resources available to carry out management of the tax base and to deal with appeals.
On council tax, I have no complaint about the theory, especially if owners are gaming the system by maintaining vacancy or through sheer inertia. Housing should not be considered the same as a white-goods product that can be hoarded. The Institute of Revenues, Rating and Valuation and others encapsulated the issue in pointing out that the Bill is yet another attempt to fix a much deeper problem. The causes of long-term vacancy have not been looked into. There does not appear to me to be a robust evidence base behind this, but I am very happy to be told I am wrong if that is the case.
I have in mind cases where property is held for renovation or as part of a redevelopment, vested in trustees in bankruptcy or executors of a deceased’s estate, or the subject of a legal dispute. As the noble Lord, Lord Patten, was speaking, I made a mental calculation. I believe that there about 25 million residential properties in council tax assessment across England and Wales. Given the number of things that can cause churn, 250,000 represents about 1%. From what I generally know of property markets—I have dealt with them on and off all my life—that percentage does not seem very high at all. It is a bit like people who are between jobs: technically, they are jobless, but it is part of the churn and part of the process where things are vacant. We need to be careful about this. The noble Lord, Lord Patten, was trying to say that we need better information and we should be judged by the evidence base. I agree with that; perhaps the evidence base is lacking here.
Those very prosaic cases are probably much more common than people with a certain type of investment approach, who want to keep properties vacant just for the heck of it, out of sheer caprice and fancy. There is no obvious match between the empty homes and where homeless people or people on housing lists want, or need, to live, nor between the revenues raised by the provisions in the Bill and the necessary relief for those who need to benefit from this. There is a disconnect, both geographically and financially. I would like that to be explained.
I think it was the noble Baroness, Lady Pinnock, who expressed the point about what “substantially furnished” means. I had a mental image of a vanload of stuff going up and down the country, doing a bit of temporary furnishing all the while. Years ago, I attended an event, held by a local authority, where the subject of additional charges for people with second homes came up. I asked a question, naive as I was at the time—I probably still am—as to why this differential was necessary. At that stage, people were getting a discount for having a second home. I was told that it was one of the few ways a local authority had of identifying whether it had second homes on its territory and how many there were. I wonder whether one of the perverse effects of this measure will be to cause a rapid evaporation of the number of empty homes as far as the statistical evidence is concerned. That said, I follow the noble Lord, Lord Patten, in saying that the Bill is welcome, in its broad terms. Yes, there are difficulties with the fine-tuning of implementation, but in general terms I hope that we can see it through to a successful conclusion.
My Lords, I declare an interest as a vice-president of the LGA. Given that Clause 2 is to increase councils’ ability to charge more council tax on empty homes in the light of the housing crisis, I could simply say, “What’s not to like?”, and sit down. I totally appreciate and acknowledge that the Government have made some headway in this area, so I rise instead to urge the Government to be bolder in tackling the problem of empty homes. Does the Minister really believe that this Bill will make more than a marginal difference, since councils can already increase council tax on empty homes by 50%—and most do, including my own?
I appreciate the Minister’s intention to give councils more autonomy in this matter, which is particularly welcome. Although this is a national issue—the figures leave us in no doubt of that—we are not looking at the problem enough, which is different in different parts of the country. Largely, in the north of England, whole communities are blighted by row upon row of empty, boarded-up terraced housing, with a few residents living in between, giving rise to the label of “rotten teeth roads”. These have become areas where people no longer want to live, largely due to the loss of jobs nearby. The sad thing is that they have become a symbol of the decline and dereliction of once-thriving communities.
In rural areas, as has been mentioned, the large number of second homes is a cause for concern, though perhaps different in nature and with differing consequences. The problem in prosperous parts of the country, in particular the capital and the south-east, is that of buy-to-leave, of which we are all aware. Then, of course, there are the sporadic properties present in every council area and ward. These add up to a significant number, but they are small in number, particularly for most district councils, which I suspect is why they are not always a top priority. It is inconceivable that a small rise in council tax will affect the oligarchs and multimillionaire investors, so please let us not claim that it will make a difference to the buy-to-leave empty homes. The problems of rotten teeth roads will not be solved either, as it requires considerable political will from councils and successive national Governments to reverse this serious decline in some parts of our country.
In my view, the rhetoric surrounding the Bill will not live up to the reality, although we do clearly support it. The onus for bringing empty homes back into use lies with councils, and some are undoubtedly doing an excellent job, particularly in the north, where the problem is far more acute. From my experience of running a council, I know that while it is easy to say that we must tackle the problems of empty homes, in practice doing so is massively resource-intensive and time-consuming, with no certainty that time, effort and money will lead to a positive outcome. All too often in the two-year battle with the home owner, councils have gone to court and come back disappointed. I will never forget a case we had, where the lady in question, who lived in a rather lovely farmhouse in Surrey, used to come back to her property in Watford and sleep there with no heating, electricity or water for a couple of nights a week a year. She made sure she knocked on her neighbours’ doors so they all knew that she was still coming back. We lost that one. I would like the Government to commit to exploring ways to secure better outcomes and look at why the empty dwelling management orders, or EDMOs—the intention of the Labour Government was correct: they were meant to be easier to administer and better than compulsory purchase orders—are not working.
The Bill proposes a fiscal measure regarding council tax, so what else could have been done fiscally? I believe the premium needs to be steeper to have any significant impact at all, increasing with the length of time that the property has been vacant. I hope it is not too late to consider that. Also, lowering the rate of VAT on refurbishment and renovations would incentivise owners to get on with bringing their property back into use. Would the Government consider ending the loophole in the compulsory purchase order process, where the owners of empty properties get a bonus of up to £75,000 if councils exercise compulsory purchase orders?
Would it be possible to rationalise the law to give councils simple, consistent rules that provide an unqualified right to recover taxpayers’ money spent on enforcement and the up-front costs associated with things such as EDMOs? Current rules for cost recovery vary from one piece of legislation to another. Surely the community interest in the property should take precedence over all others, so that any debt to the local authority arising from its intervention would have the first call on any equity should the home be sold. With an EDMO, local authorities turn an unproductive asset into one that earns money for the owners, yet council tax payers are unable to recover the up-front costs.
I also have doubts about whether the data on empty homes is actually correct. As has been mentioned, since the introduction of the premium rate in 2013, there is absolutely no incentive for a home owner to declare that a property is empty. Why would you if it meant you had to pay more council tax? Your Lordships may be surprised to hear that the current fine for not declaring your property empty is a hefty £75. Surely that needs a considerable hike. Is it not a form of tax evasion? In addition, the valuations office has the power to remove many homes from council lists altogether—thus taking them out of the figure—if they are deemed derelict and uninhabitable and therefore no longer eligible for council tax. So the figure is probably much higher, and some of the worst properties could lie empty for years, having been moved off the books. Whether these properties are counted in or out could account for the discrepancies in the figures we all look at when we are doing our homework, collected either by the ONS or through FoI requests. Perhaps it is time for this loophole to be closed. The danger here is that, the worse the property gets, the less pressure there is on the owners to do anything; in fact, they can be exempt indefinitely. There is no incentive at all to improve the property.
It is still the case that homes can remain exempt from council tax following the death of an owner until probate is granted. In my experience, some of the worst eyesore properties are in this category, as a result of deliberate inaction by whoever was responsible for securing probate. Coincidentally, I was door knocking in my patch on Friday night and a gentleman on Kingsfield Road said to me, “Don’t knock next door, the old lady’s died”. I said, “When was that?”. “Six years ago”. I inquired further, knowing that this is an interest, and it is a family dispute. They are not settling and they are not prepared to move things on. Is it time for a time limit for such situations, rather than allowing them to continue indefinitely?
Finally, does there not have to be an acceptance that housing is an essential part of the nation’s infrastructure and that maintaining it and improving it to an adequate standard in some cases requires central government investment—perhaps, in some parts of the country, significant investment? Otherwise, councils, particularly smaller district councils, at a time of severe budgetary pressures, will inevitably feel that tackling empty homes is a high-cost activity with low and uncertain rewards.
I declare my interest in the register as a property owner—commercial and residential—and a vice-chair of the Local Government Association. I thank the Minister for introducing the Bill and speaking about the several measures the Government are taking to address the housing crisis.
Baroness Farrington used to speak—on at least a couple of occasions, to my memory—about the impact on families of living in temporary accommodation, particularly on children, having to move from place to place and from school to school, suffering disruption to their vital education. I have spoken a number of times to mothers who live in temporary accommodation and heard about the misery of that experience, the uncertainty about where they will be living next and when they will next have to move, and the pressure on their families. I was speaking to a grandmother living with her teenage daughter and her infant granddaughter in one room; they were moved every two or three months in one year. Thankfully, she is settled now. Then there is the isolation that these parents—although I have spoken particularly to mothers—often experience, whereby they may be separated from their friends, family and community because of the shortage of housing.
Given the measures the Government are taking, I get the sense that they recognise the gravity of the problem and are trying to tackle it aggressively, which I warmly welcome. I noted that in the briefings, the Local Government Association highlighted the need to look again at whether councils might be allowed to borrow to build. I hope that the Minister is keeping that under consideration.
I want to say a little about local authority funding, which comes under the Bill. I welcome the fact that some additional funding may arise from Clause 2. I am not sure how significant that will be but any contribution is welcome. We will want to ensure that under Clause 1, we do not impose additional burdens on councils. As your Lordships are well aware, there has been a 30% to 40% cut in local authority funding in recent years. I know that has taken place in a difficult world economic context.
However, speaking as treasurer of the All-Party Parliamentary Group for Children, I point out that we have been taking evidence over the last two years about the impact on access to child protection services—the access to early and later intervention for children in vulnerable families. They are a small proportion of the whole local authority population, at 1% or 2%, but they demand huge inputs of investment from local authorities. Huge amounts of local taxpayers’ money are going to those children and families. The evidence we have heard over the last two years is that the non-statutory services—the ones which local authorities are not required to provide, such as early intervention—have inevitably been reduced. What have been maintained to a significant degree are the statutory services, which come in when the family is in deep trouble and the child may be seriously at risk and even be removed. Of course, that is exactly the opposite direction from where we really want investment to go. We want it to go into early intervention so that we never have to get to that later stage of a child needing intensive support or being taken into care. This is just one aspect of why it is so important to ensure that we keep looking at the funding of local authorities and why I welcome the opportunity in the Bill to increase to a degree that funding.
One example of the strain that local authorities are under is how often directors of children’s services are changing. On average, in that immensely challenging job, they change every three years. It is not all about money but a part of it is about trying to do the best for these families in a restrictive financial environment. I know that the Minister for Children is listening carefully to these concerns. The All-Party Parliamentary Group for Children will produce a report later this month, which I know he will look at carefully. I expect that the members and officers of the parliamentary group will wish to speak to the Minister, so I give him notice that we will contact him so that we can discuss these concerns.
I welcome the Bill and the work the Government are doing to increase the housing supply for all families and individuals in this country. I look forward to the Minister’s response.
My Lords, in the gap I want to embroider a comment made by the noble Earl, Lord Lytton. As I understand it, since 2013 local authorities in England have had the power to charge a council tax premium of up to 50% on long-term empty dwellings—that is, homes which have been unoccupied and substantially unfurnished for two years or more. This premium is in addition to the usual council tax charges applied to such a property.
I want to go to the mathematics of this. If the council tax is £1,500, at the moment the charge would be £2,250 if the local authority took the option up. If the charge was at 100%, it would be £3,000 and if it was at 200% it would be £4,500, so we would be talking about the tripling of council tax on a property—from £1,500 to £4,500. I wonder whether the Government have thought through the consequences of that.
Many home owners, or people who own property, will think, “I’m not going to pay £4,500 whereas at the moment I’m paying £2,250”—if it has been declared, because obviously, local authorities will be quite diligent in gathering this revenue—“I’ll turn my property into a second home. All I have to do is meet the term ‘substantially unfurnished’”, which two Members of this House have asked to be qualified. Is there not a danger that a very large number of people owning property that is empty will say, “My property is no longer unoccupied; it is a second home property”? They have a real incentive because the full council tax payment at the moment is going to be tripled. I see the Minister is shaking his head. I asked one of my colleagues on this side of the House, and he agreed with me that it would be tripled. That is how the mathematics work out because of the word “premium”. It is a premium over and above the existing council tax rate, so 200% takes us from £1,500 to £4,500. I am perfectly prepared to be corrected.
I think that should be clarified because that is the way it is going to be read outside the House. Anyone listening to the debate, given the reference to 200%, would think that it was going to be tripled. If the consequence is property being turned over to second homes, does that not mean that local authorities need clarification as to what “substantially unfurnished” means in law? Otherwise, there may well be a major shift of property from unoccupied to second homes.
My Lords, I remind the House that I am a vice-president of the Local Government Association. Like colleagues on these Benches, I welcome the Bill and the steps it takes, both the business rates element and the increased powers proposed for local authorities on the amount of council tax that they can levy on an empty dwelling. I agree with the noble Lord, Lord Patten, who reminded us that the House of Commons did not propose any amendments to the Bill and that there was all-party agreement. Indeed, the Bill has benefited from the pre-legislative scrutiny that took place at that stage. It raised a number of issues, for example the potential financial loss for local billing authorities and whether rarely occupied second homes should be treated in the same way as empty homes. Given the role of this House as the scrutiny Chamber, I hope that it may be possible in Committee to look at a number of these issues. My noble friend Lady Thornhill talked about whether two years should be the limit or whether another figure might be appropriate, and whether the figure of 200%—that is, 100% plus 100%—is the maximum that a local authority could apply. There is a case for looking at whether the total might well be 300%. I look forward to that discussion in Committee. The noble Lord, Lord Campbell-Savours, made a very interesting point about the legal definition of a second home, should someone seek to transfer their primary home to become a second home. That is something that I would like to think about further.
As the Minister has explained, the basic aim of the Bill is to discourage home owners from leaving properties empty for long periods without penalising those who are unable to sell as a result of market conditions or who face genuine delays in probate. For that reason, it is welcome. As several noble Lords, including my noble friend Lady Pinnock and the noble Earls, Lord Lytton and Lord Listowel, have pointed out, the context is the state of local government finance, the future organisation of business rates, and funding local services. There are now clear difficulties in the retail sector over business rates. There is a fair funding review, and inevitably the Government are now reviewing the future of business rates. However, the noble Earl, Lord Lytton, pointed out that the system is not fleet of foot, and indeed it is not.
Clause 1 relates to the rating of property in common occupation. It rightly corrects the problems caused by the 2015 judgment, which has cost some businesses not only a backdated increase in their bills but, in some cases, the loss of their small business rate relief. The Bill is the correct response to that judgment. Put simply, contiguous hereditaments should be counted as a single hereditament.
I join the noble Earl, Lord Lytton, in saying that it is a trifle unreasonable—I think those were his words—for the Government to assume that building authorities have put away shedloads of money, given the 2015 judgment. He is right; I am sure they have not been putting away shedloads of money. However, there is a discussion to have about this issue, and it was raised several times during the passage of the Bill in the other place, not least at Third Reading. I hope very much that the Government will be able to come forward, perhaps in Committee, with a greater clarification that local building authorities are not going to suffer from the Bill becoming law.
I have four very brief points towards the conclusion on the council tax issue. First, I think it is right to raise the maximum premium on council tax that can be levied by a local authority to 100%, making 200% in total, where a property has been empty for two years or more. I want to associate myself at least with the definition of “long-term” as two years or more. If we get agreed definitions like that, it makes our discussions much easier.
My noble friends Lady Pinnock and Lady Thornhill both said the Bill would probably not make a great deal of difference in terms of council tax. I want to agree with them but I also want to agree with the noble Lord, Lord Patten, who was right when he said that this is a big incremental step. The sense of direction is the right one and a clear message is being sent. In future, therefore, there may need to be further fine-tuning of the law. However, the principle that the Government are trying to get across is important. It is not just that empty properties need services—they do; they need policing and they may need fire services if they are empty—but they can also cause a nuisance to neighbouring properties, so the steps taken since 2013, in the days of the coalition Government and after, to introduce both the 100% charge and the principle of a premium on properties that are unoccupied and substantially unfurnished, have been the correct ones.
The Minister reminded us about the total number of homes empty for over six months, which is not long-term. Six months is a comparatively short period in reality. I associate myself again with the comments of the noble Earl, Lord Lytton, when he said that we need to be a bit clearer about what the problem is that we are trying to solve with regard to empty properties. The figure of 205,000 is a comparatively low percentage, at around 1% of the 20 million-odd properties in the country. It is the case that since 2010 the total number of homes—
I am so sorry to interrupt, particularly as the noble Lord has just been so charming about me. It may be a very small percentage of houses that are vacant but the number of 205,000 or so is what we are struggling to build in England in any one year, so it is a year’s worth of new homes.
My Lords, I would like to agree with the noble Lord: it is. However, that is still only 1% and the figure is for six months, not two years. In my view, the real problem is not the six months, which can often be the consequence of genuine delays of probate. The important thing is that the sense of direction is right. We need to end the scandal of empty homes deliberately left empty when they could be occupied by someone. Often, that relates to the buy-to-leave-empty market.
Does the Minister have figures—if not now, perhaps later in writing—for the breakdown of the reduction by 90,000 or so empty homes from 300,000 in 2010 to 205,000 in 2017? How many of those are in social housing, where empty homes are often referred to as voids; how many of them are owner occupied; how many are in the private rented sector; and how many are in the buy-to-leave-empty sector? That is important because when we consider whether there should be a rate of 300%, not just 200%, I would be thinking of those who have bought to leave empty as an investment to attract a higher level of taxation. I hope that we can discuss that in Committee.
Finally, I hope that we shall have a discussion on second homes in Committee. We have been reminded of the difficulty of identifying what is an empty home and what is a second home. If people do not tell you which they are, it is hard to find out. We need to explore in greater detail how the Government might manage to do that. As the noble Baroness, Lady Thornhill, pointed out, this is a resource-intensive exercise and we need to know better why the empty dwelling management orders do not work as well as we thought they would when they were introduced.
Despite these caveats, which I hope that we can discuss in Committee, the Bill should command the support of your Lordships’ House, and I hope that it gets a fair wind, and quickly.
My Lords, first, I draw the House’s attention to my registered interest as a vice-president of the Local Government Association. Generally, the Opposition support the changes proposed in this three-clause Bill. That is not to say that we do not have questions, and we will be moving amendments both in Committee and on Report as we consider it in your Lordships’ House.
As outlined by the Minister, Clause 1 addresses the Supreme Court decision on the staircase tax relating to how unconnected units occupied by the same business are treated. The measure will put businesses in no worse a position than they would have been in before the court ruling, by retrospectively reinstating the business rate valuation practice that applied prior to the Supreme Court judgment.
As we have heard, the practice of the Valuation Office Agency since the judgment has been that separate units of property in a shared building should be treated as separate rating units. In the autumn 2017 Budget, the Chancellor of the Exchequer announced the reversal of this position and the return to previous practice, and Clause 1 implements that.
Business would further be allowed to ask the Valuation Office Agency to recalculate valuations so that business rate demands would be based on previous practice and backdated to April 2010. The Budget papers confirm that local government will be fully compensated for this loss of income, but the Government have since changed their mind and view the extra income that local government may have received as an unexpected windfall, with no associated liability for compensation for councils.
Can the Minister set out how he will ensure that local government will be, at least, no worse off as a result of the Bill? What sort of assessment are the Government undertaking or have they undertaken of the impact on local authorities piloting the 100% business rate retention scheme in 2018-19? Can he confirm that those authorities will not have to refund money that they never gained as a result of the judgment? Can he also state clearly whether the Government are making any additional funding available to local government as a result of the consequences of this ruling? The Federation of Small Businesses has illustrated the problem facing smaller firms that necessarily operate in larger premises but do not qualify for business rate relief. Perhaps the Minister can comment on that in response to the debate.
Far more needs to be done to protect the high street in our town and city centres. Business rates are a significant cost and can be the difference between a business surviving or failing today. This is a matter we have discussed many times in your Lordships’ House. The noble Lord, Lord Naseby, who is not in his place, has raised it many times, particularly at Question Time, and I have supported him in his endeavours. The noble Baroness, Lady Pinnock, also referred to the issue in her remarks this afternoon.
We have seen some of the largest companies get away without paying their fair share of tax across a whole range of taxes, while high street-based businesses, which are central to our communities thriving, are taxed through business rates before they earn a single penny. That imbalance between companies is unfair and needs to be addressed.
The noble Earl, Lord Lytton, is very experienced in these matters, and his contribution to these debates will be invaluable. He raised a number of very important technical issues that need to be explored further as we consider the Bill. I certainly welcome his contribution at further stages.
Clause 2 will give local authorities the power to double the council tax premium on homes deemed long-term empty by increasing it from 50% to 100%, in addition to the usual council tax charge that applies to that property. That is a welcome move, and I hope it will prove an incentive to the owners of long-term empty properties to bring them back into use. I can see a case for increasing this further when properties have been left empty for two, five or maybe even 10 years. I shall move amendments to enable the House to debate that in Committee and on Report. Some of those concerns were outlined by the noble Baroness, Lady Pinnock, and raised by my noble friend Lord Campbell-Savours. It is an important area that we need to get right.
The noble Baroness, Lady Thornhill, referred to local government’s powers to charge additional council tax for empty properties. I very much agree with her comments about the difference between the north and south. There are issues in London and the south-east that may not apply in the north, and we need to explore those fully.
In this House, we regularly discuss housing, the shortage of housing, the failings of the Government and their continued resistance to local authorities to playing their full part in building homes. The Government will not meet their targets unless they get local government fully engaged in building. We have over 200,000 empty properties in England; I very much agree with the noble Lord, Lord Patten, that we should get it down to a much lower figure. I think he mentioned a figure of just over 100,000, and we need to get government working together to achieve that.
We also have 120,000 children not living in permanent accommodation. The noble Earl, Lord Listowel, made the important point about not placing additional burdens on councils, because of the importance of early intervention when dealing with children. Councils’ funding is now so stretched, and we know that many are already struggling to do all the things they need to do.
We are one of the richest countries in the world, and homelessness is at truly shameful levels. The Government have to do more to get a grip on the situation. While not part of the Bill, the Government should consider what they can do to allow councils to keep 100% of the capital receipts from the homes sold under right to buy to help to alleviate the problem by reinvesting that in new housing.
Housing is one of the most pressing issues facing this country—I think we all agree on that—and eight in 10 people think the Government ought to do more to address the housing crisis. Those calls are led by the Local Government Association, led by the Minister’s noble friend, the noble Lord, Lord Porter of Spalding, who agrees that more should be done. It would like the Government to go further and give councils greater power to borrow, build and deliver the homes that we need, not on a case-by-case basis, but by trusting local authorities to understand their areas and get homes built quickly. I agree with the Local Government Association’s comments on these matters.
This is a small, three-clause Bill, but it is important none the less. As I said at the start of my contribution, I am very happy to support it. We have some concerns and suggestions and will propose them in Committee and on Report, but we wish the Bill well at this stage.
My Lords, I thank noble Lords who have participated in the Second Reading debate on this important, though short and focused, Bill. It seems to me, hearing the productive and helpful speeches from noble Lords around the House, that it has strong support. In so far as there was criticism—there was a little bit—this focused on the things that the Bill does not do. There are an awful lot of things that it does not do, because it is a very short, focused Bill. As the noble Lord, Lord Kennedy, rightly said, it is essentially a three-clause Bill.
I will deal with contributions from noble Lords in the order in which they were made. I will follow up the debate with a letter on points which I have missed—I am sure that there will be some—and where there are things where I do not have the answer to hand. There are some things which we will probably want to develop in Committee and thereafter.
I thank the noble Baroness, Lady Pinnock, for her contribution. I agree that there are some council areas where this will not make any difference to current practice. I bow to her superior knowledge of Kirklees which, based on what she said, is one of those areas. In general terms, there will be many councils in the north of England, though not all of them by any means, that will not see any difference from this and will not want to proceed from a 50% premium to a 100% one. That is a matter for them; this gives discretion. Similarly, there will be many councils in the south of England that do want to use it, but by no means all. This is patchy; there will be parts of southern England where this will not be helpful, just as there will be parts of northern England where it is.
The noble Baroness and other noble Lords referred to the issue of the high street and online businesses. She and others will know, from previous contributions, that the Government are looking at this. Had we sought to bring it into this legislation, it would have made the Bill much later arriving because we would have had to do consultation and so on. This Bill is focused and we want an immediate change. So far as I can gauge, the House is very supportive of that, for which I am grateful.
To clarify a point on which there was some confusion, we are talking about an increase in a premium of 50% to 100%, based on a 100% charge already—it takes it to 200%, not 300%.
I thank the noble Lord for his disarming contribution. I fully accept that various figures have been bandied about.
The noble Baroness and other noble Lords asked for information on the definition of “empty home” and “substantially unfurnished”. I will ensure that that is covered in the write-round letter, but the Bill does not alter that—it leaves it as it was. There will be substantial case law on those issues which will have an impact in this area, but it is not changed by this legislation.
I thank my noble friend Lord Patten for his contribution. He is absolutely right that this legislation did command all-party support in the Commons, where no amendment was moved, let alone made to it. He is absolutely right that this is a work in progress. We have got the figure down over six months from 300,000-plus empty dwellings to about 210,000. There is much work to be done. If we can squeeze it further and get more out of that, it would mean additional homes for people: this is the pot of gold. I am not suggesting that this is a silver bullet, but it makes a significant contribution. We can do much better than a 200,000 target. I think we are looking at something like 100,000, but I will cover that in the write-round letter.
My noble friend referred to the possibility of an escalator, depending on how long a property was vacant. Other noble Lords, including the noble Lord, Lord Kennedy, also touched on that, and I have no doubt that we will be coming back to it. I am also grateful to my noble friend for his general encouragement.
I thank the noble Earl, Lord Lytton, for his kind comments about our meetings on broader issues to do with valuation and the valuation office. I reassure him that I also have a meeting coming up with my honourable friend Rishi Sunak to talk to the valuation office about some of those broader issues. He is absolutely right when he referred to the decision in Woolway v Mazars as an aberration—that is how everybody has regarded it. All political parties and all the relevant bodies and practitioners in this area have regarded the decision as an aberration. Against that background, we would say that we have indicated that we will reverse this decision.
On shedloads of money, I do not think that anybody has referred to that. I have been very much at pains to say that a small number are affected, and again, in the write-round letter I will try to address how we can look at the numbers affected. However, we are not looking at shedloads of money, and it will be fairly evenly spread around the country. The noble Baroness, Lady Pinnock, suggested that they might all be in the same constituency. I would be a little surprised if that were the case, but in any case, we will look at that to provide some reassurance on the issue.
On the point the noble Earl made about cowboys, I very much look forward to joining a posse with him to see how we can deal with that issue, and I am sure that that will be subject to discussion. I come back to the point that this is not a silver bullet but that it will make a difference, which is what we are seeking to do here.
I turn to the noble Baroness, Lady Thornhill, with her experience of Watford and of leading that council. I take seriously what she says, and she was generally supportive of what we are trying to do. She suggested a suite of fiscal measures which, again, I will try to deal with in the write-round. Again, as she will know, that would involve much more engagement with the Treasury and much more consultation. It is therefore well beyond this piece of legislation, as I have no doubt she appreciates, but nevertheless, based on her experience, I take very seriously what she said. In particular, when we all go canvassing, we always come across an example that is very much live in one’s mind. I note what she said about the six years’ probate issue—the Jarndyce v Jarndyce of Watford. We will see whether we can say something in the write-round about how that probate operation works.
I thank the noble Earl, Lord Listowel, very much for his support and his kind words. He reminded us of the late-lamented Lady Farrington and all the work she did in this area. It was indeed considerable and we miss her contributions, as we miss her. I thank him very much for what he said about the importance of noting the impact this will have on families and children, the wider issue of local authority funding of children’s services, and the difference between statutory and non-statutory—which again, I take seriously, and which I will take back.
As always, the noble Lord, Lord Campbell-Savours, comes forward with something incisive about the issue of second homes and the definitions of “substantially furnished” and “empty” properties. As I say, I will seek to cover those in the letter; although it is unaffected by the legislation, it is nevertheless an important issue. On that issue of interaction with second homes, we are not seeking to deal with second homes here. This is somewhat different; indeed, this could be about a building owned by an institution, and essentially, it might not be anybody’s home at all, although empty. In the Commons, my honourable friend Rishi Sunak said that we would make a Statement on the second homes situation, because there is an issue with people using empty homes as something of a tax loophole, so we will want to say something about our future intentions. I hope to say something about that no later than Committee, but it will not affect this legislation. It is the subject of a much broader issue about second homes and how we deal with that issue.
As always, I thank the noble Lord, Lord Shipley, very much for his helpful comments and his indication that this is—to use his words—the right sense of direction. He referred to the question of judgment here about what is the right level of premium. Some people suggested a 300% premium, or I think they did, which would make a 400% charge, as it were, which would be significant. The noble Lord was much more modest in his contribution with regard to what we are looking at here. Again, I am sure that that is something that we will engage in as we go forward to Committee and beyond.
The noble Lord asked for a breakdown of the reduction of approximately 90,000 empty homes in the six-month figure. He will not be surprised to hear that I do not have the figures to hand, but I will seek to provide further information to noble Lords on those issues ahead of Committee.
There was also a question about empty dwelling management orders, which I have no doubt we will also be discussing in Committee.
I thank the noble Lord, Lord Kennedy, very much for his supportive comments and for raising the important question of how these measures will operate. He also talked about what the Bill does not do and about the need to get the level of premium absolutely right—I understand that—as well as the effect of Mazars. As I said, I am sure we will want to come back to those matters in Committee.
Perhaps I may raise with the Minister a concern that I have. We are entering a very difficult market in some parts of the country. What will happen when a property has not been sold after two years? If the owner of the property is driven into selling it, they may well end up in negative equity. It might be better for them to retain the property and avoid a substantial loss. Has that sort of problem been thought through in deciding on all this?
I thank the noble Lord for a very helpful intervention. One exemption which currently applies with regard to the 50% premium and will apply similarly with the 100% premium is that a local council does not need to apply the premium to people who are seeking to sell their property. There is considerable discretion as to how local councils can apply the premium, and obviously circumstances will differ from area to area. Therefore, I think that the noble Lord will find that that has been taken account of.
With that, I am very grateful to noble Lords for their contributions.
Bill read a second time and committed to a Committee of the Whole House.