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Non-Domestic Rating Bill

Volume 831: debated on Monday 19 June 2023

Second Reading

Moved by

My Lords, this Bill delivers important changes to the business rates system. Business rates are a key component of the way in which local services are funded and are set to raise almost £25 billion this year. However, in recent years, concerns have been raised about the fairness of the tax and its impact on a competitive business environment.

Taking on board these concerns, the Government committed to reviewing the business rates system. We completed this process in October 2021, following extensive engagement with businesses, councils and others. The conclusions were clear: like any tax, the business rates system has flaws but it also has significant advantages that are important to protect. These include the tax’s relative stability, how easy it is to collect, how hard it is to avoid and its clear links to the locations where its revenue is spent. The majority of respondents to our review supported the continuation of business rates and did not support the disruption of a major overhaul. Overwhelmingly, they favoured measures to modernise the tax—especially moving to more frequent revaluations, which I will turn to shortly.

At the conclusion of the review in 2021, the Government announced a £7 billion package of support for businesses over five years, alongside a package of reforms. Since then, the Valuation Office Agency has delivered a revaluation, completing valuations for around 2 million properties in England, which reflects changes in the property market since 2015. Revaluations are crucial to ensuring a fairer distribution of rates bills. This revaluation, for example, rebalanced the burden between online and physical retail: on average, bricks and mortar retailers saw decreases of around 20%.

We made sure that the revaluation was manageable for businesses by introducing a £13.6 billion package of business support, which included freezing the business rates multiplier at a cost of £9.3 billion over the next five years. The Government have therefore provided considerable support into the business rates system while balancing the needs of local communities, which rely on funding for local services. However, we remain focused on the need for longer-term reform.

Throughout our review, businesses expressed their desire to keep business rates as accurate and responsive as possible. The Bill therefore delivers a more frequent revaluation cycle for business rates, moving from five-yearly to three-yearly. Following the revaluation that took effect this April, the next will occur in April 2026 and every three years thereafter. This is a positive step for business as it will ensure that the tax is fairly distributed more frequently. It is a major reform of the system, responding to the calls of many stakeholders, and is deliverable in the short term.

However, I recognise that there have been calls for greater ambition. Let me be clear: we are prepared to explore how we can go further in future. In particular, we wish to reduce the gap between the date against which rateable values are assessed and when they come into force, which has been set at two years for the 2026 revaluation. We will also carefully consider the case for an annual revaluations cycle in the longer term. However, we must take these steps sequentially. To deliver a revaluation, the VOA must carry out 2 million valuations in the time available—a major endeavour. Moving to more frequent revaluations means that other changes are necessary to enable the Valuation Office Agency to compile more accurate valuations at greater speed.

We have heard repeatedly from businesses that getting these valuations right is vital to sustaining public confidence in the tax. We also heard concerns that moving to an annual cycle would increase the volatility of bills and potentially damage the accuracy of valuations. It is therefore right that we monitor the implementation of the first three-yearly revaluation cycle and the supporting reforms before taking further action.

Delivering three-yearly revaluations on a sustainable basis will rely on the VOA having access to more timely and complete information. The Bill therefore introduces new obligations on ratepayers to provide the VOA with relevant information. This will bring business rates in line with other taxes, where self-declaration is absolutely the norm.

As part of our wider modernisation of the business rates system, the Bill also introduces a new requirement on ratepayers to provide a taxpayer reference number to His Majesty’s Revenue & Customs. This small extra step will connect the business rates information held locally by councils with HMRC tax data, delivering benefits such as better targeting of and improved compliance with rates relief schemes. Ratepayers will also be able to provide relevant information to the VOA, and their taxpayer reference number to HMRC, through a single straightforward online service on GOV.UK.

It is entirely right that we consider the potential burden on businesses of new administrative requirements. The Government have taken steps to minimise these burdens, have published estimates of the expected costs and will provide guidance for ratepayers.

I want to address some specific concerns about the VOA duty to notify that have been raised with me. First, on what information the Government are asking ratepayers to provide, the duty is not limited to information that the Valuation Office Agency needs to do its job and no more; it is also explicit on the face of the Bill that ratepayers will be expected to provide to the Valuation Office Agency only information that is within their “possession or control” and which they could reasonably be expected to know would assist the valuation office. The VOA will continue to make use of supplementary sources of evidence in order to minimise the burden on ratepayers.

Secondly, let me provide some reassurance about whether this will be complex for ratepayers. To comply with the duty, in practice a ratepayer will only have to visit GOV.UK, use the online service and answer all the questions asked of them. They will receive multiple reminders to support them in providing the right information.

Thirdly, to ensure that the VOA has the most complete set of information to deliver more frequent revaluations, it will be necessary for ratepayers to confirm each year that the information that the VOA holds on their property is correct. For ratepayers whose information is up to date, this step should take only a few minutes. For those who have not remembered to keep their information up to date, this stage will serve as a further reminder to rectify that.

Finally, we will continue to design the new processes in partnership with businesses and interested parties, and we will not activate the duty until we are satisfied that ratepayers can reasonably and efficiently comply. I thank those noble Lords who came to the drop-in sessions. That gave me the ability to answer those questions up front, although I am of course happy to pick up anything further in winding up.

As we move to more frequent revaluations, the Government have considered how to improve the support that we provide to businesses adapting to changing bills. At last year’s Autumn Statement, the Chancellor announced that he would permanently remove the requirement for revenue neutrality from transitional relief. That change is given effect by this Bill. This means that for the 2023 revaluation, there are no downward caps, which previously restricted falls in bills. Businesses have therefore seen the full benefit of falling bills immediately. As a result, the 300,000 properties with falls in rateable value at the revaluation have seen the full benefit of that reduction in their new business rates bill from April 2023. Going forward, we will use that freedom to permanently fund all future transitional relief schemes without recourse to downward caps. I am happy to give that commitment in the House.

It is also important that we protect the integrity of revaluations. Between revaluations, rateable values should change only for a material change in circumstances, or MCC. MCC challenges are designed for cases such as roadworks outside a shop causing access difficulties. This Bill will preserve that principle by providing that changes in legislation, advice or guidance by a public body are not a material change in circumstances. We consider that such matters are related to the general conditions of the market and so belong in the revaluation process.

Interestingly, the noble Earl, Lord Lytton, identified the scenario of a vaping ban as an example of how this measure could have unwarranted consequences. In fact, his example underlines why we need to clarify the law concerning MCCs. Without this clarity, over recent years the Valuation Office Agency has been forced to consider whether legislation changes such as smoking bans or the introduction of the congestion charge should affect rateable values. The result was uncertainty for the ratepayer and for local government.

In the future, we will have clarity in Clause 14, ensuring that changes in legislation such as that, which clearly concern the general economic conditions and level of rents, are reflected for all at the next revaluation. These revaluations will of course be happening more frequently under this Bill, and any physical consequences of new legislation on a property will continue to be reflected as and when they arise.

This Bill also introduces an important new relief to support businesses investing in their properties, responding to another key stakeholder ask during the review. Currently, our business rates are a tax on the value of the property, so businesses may see an immediate increase in their rates bill for any improvements that they make to their property. From 1 April 2024, this Bill will mean that no business will face higher business rates bills for 12 months as a result of qualifying improvements to a property that they occupy. The Bill prescribes powers for Ministers to set conditions for the availability of the relief, and the Government’s policy on this has been set out in our earlier technical consultation. My department has published draft regulations for consultation so that noble Lords may review how the Government intend to exercise these powers.

Finally, the Bill makes changes to the calculation of business rates multipliers—or tax rates. In recent years, government policy has been to uprate the lower multiplier each year by the consumer price index rather than the higher retail price index. The Bill ensures that the CPI is the default uprating for both multipliers, reducing the potential inflationary burden on businesses. The Bill also provides a power to uprate at a level lower than CPI, and to directly set which properties are subject to which multiplier, allowing the Treasury greater flexibility in the support it can provide.

In conclusion, this Bill modernises the business rates system by bringing valuations more in line with the property market, improving the data underpinning the system, removing barriers to investment and improving fairness. I look forward to hearing the contributions of noble Lords on this important subject. Many of your Lordships have called for reform of this tax for some time, and I am confident that this Bill delivers it. I beg to move.

My Lords, I declare my interest as vice-president of the Local Government Association. I am very grateful to the Minister for her introduction to this Bill. It had a speedy and uncontroversial passage in the House of Commons, but there are several matters which this House will need to discuss in Committee. I will identify some of them.

There has been a lot of concern about the business rates system in recent years. That relates partly to Covid, partly to the rise in internet purchasing and partly to the very high cost of business rates. There have been several reviews. Some of the conclusions of the recent one by the Government are now part of the Bill, which I welcome. I concede that business rating is not an easy issue. Business rates form a substantial element in a business’s costs and in a council’s income. There is a balance to be struck. I remember that when business rates were decided locally there was a campaign by major businesses—particularly high street retailers, notably John Lewis—for a national system. At the time, things were so chaotic, with some councils trying to increase business rates to make up a shortfall in government grant, that I supported that change. But that was 30 years ago and times have changed.

The Government have a proposal to lower the period between valuations from five years to three years, which certainly is better than the current five-year rule. I would prefer two years, and I look forward to seeing whether any other Members of your Lordships’ House feel similarly. Maybe we need to discuss this in Committee, but in an ideal world it might be better to have a one-year revaluation. However, for the time being I prefer two years. I hope that the Minister agrees that, even if we end up with three years, we could look in the medium term at that reduction. That would help.

The 2019 Conservative manifesto promised to reduce the burden of business rates by

“a fundamental review of the system”.

There has not really been a fundamental review of the system, and I suspect that is because any fundamental reform is inevitably long-term. The aim of the review started in March 2020 was to reduce the overall burden on businesses, improve the business rates system and consider more fundamental reform in the medium to long term. It is true that there have been reductions in the overall burden for some businesses and that, in some cases, what is being proposed in the Bill will improve the business rates system, but I do not think that the more fundamental reform is being delivered in the medium to long term.

Currently, local authorities keep 50% of business rates. Some have 100% retention and there are various pilots of different amounts taking place. As we know from the recent announcement, the West Midlands will retain its business rates for 10 years and that trend towards a return to devolved responsibility for business rates as a fiscal policy is welcome.

I have always felt that rentable value—and, hence, rateable value—is a sound method for assessing value. For the time being at least, it is important that it stays, because it seems to be the preference of all those who were recently consulted. I support rates relief for improvements to property and for heat networks, and welcome what the Minister said about that. I support the proposal to give businesses the immediate benefit of a rate reduction while keeping transitional relief for increases; that is helpful.

I wonder about the thresholds, and again we might test this in Committee. Business rates are not paid on properties with a rateable value of less than £12,000, and there are tapered reductions up to £15,000. I wonder why those figures are not being raised and whether the Minister, when she replies, could tell us what assessment has been made of increasing the threshold level. That could be very helpful to a large number of small businesses.

The Minister and the Bill say that there are all kinds of increased powers for the Valuation Office Agency. There is a question of whether businesses should have to notify the valuation office of changes that could impact a property’s rateable value, and my view is that they should. If it is simply as the Minister described a few minutes ago—taking a moment or two to sign off that nothing has changed—I cannot see a problem with it. As long as the publicity around that requirement is effective, all should be well. But, if it is not done that way, the Government need to be very careful about penalising businesses that have not understood the rule.

When I read the Bill and the relevant briefings on it, notably the Library briefing, it occurred to me that everybody else paying business rates had all kinds of obligations being placed on them, but I did not see many obligations being placed on the Valuation Office Agency to respond effectively within time limits and by doing the right thing by the person inquiring. I would like the Minister to confirm that the Government have plans to impose standards of performance on the Valuation Office Agency, because there have been complaints about it in the past, particularly about notifications of valuation level and the transparency of the decisions it has made. It is very important to be able to have a quick dialogue with a business rate payer. We need to test that the Valuation Office Agency is being open and transparent, and is applying quality standards. I hope the Minister agrees that that would be useful.

The Minister might also wish to comment on the small business multiplier, which is 49.9p in the pound at the moment. I wonder whether there is a case for having a slightly lower multiplier for small businesses. Taken in the round, that relates to the £12,000 threshold. In the end, the aim would be to encourage small businesses to thrive, and to generate jobs and greater economic activity. I would be interested to know how the Minister feels about that.

I read a suggestion that there should be a licensing, or maybe a regulatory, system for business rate advisers. There are apparently some setting themselves up to give business rates advice to small businesses. What steps might the Government take to license or regulate such advisers?

In conclusion—almost—I believe in the business rates system being composed of three elements, at least for the short to medium term. One is property, because a building may attract the fire service or police support if it were to be burgled, so property is one element. The second element is the value of the land on which a building is built, which is lower in some places than others, and this should be reflected in the business rate levy. The third element is online sales. I believe that that has been understated for some considerable time. I would like a high street retail outlet to pay equivalent business rate levels to an online company because, in 2019-20, only 5% of retail sector income was raised by online retailers; 95% was, broadly speaking, from high street locations. The Government said that they would make a fundamental change to the business rate system in the medium to long term; that is one of the fundamental changes that I think should be investigated.

I wonder whether we need a comprehensive register of freehold property ownership. Without it, it is difficult to locate ownership. I do not know what the Government think about that.

My last point relates to material change of circumstance. There is a debate about whether, if the Government legislate on something, that can or cannot be a material change of circumstance. As I understand it, that debate derives from the Covid pandemic. I have thought about it and think we need to test this in Committee, because there is a case for saying that, if the Government legislate on something, it may force some business rate payers to face a material change of circumstances. We need to understand better the Government’s thinking on an MCC. Overall, I welcome this move and what is happening, and all of what I have said is an attempt to make the Bill even better.

My Lords, it is always a pleasure to have another go at business rate legislation. As I always do, I inform the House that I am a fellow of the Royal Institution of Chartered Surveyors, and a member of the Institute of Revenues Rating and Valuation and of the Rating Surveyors’ Association. I am also a co-owner of a non-domestic hereditament that benefits from small business exemption, and I used to work in the Inland Revenue valuation office.

With those declarations, I thank the Minister for reaching out and arranging a meeting with her and her officials, and for the follow-up information provided. I am extremely grateful for that. I agree with many of her overarching statements on what is happening here.

When I asked what impact assessments had been carried out—a matter to which the noble Lord, Lord Shipley, referred—I was told that it is not customary to undertake them for tax-related purposes and I was offered a rather less detailed impact note. I feel that business rate payers must not be used as a beta test bed for emerging ideas and that the repeated suggestions that the Valuation Office Agency will see how things progress are, arguably, destabilising in their own right.

I have said before in this House that, to some extent, this is another attempt to make an old steam loco do what it was never designed to do in terms of the burdens imposed and the reliability of the system. At a levied rate of more than 50% of the assessed annual value of every business property, this remains a tax that is objectively excessive to the point that it imperils its own stability. It is also out of kilter with international comparators. It burdens businesses disproportionately by reference to property value and, most particularly, as to the use and benefit of local services in which they have no formal voice and certainly no vote. Worse, it discourages a certain amount of investment and entrepreneurial activity. Complexity and new burdens continue to be added because HMRC can do so without responsibility for outcomes or risk of push-back. Council tax payers, by contrast, have for many years been protected from any comparable increase in their level of local financial contribution.

Short-termism and modal shift are the outcomes of changes in economics and are, to some extent, propelled further by the business rates environment. Firms that would once have been high street operators now function from cheaper industrial sites, where the shop window is on the internet or social media, the stockroom is the white van on the highway network, and the cash desk is a web-based payment system. Former shopping streets are populated with eateries and charity shops—I should add that many charity shops do not pay business rates. Shorter leases and break clauses are part and parcel of the landscape. Many and varied reliefs have had to be given to address the problems, and the rules relating to them have become ever-more complex. That apart, the Minister is right that a property-based business tax is an effective system provided it is used correctly, and that is a very important proviso.

On the detail, I start with Clause 1, which inserts new Schedule 4ZA into the 1988 Act, and Part 3 of that new schedule relating to the proposed improvement relief. I have already expressed to the Minister in a private meeting my surprise that improvements which may have a lifespan of 20 years or more will benefit from only a single year’s disapplication of any rental value uplift they create. While I understand that it is specifically intended that the relief should not benefit investors or developers, I cannot disentangle this from standard commercial lease terms in which the landlord’s consent and co-operation may be required. The architecture here is, to some extent, misconceived. Although I am informed that substantial funds are earmarked for this, I fail to see any incentive likely to overcome the narrow qualification criteria for this relief. Meanwhile, we still have the situation where heavy industry is obliged, in many cases, to put in at additional expense complex emission controls and other measures, adding nothing to the productive capacity of the property but where the plant and machinery element represented by those improvements is increased thereby and the rateable value with it. This is nonsense and should not continue.

In Clause 5, I welcome the general direction of travel towards shorter revaluation cycles, but they need to be more frequent still. If Scotland can do it, so can we in England. As the rate of mercantile change accelerates, it is clear the non-domestic rating system has not kept up, has been slow to adapt, and has created a large measure of injustice and inequality, damaging confidence in the tax and, to some extent, the credibility of those responsible for its management. This is regrettable.

Clause 6, on transitional relief, is a welcome shift. I simply ask whether it is the Government’s intention to abolish downward phasing altogether—an arrangement in which those who should be paying lower business rates gain only on some never-never principle because this funds transitional relief for those who should be paying more. In terms of natural justice, I would be glad to see it gone and the principles of fiscal neutrality become more elastic. The Minister’s assurances given a few moments ago are welcome.

Clause 10 is welcome because it has long been a complaint that, while the Valuation Office Agency demands information from ratepayers’ representatives to justify valuations, VOA officers can effectively ignore similar requests from ratepayers. On transparency grounds, this has long needed rectification. We will have to see how this turns out or whether the confidentiality arguments that have been put forward in the past will continue to be fielded as a reason for the VOA not honouring the spirit of this provision. However, I welcome it for what it is thus far.

Clause 13 is a new reporting obligation. I thought the rationale behind the frequency of making declarations of changes—an event date plus 60 days, in addition to a financial year end plus 60 days’ reporting—was that if ratepayers had to make a disclosure with that frequency then reviews of the valuation list should match that. That seems logical. That was my reading of the message from the consultation process. Requiring virtual real-time data, which is in effect what this Bill asks for, was the corollary of having annual—or at any rate, much more frequent—valuation list updates. Given this asymmetry, I welcome the Minister’s comments about the potential for further shortening the revaluation frequency and the antecedent date gap between the date of valuation and the date of coming into force of the list.

On the detail of the declarations required, there are in fact two separate circumstances. The first is the information to be provided to HMRC, as set out in Clause 13(2) which inserts new paragraphs into Schedule 9 of the 1988 Act. New paragraph 4F spells out that it is a change in any of three instances of taxpayer reference, VAT registration and national insurance number. However, I remain unclear how the tax bit in particular works for a sole trader operating as an incorporated business. The proposition seems needlessly fussy.

The reporting arrangement for this is set out in the previous paragraph 4E and is to HMRC’s portal. All the information required by paragraph 4F will already be known to central government departments—hey ho. But secondly, at paragraph 4J, there is a separate requirement to report any notifiable information within the ratepayer’s possession or control, including, at paragraph 4J(2)(a) and (b), any changes in the ratepayer identity or, as we have heard, anything,

“that would or might affect the existence, extent or rateable value of the hereditament”.

This is not just physical change. Many ratepayers do not understand what constitutes a “hereditament”, let alone what may be deemed in the view of the VOA to affect it. Although I take the point made by the Minister that this extends at paragraph 4J(3) to what the ratepayer

“knows, or could reasonably be expected to know, that it would assist a valuation officer in carrying out functions”,

I hope we are going to get a clearer definition at some stage and an explanation of the apparent lack of impact analysis, especially as regards small businesses at one end of the spectrum and a retailer with hundreds of hereditaments at the other.

Furthermore, the reporting arrangement under paragraph 4J is not, as one might expect, to HMRC as before but potentially via a different system to be set up by the VOA, using an online facility referred to at paragraph 4L. There will potentially be two different portal routes. I understand that there is to be a pilot, and that the reporting arrangements are to be consolidated via one portal, and that this will not be implemented unless the VOA is satisfied it is fully functional. That is very welcome in what otherwise could be unnecessary duplication.

I remind your Lordships that the barriers to accessing the check, challenge and appeal system under the business rates process were put in place deliberately to deter the so-called rating agent cowboys. I hope there will be some guarantee that, under this new data-harvesting exercise, small unrepresented businesses will not fall into the hands of precisely the same charlatans, or indeed the complex access arrangements intended to defeat them that plagued the appeal system.

None of this negates the ongoing obligation to respond to a more specific demand for information which VOA can make of a ratepayer at any time during the year. Nor is the beneficiary of small business exemption exempt from all the same requirements, even though they pay no rates. Processing tens of thousands of additional annual returns, as I am told is the likely outcome, has not obviously been factored into all this, and the impact note’s suggestion of a £15 a pop cost to businesses seems to me a significant underassessment.

Picking up a point made by the noble Lord, Lord Shipley, there is also no guarantee that the VOA will act promptly either to advise of the likely implications of any change or, indeed, to implement them by changing the rateable value. To my mind, this is still an unnecessarily one-sided and open-ended arrangement, prone to arbitrary redefinition and, potentially, to equally arbitrary determination of claimed infractions. I do not see it as a necessary light touch; rather, as an additional and potentially burdensome obligation, possibly—although I hope not—involving two different gateways for reporting. That is what is actually set out in the Bill.

Clause 14 deals with the redefinition of material change of circumstances. Here, I am bound to say that I do not follow the logic: namely, that changes in statutory or regulatory measures should be taken as part of general market changes and reflected only at revaluations, although I note that the clause does not preclude taking account of changes of a physical nature or the state or locality of the hereditament meantime.

First, just about anything done by dint of administrative powers is by definition a child of statute. If, for instance, a vaping ban—which the Minister referred to and which I raised with her—renders a specific category of business unviable overnight, or, more typically, a low-emission zone, diesel vehicle ban or traffic management scheme is introduced that reduces retail footfall and mercantile activity at a stroke, is it right that this should be excluded from a definition of material change of circumstances?

For such matters to be disregarded, they should, first, apply to all businesses and, secondly, be disregarded only where a significant adjustment period has been allowed for business rate payers to take this into account. In all other cases save national emergency, the consequences for business rate yields should immediately be felt by the public sector that imposes them and not via this free-bet measure that transfers the entire risk on to businesses. I would be grateful if the Minister could elaborate on that point.

The Explanatory Notes’ suggestion at paragraph 37, that this will

“restore the law to its originally intended extent”,

is, I am afraid, simply not something I recognise. Plus, in my professional lifetime we have managed for over 50 years without there ever being an issue requiring such negation of materiality.

I will end my detailed points at this juncture, but I may well return at later stages of this Bill with amendments. I am bound to say that, whatever imagination may have been applied by the architects of this Bill, it has not been viewed from the standpoint of business, particularly as I perceive it from the briefing of the Shopkeepers’ Campaign and from professionals to whom I have talked.

If businesses need to count their fingers every time they figuratively shake hands with the Government on some taxation matter, we are in very negative territory. When the Government continue to claim that the postponement of the 2015 revaluation was “to give business certainty”, as repeated at paragraph 7 of the Explanatory Notes, it makes me cringe. Patently, it was all to do with maintaining tax yield. Businesses did get certainty—that is to say, the guarantee of continuing to pay business rates based on the peak value levels of 2008—but on sharply fallen values, reduced business activity and with substantially increased costs of trading. This was a misrepresentation, and everybody knows it. It is time for an attitude change.

My Lords, I declare my interest as the owner of investment retail property in the high street. I am extremely grateful to the Minister for her clear and illuminating introduction to the Bill, and to the noble Lord, Lord Shipley, and the noble Earl, Lord Lytton, who have covered a wide range of the issues. Many of us, including myself, have spoken about this issue of business rates in the context of the Levelling-up and Regeneration Bill, so I will keep my comments very brief.

As the Minister has outlined, there are good provisions in this Bill. A reduction of time between revaluations from five years to three is a good move. Indexing non-domestic rating multipliers to the consumer prices index rather than RPI is obviously welcome. Introducing rates reliefs for improvements to property and heat networks is also desirable, and allowing the Treasury to give businesses the immediate benefit of rates reductions while maintaining transitional relief for rates increases is good. Undoubtedly, a great number of positive things have come from the Bill.

However, as noble Lords have pointed out, there are significant flaws and omissions, and I want to deal with them briefly. First, I take up the question of the obligation to notify the VOA of any changes affecting a property’s retail value. This is separate from the annual return, and its effect is to extend a reporting obligation to businesses that currently pay no business rates due to reliefs. They will have to send information to the VOA—a purely bureaucratic exercise that will not result in any increase in the business rates receipts. It is, for them, just a bureaucratic headache, and they will have to do this within 60 days of the change or face a penalty. I question whether this is an appropriate obligation for the people I have mentioned, who pay no business rates and would not pay any, despite the change I have indicated. It has been suggested that an additional 700,000 businesses may have to send such information, pursuant to that duty to notify.

So far as the material change of circumstances is concerned, I agree with both noble Lords who have spoken before me. I can see no good reason why legislation or other public body advice that may impact on rateable value should not be taken into account as a material change of circumstance. The Minister referred to vaping, but many other circumstances could indeed have an impact on rateable values through legislation. We cannot predict this, but simply banning outright any possibility of that sort of change through legislation having an impact on rateable values seems to me to be quite wrong. One suggestion from one of the people who briefed us was that changes in the laws relating to energy protection certificates might have an impact.

The next matter is annual revaluations. I would certainly support the suggestion of the noble Lord, Lord Shipley, that, if we cannot have annual revaluations, we should at least go for two-yearly revaluations in the interim. Getting as near as you can to the actual date in respect of valuation and payment is obviously of great value to everybody, and particularly to businesses operating through retail trade.

I also support both noble Lords’ view that consideration should be given to changing the antecedent valuation date, which is normally two years before the list is applied. Property values are already two years out of date before the first rates bill is set according to the valuation appeal. That antecedent valuation date should be set at one year, as in Scotland, as has been referred to, to bring valuations as close to current market conditions as possible.

I think the noble Earl, Lord Lytton, mentioned that limiting the new improvement relief to 12 months does not seem to make much sense. It will certainly do little to encourage long-term investment. There should be a permanent abolition of downwards transitional phasing but we do not currently find that in the Bill.

At the end of the day, the point I want to emphasise is that the problem here is, quite simply, that business rates are too high. The background for this discussion is that the Centre for Retail Research has found that more than 17,000 shops closed in 2022 and more than 5% of retail staff—150,000—lost their jobs last year through insolvencies and store closures, and there is no doubt that a major contributing factor to that is the business rates system in England. The current rates have been referred to; the standard multiplier for 2023-24 is 51.2p in the pound. We can contrast that with the uniform business rate multiplier of 34p at its introduction in 1990. Again, I agree with the noble Lord, Lord Shipley, that the 49.9p in the pound business multiplier for small businesses is too high.

In both the Conservative Party’s 2019 election manifesto and the December 2019 Queen’s Speech, there was a commitment to

“protecting your high street and community from excessive tax hikes and keeping town centres vibrant”

and to make sure that the business rates revaluations and valuations achieved that. The Levelling-up and Regeneration Bill focuses on failing high streets and town centres, and there is no doubt that to a large extent that is due to one of the only overheads that retailers cannot negotiate away or down—the rates.

The failure to reduce the uniform business rates significantly is all the more surprising bearing in mind the Office for Budget Responsibility’s forecasting that income from business rates will rise to nearly £36 billion by 2027-28 from its current level of £28.5 billion. We must do something much more dramatic about this than we currently find in the Bill.

My Lords, I regret that I was unable to attend the Minister’s meeting last week due to a prior medical appointment. She has partly answered some of my concerns, and I will read her contribution in Hansard to check my understanding.

Business rates are an excellent source of funding for the Treasury. They are easy to collect and reasonably difficult to avoid, and they contribute 5% of the country’s tax receipts. While mayor, I was frequently lobbied by local businesses for which the first eye-opening piece of information was that the council did not get to keep all our business rates—far from it. There was a time when I would say, “We collect £60 million but get back only £6 million”. That will have changed now with 50% retention, but the sector continues to lobby for 100% retention while understanding and acknowledging the need for equalisation.

An issue of wider concern for me is that there remain no incentives for local authorities to really invest in business and economic growth under the current system, yet the economic health of a council area, regardless of whether it is rural or urban, is the critical factor in its prosperity and all that flows from living in a prosperous place. The converse is also true—the poorest regions have the worst outcomes of whatever you care to measure—but that is a debate for another day.

It has to be said that these have been a tough few years for businesses. The pandemic has faded in the memory but not in its impact. Many businesses have failed, and many are still attempting to get back to pre-pandemic levels. Then there has been Brexit. Both in itself and in the Government’s mishandling of, it is yet another hurdle or barrier, as are rising energy costs, the highest inflation for a generation and the unbelievable mini-Budget mess back in October, the impact of which was far from mini.

It is against that backdrop that we get this Bill, so I hope the Minister will forgive us if we are not dancing in the high street saying that it is going to be a game-changer. To be fair, though, the measures in the Bill have to be set against other measures, such as those in the levelling-up Bill and the impact of the business rates retention pilots that are currently taking place.

It is also true to say that businesses on the whole have welcomed the Bill, but they lament that it is a far cry from full business-rate reform. If there is one part of the system that is hit hardest, it is retail, because it is a tax on existence, not profit. Shops are property-based, reliant on having a physical presence in the most profitable and therefore most expensive locations. Internet-based businesses or those which have more warehousing in out-of-town centres are not penalised to the same extent. These discrepancies are not addressed by the Bill. I note the Minister’s remarks regarding recent revaluations and I think we should perhaps look specifically at the reduction in high street properties to see what kinds of shops have been affected.

As the noble and learned Lord, Lord Etherton, has said, the situation is serious. The Centre for Retail Research found that 17,000 shops closed last year—that is 47 shops a day, the highest annual total in five years. More than 5% of retail staff lost their jobs last year, and hospitality suffered a similar fate. Not all these failures are because of business rates, of course, but I am sure they are a contributing factor.

Anyone working with their chambers of commerce will know that the number one concern of businesses—and we should not forget that these are often the small and medium-sized businesses in an area—is always business rates. Business rates are a fixed cost that business cannot escape. Businesses have to pay this tax before they have turned a penny in profit. The reality for our high streets specifically is that high rates discourage casual lettings of vacant properties, and in general they disincentivise improvement or expansion, let alone innovation.

So we believe the Bill is not going to solve issues in our high streets. Regrettably, it appears to increase bureaucracy rather than cutting red tape. Many businesses will now have to send in their annual notification, with significant penalties in place if they get it wrong. The noble and learned Lord, Lord Etherton, said that 700,000 businesses could be affected, and I would welcome some clarification on that. Ultimately the Bill will not reduce the burden of tax on business, which, as several noble Lords have said, is too high.

My general overarching concern, and my question to the Minister, is: what assessment have the Government made of the capability of both local government and the VOA to deal with the changes in the Bill, knowing as we do of the resource cuts and staff shortages over recent years? Have the Government taken into account the current backlog in dealing with appeals, and other causes of delay, within the VOA?

From the speeches of other noble Lords and the excellent briefings that we have received, we can see that the concerns of business focus on several clear-cut aspects. The Bill proposes a move to three-year valuations. It was clear that we needed to move to more frequent valuations, but the feeling is that three years is not enough to keep up with the sudden changes that business can experience in difficult times. Perhaps annually might be too tight and onerous, but why not two—or is this the Government’s realistic response to the recognition that the VOA would not cope with annual valuations?

The Bill includes a duty to notify; it requires ratepayers to notify the agency of changes made within 60 days or face what seem to be punitive fines. I would be interested to hear the rationale for why a corresponding duty to respond is not made on the VOA. The Government could impose a reciprocal duty to respond and the ratepayer might get a rebate if that was the case.

It is also noted that the Conservative Party’s manifesto for 2019 contained a promise to

“cut the burden of tax on business by reducing business rates”

yet the uniform business rate multiplier has risen from 34p to 51p. Now, I struggle with the technicality of business rates, which might be apparent, but can the Minister explain how linking the uniform business rate to the consumer prices index will reduce the burden on business? Is the aim of government to reduce the UBR progressively over time or not?

There are valid fears about the levels of new fines that will be brought to bear through small businesses not knowing when, or about what, to update the valuation office. Please can the Minister assure us that the relevant associations have been consulted, to bring greater clarity to this new requirement, as it is surely not the Government’s intention to make matters worse for small businesses? These significant aspects and the other specific technical matters mentioned will certainly ensure there is work to do in Committee; around that, there seems to be a consensus.

My Lords, perhaps I may introduce my remarks with the fact that I am floating high on a cocktail of painkillers, in advance of dental surgery tomorrow. If I start mumbling, dribbling or reading out the order of business by mistake—or indeed, if I keel over—I apologise in advance, and please move on gracefully to the next speaker.

I declare my interests as on the register. I am a former chartered surveyor and responsible for property that is subjected to non-domestic rates—but it is in Scotland, which is out of scope.

I fear that the Bill is a missed opportunity. I believe that it passed quietly through the other place, as the noble Lord, Lord Shipley, explained, so it had little scrutiny there. Yet the current system is not fit for purpose: it is clunky, out of date and difficult for ratepayers to navigate. It is also inequitable, because some people pay too much and some too little. The Bill is a start in a number of ways, but why not finish the job? How many more non-domestic rating Bills can we expect?

The Bill addresses some of the concerns but the focus of what is substantially a technical Bill fails to consider major current injustices, which the Government seem reluctant or unwilling to grapple with. I am going to address just four of these headings quickly today. In doing so, I thank the RICS for its help and the Minister and her Bill team for the briefing conversations last week.

My first point is on transparency. The subject of valuation for rating is quite a dark art. Rateable value is assessed by the VOA, as we have heard, and is meant to reflect the estimated rental value of commercial property. Yet, on receiving one’s rating assessment, one sees no reference whatever to the evidence upon which that assessment is based. To probe this opaque state of affairs, where all the cards lie in the hands of the state, it becomes necessary to lodge an appeal—an expensive and time-consuming process. There are thousands of appeals in the queue. Further, small businesses simply cannot afford the cost of an appeal. As we have heard already, they are unlikely to understand the process and will simply accept the assessment. In these difficult times, this pushes their businesses nearer and nearer to closure. As we just heard from the noble Baroness, Lady Thornhill, 47 businesses are going bust in the high street every day. There should be clear transparency as to the evidence used by the VOA.

My second point is about rogue advisers. I beg your Lordships’ pardon; it is on public interest. Small businesses are the backbone of the rural economy, encouraged in so many ways by the Government. The simple example is high street shops. In the hundreds of smaller market towns throughout this country, those small shops now compete with Amazon and others in a fight that they cannot win, certainly not when they are paying rent twice, or certainly another 50%-plus in commercial rates. High streets are the heart of these small communities. Combining shopping with social contact is really the essence of a thriving small society. People bump into each other; they stop to chat, and might go and have a cup of coffee together. This is a vital antidote to loneliness and the mental health risks that are so trumpeted by government. Rates are pushing these small shops out of business. Retailers can control so many of their costs: their labour costs, their inventories and supply lines, their energy use and opening hours. They cannot control rent or rates—but they can negotiate with their landlord.

On rogue surveyors, which has been touched on already, the Bill is changing dramatically the system of non-domestic rates. The resulting fear and misunderstanding from SMEs will almost certainly lead to a major opportunity for these rogue agents. Rating is a very specialised, professional skill and it is essential that those seeking advice do so from the right people. These people should be, as we heard from the noble Earl, Lord Lytton, from the RICS, from the Institute of Revenues Rating and Valuation or from the Rating Surveyors’ Association. That is what they do. What efforts will the Government make to ensure that rogue surveyors are sidelined from this process? Those organisations I mentioned provide standards and governance to their members. There is no point in chasing a rogue surveyor for bad advice. There will be thousands of appeals, possibly tens of thousands.

Finally, I would like to mention the internet threat. Why, oh why, have the Government ducked this issue? It is the elephant in the room in any non-domestic rating discussion. The phenomenal growth and success of the low-cost internet sales model is rendering traditional retailers uncompetitive, as is well known. They of course must evolve too, but not against unfair odds. The Bill does nothing to address the valuation imbalance between these two very different business retailing models. It is almost as though the Government deny that this threat exists. The Bill is the perfect opportunity to deal with this and make it fair. Our high streets are dying and the Government know it. Yet they are missing the golden opportunity to right this wrong, and to improve the rating system to meet the user changes taking place in commerce today.

Many SMEs are too big for the small business reliefs, yet too small to have cash reserves or access to competitive sources of capital. I conclude by reminding the Government that simply throwing taxpayers’ money at the SME sector does not fix the problem. I believe it is some £2 billion a year at the moment, which does not even address the problem. This is a great opportunity missed—so much for the fundamental review. We will return to these subjects in Committee.

My Lords, I remind the House of my relevant interests as a councillor and as a vice-president of the Local Government Association.

This Bill is one in a long line of recent Bills making important amendments to business rates. I reckon that, for at least 35 years, there has been no fundamental reform of the non-domestic rating system, whereas business practice, as we have been hearing, latterly from the noble Lord, Lord Thurlow, has been revolutionised by the growth of online retailers.

The Minister stated in opening that the Government are focused on longer-term reform, but being focused on longer-term reform is not the same as implementing it. All noble Lords who have spoken so far have brought the Minister’s attention to the fact that online retailers are benefiting at the expense of our high streets, despite the fact that the levelling-up Bill is trying to remedy that. Here is an opportunity to do something about it, and it has been missed.

The current system creates fundamental inequalities. Out-of-town online retailers pay significantly less than high street retailers because of the way business rates are worked out. Many times in this House I have given the example of a famous online retailer in a town near me. It pays £45 per square metre in business rates, whereas a small shop in my own local market town pays £250 per square metre. That is the extent of the inequality. It is one of the reasons high streets are finding it difficult to continue. That is why 47 shops a day are closing. The Government have a responsibility to address this relative decline of our high streets by creating a level playing field for our town centre retailers.

Having said that, this Bill introduces some improvements to the system. We on these Benches welcome Clause 5, which introduces the shortening of the period between valuations from five years to three years. This will help the rating system to respond in a more timely way to changes in economic circumstances. My noble friend Lord Shipley and the noble and learned Lord, Lord Etherton, have asked the question: why every three years? Why not every two years or even annually so that there is greater sensitivity to changes for businesses?

In their review of non-domestic rates, the Government stated:

“Annual revaluations would provide for the fastest updating of values, ensuring a highly responsive and up-to-date system, and this would mean tax liabilities would be closely reflective of economic conditions, economy wide or localised economic slowdowns would more quickly feed through into lower rateable values”.

That was posed by the Government, and we agree. Yet, in this Bill, they are failing to implement that very same thing. I hope the Minister can explain that for us.

Clause 1 makes changes to unoccupied hereditaments. This is a complicated part of the Bill. Can the Minister confirm that this will mean the continuation of the three months’ total relief from business rates for a property that is unoccupied? It seems that the proposal in the Bill is for an option for small business rates to be levied, as opposed to the standard business rates, after the three months. Can the Minister explain how this will encourage owners of empty high street shops, for instance, to relet or find a new use? It is almost the opposite to the way the council tax levy is used to encourage domestic properties back into use as homes. It will be interesting to hear what the Minister has to say on that. The Local Government Association’s briefing draws attention to the fact that, somehow, large vacant sites may not pay business rates at all. This appears to be an anomaly, and perhaps the Minister can throw some light on that as well

These Benches support the grace period for improvements, especially those designed to decarbonise or promote net zero, and the changes applied in this Bill to low-carbon heat networks. All that is very positive. However, we have concerns about the Valuation Office Agency’s responsiveness and accountability to ratepayers. My noble friend Lord Shipley has voiced concern about this, as has my noble friend Lady Thornhill, who asked about reciprocal responsibilities for the Valuation Office Agency alongside those in the Bill. There are new, very considerable burdens on ratepayers to provide more detailed information, so why not for the Valuation Office Agency as well? Can the Minister say how the work of the Valuation Office Agency is accountable to ratepayers? The only example I have is that it produces an annual report, which is a statement of fact rather than an opportunity for accountability to the business community.

I turn to the issue of business rate income. The changes to the existing system will mean a potential reduction in overall income as a result of the Bill removing the duty to be revenue neutral. As we know, local government depends on business rates for a large part of its funding. The Bill makes it clear that all business rate income has to be allocated to local government funding. However, where there is a reduction in income as a result of the Bill, the reference is only to compensation. It does not explicitly state there will be full compensation for loss of income. This is very important to local government, which is under huge financial pressure at the moment and cannot sustain any further loss of income. I look to the Minister, who has local government at her heart, to give us the assurance that any loss of income will result in full compensation.

In this context, I welcome the Government’s promise—I think to the Local Government Association—to consult on avoidance and evasion, along the lines of measures already introduced by the Welsh Senedd and the Scottish Government.

I support what my noble friend Lord Shipley raised about the devolution to councils of business rates, as has been done in the West Midlands. I thank the Local Government Association again for its briefing, which also includes the idea of devolution of more powers over income from business rates. The LGA’s asks include:

“Giving councils more flexibility on business rates reliefs such as charitable and empty property relief”


“Giving councils the ability to set its own business rates multiplier—

that would be interesting—

“or at the very least be able to set a multiplier above and below the nationally set multiplier”.

Finally, the Local Government Association underlines what all of us have said about the need for

“Consideration of alternative forms of income … including an e-commerce levy with the funding retained by local government”.

This has been an interesting debate, enhanced by the expert contributions of the noble Earl, Lord Lytton, the noble Lord, Lord Thurlow, and the noble and learned Lord, Lord Etherton. I look forward very much to the Minister’s response.

My Lords, I thank the Minister for her thorough introduction and all noble Lords for their participation. Having been doing the levelling-up Bill, I have to say that it is nice have a Bill that is very focused. We broadly support the measures in the Bill. Clearly, business rates need modernising, as we heard, and some of the measures in the Bill will provide much-needed support for struggling businesses. But, like others who spoke in the debate, we believe that it is still lacking in areas where small businesses need support, so it is a bit of a missed opportunity as well.

Small businesses are a critical part of our economy and communities, and, as we have heard, they are the heart of our high street and of local employment. On these Benches, we believe that it is necessary to cut business rates for small businesses by raising the threshold for small business rate relief. We would pay for this by raising the digital services tax paid by online giants such as Amazon.

The noble Lord, Lord Shipley, and others mentioned the increase in online shopping, partly brought about by what happened during Covid, when many more people began to shop online. But, as the noble Lord, Lord Thurlow, said, nothing seems to have been done about this. So can the Minister provide further information about any progress at all, if any, that the Government have made on implementing fair taxes on the major online businesses?

The Savills analysis of recent business rates revaluation noted considerable variations in outcomes between different billing authority areas. It notes that retail units in some city centres will see an overall reduction in rateable value, but those in some small towns will see considerable increases—the noble Baroness, Lady Pinnock, referred to this. So, if the Government do not think that an impact assessment on the revaluation for smaller businesses, high streets and towns is needed, how do the Government see this benefiting levelling up if they do not have this information?

The noble Baroness, Lady Thornhill, and the noble and learned Lord, Lord Etherton, talked about the serious challenges facing our high streets and smaller businesses. I particularly mention concerns that were drawn to my attention by the British Beer and Pub Association, which has concerns about certain aspects of the Bill, particularly around the proposals for improvement relief. Of course, it is important to have the improvement relief proposals in here—it is a good step forward—but the British Beer and Pub Association said that improvements made by landlords in a period between tenants, who are the ratepayers, or with any change in tenant during the relief period, will not be eligible for relief. The main concern here is that improvements made by landlords on behalf of tenants who then move on while the property remains owned by the landlord would not be eligible.

In practice, this means that pubs that are not directly owned and managed by the ratepayer—namely, those in tied or leased arrangements, which is apparently around 30% of UK pubs—become a much less attractive proposition for investment, as improvement relief can be guaranteed only on directly managed pubs. A change to the Bill to this end would mean that leased and tenanted pubs could then be on an equal footing with directly managed pubs, in terms of the likelihood of receiving investment. Will the Minister take note of these concerns and look, ahead of Committee, to see whether the Bill could be improved in this respect?

Retailers have expressed concerns that the Bill will significantly increase the overall administrative burden through the new duty to notify procedures—this was a central concern in the debate. It would be helpful if the Minister could confirm whether every ratepayer will now have to fill in a new return for the Valuation Office Agency every year and every time there is a change to the property. Does she think that the new duty to notify will put increased burdens on smaller businesses, potentially forcing them into the hands of rogue rating advisers, as we heard from other noble Lords, particularly the noble Lord, Lord Thurlow?

The noble and learned Lord, Lord Etherton, mentioned his concerns about the extra 750,000-odd business-property occupiers who do not currently pay rates. They would have to return forms to the VOA, and they will have to cope with the huge administrative challenges of this. As well as businesses, this will have an impact on local authorities. So I would be interested to hear the Minister’s response to the noble and learned Lord’s concerns. Will local authorities have extra resources to deal with this administrative burden?

Noble Lords mentioned how promptly the VOA will act, as no similar obligations have been placed on it to produce its assessments quickly, and there have been no further measures to increase transparency—the noble Lord, Lord Thurlow, in particular talked about the importance of transparency. I am not aware that anything about speeding up the appeals system has been stated, so perhaps the Minister could provide further information about this.

We heard about the review of valuations changing from five-yearly to three-yearly intervals, and we are pleased that this has been reduced. But, bearing in mind that the VOA already has a significant backlog of appeals, are there sufficient resources within the VOA to deal with these proposed changes? What will happen to disparities in valuations between the VOA and the property owner or agent? Of course, in the audit world, this has caused major problems between local authorities and their auditors.

Currently, the new rateable values set at a revaluation are based on the situation two years previously, which, again, noble Lords have raised concerns about. Ministers have said that reducing the length of time between the AVD and a revaluation taking place remains

“an aspiration once the new 3-yearly cycle and supporting changes are fully bedded in”.

Can the Minister update us on what progress the department is making on this?

The noble Earl, Lord Lytton, and the noble Baroness, Lady Thornhill, talked about incentives for business to invest. Do the Government intend to do anything about tariffs and top-ups? So many areas have little incentive to improve their business base because the tariffs can be so fierce.

The Bill is an opportunity to give businesses a clearer incentive to improve energy efficiency, freeing up funds for business investments to enhance competitiveness while supporting net zero. We very much support the Government’s and the Bill’s proposals in this area. Strengthening the provisions on business rates in relation to energy-efficiency improvements is certainly an important step.

The Government have already made welcome steps to address these issues by exempting renewable energy generation and storage from rateable value, through regulations introduced last year. But these regulations did not cover energy-efficiency works, and the Government have made much more limited steps on energy efficiency more broadly, proposing just one year of business rate relief against the increase in rateable value in the Bill.

The introduction of heat network relief, mentioned by noble Lords and in Clause 1, is welcome, but it would be helpful to understand why it has been proposed to expire in 2035. The exemption of renewable energy plant and machinery is permanent, so why is there a difference here? Could we not take a similar approach?

Finally, the charity sector has raised concerns that its exemptions will be affected. Can the Minister provide reassurance that this will not be the case? Conversely, will the Government then use the Bill to tackle the fraudulent exemptions claimed when non-charity businesses let a charity occupy a small part of their premises, just so that they can then claim that charity exemption?

In conclusion, we believe that the Bill should go further, as I think do all noble Lords who took part in this debate. I am pleased to hear the Minister say in her introduction that there will be longer-term reforms, such as a commitment to explore further reforms, including the potential for annual revaluations in future. That is something that the Labour Party has been calling for. We welcome and support the Government’s ambitions in this respect but we need something to happen as well. These should not just be commitments to explore; we need to see what the outcomes will be and to learn when we will see them.

I apologise for the large number of questions I asked. I will be very happy for the Minister to write to me ahead of Committee on any that she cannot respond to today. We have quite a lot of issues to explore further.

My Lords, it is a pleasure to close the debate, and it has been a pleasure to listen to such thoughtful contributions. The noble Baroness opposite is absolutely right: I have got a lot of questions. I am bound not to remember all of them, but I will write a letter afterwards to make sure that everything is set. I will also offer more meetings, if noble Lords would like them, before Committee.

It is right that we strive towards the best possible business rates system: one that balances the needs of the taxpayer with the importance of sustainable services in local communities. It has to be a balance. A lot has been said about business rates being too high, but, as we know, if business rates go down, so does the money that local authorities get. We need to get the balance right.

The Government’s review of business rates considered how to improve the tax from a range of angles, and this Bill makes a series of significant improvements which will have considerable benefits for those who pay the tax and those who rely on it. As I said, I am very grateful for the contributions that have been made. I will try to answer as many of the questions as I possibly can, with my many bits of paper.

The noble Lord, Lord Shipley, the noble and learned Lord, Lord Etherton, and many others have suggested that we adopt a short evaluation cycle of one or two years. As I set out in my opening speech, we are happy to consider this carefully in future, once the reforms in the Bill have been implemented. However, it is vital that we approach these changes sequentially to ensure that we can deliver more frequent revaluations and avoid destabilising the tax. If we go too fast, that is what might happen.

The noble Lord, Lord Shipley, asked whether we could increase the threshold in the small business rate relief scheme or otherwise reduce the multiplier. The Government’s generous small business rate relief scheme already sees over a third of properties pay no business rates at all, and that is worth £2.1 billion per year. Further increases in the threshold for the SBRR would be a broad-based and indiscriminate way to provide support, and would therefore be a poorly targeted type of relief. However, the noble Lord welcomed the considerable support we are providing to businesses under the existing schemes, and obviously we will keep them under review.

The noble Lord, Lord Shipley, the noble Earl, Lord Lytton, and the noble Baronesses, Lady Pinnock and Lady Thornhill, and others asked about the transparency and performance of the VOA. If there are any changes, it is important that it can take those changes, work with them and deliver. I assure noble Lords that the VOA will continue to publish targets for its timeliness under the new system and measure performance against them. Current targets cover timeliness on maintenance reports and the check stage of the appeals process. While the new targets will be informed by the development of the new system, the Government are very clear that these must be both ambitious and deliverable. The VOA must deliver on those targets.

The noble Lord, Lord Shipley, referred to the role of land values in the tax such as it is. The Government consider that the arguments in favour of a land value tax are not supported by the evidence. A land value tax would also inevitably increase the tax burden for properties on large pieces of land, such as golf courses or farms, whereas densely developed land, such as that of the Shard, would see lower bills. I understand that he indicated his support for the tax based on rates, which is how business rates work, and I welcome that observation from him.

The noble Earl, Lord Lytton, the noble and learned Lord, Lord Etherton, the noble Baroness, Lady Thornhill, and others asked how we have framed improvement relief and whether it will in fact provide the incentive for property investment—this is very important. The relief is designed to help occupiers make improvements to their existing premises, rather than subsidising general commercial property development. The Government consider that a 12-month relief will allow time for the benefits of the property investments to flow through into businesses. We will keep this under review; in particular, we will review this scheme in 2028.

The noble Earl, Lord Lytton, asked whether we had assessed the impacts of the new duties. We have carefully considered the impact of the duties on businesses and published two impact notes to outline the estimated costs of complying with the new duty. The VOA estimates the cost of the new information duty to be £35 per ratepayer each year. The current system costs ratepayers £15, so this is an increase of £20 each year. The HMRC duty for tax reference number is estimated to be about £2 for most businesses, and no more than £6 in those cases where finding a suitable tax reference number takes a bit longer.

The noble Earl, Lord Lytton, asked whether guidance will be available to help ratepayers comply with these duties. As I said, the Government will not formally activate the VOA duty until we are absolutely satisfied that ratepayers can reasonably and efficiently comply with it through the online service. Guidance and support will be offered to those engaged in the soft launch of the system. As is the purpose of the soft launch, the guidance will be developed as we learn from engagement with users.

The noble and learned Lord, Lord Etherton, raised concerns about those eligible for the 100% relief and whether they should be subject to these duties. Information collected by the VOA on a specific property is often used in the valuation of other comparable properties, many of which may not receive 100% relief. For instance, a small independently owned shop which pays no rates would have to pay business rates if it were occupied by a large chain, such as Co-op. It is important that we have all that information collected for all properties. However, as I said, we will not formally active the duty until we are absolutely satisfied that all ratepayers, including those getting 100% relief, can reasonably and efficiently comply with it.

The noble and learned Lord, Lord Etherton, the noble Baroness, Lady Thornhill, and others set out why the level of business rates is considered too high. As I said, business rates are an essential form of funding for local government, providing vital public services and supporting the Government’s levelling-up agenda. The Government have taken action to hold the tax rate steady over the last three years, protecting businesses from inflationary pressures at a cost of around £3 billion each year from 2023-24. Given the difficult fiscal position, it would not be responsible to cut the rate further, with a 1p cut costing approximately £600 million per year.

The noble Baroness, Lady Thornhill, asked whether the VOA would be able to cope with the reforms. The VOA has plans in place to enable the delivery of the reforms in the Bill; the Government have invested to make that change a reality, with £0.5 billion for the VOA as part of the spending review; this includes funding for important changes to upgrade IT infrastructure and digital capabilities.

The noble Lord, Lord Thurlow, spoke about the transparency of the VOA’s work. The Government committed in the 2020 business rates review to reforming the VOA’s processes to make them more transparent. The duty contained in the Bill is essential for the VOA to implement its offer of improving transparency, and we remain committed to that aim.

The noble Lord also raised important points about the danger of rogue agents, as did other noble Lords. I can assure him that we will be consulting on agent behaviour as part of the avoidance and evasion consultation. As he notes, the majority of agents are legitimate organisations that are typically registered with one of the main professional bodies that he mentioned and provide a valuable service to their clients. Nevertheless, some agents seek to take advantage of their clients or actively to promote rate mitigation strategies. The consultation will, therefore, seek to understand the nature and scale of these issues and identify potential actions that the Government can take to help address these practices. While I am on this subject, I wish the noble Lord a very good day tomorrow. I hope that he will feel much better after it.

I move on to important points raised by the noble Baroness, Lady Pinnock, and all other noble Lords. All brought up the issue that the Government have not addressed the imbalanced treatment of the high street and online businesses. We recognise the concerns that people have raised and we have taken significant steps to tackle this. The Government looked at the case for taxing businesses differently, through our review of business rates and through a separate consultation on an online sales tax. Our review made it clear that people were not supportive of penalising specific sectors or properties through business rates. The Government reviewed the feedback that they received from stakeholders over the online sales tax consultation period and announced at the Autumn Statement of 2022 their decision not to proceed with such a tax.

In summary, the evidence received suggested that an online sales tax would have been extremely complex to design and implement and would create undue administrative burdens for businesses. This includes challenges of defining the boundaries between what is online and what is instore retail, including the knotty issue of click and collect, which came up. Rather than penalising innovative online businesses, we have chosen to focus on supporting those high street businesses most in need, with an improved relief for retail, hospitality and leisure businesses, worth £2.1 billion this year, offering 75% off bills up to a cash cap. That is the way we have decided to do it.

The noble Baroness, Lady Pinnock, also brought up the issue of business rate consultation on avoidance. At the Spring Budget, the Chancellor announced that the Government would consult on business rate avoidance and evasion, and that the consultation will look at the three or six-month period of relief available for empty properties. Our concern is to ensure that landlords are not avoiding paying rates, which I hope gives some reassurance. The noble Baroness also asked about the Government reforming empty property rates. As I said, we will consult on business rates avoidance and evasion and look at that issue further. Our concern is to ensure at all times that landlords are not avoiding paying rates—that is the important part.

The noble Baronesses, Lady Pinnock and Lady Hayman of Ullock, brought up the issue of the cost to local authorities, as did the noble Baroness, Lady Thornhill. I am not sure about this, but I am pretty sure that local authorities will get new burdens, if there are new burdens—but I shall check exactly how that is going to happen and write it in my following letter.

That is as much as I have, but I shall look at Hansard tomorrow. I shall answer all the questions and put the answers that I have already given in writing as well. As I said, we can meet again if any noble Lords would like to before Committee. The changes that the Government are making to the business rates system will help businesses grow and prosper, and I thank noble Lords for their basic welcome of the Bill. The Bill reforms rates so that they more accurately reflect the property market—and we are also addressing the perception that tax is a barrier to investment. The changes in this Bill will lead to fairer and more accurate bills and a more adaptive system, capable of keeping up with the changing modern economy.

Bill read a second time.

Commitment and Order of Consideration Motion

Moved by

That the bill be committed to a Grand Committee, and that it be an instruction to the Grand Committee that they consider the bill in the following order: Clauses 1 to 17, Schedule, Clauses 18 to 20, Title.

Motion agreed.