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Non-Domestic Rating (Nursery Grounds) Bill

Volume 792: debated on Tuesday 24 July 2018

Second Reading

Moved by

My Lords, I am grateful to noble Lords who have given up their time to discuss this Bill. 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 that our laws are both fair and robust.

This Government are committed to supporting sustainable growth in the rural economy. Through the 2014-20 rural development programme, we are investing almost half a billion pounds in England’s rural businesses. Our support for rural enterprises includes developing farm and horticultural companies and the Government are also set to continue to commit £3 billion in funds for farm support until the end of this Parliament.

Earlier this year, the Government also launched a wide-ranging consultation on the future of farming. This Bill is an important part of our continued support for the horticultural sector in England and Wales. The agricultural exemption from business rates plays an important role in supporting agricultural productivity. This measure will support our ambitions for a more dynamic and self-reliant agricultural industry.

This Bill received cross-party support in the Commons, where it passed quickly without amendment. We want swiftly to amend the law to ensure that those ratepayers affected will not have to pay business rates. The Bill will deliver on our commitment to support the rural economy and promote this country’s rural life.

Noble Lords may be aware that, for almost 100 years, plant nursery grounds have been treated as exempt from business rates as part of the general exemption for agriculture. This practice was widely understood and accepted by the Valuation Office Agency and rating surveyors. However, in 2015 the Court of Appeal decided in Tunnel Tech v Reeves that the exemption did not apply to plant nurseries in buildings which were not occupied together with agricultural land and used solely in connection with agricultural operations on that or other agricultural land. Only at the end of 2015 was it clear that there was to be no appeal on that decision to the Supreme Court.

This did not reflect the Government’s policy nor the widespread belief among the sector. The consequence of the 2015 judgment has brought unwelcome change and uncertainty for business rate payers in the horticultural industry. It was therefore understandable that following the judgment the industry expressed concerns about the consequences that the potential imposition of business rates might have on nursery growers, and the Government have listened. We understand that to date only a small handful of nurseries have been affected by the court ruling, but there is the potential that many more would be affected if the Government did not act.

The Government made clear that they would take action. In March 2017, we set out in a Written Ministerial Statement our intention to legislate and, subject to the passage of this Bill, enable the Valuation Office Agency to return to its former practice of exempting all plant nurseries from business rates. A further Written Ministerial Statement was made in 2018 restating the Government’s commitment to legislate and for the first time confirming that the measure would have retrospective effect from 1 April 2015 in England and from 1 April 2017 in Wales.

This Bill will preserve a long-standing policy and ensure that plant nurseries solely consisting of buildings will once again benefit from the exemption of business rates for agricultural land and buildings. It will enable the Valuation Office Agency to return to its former practice of exempting plant nurseries and removing those few plant nurseries which have been assessed from the business rates list. Those plant nurseries that have been paying business rates since the 2015 decision on the basis of the Tunnel Tech decision will be eligible for a backdated refund of their business rates.

While the Bill will restore the former practice of exempting plant nurseries in buildings, I make it clear that it will not otherwise disturb the existing boundary of the agricultural exemption. Uses beyond agricultural operations, such as garden centres, will rightly continue to be subject to business rates. The Bill will also provide support and certainty to plant growers in England and Wales who would have otherwise been brought into the rating system on the basis of the Tunnel Tech decision. It ensures that these viable businesses do not become subject to a tax which could have an impact on the cost of farming and produce.

We have been able to bring forward this measure quickly and without amendment because of the support and advice—which I acknowledge—we received from the National Farmers’ Union in England and the Farmers’ Union of Wales. Their expertise has been invaluable and we are grateful for their assistance.

This Bill is about fairness for business rate payers in the agricultural sector and I commend it to the House. I beg to move.

My Lords, it is a great privilege to follow the Minister and, as it were, to open the batting order of discussion on this important Bill. Before going any further, I declare a number of interests as a landowner but not a grower, a property valuer, a one-time employee of the then Inland Revenue Valuation Office and a vice-president of the Local Government Association. That said, I welcome this Bill, which quite properly remedies the outcome of the decision in Tunnel Tech Ltd v Reeves (Valuation Officer) and I applaud the Government on finding a slot to bring this forward in times of considerable legislative congestion.

The pivotal point here is that the decision meant that the operation of Tunnel Tech would have been regarded as some sort of industrial enterprise rather than in the nature of agriculture or a horticultural nursery ground. However, the effect of rating buildings being used as nursery grounds but without other land would have put the company in very considerable contrast and at a disadvantage to an identical building occupied by, say, a market garden or a conventional farm. I am glad that the effects of this decision were not much more widespread than has in fact been the case.

I have to admit to being slightly astounded by the process whereby a court today has been asked to overturn the practice and understandings which have prevailed since 1928. I understand of course that changes in the methods of husbandry have to be taken into account, but I see this as an example of an overly literal interpretation of the present being applied to the legislation of yesteryear. This, coupled with the adversarial arts of legal practice, highlights the dangers of taking a position-based approach as against the broader consideration of intentions and public policy.

I believe that it was not Tunnel Tech which sought to have the additional burden of a business rates assessment placed on it, but the interpretation of the Valuation Office Agency, no doubt backed by the advice of the Treasury Solicitor. Much time and treasure have been expended on taking this case to the Court of Appeal and then further resource expended on the parliamentary processes necessary to reverse what I believe would have been a highly damaging outcome for an important sector of an ostensibly agricultural type of activity. At any moment the department or the Valuation Office Agency could have desisted. Can the Minister inform us as to why that did not happen?

While I welcome the Bill, I further ask the Minister to ensure, along with his departmental colleagues, that before his or any other department or agency embarks on a process of forensically dissecting bits of legislation, all concerned with agriculture and business more widely, they should make a special effort to avoid upsetting generations of established practice unless there is a very good public interest reason to do so.

In recent times, the Valuation Office Agency has been criticised about many things, not least by me in this House. In this instance, the criticism might be that it allowed the administrative role of being the government valuer to merge with and become some sort of proxy for HMRC’s role as the taxman. This of course skews the fair and consistent administration of the property valuation system. This is not the stuff of some intellectual plaything. There should be a far clearer differential between the activities of HMRC and the role of the VOA. Sadly, and here I speak from some direct experience, the ill-effects of the present arrangement continue to spread. The risk is therefore of opportunistic excursions into novel interpretations of established practice that may then have to be reversed by Parliament on public policy grounds. To my mind, that is an extremely unwelcome process causing interim uncertainty and damage to cash flow in both the private and local government sectors, and being potentially hazardous to investment and employment. This should be the subject of better oversight. I encourage the Minister to comment. I mention this because there is a potentially very rich seam of trouble to be mined in this area by anyone with disruptive feelings or tendencies. The unplanned and often unforeseen effects on business can be considerable—it would not require any of your Lordships to devote much imagination to it.

Looking forward, if I have any advice for a Government contemplating a post-Brexit Britain—this might be the only pronouncement on Brexit that your Lordships will hear from me, for which you are doubtless very grateful—it is to ensure greater simplicity, transparency, fairness and balance to all our laws and regulations governing business and commerce, in taxation especially. If we want to be internationally slick and competitive, this is where I would start. So far, the Bill represents a welcome if small attempt to roll back the tide, but one can usually be sure that any claim to provide a better, fairer and more transparent regime will, on past performance, produce precisely the opposite.

I wish the Bill well and certainly have no intention to seek to amend it in any form. It has limited application and I hope it has a speedy journey on to the statute book, but let it also be a warning to better manage affairs in our great departments of state.

My Lords, it is a great pleasure to follow the noble Earl, Lord Lytton. I will not go into the detail of his speech because he speaks with great knowledge on the valuation agency and how this instance came about.

I very much welcome the Bill. It is the smallest Bill I have ever taken part in—only one side of A4—but I am grateful to the Government for bringing it forward and getting it through Parliament so quickly with support from all sides. The case certainly raised great uncertainty in the industry. In fact, the Government’s response brings great fairness to all those in the business. When he introduced it, the Minister spoke about the need for sustainable growth. I highlight that because I believe that in the next 50 years we will see very different agricultural produce and methods of agriculture than in the past. Much may well come from having an indoor start.

In Leicestershire we have a nursery grower, James Coles. It is a very well-known company that has been going for a long while. When I spoke to it, it had not been affected by the change. It will be interesting if the Minister could tell us why some people have been affected in some places while others have not. The Minister also recorded the Government’s current commitment to £3 billion of grants for farming. That could well go towards looking at new buildings and a new way of producing food.

I record my thanks to the NFU for its briefing. If we thought that the Bill was small, its briefing of seven pages was slightly different. It went into very great detail. I think that all of us taking part in the debate will be fully aware of the various aspects of the issues that it raised. I declare a family farming interest, but, in this case, we do not have an interest in the Bill.

It is of great urgency that we propagate and raise more young plants in this country for sale to other horticultural businesses and to the wider supply trade. Anyone following the vagaries of pest or disease control will know that if we can produce more here and import less we will reduce that risk, which is real. As has been said, the general exemption for agricultural premises stood solidly from 1928 until this case in 2015. Plant nurseries have been treated as agricultural and so are exempt from non-domestic rates, but the court appeal highlighted the gap in the legislation. That is why this legislation is being brought forward today.

As I said earlier, I welcome the legislation, which will enable businesses to flourish. The UK grows excellent products. We are increasing and will continue to increase the amount of homegrown foods, trees and plants, which is important. That will give us greater export opportunities as well.

I shall end by identifying four things that I think are hugely important. The first is to recognise that the agri-food industry is worth some £108 billion. Horticulture, excluding potatoes, is worth some £3.1 billion based on the 2015 figures. The second is the importance of food security and, linked with that, the climate change that we are experiencing now. I am sure that we will need to grow many more trees. The Government have a big push in encouraging the various public bodies and individuals to plant more trees. The third is the importance of new techniques in growing and producing food. Lastly, it is extremely important that we have fairness within the industry. For all those years the industry knew where it stood but then, all of a sudden, the 2015 case gave rise to the need for this Bill.

I hope that the Bill goes through without any need for alteration. It is needed. It affects only a few people, but it could affect more people in future if they diversify in a different way.

My Lords, I draw your Lordships’ attention to my relevant interests as a councillor on Kirklees Council, a vice-president of the Local Government Association and a member of the Royal Horticultural Society.

We on these Benches fully support the purpose of this Bill, which, as other noble Lords have said, is to address an anomaly arising from a court case in 2015. I thank the noble Earl, Lord Lytton, for raising some significant questions on the process that led to the court case which I hope the Minister will be able to answer, either today or in a letter.

I have some comments and questions for the Minister in relation to this short Bill. The first is on the definition of “nursery grounds”. The Government have published a factsheet which is helpful in distinguishing between market gardens, garden centres and nursery grounds. However, it would be helpful if the Minister could clarify further, as many of these businesses straddle the various definitions.

Where a business grows plants from seed in greenhouses or polytunnels, my understanding is that they will be exempted by the Bill, but the retail element, where the plants are sold, will not be. Is that correct? What if the nursery has an online order business? Will the packing and posting buildings be exempt?

What about a garden centre where the main centre of the business is retail? Will the small section where plants have been brought in and are cared for before sale be included—if they are shrubs or trees, they might be there for a year or for several years? Will the totality of that business be classed as a garden centre and be liable to business rates, or will some element of that, too, be exempted as a consequence of the Bill?

Once the definition is clarified, it would be helpful to understand the impact of the changes this Bill will make. I noticed that when the Bill was debated in the other place there was no answer to the question about how many businesses would fall into the exemption. It would be helpful to understand the scale of the changes that the Bill will make. Will businesses that fall into this category be expected to self-identify to the valuation office, or will there be a notification as to their change in definition so that they would be exempt? I think it would be very helpful if the onus were on the valuation office to notify the businesses.

Then, there is the impact on the income of local government. No doubt this may be small in totality, but there may be a significant financial impact on some rural district councils, which may have several businesses falling into this definition of nursery grounds. As local authorities now depend for a large portion of their spending on business rates, this may have an unexpectedly significant effect on some councils. Can the Minister provide assurance on these issues?

With those questions and comments, I am totally positive. This is a constructive Bill to change the anomaly that was the result of the court case. It is right that these businesses are exempt from business rates and I support the purpose of the Bill.

My Lords, first I draw the attention of the House to my relevant interest as a vice-president of the Local Government Association. I support the Bill and its intention of providing that buildings that are, or form part of, a plant nursery ground should be exempt from non-domestic rates if they are used solely for agricultural operations at a nursery ground. We have heard from other speakers in this short debate that this issue arose as a consequence of the judgment in the Tunnel Tech Ltd v Reeves case in 2015, which highlighted how structural changes in the industry have resulted in purely horticultural operations being rated, as opposed to being exempt. It is welcome that the Government have sought the opportunity to correct this and I congratulate them on it.

We know that since 1928 Parliament has had no intention of rating the agricultural industry. That is absolutely right: I support the industry and support sustainable growth in agriculture and horticulture. We have heard from other noble Lords that there is no longer a distinction between nursery grounds and market gardens: all operators consider themselves to be growers and I agree with that. That is an important point to make here, as is the point made by the noble Baroness, Lady Byford, that the industry is worth £108 billion a year and, excluding potatoes, horticulture is worth £3.1 billion a year to our economy. I agree with the noble Baroness that we produce some wonderful food in this country: we have some wonderful farmers and growers and we need to always be supporting them, so that they can sell their produce to us and also export it. For the United Kingdom it is very much about selling high-quality produce, so we must support them in growing that high-quality produce.

I too received the briefing from the National Farmers Union. It is an excellent briefing, as the noble Baroness said: seven pages long, which is six pages longer than the Bill. It highlights how important this is—at the moment for a small number of growers, but with the potential for many more—so I think it is important to support it. I am also aware that when the Bill went through the other place, no amendments were tabled or agreed. I think that was right and, unusually for me on a government Bill, I am going to suggest that we make no amendments either. I have no intention of tabling an amendment and I hope that other noble Lords will not table amendments, so that very quickly, when we come back in September, the minister can stand up and move to discharge the commitment Motion. That would be the best thing to do, so as to quickly get the Bill on to the statute book. I have looked at it very carefully and I think it is the right thing to do: it is a good Bill and I fully support it.

My Lords, first let me say that I have lost a bet: I said that there was nothing more certain than that the noble Lord, Lord Kennedy, would put down an amendment. I owe my team and I probably owe the noble Lord a beer as well. I thank him very much for his support.

I shall deal with the points raised by noble Lords, whom I thank very much for their participation in this debate. I turn first to the noble Earl, Lord Lytton, and his point about the provenance of the decision that led to the Court of Appeal judgment in Tunnel Tech Ltd v Reeves.

We have the separation of powers in this country, and HMRC is not a government department, so the decision in this case cannot be laid at the feet of the Government. It would have been entirely wrong for us to interfere—and it would have been interference—in a wholly unconstitutional way with the valuation office procedures, the valuation tribunal decision and the Court of Appeal decision.

That said, once the decision was made, we faced having to decide whether we should seek to overturn the judgment or let it stand. I think it took everybody by surprise—everybody in the agricultural sector, surveyors. The great mass of people were caught on the hop by this decision, and that certainly included the Government; we were not expecting the decision. However, faced with letting it go through or doing something, I think we have taken the right decision, as borne out by noble Lords’ contributions, in deciding to reverse it. The alternative would have been unthinkable for our agricultural industry, and I share what other noble Lords have said about the importance of the agricultural industry and returning some certainty to it. In a way, as other noble Lords will have realised, there is a parallel with the recent legislation on the staircase tax that we have been looking at. In that case, once again, we were confronted with a decision that we did not expect. That is important.

Let me correct a particular point that I made when I said that HMRC is not a government department. It is a government department, but it is a non-ministerial department. I should have stressed that, and it is important that I correct myself on that point.

My noble friend Lady Byford speaks with great knowledge and authority in this area, particularly in relation to her home county of Leicestershire and her experience there. She asked a very valid question: how is it that some have been affected by this judgment and not others? All are affected by this judgment, but so far the valuation has been done only for some. We are therefore moving fairly quickly, because valuations here apply to just a handful of cases involving the reimbursement of backdated money—the retrospective effect. If we did not act, more and more agricultural businesses would gradually be involved.

I join my noble friend and the noble Lord, Lord Kennedy, in thanking the NFU and the FUW very much for their help, their briefing and their great interest and assistance in this case.

I thank the noble Baroness, Lady Pinnock, very much for her support, and indeed for her questions. She asked about the definition of a plant nursery, which it is quite true is not in the legislation. A plant nursery ground, as I understand it, is where small plants or trees are grown in the initial stages of their life with a view to selling them later to somebody else to complete the growing process. A market garden, which would not be subject to rating, is where fruit, vegetables and flowers are produced to final crop and then sold directly or indirectly to members of the public for consumption. Sometimes businesses are both, in which case there is a split assessment. I hope that is helpful.

I very much agree with the noble Lord about the importance of support for the agricultural exemption and the sector generally, which I think, given the contributions made, is shared across the House.

I come back to the noble Earl’s point and understand how the confusion could arise, but HMRC is a non-ministerial department and it is clearly not open to us to interfere in valuation tribunal decisions, and still less, on the same basis, in the Court of Appeal.

I thank noble Lords very much for their support on this.

The Bill was read a second time.