Thursday 4 February 2021
The Grand Committee met in a hybrid proceeding.
Arrangement of Business
My Lords, the hybrid Grand Committee will now begin. Some Members are here in person, respecting social distancing, while others are participating remotely, but all Members will be treated equally. I ask Members in the Room to wear a face covering except when seated at their desk, to speak sitting down and to wipe down their desk, chair and any other touch points before and after use.
The microphone system for physical participants has changed. Your microphones will no longer be turned on at all times, in order to reduce the noise for remote participants. When it is your turn to speak, please press the button on the microphone stand. Once you have done that, wait for the green flashing light to turn red before you begin speaking. The process for unmuting and muting for remote participants remains the same.
If the capacity of the Committee Room is exceeded or other safety requirements are breached, I will immediately adjourn the Committee. If there is a Division in the House, the Committee will adjourn for five minutes.
A participants’ list for today’s proceedings has been published by the Government Whips’ Office, as have lists of Members who have put their names to the amendments in, or expressed an interest in speaking on, each group. I will call Members to speak in the order listed. Members are not permitted to intervene spontaneously; the Chair calls each speaker. Interventions during speeches or “before the noble Lord sits down” are not permitted. During the debate on each group, I will invite Members, including Members in the Grand Committee Room, to email the clerk if they wish to speak after the Minister, using the Grand Committee address. I will call Members to speak in order of request and will call the Minister to reply each time. The groupings are binding and it is not possible to de-group an amendment for separate debate.
Leave should be given to withdraw amendments. When putting the Question, I will collect voices in the Grand Committee Room only. I remind Members that Divisions cannot take place in Grand Committee. It takes unanimity to amend the Bill, so if a single voice says, “Not Content”, an amendment is negatived, and if a single voice says, “Content”, a clause stands part. If a Member taking part remotely wants their voice accounted for if the Question is put, they should make this clear when speaking on the group. We will now begin.
Non-Domestic Rating (Lists) (No. 2) Bill
Clause 1 agreed.
We now come to the group beginning with Amendment 1. I remind noble Lords that anybody wishing to speak after the Minister should email the clerk during the debate.
1: After Clause 1, insert the following new Clause—
“Statement on consultation with the Valuation Office Agency and local authorities
Within one month of the passing of this Act, the Secretary of State must publish a statement detailing how the Valuation Office Agency and local authorities were consulted in relation to the provisions of this Act prior to its passage.”Member’s explanatory statement
This new Clause would highlight the need for the Government to work closely with the Valuation Office Agency and local authorities by ensuring that the Government details how they worked with them in relation to the provisions of this Bill.
My Lords, as this is my first contribution, I draw the attention of the Committee to my relevant registered interests: as a vice-president of the Local Government Association, chair of the Heart of Medway Housing Association and a non-executive director of MHS Homes Ltd.
Amendment 1 would put on the face of the Bill a new clause requiring the Secretary of State to publish a Statement setting out
“how the Valuation Office Agency and local authorities were consulted in relation to the provisions of this Act prior to its passage.”
A property’s rateable value, which business rates are based on, has been assessed independently of Ministers by the Valuation Office Agency since 1990. The Bill will, among other things, make a change to when the Valuation Office Agency must publish draft rateable values. The noble Lord, Lord Greenhalgh, has told us previously that this is to support the smooth transition of the revaluation. The publication of these draft rateable values will be aligned with the timing of decisions relating to the multipliers and transitional arrangements.
This is only a probing amendment and I am hopeful that the noble Lord will be able to set out for the Grand Committee exactly how what is asked for in the amendment has been done. If the agency and local authorities have not been consulted, can he tell us why not, and why the Government think that that is an acceptable course of action?
Amendment 6, in the names of the noble Baronesses, Lady Pinnock and Lady Thornhill, would insert a new clause into the Bill. I am very much in support of this new clause, as it would provide for an impact assessment of the timing of a rates revaluation. I am sure that we will get a full explanation of the amendment from the noble Baronesses.
There is of course a wider debate to be had about the whole question of business rates and their appropriateness as an element of local government funding. It is important to note that the Government have cut £15 billion from central government funding for local government in the last decade. The Covid-19 pandemic has had a catastrophic impact on local authority finances, with income falling and costs rising. The current lockdown, which is the right thing to do, will also have a serious impact. Here, the Government need to keep their promise to fully fund local authorities for the costs of the pandemic.
According to the Local Government Association, local councils in England will face a funding gap of more than £5 billion just to maintain services at current levels. But to respond to demand pressures and plug the existing funding gap, an additional £10 billion per year in funding will be needed by 2023-24. For those reasons and many others, which I am sure we will hear from the noble Baronesses, Lady Pinnock and Lady Thornhill, I support their amendment. I beg to move.
My Lords, I, too, am a vice-president of the Local Government Association.
I wish to speak in favour of Amendment 6, which stands in my name and that of my noble friend Lady Pinnock, and to support Amendment 1 in the name of the noble Lord, Lord Kennedy of Southwark.
I am very aware that this is a narrowly focused Bill and that it has had broad support and been welcomed. However, it is significant that, despite that, several Members of your Lordships’ House have taken the opportunity to table amendments. I believe that that shows the depth of concern around the whole issue of business rates. The amount of interest shown in both this tightly drawn Bill and the Government’s consultation for their ongoing business rates review shows how important it is for the review to be both bold and radical.
It is also significant that all the amendments seek to hold the Government’s feet to the fire with regard to the various ongoing impacts of the Bill, be they on sports clubs, the high street or local government finance—hence, Amendment 6 stipulates a timeframe of six months. This is due to the fact that the instability and uncertainty provoked by the impact of Covid-19 are exacerbating issues that were already of significant concern—and we are not out of the woods yet.
Indeed, the amendment seeks to continue to draw your Lordships’ attention to the challenging situation regarding local council finances. The latest figures from the Local Government Association show that the financial impact of Covid-19 on local authorities is an estimated £9.7 billion for 2020-21, with a further £2.8 billion of lost income from council tax and business rates. However, it must be noted that these figures were reported before the lockdown and the spread of the new strain was known. This is a significantly different set of circumstances from when the 2020-21 funding package was last evaluated, and is part of the reason for continuing concern around council finances. I am sure it is appreciated by all noble Lords just how important business rates are to the individual finances of a local authority.
One reason for the amendment is to highlight the volatility of the tax base, which is so unpredictable at present. For example, the loss of office space to residential—a topic much discussed with the Minister in this House—is a trend that is likely to continue with inevitable loss of revenue. The Valuation Office Agency is currently negotiating appeals and challenges for offices, airports and factories under a material change of circumstances appeal, due to Covid-19. A rebate of up to 25% was mooted. The reduction in income could be substantial. If a rebate were forthcoming, would subsequent losses be repaid to local government in line with the recently announced tax income guarantee? Some 75% of losses will be guaranteed for 2020-21, but nothing has been said yet about 2021-22. Of course, local government must make up the other 25%.
The amount of money that councils have had to put aside for appeals is also significant, hence local government concerns around cutting down the window of time to appeal and getting the number of appeals reduced. The more certainty that we can add to the processes the better. To date, councils have had to divert £3 billion from services to appeals. A significant amount of money is also tied up in irrecoverable losses for both business rates and council tax. With debt recovery and enforcement activities understandably limited due to the pandemic, and with limits on activities and pressures on court time, councils’ ability to recover debts and secure income as they usually would, will be restricted. These are not usual times, and more businesses are likely to fail.
I use these points to illustrate one purpose of the amendment and the volatility of this important tax base. There is much instability in the system at present, which is being masked by the current, much-needed and much-valued reliefs offered to businesses from the Government. This could change significantly when the reliefs end; it could impact on local authority incomes, but we do not know when this will be. If the amendment is not accepted, could the Government at least agree to look closely at the impact once all reliefs have been suspended? This could provide vital evidence on which sectors are most impacted as well as on local councils’ finances.
Regarding Amendment 1, it was noted by several noble Lords at Second Reading that the VOA has been formally criticised as being cumbersome and difficult to deal with, and its valuations opaque and inconsistent. This is why I endorse what has been said by the noble Lord, Lord Kennedy of Southwark, and support his amendment and additional amendments tabled by my noble friends. In short, the amendment asks the Government how the pandemic that happening now will affect the revaluation in 2023, based on values at April 2021, which will not be looked at again until 2028.
My Lords, it is a pleasure to follow the noble Baroness, Lady Thornhill, who certainly speaks with authority in this area, not least from her time as Mayor of Watford. I speak to the first group of amendments and, as I indicated at Second Reading, I strongly support this Bill. It is welcome, it is needed, it is positive, and I hope that it passes unadorned. I thank the Association of Convenience Stores for its briefing on this subject. It too strongly welcomes this legislation.
The effect of moving the business rate revaluation to 1 April 2023 will mean, as has been noted, that valuations will be fixed as at 1 April 2021. This will prevent the base being on a very high value, or on a relatively high value, as at 2019. This Bill will, in short, ensure that the base that is used reflects the impact of the pandemic. That is welcome. It will also provide certainty to non-domestic rate payers. This is very welcome to a hard-pressed sector. However, I have some questions for my noble friend the Minister. While I am very much in favour of passing this Bill, I would welcome some further reassurance from my noble friend regarding what discussions there have been with the Valuation Office Agency and local authorities about timescales and resources.
In relation to local authorities, speaking about the impact of the revaluation on the business rates retention scheme at Second Reading, the Minister said:
“On this point, I assure the House that we intend to make any necessary adjustments within the business rates retention system to ensure that locally retained income is, as far as is practicable, unaffected by the revaluation.”—[Official Report, 18/1/21; col 1068.]
Can I press my noble friend a little more on that? I take that to mean that, except de minimis, retained income will be no less than prior to the revaluation. It is an important point and I hope that he will be able to provide the necessary reassurance that my interpretation is correct.
On the wider point about the reform of business rates and what we are doing today, this Bill is, I think, essentially non-controversial in what it is seeking to achieve. What will be more contentious, I suspect, is looking at the way we levy business rates or commercial taxes on business in future. This issue has been thrown into high relief by the pandemic, making more obvious the imbalance between physical high street retail, out-of-town retail and, of course, online businesses. This is an important issue, and it is clearly essential to our nation that we get the balance right; all three parts of that servicing of retail are important. I would be grateful if the Minister could provide some thoughts on that. I appreciate that he cannot be precise on the approach or the timescale, but some indication of when we will address this important issue would be welcome.
My Lords, I remind the Committee of my interests, as recorded in the register, as a member of Kirklees Council and a vice-chair of the Local Government Association.
The debate on these amendments has been a relatively short but, I trust, helpful for the Government. As we have heard from my noble friend Lady Thornhill, and the noble Lords, Lord Kennedy and Lord Bourne, to cover the cross-party contributions to this debate, there are significant concerns about the timing of the assessment—or the antecedent valuation date, to give it its official title—of new rateable values. Some have experienced enormous challenges over the last year, none of which are of their making. The challenges of the pandemic have brought large parts of the hospitality and retail sectors to their knees. Now is not the time to undertake an assessment of rental values, which is in large part the basis of the valuation.
Will the Minister agree to discuss with the department the possibility of a delay to the AVD? This concern is at the heart of the amendment in my name and that of my noble friend Lady Thornhill. A six-month review would establish whether it is practicable to assess new rental values that feed into the final valuation. A delay is preferable but, failing that, a review is essential as it would highlight the difficulties of doing this while a pandemic is rife. The concerns from those of us who have had extensive local government experience is that local authority finances will be adversely impacted. Of course, the Government have given assurances that any loss of income from business rates will be fully compensated—at the moment. However, they have not, as yet, given such a commitment for when the revaluation comes live in 2023. Will the Minister provide copper-bottomed assurance that no local authority will lose income from the revaluation, and that any necessary top-ups will be provided? I look forward to the Minister’s response to these questions, which will inform any amendments to be tabled at Report.
As we discussed at Second Reading, the Government have chosen a particularly inopportune time for the revaluation of business rates. The valuation day is set for April of this year, and I urge the Minister to consider delaying the date and accepting the proposal in both these amendments. I look forward to his reply.
My Lords, I first point out my residential and commercial property interests as set out in the register.
I am grateful to the noble Lord, Lord Kennedy, for raising the points highlighted by his proposed new clause. The business rates system is unusual among taxes because its implementation is split between the Valuation Office Agency, which is an agency of HMRC, and local authorities. Many noble Lords have, like myself, experience of working in local government and know and understand how important the relationship is between the VOA, local authorities and my department in running the business rates system.
As the Committee would expect, one of the issues raised in our discussions with local government has been how revaluations impact on local government funding, so I am grateful to the noble Baronesses, Lady Pinnock and Lady Thornhill, for tabling their amendment on that subject.
In relation to the provisions of this Bill, we have worked closely with the VOA to ensure that a revaluation in 2023 can be delivered on time. The antecedent valuation date of 1 April 2021 was set by a statutory instrument laid on 6 August last year, since when the VOA has been preparing for the revaluation. It has already started to collect the information it needs to value 2 million properties and is on target to complete the exercise to plan.
As I discussed at Second Reading, Clause 1 also moves back the latest date by when the draft rating list must be published before the revaluation to no later than the preceding 31 December. In practice, we expect this to be around the time of the autumn fiscal event, when the multiplier and the transitional relief scheme are also announced. That will mean that rating lists will come to local government a little later than previous revaluations, but we do not expect this to mean any delays in the process of billing or estimating business rates income.
Local government of course needs the multipliers and details of relief schemes before it can calculate liabilities, and it is only once that full package is confirmed that bills can be issued. That is the case whether we are in the year of a revaluation or not. Nevertheless, I can assure my noble friend Lord Bourne and the Committee that my officials meet representatives of local government regularly and will continue to discuss these matters with them to ensure the smooth delivery of business rates bills.
More generally, my department and the VOA are continuously looking at how we can improve consultation and closer working with local government. In recent years the VOA has introduced a data gateway under which it is able to share information about ratepayers with local authorities in order to support the billing process, and last year we made regulations empowering local authorities to provide the VOA with information on a quarterly basis about the properties that ratepayers occupy. This was introduced with the support of local government and will ensure that the VOA has up-to-date information ahead of 1 April 2021, which is the intended valuation date for the 2023 revaluation.
One specific matter we have discussed with local government is how to reflect in the local government finance system the changes in business rates income at revaluation—and I recognise that this is the matter on which the noble Baronesses, Lady Pinnock and Lady Thornhill, seek reassurance through their amendment. The purpose of the revaluation is to ensure that business rates bills reflect the up-to-date rental value of properties.
This of course means that some ratepayers will see increases and some will see reductions as a result of the revaluation, and it follows that the business rates income for individual local authorities will fluctuate in the same way. Some local authorities will see their business rates income rise at the revaluation and others will see it fall. Between revaluations, local authorities can increase their business rates income by supporting growth and investing in their area. Their share of this type of growth is retained by them through the rates retention scheme.
In contrast, the changes we see in local authority income levels at the revaluation come mainly from the trends and variations in the wider national economy and the commercial property market. These factors are largely outside the control of individual local authorities and the Government’s view is that such changes in business rates income levels at the revaluation should not feed through into local government budgets.
Therefore, our intention—as it was at the previous revaluation in 2017—is that we will, as far as is practicable, ensure that retained rates income for individual local authorities under the business rates retention scheme is unaffected by the 2023 revaluation. For the 2017 revaluation we achieved this by adjusting the tariffs and top-ups in the scheme to reflect the change in income at the revaluation. We consulted local government on the mechanics of these adjustments from as early as the preceding summer. This was a collaborative process and one which we intend to repeat for the 2023 revaluation. This process will give local authorities the budget assurances they need regarding revaluation. As such, the timing of the revaluation and how it affects the distribution of business rates income should not impact directly on local government finances.
I hope, therefore, that I have reassured the Committee on the degree to which my department and the VOA work closely together and in partnership with local government on business rates matters, and on the steps we will take to protect local government finances at the time of the revaluation. These working relationships are important, and we are indebted to those in local government who offer their time and expertise to support us in running and improving the rating system.
I hope that, with these assurances, the noble Lord, Lord Kennedy, and the noble Baronesses, Lady Pinnock and Lady Thornhill, will agree not to press their amendments.
I have received no requests to speak after the Minister, so I call the noble Lord, Lord Kennedy of Southwark.
My Lords, I thank all noble Lords for their contributions to this short debate. In particular, I thank the noble Lord, Lord Greenhalgh, for his full response on the issues raised by the two amendments. I will read the noble Lord’s response carefully before considering whether this is an amendment to which I will wish to return on Report.
The noble Baroness, Lady Thornhill, made a compelling case for her amendment and set out the difficult situation in which local authorities find themselves. We will come to amendments later on regarding appeals, but the noble Baroness highlighted the real problems that are faced today. The noble Lord, Lord Bourne of Aberystwyth, raised further important points and questions that, again, we may need to come back to on Report. However, at this point, I am happy to withdraw my amendment.
Amendment 1 withdrawn.
We now come to the group beginning with Amendment 2. I remind noble Lords that anyone wishing to speak after the Minister should email the clerk during the debate.
2: After Clause 1, insert the following new Clause—
“Assessment of impact of timing of business rates revaluations on prosperity of towns and high streets
Within six months of the passing of this Act, the Secretary of State must publish an assessment of the impact of the timing of business rates revaluations on the prosperity of towns and high streets.”Member’s explanatory statement
This new Clause would create an assessment of the impact of timing of business rates revaluations on the prosperity of towns.
My Lords, Amendment 2 in my name seeks to place in the Bill a new clause that would require the Secretary of State to publish an assessment of the impact of the timing of business rates revaluations on the prosperity of towns and high streets. We need a root-and-branch reform of the business rates system to make it fairer and to help bricks-and-mortar retailers compete fairly with the online, out-of-town warehouse operations that are putting our much-loved high streets at risk.
Even before the Covid-19 pandemic, we saw a serious decline in footfall on our high streets, and we now have the tragic situation where, on average, one in 10 shops is standing empty. Something must be done to reverse this decline. My amendment seeks to focus minds on this pressing problem. I hope that the Government will take the opportunity to consider it carefully and to accept it.
Amendment 5, in the names of the noble Baroness, Lady Pinnock, and the noble Lord, Lord Stunell, is another that I am happy to support. It gives us an opportunity to examine whether the revaluation based on property values as on 1 April 2021 is right. There are some suggestions that property values will fall even further, and, if that is the case, we could be creating further problems for our hard-pressed high streets.
Amendment 7, in the names of the noble Lords, Lord Addington and Lord Moynihan, brings us back to an issue that both noble Lords spoke about at Second Reading. It proposes a new clause that would require the Secretary of State to publish an assessment of the impact of the changes in the timing of business rate revaluations on amateur sports. I fully support this amendment and cannot see any reason why the Government would want to resist it.
Some amateur sports clubs have charitable status and some have community amateur club status, which provide a level of tax advantage. Charitable status provides for 80% rates relief, with the ability of the local authority to offer a top-up. But many sports clubs are not charities and will not be able to secure this benefit, and I think that it is important to understand the effect of these changes on these organisations. I am sure that we will receive detailed explanations of the amendments later in the debate but, at this stage, I beg to move.
My Lords, I wish to speak to Amendment 5, in my name and that of my noble friend Lady Pinnock, but I also make clear that I support the intentions of both the other amendments in this group. My noble friend Lord Addington will speak to his Amendment 7 shortly. Amendment 2, just moved by the noble Lord, Lord Kennedy, sits four-square alongside our Amendment 5 and I am happy to add my support to the case that he has put forward.
I remind the Minister that the Government’s previous intention was to have the revaluation come into force this year. They had moved that forward from the original 2022 date because of the deteriorating situation of the high street retail sector and the very clear disconnect between outdated valuations and current purchase prices and letting rates. The most obviously outrageous example of that is, of course, the underpricing of out-of-town distribution centres and warehouses.
Covid-19 has changed the situation in two significant ways, the first of which the Government have responded to, but the other is the one I want to draw particular attention to and which Amendment 5 seeks to address. As it was unrealistic to carry out the necessary work on the ground to carry out valuations because of lockdown and infection control restrictions, the date of 1 April this year was set in place of 1 April last year.
That is one of the responses, but it does not take account of the other impact of Covid. There has been a huge acceleration in the existing trend of retail transferring from the high street to online. It is interesting, indeed compelling, that the Association of Convenience Stores, which has 35,000 local shops and forecourt sites in its membership, has reported that 42% of independent shops polled would have gone out of business already if it had not been for the Government’s business rate moratorium—that is the drastic impact on income for the physical retail sector. We can see from the business pages of any national newspaper that many high street names have closed down or downsized, or are being asset-stripped by hungry online operators buying up their brand. This is an acute crisis, but also a chronic one. Everyone understands that the online shoppers newly recruited by the pandemic have found that it is an easy way to buy and is perhaps better than trudging round in the rain. Nobody expects the retail business of the high street to return to its former levels.
On these Benches, we very much welcome the 100% business rate discount that the Chancellor has introduced. We believe that, in any case, it will need to be extended until there can be a return to what I might call peacetime trading. But those peacetime retailers cannot expect to return to the same volume of sales. Every one of them knows that their turnover will be down and their already dwindling profits will be even less in the post-Covid, peacetime marketplace. When the Chancellor’s scheme ends they will face what were already unreasonably high rating valuations still in full force. Many will be forced into closure. The shutters will come down across the country, leading to a spiralling reduction in footfall and undermining the viability of what remains.
I said at Second Reading that it would be good to see some joined-up thinking by the Government, with a seamless move from the Chancellor’s support scheme for retail running through to the new reduced level of business rates that will come with this measure, as far as the high street retail industry is concerned. I must say to the Minister that it is no good the cavalry coming over the hill two years later simply to count the dead. Either the cavalry must come sooner or the Chancellor must extend his scheme to fill the gap—or a properly planned bit of both. Otherwise there will be precious few retail business left to take advantage of the lower rates bills that we all expect this measure to offer. Hence our amendment: an impact assessment, as the Minister well knows, does not just look at the impact of doing what is proposed, but poses the important question, “What other ways have you looked at to achieve the same outcome?”
Such an impact assessment as we propose would show pretty clearly that delaying implementation of the new valuations to 2023, whatever the actual valuation date, will lead to far more businesses failing and far more damage to the high street than having a 2022 start date for the new system. It would show that extending the Chancellor’s scheme to bridge whatever gap remains would be excellent value for money, bringing a huge financial and community well-being dividend to put the high street back on its feet. It would also certainly show that any gradual phasing-in of the improvement beyond 2023—so that it was in some way cushioned and delayed the benefit to the retail sector—would be terminal. I suggest also, perhaps slightly with my tongue in my cheek, that it would set an interesting precedent, where two government departments look at a policy in the round and agree a sensible way of taking in each other’s washing rather than taking separate decisions—one on the 100% business rate discount and the other on the start date of the new valuations—in two different soundproof silos.
My Lords, I will speak to Amendment 7, in my name and that of the noble Lord, Lord Addington. Before I move to the detail of our amendment, this Committee provides us with the opportunity to set out the critical importance of making the case for further government measures to support sport, recreation and an active lifestyle as we emerge from the Covid epidemic.
The Government are to be congratulated on the steps that they have taken: the £300 million sport winter survival package, which specifically should help the top-end spectator sports in England and provide important support to rugby union, horseracing, women’s football and the lower tiers of the national football league; and £100 million through the national recovery fund to support publicly owned leisure facilities impacted by Covid-19. However, this is nowhere near the £1.75 billion investment package to protect the world-class arts, culture and heritage sector, which was designed to help the showcase institutions as well as the small local arts and culture initiatives across the country.
Consider the scale of this investment to help sport alongside the £2 billion announced to investment in cycling and walking, not by DCMS but the Department for Transport last May, since when—as recently as last weekend—the Sunday Times led on the front page with the impending loss of £110 million to professional sport if gambling logos are banned from sports shirts. Sport on television has provided a beacon of hope and escape for millions of people during the current Covid lockdown—a massive ray of respite amid the boredom and gloom of lockdown. In that context, there has been more coverage of the return to terrestrial television of the England-India test series starting in Chennai tomorrow than there has been of actual coverage of matches in many an overseas test series in the past.
The Government have responded well to the need of our elite sports men and women with safe and necessary exemptions from many of the Covid regulations. These exemptions will need to continue when the new travel quarantine regulations are announced shortly. The Six Nations depends on the exceptionally safe arrangements made for professional sport and the vital good sense of those involved to observe strictly the bubbles in place to protect them. Neither the French team—nor, for that matter, Andy Murray, when he resumes the ATP tour—should be required to spend two weeks in the Gatwick Holiday Inn when they arrive here.
Of course, even those who represent our country would not expect to be, nor should be, vaccinated before the vulnerable groups of all ages in society. I hope, however, that when that cohort is complete, consideration will be given to many of our Olympic and Paralympic athletes ahead of their vital international training, selection and competition schedules later this year.
That is the backdrop to today’s call to extend the business rate holiday granted to the retail, hospitality and leisure sector indefinitely, and the opportunity within six months of the passing of the Bill to publish an assessment of the impact of the timing of business rate revaluations on the viability and health of amateur sports and sporting activity. I hope to abolish them for that sector altogether.
The holiday has been invaluable to sports organisations that own their property, including national governing bodies, professional clubs and community clubs and organisations. However, the rates bill in the past has often been the anchor that dragged many sports clubs towards the rocks of administration and financial difficulties, and at this time we must focus on how we increase opportunities for everyone to follow an active lifestyle. Declining participation rates, a major drop-off in sport after school years, the loss of playing fields and the reduction in local authority spend in England—sport and recreation is a discretionary-line item spend in their accounts, rather than the compulsory priority that it should be—have collectively led to the absence of the much-hoped-for sports legacy from the 2012 Olympic and Paralympic Games. Obesity levels, boredom among the young and lack of opportunities for all pepper the landscape over the UK.
In contrast, I can only praise my noble friend the Minister’s commitment and support for sport in successive policy areas in his department. At Second Reading, he listened carefully to the representations made, as he did previously to my noble friend Lord Botham on this subject. He knows that the business rate holiday can directly benefit community sports clubs, with their sole objective of providing healthy and enjoyable recreational and sporting opportunities, ensuring that all ages re-emerge into the light stronger, fitter and more active in future years than suggested by the pattern of growing obesity and falling participation as a proportion of our growing population, which we saw in the years approaching the pandemic. That alone is one of the major reasons for the increasing call on the NHS in the 2010s. It was in danger of being overburdened before, let alone during, the pandemic.
Like me, the Minister knows that the country faces stubborn inequalities, that the activity gap is widening and that places and spaces, community sports clubs and leisure facilities are critical to providing opportunities for a more active nation to emerge from the epidemic—yet the hardest hit are in deprived communities. Such clubs proliferate in our poorer communities, not least in the East End of London, where life expectancy falls one year for every Underground station passed on the Jubilee line between Westminster and Stratford. Life expectancy is 10 years less there. That is why the Government need to support the Sport and Recreation Alliance, with its campaign to boost activity, from traditional or formal sport to the informal fun and enjoyment that many people can derive from outdoor recreation, movement, dance, and physical activity. Let us make sure that local clubs registered as community amateur sports clubs are exempt from business rates for ever.
My hope is that the case is considered to extend similar support to all sports clubs which provide community sport and recreational opportunities. In comparison to other sectors, business rate liability for the community sport sector remains unfairly high in relation to income. Community sport clubs often have limited financial resources, as they seek to increase membership subscriptions in ways that are affordable, thus enabling community participation without those subscriptions being extortionate.
The cohort of sport and recreational facilities in this country is ageing; too many are falling into disrepair. The costs to operate, repair and maintain are onerous. The result is that sport pays a disproportionate level of business rates, which in themselves are a brake on the key policy objective of making this nation healthier and more active. Sheffield Hallam University recently published a report on the social and economic value of community sport and physical activity in England, valuing it at £85.5 billion. The analysis valued physical and mental well-being at £9.5 billion, mental well-being itself as well as mental health at £42 billion, individual development at £282 million, and social and community development at £20 billion. That evidence makes a compelling case for investment in community sport and physical activity. One keyway in which that can be achieved is a major change in how my noble friend’s department and the Treasury approach a new system of support for exempting those clubs involved in community sport schemes from the business rate system.
I was a major campaigner for changes to be made to the old system in 2002, which resulted in the current and welcome change to the discretionary CASC scheme. But 20 years have passed and we have seen that it does not go far enough if we are to prioritise a healthier lifestyle for all adults and children. The absence of comprehensive rate relief leaves a present system that places a detailed and unreasonable administrative burden on the volunteers who make up the management committees of most community sports clubs. As the Sport and Recreation Alliance has said, the basis of assessment remains unclear and the costs and complexity of the appeals system forces many clubs to accept valuations which are too high. Rate bills are often complicated by transitional arrangements, and there are a plethora of confusing reliefs and exemptions.
The Bill will help, and our amendment will help further. I urge my noble friend the Minister to talk to colleagues in the Treasury and seek the changes that are an essential component to the survival of the sector. Should he accept the amendment, he would unite the Committee and the House, giving my noble friends in sport Lord Botham and Lord Addington—and, dare I say it, even Jeremy Clarkson, who much maligned my noble friend the Minister on another occasion—the opportunity to show their gratitude on behalf of the world of sport.
My Lords, how do you follow that? Jeremy Clarkson being mentioned in a debate in Grand Committee is something new to me. I congratulate my noble friend in sport—my collaborator in sport; that is probably a better way to put it. The essential point is that amateur sport, its clubs and the structure around them are a vital part of our social infrastructure. No one disagrees with that. Will the rating system be a support or a brake on this? How do you generate local money for such a universally accepted good? I congratulate the Government on giving some money to it, although not enough—not as much as it has lost—considering the changes that it will have to go through.
Anybody who has gone through pre-season training will know that it is a bit of a shock to the system. When you have had a year away from it, without playing properly, and you come back to find out that you have problems raising money as well, would you want to sit on the committee? As my noble friend in sport—to use his term again—says, it is a complicated and difficult system and people do not know how to deal with it. I must draw attention to some of the activities I have helped with, including getting the RFU a guide to local government. There were people telling me then, “It is not needed because the information provided is on 53 different websites under 42 different links, and if you understand the law it is fine.” That was the general consensus. These people are amateurs, taking part for fun—and they are giving the Government what they want: activity levels, social interaction and, very often, an informal job market.
Those things are valuable. If the Government will not accept the amendment, please will they heed those words? I hope that the Minister comes away from the debate saying that he will make greater efforts to make the various bits of government talk to each other. If the DCMS proposes something, the department of health may say, “That’s a good idea,” while the Department for Education says, “Yes, but it can’t get in the way of exam results,” and local government says, “What—us?” That seems to be about the way it goes. You can start from any of those departments and stick a couple more in there as well; I will not insult the Minister by trying to mention them all.
If we can get some idea that we are taking the problems of this vital sector seriously, it will reassure many people. Also, Members of the Committee should remember that all the structural problems they see here are the same for virtually any other volunteer sector. I could have mentioned music or any other such sector. Every time that you take on some commitment to a property for a voluntary activity, you have the same problems. When the Minister replies, I hope that he will give us an idea about the thinking here. At the moment, it seems to be a case of, “Oh yes, that’s terribly good, we should support it, but it seems to be somebody else’s problem.” Take a stand here—say it is yours.
My Lords, this group of amendments relates to the impact of the timing of business rate revaluations on the retail sector and, hence, the future of our town and city centres. In the first group of amendments, we discussed the timing in general terms, but my colleagues and I ask the Government to fully consider the implications of a revaluation on business profitability and survival.
For many small businesses, business rates are a significant overhead, along with the rent for the property. As my noble friend Lord Stunell reminded us, the Government’s original intention was to have a revaluation assessment in 2019, but this was moved because of negative forces affecting retailers. That negative impact has not gone away, as he said. We support the relief provided by the Government as part of their Covid response, but these are very uncertain times. This Bill proposes to push back the date on which the multiplier is announced from the September to the December prior to the new valuations coming live—in this instance, it means an announcement in December 2022. This will give businesses just three months to analyse the implications for them of the new rates bill they will be paying from April 2023. The amendment in my name and that of my noble friend Lord Stunell would enable the Government to consider the consequences of the new valuation for particular business sectors and particular regions before the multiplier was determined. An impact assessment would have to consider all the angles of the proposal and would throw light on the effect of the revaluation. It is a positive amendment which would help the Government get to a fair outcome in the revaluation of business rates.
As the Minister will know, in 1990, when the system was created, the multiplier was 34.8%. In 2020, that had risen to 51.2% for large businesses and just under 50% for small businesses. The multiplier is a crucial factor in the final business rate bill. The consumer prices index is the relevant figure used for the multiplier. Does the Minister think it is now time to reconsider the level of the multiplier? I suspect that the answer to my question will be that we should wait for the business rate review that the Government constantly promise. That will give no comfort to businesses, who will know from this Bill that they are expected to pay business rates under this outmoded scheme for at least another five years. There is obviously an effect on the profitability of individual businesses, but there is also the cumulative effect on town and city centres. As the noble Lord, Lord Kennedy, reminded us, one in 10 shops currently lies empty.
The revaluation is just one of the uncertainties that businesses are having to grapple with. The town centre funds and high-street funds that the Government have announced are all well and good, but they just paper over the cracks while the main issues affecting business survival are largely ignored in policy definition and implementation.
My noble friend Lord Addington and the noble Lord, Lord Moynihan, have raised an issue close to their hearts: the effect of business rates on amateur sports clubs. Both were right to do so and made the case with knowledge, experience, and powerful arguments which we fully support. Every community will have an amateur sporting activity at its heart, one that provides enjoyment and an opportunity to develop skills and teamwork through physical activity. They are vital ingredients of a healthy community. I urge the Minister to take note of the arguments made and come to Report with a proposal for action to help amateur sports clubs. I look forward to his response on all the points made.
My Lords, this group of amendments allows us to consider the impact of the 2023 revaluation on rates bills, the multiplier and, specifically, our high streets, town centres and amateur sports clubs. Understandably the Committee, businesses and all ratepayers would like to know how the 2023 revaluation will affect rates bills. However, it will be some time before we know that. The carrying out of a business rate revaluation is a significant exercise which requires the careful application of the considerable expertise within the Valuation Office Agency. The two-year gap between the date on which valuations will be based, 1 April this year, and the date on which the next revaluation will be implemented, 1 April 2023, is necessary to ensure accurate rateable values. For this reason, we will not know the result of the revaluation until much later, in 2022. The Government will not therefore be in a position to make an assessment of the next revaluation in respect of any specific sector or the rating list as a whole within six months of the Bill receiving Royal Assent, as is sought by some of these amendments.
However, I can say that, once enacted, the Bill will ensure that business rate bills from 1 April 2023 will be based on rental values as of 1 April 2021. This means that the business rates due on properties based on our high streets and in our town centres or in the leisure sector will be up to date and better reflect the impact of the pandemic.
Certainly, an important part of rates bills when we reach the 2023 revaluation will be the level of the business rate multiplier. It may help the Committee if I explain more about the process of setting the multipliers for 2023-24. As with all years, we are required to finalise the multipliers as soon as reasonably practicable after the local government finance report has been approved, normally in February. For example, at the last revaluation in 2017, the multipliers were confirmed on 9 March. Therefore, we expect to finalise the multipliers for 2023-24 in late February or early March 2023. In contrast, the new rating lists will not be compiled until 1 April 2023. Therefore, it would not be possible to publish the assessment sought in the amendment proposed by the noble Baroness, Lady Pinnock, and the noble Lord, Lord Stunell, before the multiplier was confirmed but after the list had been compiled.
Nevertheless, I appreciate of course that noble Lords and businesses will want to understand the impact of the revaluation as early as possible and before the multipliers are confirmed. In practice, we will announce provisional multipliers and the transitional relief scheme much earlier in the process, at the time of the autumn fiscal event.
It is our intention at the same time to publish the entire draft rating list. This means that, as well as being able to see the sectoral or regional impact of the revaluation, individual ratepayers, be they on the high street or in the sports sector, will be able to check their own rateable value and calculate their own rates bill. This will give an overall picture of the revaluation and allow ratepayers several months’ warning of their new rates bills.
I point out to the noble Baroness, Lady Pinnock, that the process of setting the multipliers is controlled largely by rules in legislation. We are required to make an adjustment to the multipliers for 2023-24 to offset the estimated change in total rateable value due to the revaluation after allowing for inflation and forecasted future appeals. It is that adjustment which drives the level of the multipliers in 2023-24.
We cannot by law set multipliers higher than that calculated from the adjustment. The Chancellor may by order set a lower multiplier, however. Noble Lords will understand that that is a fiscal matter decided by the Treasury as part of the normal Budget process, balancing the pressures on businesses with the need to fund vital local services, but I assure the Committee that the Government will have full regard to the impact of the revaluation before deciding whether to exercise that power and set a lower multiplier.
Our town and city centres are important hubs of our communities, and I am proud of the steps that the Government have taken to support this crucial part of our economy. While this Bill represents a postponing of the next revaluation, I know from the comments made at Second Reading that noble Lords appreciate that this is a step taken in the exceptional circumstances of the pandemic. However, as I have said, once we reach 2023, the new rateable values will better reflect the impact of the pandemic on rental values in locations such as the high street.
Outside these exceptional times, the Government remain committed to frequent revaluations. The high street continues to be a fast-changing environment, and frequent revaluations will ensure that business rates accurately reflect these trends and changes in the rental market over time.
Nor have we been waiting until 2023 to support the high street. As my colleagues present today will know, the Government responded to the pandemic by ensuring that eligible businesses in the retail, hospitality and leisure sectors are paying no business rates at all in 2020-21. This relief is worth around £10 billion and, when considered alongside small business rate relief, it means that more than half of all ratepayers in England will pay no rates at all this year. Furthermore, this Government have committed not just to buttress our high streets when they are required to be at their most resilient but to support them in returning as strong centres of our local economies and communities.
The amendment tabled by the noble Lord, Lord Kennedy, describes our high streets in terms of prosperity. The Government are committed to supporting the sector in recapturing that prosperity, which is why we have launched the £1 billion future high streets fund to support our town centres in responding with dynamism to the changes in consumer behaviour that have been accelerated by the pandemic. This support forms part of the Government’s £3.6 billion towns fund, which will be used to drive growth and ensure the future sustainability of our town centres and high streets.
There is no greater advocate of amateur sport and community sports facilities than my noble friend Lord Moynihan and his partner in collaboration, the noble Lord, Lord Addington. As the Committee will know, it is not just businesses that are affected by a revaluation; it is also other non-domestic premises such as charities and sports clubs. The Government recognise the value of amateur sports clubs to communities across the country, which is why we have maintained the community amateur sports club scheme. This means that registered clubs are able to benefit from a number of charity-type tax reliefs, including gift aid, corporation tax relief and an 80% business rate discount.
I know that the noble duo asked for more on that, and I will point out that the Government are currently considering options for business rate relief as part of the fundamental review of business rates and in the context of the ongoing pandemic. We will outline plans for the 2021 reliefs in the Budget. I will be a strong advocate of what the noble Lords are asking for in the process of the Chancellor forming his opinion on that. Business rate relief means that eligible sports clubs benefit from the same reductions today as properties being used for charitable purposes.
I hope, therefore, that noble Lords will understand why it is not possible to predict the impact of the revaluation either now or six months after the passing of this Bill, but that the outcome will better reflect the impact of the pandemic. This Government are fully committed to taking the necessary steps to support the renewal of our high streets, provide support to amateur sports clubs and ensure that ratepayers have several months’ warning of their new rates bill.
I hope that, with these assurances, the noble Lord, Lord Kennedy, will be content to withdraw his amendment and the noble Lords, Lord Stunell and Lord Addington, my noble friend Lord Moynihan and the noble Baroness, Lady Pinnock, will agree not to move theirs.
My Lords, I thank all noble Lords who spoke in this short debate.
I was not particularly convinced by the Minister’s response to my amendment. We are asking only for an assessment of the impact of the timing of the business rate revaluation on the prosperity of towns and the high street. I would have thought that the Government would have wanted to do this anyway, to arm themselves with some data, facts and information so that they make good, sound decisions that will have the right long-term effects. So we may come back to this amendment on Report.
I very much support the remarks of the noble Lord, Lord Stunell. I fear, though, looking at the Government and their record, that the soundproofed silos referred to by the noble Lord are firmly in place and contribute significantly to the issues and problems that the Government face. We often hear that departments do not talk to each other. The Government have a lot of issues here, many of which can be traced back to the way in which the Government operate on policy matters.
I also agree with the remarks of the noble Lords, Lord Moynihan and Lord Addington. I very much support the call for further support for community sport, particularly in our poorer communities. The call to exempt for ever community sports clubs is the right thing to do. We want to see everybody get active, fitter and healthier. Almost every night of the week, we see those adverts from the Government asking us all to be healthier, get fitter, walk more and do more sport, so that is absolutely the right thing to do.
If we support providers of community sport and improve our health as a nation, the savings to the NHS and the Exchequer will repay the relief many times over. In that sense, it is a no-brainer. As the noble Lord, Lord Addington, said, these clubs give us the activity levels that we all want to see—so, again, I very much support his amendment. Indeed, I hope that he and the noble Lord, Lord Moynihan, will bring their amendment back on Report. I assure them that, if they do not get the assurances that he wants from the Government then, we will happily support them if they want to divide the House at that stage. Perhaps we need to pass this amendment to give the Minister and the Chancellor of the Exchequer a little more encouragement to do the right thing. But at this stage I beg leave to withdraw the amendment.
Amendment 2 withdrawn.
My Lords, we now come to the group consisting of Amendment 3. I remind noble Lords that anyone wishing to speak after the Minister should email the clerk during the debate.
3: After Clause 1, insert the following new Clause—
“Assessment of the impact on appeal waiting lists
Within six months of the passing of this Act, the Secretary of State must publish an assessment of the impact of the Act on business rates appeal waiting lists.”Member’s explanatory statement
This new Clause would create an assessment of the impact on business rates appeal waiting lists.
My Lords, Amendment 3, to which the noble Baroness, Lady Bakewell of Hardington Mandeville, has added her name, raises the important issue of business rate appeal waiting lists.
As we heard at Second Reading, there are still 40,000 unresolved rating list appeals from 2010—11 years ago. As a result of this backlog, local authorities had to divert more than £3 billion from services to deal with the appeals risk from 2010 and 2017. This is an unacceptable situation; I am sure that the noble Lord, Lord Greenhalgh, would agree with me on that. Local authority finances are under extreme pressure, and this unacceptable situation is being made even worse.
The amendment would place a duty on the Secretary of State to conduct and then publish an assessment of the impact of the Act on business rate appeals. This is an opportunity for the Minister to explain the position of the Government and how they are working to deal with this backlog of appeals. I beg to move.
My Lords, I draw the Committee’s attention to my interest as a vice-president of the LGA.
It is a pleasure to take part in this debate and speak to the amendment in the name of the noble Lord, Lord Kennedy of Southwark, to which I have added my name. I am familiar with rating appeal tribunals from my previous life when I sat on domestic rating appeals. Some had been waiting in the pipeline to be heard for a very long time. The noble Lord referred to these timelines.
However, this is about business rates. Some years ago, before the Government transferred the retention of business rates to local authorities, unitary and district councils were responsible for collecting business rates but had no say in setting them; nor were they able to retain the rates collected. If the local authority had no major facilities in its area that would attract business rates, this was straightforward. However, if there were major infrastructure projects—I use this term loosely—this caused huge problems as, for reasons best known to the Government, these facilities were expected to pay business rates despite not trading as businesses.
I can speak only from my experience of Somerset but feel certain that this situation will have been replicated across the whole country. Taunton Deane Borough Council and South Somerset District Council were lucky enough to have major infrastructure in their areas. In Taunton Deane, it was the MoD camp at Norton Fitzwarren and a large hospital at Musgrove Park, in addition to several superstores. In the case of South Somerset, it was the MoD Royal Naval Air Station at Yeovilton and Yeovil District Hospital, as well as superstores. The MoD bases and NHS facilities are of course funded from central government budgets in the first place. All these assets attracted business rates covering millions of pounds. The MoD, NHS hospitals and superstores appealed against their business rates—the latter were in a slightly different category as they were trading businesses and, hopefully, making a profit, but millions of pounds were at stake.
The Government informed local authorities that they could, if they wished, agree a lower figure with the appellant. However, any difference from the figure originally set and the lower figure agreed by the local authority would have to be made up to the Government from local householders’ council tax. Many of these pending appeals waited four, five, six or even seven years to be heard. As the noble Lord, Lord Kennedy of Southwark, has just said, we have now been waiting more than 10 years for the 2010 appeals. All this time, local authorities were wondering whether they would be faced with massive bills in unpaid business rates that the Government would be expecting to receive. When appeals were heard and were successful, this money was passported back to central government. However, there was also an expectation that any shortfall would be made up by local authorities, so it was a win/lose situation for local councils and their taxpayers.
We now have a situation where local authorities operate under a business rate retention scheme. However, with high street retail outlets and other town centre businesses under extreme pressure because of the Covid pandemic, huge numbers of appeals against business rate assessments are likely.
Household rates and housing benefit levels are set on a sub-regional basis by the valuation office. Our valuation office was based in Bournemouth; the price of a property in Bournemouth was vastly different from the value of one in South Somerset. Can the Minister say whether business rates are similarly set on a sub-regional level and whether the buoyancy of the local economy is considered?
Previously, our town centres have been made up of well-known retail high street clothing stores, yet these have all but disappeared. The brands are being snapped up by online businesses that buy the brand and stock but not the premises, as we have seen this week. My noble friend Lord Stunell has already referred to this. How are local authorities that now depend on business rates to balance their budgets to proceed with an increasing number of empty properties?
Many businesses will survive: insurance agents, estate agents, solicitors, food outlets and supermarkets. However, many supermarkets have long since withdrawn to retail business parks, where there is a significant turnover of retailers as each goes into administration. Mothercare, Staples and Homebase are examples; their premises are often left empty for a considerable time. It seems that now is the time for a radical rethink of just what the Government expect business rates to deliver and what type of business they propose to be classified as liable for business rates. This will now include large warehouse facilities servicing online purchases.
The exponential rise in online shopping has been the saviour of householders who have either been subject to lockdown or, prior to lockdown, isolating to protect themselves due to their underlying health conditions. From my office window, I have an excellent view of the C-grade road that serves the 12 houses in our area. The number of delivery vans going up and down has dramatically increased since Christmas. Whether it is with home deliveries from supermarkets or deliveries by DPD, Yodel or another, they are extremely busy and often call long after it has gone dark. Apart from the supermarkets, the vans are delivering goods that householders have ordered from online businesses. Surely now is the time for these businesses to play their part in the local economy and pay business rates; the noble Lord, Lord Bourne of Aberystwyth, referred to this.
The noble Lord, Lord Kennedy of Southwark, has set out his rationale clearly. The situation that businesses, both local and national, now face is unsupportable. Local authorities are providing vital services not only in terms of housing, welfare benefits, parking, social care and children’s services but, currently, in supporting vaccination centres with admin personnel. The latter is causing some of their routine work to be temporarily put on the back burner. If our councils are also to see a dramatic cut in their income because of non-payment of business rates, we may see some of them having to declare themselves insolvent. There are already examples of this having happened recently.
The number of NDR appeals will rise dramatically. Can the Minister say whether sufficient trained personnel are ready to hear these appeals, or will there be a return to the scenario I started my speech with, where appeals wait years to be heard? It is vital that businesses and local authorities are able to see just what the likely wait for an appeal will be. The regular publication of the numbers waiting for an appeal is vital. Local authorities and businesses could be waiting for huge appeals to be heard with millions at risk, as noble Lords have indicated. This is not good for the recovery of the economy. A rapid system of hearing business appeals is essential and publication of the waiting list within six months of the passing of this Act would be a reasonable timeframe to assist local authorities to assess the seriousness or otherwise of the situation. I fully support this amendment and look forward to the Minister’s response.
My Lords, I thank the noble Lord, Lord Kennedy of Southwark, and the noble Baroness, Lady Bakewell of Hardington Mandeville, for tabling this amendment. I declare my interest as set out in the register. I also take the opportunity to thank the surveyors Gerald Eve for their time and assistance in preparing for this debate.
My concern is the rapid rate of the collapse of high-street businesses—not just the well-known brands that have been referred to but small family businesses, private enterprises and start-ups serving local markets while hoping to succeed, expand and grow. As the noble Lord, Lord Kennedy, commented, the system needs root and branch reform. These retailers’ rating assessments are currently based on pre-crisis levels of rental value, but those values have really collapsed. They were set at a time when there was a healthy economy, with low interest rates and constructive market tension in the leasing marketplace, arriving at competitive rents that were exactly what supply and demand required. That has been lost—which is to say, the values have collapsed as turnover has collapsed—and the rates applied and being paid today are much too high.
We have seen this collapse in values for several reasons; the rates payable by these businesses are the final straw. They can appeal, but there will be long waiting lists. We heard the noble Lord, Lord Kennedy, say that there were 40,000 still hanging over, some from 10 years ago. I am afraid, too, that hundreds, if not thousands, of small businesses will be forced to pay the published rates until appeals are heard, whenever that may be. They will of course have long gone and disappeared as businesses by then.
This is why I am absolutely certain that an impact assessment on appeal waiting lists arising from this Act is so important. I consider six months the absolute minimum period to attempt the impact assessment. It is unfortunate—the sooner the better—but I do not see how they can do it in less. The surveyors may be stretched to their limits to process the appeals.
The process involves a check, challenge, appeal programme, which puts the onus of setting rental value for rateable value purposes on the appellant. The only way to arrive at rental venue is to look at comparable properties and find the latest rental evidence from the marketplace, which is then applied. But there is virtually no evidence. The markets have been sliding, both for offices and retail, and we know that the rating assessments are now significantly in excess of what they should be.
I mentioned retail, but imagine the difficulty of estimating rental value for offices in two months’ time, when the date occurs. Many office buildings are empty or on a skeleton staff rotation. If they are more than a couple of floors tall, social distancing means that you cannot get into a lift. Businesses are, as we speak, considering their future office needs. Working from home, like so many of us are in this debate, means that less square footage is likely to be required. As I said, in the bottom of the trough of this rental crisis, experts will have great difficulty estimating rental values.
Will the Minister please impress on the Government the importance of urgency in addressing this rateable imbalance? Businesses are collapsing in all communities. I support the impact assessment on appeal waiting lists, but it is difficult not to imagine that the appeal process will struggle under the weight of appeals, and I urge the Government to prepare for that probability.
My Lords, it is a privilege to speak after the noble Lord, Lord Thurlow, because he has more or less stolen my thunder, which means I can be really quite brief. He outlined very clearly a common thread in all the debates so far today: the absolute urgency of getting this problem fixed. We all know that it needs a longer-term fix, with a complete overhaul of the system, but, if we are to stay where we are with the current system unamended while we wait for that golden day of amazing reform, I fear that many businesses in the country will collapse and fail, not just in the high streets, but, as the noble Lord, Lord Thurlow, so elegantly and persuasively said, in the office sector and elsewhere. Something has to be done in the meantime—which, of course, was the burden of some of the earlier debates.
The point of the amendment and the impact review is to challenge the Government by saying that what they propose to do—or, perhaps more accurately, what they propose not to do—will leave many businesses in profound despair about how they will manage in the next 18 months or two years. It is obvious that many people will appeal. The number of appeals will be large, not small, and if we start with a backlog from the previous system, that will get worse still.
My noble friend Lady Bakewell asked the Minister some piercing questions that I hope he will respond to about the efforts being made to train panels and find the expert support needed to get the appeals in the system moving through at a proper level. What about the waiting times? Is the Minister, or indeed the VOA, setting a target to deal with this backlog to make sure that it does not pile up behind the new unfolding situation? The noble Lord, Lord Kennedy, has already pointed out the 40,000 appeals. I know that some of those are very specific to one or two topics, but that is not quite the point: one or two specific topics might crop up in this round of appeals and this revaluation that will cause similar problems.
So I strongly support the thrust of the amendment and I believe that we do need an impact assessment. We need some positive action from the Government and I look forward to hearing how the Minister proposes that that should happen.
My Lords, this proposed new clause would require the Secretary of State to publish an assessment of the impact of the Act on the appeals waiting lists. The Government recognise the importance for businesses and local government of having an effective appeals system. The process we have put in place allows ratepayers to understand how their rateable values have been assessed and how to challenge those valuations where they feel that is necessary. Of course, changes to the revaluation cycle can impact on the appeals process, so I welcome the opportunity to consider this through the amendment.
I will first explain the system for appealing rateable values. The Government introduced the check, challenge, appeal system in 2017, known as CCA, because the previous system was failing. Over 1 million cases were received from ratepayers on the 2010 rating list. Many were submitted with little or no evidence and around 70% of Valuation Office Agency appeals resulted in no change. This delayed the VOA’s ability to deal effectively with well-founded cases.
The CCA system introduced a new “check” stage, at which ratepayers must first check and confirm the details of their property. This ensures that factual matters are resolved without any further action. At the next stage, “challenge”, the ratepayer must set out the basis of their case. This provides that only substantive cases progress into the system to be considered by the VOA. The final stage, “appeal”, allows the ratepayer access to the independent Valuation Tribunal, but only where they have exhausted discussions with the VOA. The amendment as drafted is concerned only with the last stage, “appeal”, but I trust that the Committee will want me to discuss more generally the CCA system.
By March 2020, the VOA’s CCA system had been showing modest volumes: around 158,000 checks and only 31,000 challenges. Of course, the pandemic has increased these numbers, and as of 31 December 2020 the VOA had registered over 440,000 checks and over 90,000 challenges. Of these, the VOA has resolved over 400,000 checks and 24,000 challenges.
Nevertheless, I know that some ratepayers and agents have concerns about how CCA operates. The Government acknowledge the issues ratepayers faced when CCA launched, particularly with the software and the use of the system. However, the VOA has improved, and continues to improve, its service for ratepayers. This includes changes to enable CCA users to submit multiple property claims, as well as improvements to the registration process to make it simpler and quicker to register.
In February last year my department published an interim review of the CCA system. Although we recognised that it was still too early to fully judge the system, the review concluded that the reforms were helping to reduce the number of speculative appeals and to improve engagement between ratepayers and the VOA.
I know that noble Lords are also concerned with a number of cases—around 50,000—that have been outstanding for longer from the 2010 rating list. In fact, the majority of the 2010 appeal backlog cases concern ATMs and were stayed pending the outcome of a Supreme Court case. So these cases did not impact on most businesses and the delay was largely outside the VOA’s control. The Supreme Court issued a decision on this matter on 20 May 2020 and I can assure noble Lords that these outstanding 2010 cases are now being settled quickly.
As the amendment we are considering highlights, the CCA process is, of course, affected by the frequency of revaluations. Looking specifically at the Bill’s provisions, to ensure that rateable values better reflect the impact of the pandemic, the Bill will move back the next revaluation to 2023. This of course will give the VOA and the Valuation Tribunal at least an extra year to clear cases on the 2017 rating list ahead of the next revaluation.
More generally, as I set out at Second Reading, the Government are undertaking a fundamental review of business rates. This includes a commitment to look at more frequent revaluations, and we would need an appeals system which supported that. The fundamental review will therefore also examine what reforms might be necessary to the CCA system to support more frequent revaluations.
The call for evidence on the review was published in July and asked respondents to provide proposals for changes to each stage of CCA to improve the system, while recognising ratepayers’ desire for a quicker resolution of cases and greater transparency. The Government are currently considering the responses to the call for evidence, and the review will conclude in spring 2021.
I hope that I have been able to reassure your Lordships about the importance that we place on delivering an effective, functioning appeals system that resolves cases in a timely manner. The proposed new clause raises important questions about appeals and the frequency of revaluations, which the Government are already fully considering as part of the fundamental review. I hope that, with those assurances, the noble Lord, Lord Kennedy, can agree to withdraw the amendment.
My Lords, I thank all noble Lords for their contributions to the debate. I agree with all the remarks of the noble Baroness, Lady Bakewell of Hardington Mandeville. She is right when she calls for all online businesses that deliver goods bought online to pay their fair share of taxes.
The noble Lord, Lord Thurlow, made a compelling case for intervention to stop the rapid collapse and decline of businesses on our high streets. No one wants to see, in effect, an end to our high streets, but that is what we will face if the Government do not take urgent, effective action. I fail to see why they are not acting with more urgency on this. They have given no convincing reason or justification either today or previously when these matters have been discussed.
The point that the noble Lord, Lord Thurlow, made about offices is exactly the conversation that we are having at MHS Homes, where I am a non-executive director. We have a fantastic office in Chatham, where all the staff, except those working on the ground, were based, but we are now wondering what our operation will look like in the future. There is nothing unusual about that—many organisations and businesses are having exactly the same conversation about what to do.
I will look carefully at the response from the noble Lord, Lord Greenhalgh, but I may well decide to bring this issue back on Report. However, at this stage, I am happy to withdraw the amendment.
Amendment 3 withdrawn.
4: After Clause 1, insert the following new Clause—
“Impact of timing of business rates revaluations: high street and online businesses
(1) Within six months of the day on which this Act is passed, the Government must carry out a review of the impact of this Act on local high streets.(2) The review under subsection (1) must make an assessment of the impact of the timing of business rates revaluations on high street businesses and their ability to compete with businesses operating mainly or wholly online.(3) The Government must lay a copy of the review under subsection (1) before both Houses of Parliament.”Member’s explanatory statement
This new Clause would require an impact assessment of the timing of rates revaluations on local high streets, particularly looking at the impact on their ability to compete with businesses that operate online.
My Lords, the purpose of Amendment 4, which stands in my name and that of my noble friend Lord Shipley, is to open up a debate about the revolution taking place in the retail sector. It is a revolution that is being accelerated as a consequence of the pandemic, which has resulted in the non-food retail sector being in shutdown for many months, with a very large transfer of shopping to online retailers. Retail analysts suggest that this significant change in shopping habits is here to stay.
Recent reports on the retail sector make the same points. Bill Grimsey, in his report in 2018, described the effect of business rates on the retail sector as “malevolent” and one that hinders growth. Business rates are, of course, just one inhibiting factor that affects the vibrancy of the physical high street. However, it is like a weather vane, indicating that all is not well with the retail elements of our town centres.
The array of shopping giants that have closed in recent years is a health warning that the Government do not appear to be heeding. Toys “R” Us, Maplin, Poundworld and others closed their doors in 2018. This year, a staple of the high street, Debenhams, is finally closing its physical presence on the high street. The Arcadia Group, which includes a string of well-known brands in many towns, is in administration. There seems little prospect of any of them reopening their shop doors; the businesses will simply go online.
The combination of closures is a large hit on many towns, as those businesses provided both an attractive shopping experience and business rates income for local authorities. The Government really do have to address this with some urgency. The problem is well known: physical retailers have financial overheads that their online equivalents do not.
The comparison of overheads in terms of business rates is stark. In my own town of Cleckheaton in West Yorkshire, an average-sized shop on the main street with 30 square metres of floor space is paying at the rate of £250 per square metre, resulting in a rates bill of around £3,750 per annum. A large Amazon warehouse adjacent to a nearby town in Yorkshire has 40,000 square metres of floor space. The rate per square metre for this giant in the retail sector is £45 per square metre. This results in a business rates bill of £900,000 per annum. If Amazon, as an example—there are others—were required to pay at the same rate as this smallish shop in a small town centre in West Yorkshire, its rates bill on this warehouse alone would be £5 million per annum. That is why attempts to save our high street will fail unless this hugely unfair advantage enjoyed by online retailers is addressed—hence the amendment from the Liberal Democrats.
The very least that the Government should do is to review the impact on local high streets and assess whether the new revaluations harm even further the ability of the retail sector to compete successfully with online businesses. We cannot, like the myth of Canute, hold back the tide of change in shopping habits. However, what the Government can and should do is provide a level playing field for retailers. This is not a problem that can be kicked down the high street in the hope that the sticking plasters of high-street and town funds from the Government will stem the demise of town centres; nor is there an easy solution, but then Governments are elected to deal with difficult problems.
There is an urgency in finding a solution, as I have indicated. Will the Minister provide any certainty for high-street retailers that the Government accept that a revolution in retail habits has to be accompanied by a revolution in business rates? I look forward very much to the Minister’s response.
My Lords, I thank the noble Baroness, Lady Pinnock, for tabling this amendment, together with the noble Lord, Lord Shipley.
There is no doubt that an impact assessment of the new valuations on the high street is worthwhile and important. It is actually vital. We have already seen the change in the high street referred to by the noble Baroness, Lady Pinnock. The former retail parades that once flourished now see nail bars, estate agents, coffee shops and charity shops proliferate. I am delighted, of course, for the charity shops and their sector, but please understand that many of these shops are paying a 20% rates bill and are there because their landlords heave a sigh of relief that they have found someone to relieve them of the burden of the empty premises rates that would be applied after they have lost their traditional tenant.
Our high streets and shopping centres are the focus of local communities. Social health and welfare to some extent depend on them. We cannot afford to lose them because of unrealistic operating costs. I was very pleased when the noble Lord, Lord Greenhalgh, referred just now to the Government’s recognition of the importance of vibrant town centres. The health of those centres lies in the gift of the Government, right now, and in their ability to construct fairness in the apportionment of the NDR burden.
This amendment includes reference to the ability of high streets to compete with online. It is an often-discussed subject, and the urgency of rebalancing the rates burden could not be more pressing. The noble Baroness, Lady Pinnock, mentioned Amazon. I saw in today’s Times an appalling reference—appalling to me, anyway— that £1 in every £20 spent on retail is spent through Amazon. I assume this was a reference to last year, or to the last accounting year.
Amazon, of course, is a giant, but there are hundreds of online retail businesses and we are right in the midst of a massive societal transfer of shopping habits from the traditional shop or store in or out of town, in or out of a covered shopping centre, to online. Covid, of course, has forced that rate of change to accelerate faster than it otherwise would—but it was a concern many years ago.
There are numerous constructive proposals to recoup a fairer contribution from the online sector to the tax base. To equitably rebalance the transfer of sales between online and the high street may require a 40% reduction in the high street burden. That is a huge reduction. I am afraid that the Treasury cannot expect revenue neutrality by simply transferring this across to other commercial sectors. The slack is just not there, particularly if we have to take a reduction from the office sector as well. Logistics, industrial and warehousing will not fill the gap. That is a real worry and a concern. Local authority funding has been referred to already, but I am afraid that it is something that needs addressing.
I support the amendment. The health of the high street cannot wait for the results of the fundamental review that was discussed at Second Reading and has been mentioned by the noble Lord, Lord Greenhalgh. I was very grateful for that, but the issue is too pressing.
My principal concern remains the difficulty of assessing rental value in these most uncertain times. I do not think that it will be possible. Appeals may descend into chaos. Certainly, I predict long delays. Rental values will have to be assessed post Covid, not in eight weeks’ time. A short-term arrangement will be necessary for the non-domestic ratepayers on the high street and in the retail sector to cope with the transfer to online, and I hope that the Minister will be able to make some constructive comments to help give comfort to all of us who are concerned.
My Lords, I first remind the Committee that I am a vice-president of the Local Government Association.
The noble Lord, Lord Thurlow, has made some very salient points, notably that it is vital that urgent action is taken to help high street businesses by reducing their operating costs. I recall the noble Lord, Lord Thurlow, saying at Second Reading—and again today—that it would prove very hard to estimate rentable and hence rateable values for the traditional retail sector even with this deferral, because new lettings will for the time being be rare events.
When I spoke at Second Reading, I pointed out that retailers pay over a quarter of business rates in England and Wales. That is a very large amount of money, but it will now decline significantly as less is generated from high streets. There is, though, an immediate opportunity to even up business rate receipts by switching a greater burden from the high street to online businesses through the revaluation process itself, because we do not have a fair balance at the moment.
At Second Reading, the Minister said the Government would report in the spring on its fundamental review of business rates. He said he was
“sure that the fundamental review will look at alternative taxes to capture the shift in our shopping habits.”—[Official Report, 18/1/21; col. 1069.]
I welcome that and hope it happens, and I draw his attention to the potential for an e-commerce levy on online businesses.
As we have heard, the move online of Arcadia brands and Debenhams in recent days represents what seems to be an irreversible trend—but that cannot be allowed to mean lower rents and rates for online businesses at the cost of the high street. This proposed new clause would require an assessment of the impact of any business rates revaluation on local high streets to be undertaken within six months, looking in particular at the ability of high street retail outlets to compete with the huge retail businesses that operate online.
The timing could fit well—if the Government wanted it to—with the fundamental review of business rates, and I hope that they will take the opportunity provided by the amendment. It would be strongly and warmly welcomed by high street retail businesses because, as the noble Lord, Lord Thurlow, said a moment ago, the matter has become very urgent.
My Lords, Amendment 4, moved by the noble Baroness, Lady Pinnock, seeks to insert a new clause into the Bill which, as we have heard, would require an impact assessment of the timing of rates revaluations on local high streets and, importantly, would look at the impact on their ability to compete with businesses that operate online.
We have a serious problem with our high streets. The problem was in many cases a crisis before the pandemic, as we have discussed today on previous amendments. We can all point to the closed and boarded-up shops in areas that we know. The pandemic has created an even more serious problem for high streets and has put many businesses at risk. We need action from the Government to deal with all the issues that are destroying our high streets and our shopping parades.
We will all have seen the news that Boohoo is purchasing Debenhams and that ASOS is purchasing Topshop, but they are purchasing the names and not continuing with their high street presence. Why they are doing that is the question we need to look at. Clearly, they have taken the view that they do not need, or that it is too expensive to operate, a high street presence. This is why urgent action is needed. The issue with online retailers needs to be addressed. It has been discussed in the other place. My honourable friend the Member for Manchester Central, Lucy Powell MP, has said:
“The pandemic has accelerated changes to the way we shop, yet the government continues to disadvantage bricks and mortar businesses against online companies … The support on offer for struggling business has been a series of sticking plasters. Unless the Government puts in place a long-term plan to help high street businesses survive this crisis and recover on the other side, we will see more well-loved high street names vanishing, and many more jobs lost.”
I could not agree more. I also agree with the noble Lord, Lord Thurlow, that we need vibrant, healthy town centres. As he said, the power to help the high street is in the hands of the Government. I hope the Minister will address that point.
My Lords, I am grateful to the noble Baroness, Lady Pinnock, and the noble Lord, Lord Shipley, for a further opportunity to speak about our high streets. As I outlined when we debated the second group of amendments today, we will not know the impact of the revaluation on rates bills until later in 2022, so it would not be possible to produce now the report outlined in the amendment we are discussing. However, we can be sure that, once we publish draft rateable values alongside the multiplier and the transitional relief scheme later in 2022, ratepayers will be able to see precisely how revaluation will affect their rates bills.
The noble Baroness, Lady Pinnock, raised an important point about online businesses compared to those that operate on the high street. Businesses which sell mainly or wholly online do not avoid business rates. They may also operate shops—many high street retailers also sell online—and they will require significant warehouse and distribution facilities, often in high-value locations. Nevertheless, business rates are a tax on the use of property and the rates bill is based on the value of the property. It follows that business models that occupy less property and perhaps operate from less valuable locations will pay less in business rates.
Property taxes have several key advantages over other forms of business taxation: they are relatively efficient to collect, they provide a relatively stable source of revenue to local government that helps ensure the provision of essential public services, and they provide relative certainty for ratepayers from one year to the next. However, there is undoubtedly a click-and-collect revolution, as outlined by the noble Baroness, Lady Pinnock, and the noble Lord, Lord Kennedy. The Treasury’s fundamental review of business rates is considering alternatives taxes, including a potential online sales tax. The review will need to consider matters such as the economic impacts of such a tax and assess the concerns and risks that have been raised in the call for evidence.
Supporting the high street is a priority for us. In this year alone, no retailer on the high street is paying business rates. With the assurance that the matter of online business is being considered as part of the fundamental review and the updating of rateable values to better reflect the impact of the pandemic which will come from the 2023 revaluation, I hope that the noble Baroness, Lady Pinnock, and the noble Lord, Lord Shipley, can agree to withdraw their amendment.
My Lords, I thank all noble Lords for their contribution to this short but very important debate. The noble Lord, Lord Thurlow, has stressed again the nigh impossibility of assessing rental values in the current climate. I hope the Minister will discuss with his department how rental values are to be assessed while the pandemic is rife.
My noble friend Lord Shipley reminded the Government of the potential of an online tax to create a level playing field for all retailers. I thank the noble Lord, Lord Kennedy, for his support. All noble Lords who have spoken have emphasised the urgency of responding to the situation facing our high street retailers. A revolutionary reform is needed. How much longer are online businesses to escape a fair assessment, compared with physical retailers? I am pleased that the Minister has just said that the Government are considering online taxes in the business rates reform, but I remind him that town centres cannot wait much longer. I beg leave to withdraw the amendment.
Amendment 4 withdrawn.
Amendments 5 to 7 not moved.
Clause 2 agreed.
Bill reported without amendment.
My Lords, that concludes the Committee’s proceedings on the Bill. I remind Members to sanitise their desks and chairs before leaving the Room.
Committee adjourned at 4.26 pm.