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Non-Domestic Rating Bill

Volume 832: debated on Tuesday 19 September 2023


Welsh Legislative Consent granted.

Clause 1: Local rating: liability and mandatory reliefs for occupied hereditaments

Amendment 1

Moved by

1: Clause 1, page 2, line 25, at end insert—

“(za) the chargeable day falls after the day on which qualifying energy efficiency improvements are completed,”Member’s explanatory statement

This amendment, and others to Clause 1 in the name of Lord Ravensdale, would allow qualifying energy efficiency improvements improvement rate relief until at least 1 April 2029.

My Lords, the noble Lord, Lord Ravensdale, is unable to join your Lordships’ House today due to work commitments, so he has asked me to introduce his amendments in the first group as I have added my name to them. Amendments 1, 2 and 3 in this group all relate to rate relief for energy efficiency improvements. Specifically, they allow qualifying energy efficiency improvements improvement rate relief until at least 1 April 2029. That contrasts with the current position of the Government, who have previously made it clear that they intend to offer improvement relief for only one year.

I understand from the noble Lord, Lord Ravensdale, that he has had constructive meetings with the Minister, but that during those meetings she raised two particular concerns about the implementation of his amendments, if the Government were to accept them. First, she raised the issue of the reduction in rates revenue that would come if the amendments were passed. The noble Lord asked me to draw attention to the fact that that would be offset by the increased investment in energy efficiency that would therefore result, including a reduction in the cost of bills, as well as the ensuing energy security and sustainability benefits that would come from the introduction of his amendments.

The second concern the Minister raised was about the classification of energy efficiency measures for valuation purposes when compared with renewables and energy storage. The argument here is that this would mean that almost any building works could potentially qualify: for example, replacement windows and anything to do with the fabric of the building itself. We understand what the Minister is saying about this and why she raised that point, but we would add that, while an insulated extension might have an incidental efficiency benefit, we believe—as does the noble Lord, Lord Ravensdale—that it should be possible to distinguish between changes that are mainly or wholly for the purpose of improving energy efficiency and those where the improvement is incidental. We should be able to differentiate between the two. The suggestion the noble Lord made is that the Government could look at tweaking the draft regulations on which they have recently consulted. It would be very constructive for the Government to discuss this further with the noble Lord to see whether this is an option going forward and whether it could actually be achieved.

We support the steps that the noble Lord is suggesting to encourage businesses to carry out energy-efficiency improvements. They are important because that would not only align with the UK’s climate and emissions targets but lead to long-term savings for ratepayers and bring about efficiencies all round. The recent increases in energy bills have created enormous uncertainties —very much so for high street retailers, who have been in a volatile market for some time since Covid—and the Government should explore incentives such as this. I beg to move.

My Lords, I listened carefully to what the noble Baroness, Lady Hayman of Ullock, said in support of the amendments tabled by the noble Lord, Lord Ravensdale. Looking at those amendments and their context, I think they present a viable option for the Minister to examine and respond to. It is important to consider where the benefit is likely to fall should these amendments be accepted. As I see it, it will primarily benefit SMEs above the small business rate relief threshold. That is not a guaranteed threshold, by the way; it is at the discretion of the Government of the day, from time to time.

For many of those smaller SMEs above that threshold, business rate costs easily exceed energy costs, even in this day and age. Therefore, for many of those businesses, their focus is on getting their rates down and getting the Government to do that, perhaps overlooking the need to make energy improvements, which they perhaps do not see as central to their business operation, nor producing a dividend that they can cash in good time. This amendment skilfully joins those two things. It offers, to those who find the rates burden excessive—and perhaps we could add “Who doesn’t?”—a mechanism for reducing them by investing in energy performance measures. I certainly agree with what the noble Baroness said about the shape of the guidelines, which would obviously be produced if these amendments were passed, and what those energy improvement measures should be and how they might be properly measured.

There is a clear incentive mechanism here, which is clearly needed because there is no doubt that businesses in that sector in particular are lagging behind on energy efficiency—for the reasons I have outlined: they have other business pressures on them and it is certainly not at the top of their to-do list. Also, they probably do not have an ESG policy or a policy statement committing their enterprise to getting to zero carbon by 2050. These are a band of enterprises which are core to the British economy, but they are not exactly headline-making businesses when it comes to developing their social and environmental policies. They need a nudge. To give them a nudge which reduces their rates bill seems a mechanism which merits careful exploration.

The measures in these amendments would be helpful in that hard-to-reach SME sector, often occupying hard-to-improve premises. To join those two things up would be very worth while. We cannot rely on reaching our 2050 targets for the built environment purely on the good will and common sense of hard-pressed SMEs, which have so much else to do.

There is a greater public good to be achieved. If the Government feel that there is any element of giving money away that they do not need to do, I would simply argue that this is, or could be, an important step in delivering that public good, which is reaching zero carbon by 2050—reducing our carbon emissions and avoiding climate extinction. I very much look forward to what the Minister has to say by way of response on behalf of the Government.

My Lords, I support these amendments. As we are at this stage of the Bill, I declare that I am a chartered surveyor, a registered valuer and a member of the Rating Surveyors’ Association. It is some time since my bread and butter was generated from dealing with non-domestic ratings; the concepts are well trod, but I will not claim to have any up-to-date knowledge on some of the finer points.

The noble Baroness, Lady Hayman of Ullock, mentioned some of the concerns that the Minister has put forward. My ears pricked up a bit, as they always do when I hear about ministerial concerns. The first was a reduction in revenue. Let us be clear: we are talking about not making an increase—not actually losing something that was there before. It is the increase created in value that is discounted under the Government’s proposals, for no more than one year. The purpose of these amendments is that the increase should not bite for a longer period. That is important, because the work to improve energy efficiency of buildings is sometimes only really justifiable over quite a long period of time. There is no instant fix. In the meantime, it has to be funded, by a loan or an imputed opportunity cost of money for that period. As I said at an earlier stage of the Bill, one year is simply too short and would be no incentive. The other question about the reduction in revenue is: what is better, not to be able to charge the increase in rates, or someone not to do the work at all because they consider that they should defer the evil day for doing it? There has to be some incentive all round.

The second point that the noble Baroness referred to about what the Minister had said was on the classification of energy-efficiency works in valuation terms. I really do not see that there is any particular difficulty with that. Valuers are dealing with these sorts of things all the time, whether they be tenants’ improvements that are disregarded for rental value purposes, which is actually the nearest open-market analogy to what one is dealing with in business rates valuation, or whether it be for some other purpose—the cost-benefit of some scheme or other. One obviously has to look at these things in the round. If somebody is just replacing the windows and nothing else, clearly they are doing a bit to the U-value to make it more efficient, but it is not a holistic approach. Alternately, if they are part of any type of scheme that one would put forward—that may come out of the further guidance that was referred to by the noble Lord, Lord Stunell—they will have to look at these things on a holistic basis, because you cannot just put a draught-proof strip on a door and expect your bills to go down. It does not happen like that.

These amendments are very important. I do not see the difficulties that the Minister raised in discussions with the noble Lord, Lord Ravensdale, so I wholeheartedly support this. The Government could afford to be a little more generous-minded over the whole thing. I encourage the Minister, when she is replying, to perhaps apply that metric.

My Lords, I am grateful for the amendments in this group presented by the noble Baroness, Lady Hayman of Ullock, and tabled by the noble Lord, Lord Ravensdale. They give us the opportunity to discuss this important matter again.

I assure noble Lords that we can and do keep under review the system of business rates reliefs and, in particular, how it impacts on matters such as energy efficiency. Where we see an opportunity to support energy efficiency and net zero through the business rates system, it is carefully considered.

The recent business rates review looked at this. As a result, eligible plant and machinery used at on-site renewable energy generation and storage, such as rooftop solar panels, wind turbines and battery storage, are now exempt from business rates until 31 March 2035. On-site storage used with electric vehicle charging points is also exempt. Low-carbon heat networks have also benefited from 100% relief from 1 April 2022, and this Bill will put that relief on a firm statutory footing.

Furthermore, any energy-efficiency improvements that meet the conditions for improvement relief will benefit from the measures in the Bill and not pay business rates for 12 months. Broadly speaking, these include energy-efficiency improvements added to the property by occupiers that improve the physical state or add rateable plant and machinery. In 2028, the Government will review the improvement relief scheme and I reassure the noble Earl, Lord Lytton, that the Bill includes a power to extend the relief beyond 2028. Additionally, energy-efficiency improvements that take the form of non-rateable items, which includes most process plant and machinery, will have no impact on the rates bill.

We understand the desire to go further and provide a more general relief for energy efficiency in buildings, but we do not consider this to be something that we can agree to, at this time, in this Bill. First, there are necessary practical questions about when and how energy-efficiency improvements impact rateable values and rates bills. Many energy-efficiency improvements are to the fabric of buildings, such as to the walls, windows and roofs, and how these improvements impact the rateable value of the property would be far from clear. We would need to be confident that the value of such energy-efficiency improvements could be accurately measured and captured in order to then provide a properly targeted relief.

As previously mentioned by my noble friend Lady Scott of Bybrook, and as was referred to by the noble Baroness, Lady Hayman, in her introduction, the Treasury also has to balance the desire for tax breaks against the need to fund local government and balance the books. These are difficult tax decisions, and it is correct that they should be considered by the Chancellor having regard to the full picture of the country’s revenue and spending.

However, given the interventions this afternoon, it seems appropriate to say a little more about the Government’s wider approach to energy efficiency in buildings. Last year, we announced a new long-term commitment to drive improvements in energy efficiency to bring down bills for households, businesses and the public sector. Our stated ambition is, by 2030, to reduce the UK’s final energy consumption from buildings and industry by 15% against 2021 levels.

For small and medium-sized enterprises, the Government have also sponsored an energy management standard publication to help businesses understand their energy usage and identify where they can make savings. We are also establishing a dedicated energy advice offering for smaller businesses to help them to reduce their energy costs.

Several capital allowances may also help businesses to make energy-efficient investments. For example, this year the Chancellor announced that we will allow companies to write off the full cost of qualifying plant and machinery investment in the year of investment. This is in addition to the annual investment allowance, which has been set permanently at £1 million, and the structures and buildings allowance.

I hope it is helpful to have this wider context on the record, alongside our reasoning about why a new relief is not necessary. I thank noble Lords and hope that they will not press these amendments.

My Lords, I thank noble Lords who took part in this debate and gave their strong support for the amendments of the noble Lord, Lord Ravensdale. It is much appreciated.

I feel that the Minister gave the reasons for the Government not doing this that I mentioned at the beginning, when I explained why we thought that they could, so I am not hugely convinced. It is good that the Government are looking at energy efficiency—it is really important and has not been taken seriously enough in the past—but, as the other areas that the Minister mentioned have been included, why not expand this to include the amendments from the noble Lord, Lord Ravensdale, and what they would achieve? Anything that improves energy efficiency should be encouraged, in a nutshell.

I hear what the Minister has said and I am sure that the noble Lord, Lord Ravensdale, will look carefully at Hansard, but I think it would be good if the door to discussion could be kept open. On that note, I withdraw the amendment.

Amendment 1 withdrawn.

Amendments 2 and 3 not moved.

Clause 4: Local rating: discretionary relief

Amendment 4

Moved by

4: Clause 4, page 15, line 36, at end insert—

“(4) Omit subsections (8A) and (9).”Member's explanatory statement

The intention of this amendment is to remove the prohibition on a billing authority giving relief on a hereditament occupied by a billing authority, a precepting authority or a GLA functional body.

My Lords, now that we have begun Report, I remind the House that I am a vice-president of the Local Government Association.

I have said previously that there are many good things in this Bill. When we have moved amendments, as we are doing today, the aim is to make it a better Bill. The Government—any Government—face huge challenges with business rates. Inflation-linked rises in the cost of business rates is one challenge, and I think it is generally acknowledged that business rates have simply got too high for many businesses to cope with. Proportionately, when you go back one or two decades, business rates are indeed very high.

A second problem lies with internet sales, which, frankly, are destroying the high street. One-third of retail sales are now online, and that is having a devastating effect. Just two days ago, the British Retail Consortium wrote to the Chancellor, calling on him to freeze property taxes in order to prevent further high-street closures. As the consortium said, a rise would have the impact of

“threatening the viability of many shops and hindering the industry’s capacity to invest”.

I subscribe to that view, and I hope that when we come to the Autumn Statement some indication will be given that that will be the Government’s intention.

As I said in Committee, while I welcome revaluations moving to every three years, I would prefer them to be every two years, because valuations that are more up to date reduce costs and confusion and make life easier for lots of businesses. I see this Bill as a staging post to getting to two years—we shall look at that in a future group. I would also prefer locally set multipliers and would like to think that the Government would look at greater fiscal powers for local government over the next two or three years. That said, this Bill makes positive changes, and I would now like to address the amendments that I have put down to make the Bill even better.

In moving Amendment 4, I will also speak to Amendments 16, 17 and 18. The intention of Amendment 4 is to remove the prohibition on a billing authority giving relief on a hereditament occupied by a billing authority, precepting authority or GLA functional body. These prohibitions prevent authorities awarding relief to premises such as markets which they own. This was a particular issue in the 2020 retail, leisure and hospitality relief, where billing authorities found that they could not give relief to premises of which they, or a precepting authority, were the occupier—including, for example, local authority markets. My amendment, which is supported by the Local Government Association and by the National Association of British Market Authorities, would address this problem.

There are in the country some 1,150 markets, of which 84% are operated or controlled by local authorities. They perform a vital role in the retail sector and our community infrastructure, and many have long histories. During the recent Covid pandemic, however, these markets were unable to enjoy the substantial financial help provided by the Government on business rates because of a restriction in Section 47 of the Local Government Finance Act 1988 that prevents a local authority giving relief to itself or to a precepting authority. Local authority markets were obliged to bear the full burden of business rates while many businesses and, indeed, markets operated by private and community organisations were able to take advantage of the substantial help provided by the Government.

In 2022, the National Association of British Market Authorities carried out a major survey of our markets. Stall occupation in many markets has fallen significantly from 2018, when the last survey took place. The number of traders continues to fall: five years ago, there were 32,000 market traders; last year, the number had fallen below 30,000. Many local authorities report having to subsidise their markets to enable them to continue operating. With the many demands on local authority budgets, there is a prospect of these subsidies being withdrawn to protect front-line services, which could threaten the continued existence of many markets, many of which are a venue for information on a wide range of public services, making available banking, library and health services where such services are no longer represented at other venues in the area.

The Government have previously changed their position on this general issue as they granted a specific exemption to Section 47, providing that local authority public conveniences should no longer be liable for business rates. This earlier concession provides added support for the amendment now being sought.

Amendment 16 would require the Secretary of State to consult on the benefits and practicality of a system of accreditation for rating advisers. This amendment seeks to explore an avenue to combat the rogue and unprofessional practices of some rating advisers. It is about having a consultation, because the new system defined in the Bill will get more complex, with new reporting requirements and demands for greater accuracy. There will be greater demand for rating advisers. In my view, such rating advisers should be accredited and maintain professional standards if they offer commercial services. Therefore, I advocate a consultation on what steps should be taken.

Amendment 17, supported by the noble Lord, Lord Black of Brentwood, who is unable to be here today but whom I thank for his support, provides that advertising rights in respect of social infrastructure sites, including bus shelters, other advertising rights granted by contracting authorities and public telephone kiosks shall be exempt from local non-domestic rating. The current business rates system is challenging the viability of advertising-funded social infrastructure and community services. It is now increasingly at risk. Yet these sites return value to local communities through rental payments, service provision, their installation, their very existence, their cleaning and their maintenance, as well as any other social investment, including living roofs, air quality sensors and solar panels, all of which help local authorities meet their net-zero targets. If a business rates exemption applied, it could lead to higher investment directly into local communities. Councils can benefit from rent, revenue and profit sharing currently amounting to around £143 million a year, paid directly to them, but it is claimed that the new legislation that the Bill represents puts this at risk.

From a recent article I read on the matter, the problem seems to be that business rates may increase every three years. If I had my way, there would be a two-yearly review, so it is possible that in some cases business rates would increase every two years. Industry agreements with councils, however, typically have a term of seven to 15 years, so business rates may therefore increase at least five times during a standard contract term. That assumes that business rates are increasing—which they could—so regular changes to business rates would make financial planning for such contracts much more difficult than it currently is and would require the industry to hedge against future rates increases. It may well impact on the amount of support that local authorities have.

There are 36,000 advertising sites subject to business rates. Every one is valued, invoiced and paid individually. There is a huge amount of work for the Valuation Office Agency, local councils and operators. Yet social infrastructure sites are low-value, accounting for only a quarter of all business rates income generated by advertising rights. This amendment is about only social infrastructure sites. I hope the Minister will be able to respond positively to doing some further work on this. I accept that we need to build support across all parties and levels of government, but there is an interest here in supporting our social infrastructure.

Finally, I come very briefly to Amendment 18, which states:

“The intention of this amendment is to introduce into law the power to make anti-avoidance regulations, as provided for in Part 4 of the Non-Domestic Rates (Scotland) Act 2020. The amendment mirrors Part 4, with such changes as to make it applicable to UK law”.

It would help to have further action on business rates avoidance, along the lines introduced in Wales and Scotland, to ensure that the rules on reliefs, such as empty property and charitable relief, are applied fairly. I know the Government are considering this issue and any update the Minister can give would be helpful. It is estimated that around 1% of total business rates income—around £250 million—is lost to business rates avoidance each year. It may be only 1% but it is a substantial sum and therefore anything the Government do to replicate what is now happening in Scotland and Wales would be very helpful in England. I beg to move Amendment 4.

My Lords, I want briefly to address some of the amendments in this group, so ably moved and spoken to by the noble Lord, Lord Shipley. I note that in his Amendment 4—and to some extent in the question of social advertising—he is referring to the purposes for which a hereditament is occupied. We already have this situation in the sense that if a charity occupies a shop for charitable purposes, it gets a degree of mandatory relief. Possibly the only difference is that the charity must have a Charity Commission registration number, and therefore its whole constitution, terms of engagement and memorandum and articles of association are clearly laid out.

The only thing I would say about Amendment 4 is that it is important to make sure that some sort of asymmetry does not come in as a result of using the purposes of occupation approach; otherwise, I can see that there might be accusations of unfair competition. I therefore see no reason to object to the billing authority’s discretion being exercised in its own favour, subject to there being a properly laid out policy that makes it clear to everybody what it is doing and is possibly subject to democratic processes.

I suppose that Amendment 16 should warm the cockles of my heart in terms of the accreditation of non-domestic rating advisers. Of course, I come from the background of being a fellow of the Royal Institution of Chartered Surveyors, which is an accreditation body in its own right. Indeed, a large amount of the edifice of “check, challenge and appeal”, which was put in place by the Government to deal with the huge backlog of rating appeals many years ago, was to do with the fact that unqualified people were putting in blanket appeals and clogging up the system. The accusation was that many of these were totally unmeritorious and were simply wasting everyone’s time—so there is a case for doing it. There was a case for doing it instead of going through the malarkey of “check, challenge and appeal” in the first place, and all the powder and shot and grief occasioned thereby—but we are where we are and if it can help streamline the business so that people are bound by codes of conduct and can be called to account for their actions, all well and good.

I shall comment a bit on Amendment 18, which is also in the name of the noble Lord, Lord Shipley. I sent him today—I apologise to him for not having sent it a lot earlier—the consultation that is going on regarding avoidance and evasion. In that is some business about who does rating work and rogue rating surveyors. I believe that the consultation finishes on 28 September. I hope there will be further discussion with the industry and stakeholders about how it is going to formulate—but the point made by the noble Lord is well made, and I am glad to see that something is in progress.

My Lords, I think the noble Lord, Lord Shipley, for his amendments and for his clear introduction to them. I also thank the noble Earl, Lord Lytton, for his contribution.

As we have heard, these amendments relate to rating agents, anti-avoidance, discretionary relief and viability rights, all of which are really important issues that we need to discuss. Amendment 4 would remove the ban that currently prevents relief being given to certain buildings. We know that the Local Government Association is very supportive of that amendment, because the current rules prevent councils from giving discretionary relief to their own hereditaments. As we have heard, both now and in Committee, this is particularly an issue with local authority markets. It became problematic particularly during Covid-19 because local authorities were unable to give those markets the business rates relief that other businesses were able to benefit from, which meant that many local authorities had to subsidise those rates in order for the markets to continue operating.

I am assuming that the ban is to prevent conflicts of interest; perhaps the Minister could confirm why it is in place. If that is the case, will the Minister consider whether there any added flexibility should brought into this prohibition so that, in times of particular need, councils can be flexible? If the Government are not going to accept the amendment, let us look at what else we could do to help.

Amendment 16 would start the process for accrediting ratings advisers. The reason I want to talk about this amendment in particular is that there seems to be an increasing number of reports of rogue agents claiming that they can help businesses. It seems to be a growing problem. There are concerns that the situation will be further exacerbated when the Government bring in annual returns and the duty to notify in their reforms, partly because that complicates the system.

Our concern is the impact of that on the smaller retail and hospitality businesses in market towns right across the country. They may not be seeing the reductions in their rates bills that they should be in the revaluation from 1 April, making them more vulnerable to approaches by rogue rating surveyors who promise that they will help them negotiate a new revaluation but do not deliver and disappear, leaving the businesses high and dry. That is our particular concern. So do the Government recognise that this is an increasing problem? If so, perhaps we should look at tackling it in the way in which the noble Lord, Lord Shipley, has proposed. We cannot allow this situation to continue and to get worse, because it will affect many small businesses that simply cannot afford it.

Amendment 17 exempts social infrastructure sites—such as bus shelters and telephone boxes—which have advertisements from paying business rates. I am not sure that the Minister will have this figure at his finger- tips, but it would be interesting to know how much is currently generated from this kind of advertising: what impact are we talking about?

Finally, Amendment 18 relates to anti-avoidance. I know that the Government have recently consulted on this, so it would be good to know exactly what action they are looking to take.

My Lords, I thank all noble Lords who have contributed to this relatively short and interesting debate on a wide-ranging subject. It is good that the noble Lord, Lord Shipley, has given us the opportunity to look into these matters a little further.

I will go through the amendments, but not necessarily in chronological order, so noble Lords will have to bear with me. I understand that the noble Lord, Lord Shipley, tabled Amendment 16 based on his concerns regarding the conduct and sharp practices of some rating advisers, as mentioned also by the noble Baroness, Lady Hayman of Ullock, and the noble Earl, Lord Lytton. I sympathise with and recognise the concerns behind this amendment and welcome the opportunity to discuss the work the Government are doing to address them.

I reiterate in the clearest terms that most rating agents are legitimate organisations registered with a professional body. Nevertheless, as my noble friend the Minister has said previously, we know that a minority of agents seek to take advantage of their clients through predatory practices and exploitative contracts, or by actively promoting rates-avoidance strategies. The Government have published a wide-ranging consultation, as mentioned by the noble Earl, Lord Lytton, on avoidance and evasion in the business rates system. The consultation includes a specific chapter on those rogue agents with whom this amendment is concerned and seeks views on how the Government could address any issues arising from their conduct. While there is no regulatory regime that covers all rating agents, a set of agent standards has been jointly published by the three professional bodies: the RICS, the Rating Surveyors’ Association and the Institute of Revenues, Rating and Valuation.

Recognising the importance of the professional bodies to the system, the Government will, as a matter of course, take the views of these organisations into account and will be engaging with them through the ongoing consultation process. The Government also provide advice on GOV.UK on how to find a reputable agent and the considerations that businesses should take into account when deciding to appoint an agent. Furthermore, the Valuation Office Agency is currently developing a standard for all rating agents, in alignment with existing HMRC agents’ standards.

The Government are keen to work collaboratively with rating agents to tackle poor practice. Our aim is to find a balanced solution that prevents sharp practice but does not impinge on the legitimate work of agents up and down the country.

Amendment 4 would remove the legislative bar which prevents local authorities awarding discretionary rate relief to their own properties. I understand that the concerns of the noble Lord and the noble Baroness are primarily with the application of business rates to local authority-run markets. The Government fully recognise the contribution that markets make to the vibrancy and diversity of our communities. We are supporting local authority-run markets with access to the £2.6 billion towns deal programme and the £1 billion Future High Streets Fund. We have also made permanent the permitted development rights which enable markets to be held by local authorities for an unlimited number of days.

However, enabling authorities to relieve their own rates costs in relation to marketplaces, and any other properties they occupy, would overturn an important and long-standing principle and not be the right way to support markets. Local authorities have a distinct dual role, as mentioned by the noble Baroness, functioning as both ratepayers and administrators of the business rates system. Given this dual role of authorities, they cannot in all circumstances be considered the same as any other ratepayer.

There is therefore a long-standing principle that local authorities should not have the power to award discretionary rate relief to the properties they own or occupy, just as central government does not, and indeed should not, hold the power to reduce its own rates liabilities. Of course, should the Government wish to relieve local authorities of specific rate costs then, subject to the will of Parliament, they can choose to do so. This could be achieved by providing a mandatory relief with the specific criteria set out in legislation, as was implemented recently for public toilets.

Amendment 18 would provide the Secretary of State with a power, subject to consultation, to lay anti-avoidance regulations. I understand that it seeks to mirror the approach taken by the Scottish Government. As I have said, we are currently consulting on business rates avoidance and evasion, so the noble Lord will understand that there will be a proper time to consider possible interventions. Through this process, we are engaging closely with those who have the clearest knowledge of these practices across business, agent and local government groups. The Scottish regulations, as mentioned by the noble Earl, Lord Lytton, have only recently come into force. However, as part of our consultation, we will work alongside the devolved nations to broaden our understanding of the issues faced and the initial impact of those regulations.

Amendment 17 seeks to remove from business rates advertising rights on structures such as bus shelters. The rating of advertising has been a normal part of business rates since the 19th century. Advertising is a non-domestic use of land which can be quite valuable. Rents—sometimes considerable rents—are often paid to secure sites for advertising, so it is quite correct that advertising is included in business rates, along with other non-domestic uses of land and buildings.

The noble Baroness, Lady Hayman of Ullock, asked about the value of those sites. For advertising sites on bus shelters, the revenue for local government is not minimal. For electronic or digital displays at bus shelters in central London, the annual rates revenue is between £1,400 and £4,000 per display, depending upon their location. Even at the other end of the scale, static paper advertising displays outside London can still see revenue in the low hundreds of pounds each.

As we have heard, the amendment would exempt advertising only at social infrastructure sites, such as bus shelters, but the logic for this is not clear. Of course, a local authority might use bus stops to advertise jobs or local initiatives, but in the same week, that screen might host adverts from mobile phone operators or fast-food chains. What, then, is the social need that justifies a tax break? It could also create a commercial advantage for advertisers at such sites compared to companies using other sites, which would continue to pay rates. Such other sites may be only across the road from a bus shelter, for example on the side of a building, and therefore be in direct competition. Accordingly, I do not think there is a case for special treatment of advertising on bus shelters compared to other sites or sectors more generally.

I am grateful for this debate and to noble Lords for raising these three important issues. I hope the noble Lord, Lord Shipley, will be prepared to consider withdrawing his Amendment 4 and not pressing others.

My Lords, I thank the Minister for his reply, which I found very helpful. I shall withdraw Amendment 4. I hope that all the amendments I have put my name to today will form part of a constant review of business and non-domestic rate structures, because the system is showing serious signs of stress. I do not think it can continue as it currently is. As a consequence, Governments of whatever persuasion will have to address the fact that reform of business rates is increasingly essential. I beg leave to withdraw my amendment.

Amendment 4 withdrawn.

Clause 5: Frequency with which lists are compiled

Amendment 5

Moved by

5: Clause 5, page 16, line 4, leave out “third” and insert “second”

Member's explanatory statement

This amendment would require central non-domestic rating lists to be compiled every two years.

My Lords, I move Amendment 5 in my name, and will speak also to Amendments 6 and 7, which would, in effect, do the same thing. My name also appears on Amendment 15, which is in the name of the noble Baroness, Lady Hayman of Ullock. I will leave her to speak mostly to that amendment. It is about review and the point I made a moment ago—that we have to keep reviewing business rates and how they operate because of the challenges currently faced.

I have tabled these amendments so that we can hear again from the Government the justification for a three-year review, as opposed to the two-year review which I would prefer. I prefer two years because it has many advantages. It would be more efficient and reflect changes in valuations more quickly. It could reduce work and it would be really good if it could be done.

I understand that there is already a reduction to three years and to reduce it further would be pretty hard to do as quickly as it would have to be done. Therefore, I would probably accept the Government’s advice that they are mindful of the need to move to two years, that there are major advantages to it and that that is the sense of the journey they are following. It would be very helpful. I have tabled Amendments 5, 6 and 7 so that the Minister can respond and confirm again that it is the intention to get towards a system that does a business rates review every two years. I beg to move.

My Lords, I thank the noble Lord, Lord Shipley, for his amendments. This group is all about revaluations and reviews of rates. The first three amendments, which the noble Lord, Lord Shipley, has introduced, would change the timeframe for compiling non-domestic rating lists. I thank the noble Lord, Lord Thurlow, for his support and encouragement for my Amendment 15, and I support his Amendment 19. Those amendments are looking for broader reviews of the business rates policy. The intention is to look at how frequently we should review our business rates.

One reason we have concerns about the current system—and it is good that the Government have looked at this and reduced it to a certain extent—is that if reviews are done only over a certain period, the rest of the system needs to be fit for purpose. We are concerned that the current system makes it extremely hard for businesses to appeal their assessments. If you have an assessment that is high, it is difficult to appeal and to manage that, which creates difficulties, particularly for small businesses. The whole system needs to be much more fit for purpose if it is to work for businesses and for local authorities.

The Labour Party’s policy is to scrap business rates altogether and to replace the current system with one which works to incentivise investment. We think there should be more frequent revaluations. If property values drop for particular reasons outside a business’s control, there should be the ability to do more frequent revaluations. Where businesses are caught out in this way, bills should be reduced. There should be incentives and rewards for businesses which, for example, move into and invest in empty properties. It is about encouragement. Earlier, we talked about green improvements and energy efficiency and how you encourage businesses to invest in this way. The whole system needs to be a bit more nimble and more effective in supporting small businesses. The Government need to work with businesses, people working for those businesses and public bodies in order to get a system that is genuinely fit for purpose and supports local businesses and local authorities in the way it needs to.

My Lords, I declare my interest as a former chartered surveyor with interests in rating. This amendment and the rest of the amendments in this group clearly call for a review of business rates. I am pleased to add my name to the amendment in the names of the noble Baroness, Lady Hayman of Ullock, and the noble Lord, Lord Shipley.

A change which had been promised and which was long overdue is this review of business rates. It is particularly disappointing that the result of the review will be declared so shortly after the end of the progress of the Bill. It is the wrong way around. A redefinition of use classes—not for planning but for non-domestic rates purposes—is certainly required in order to reflect the changes that have taken place in the real world. Should Airbnb properties which are professionally managed as such be subject to council tax or to non-domestic rates? Likewise, one can follow that thought process through to the high street. Some of the changes of use in the high street to non-retail property do have specific use classes, but this needs to be brought up to date.

Should a sole trader with one or only a handful of outlets receive start-up incentives to boost their chances of survival? As Amendment 15 seeks, small retailers really should have the thresholds for relief purposes reviewed urgently. Dozens and dozens are going bust in the high street every month, on the watch of a Conservative Government whose mantra is to support business, and particularly small businesses. I just do not understand why there has been such neglect.

I turn to Amendment 19 in my name. This is one of several amendments requesting a general review of non-domestic rates. As part of this, I support the reference in Amendment 15 to a two-year review. That is taking it at quite a racy pace compared with the current five-year programme, but I think we should see it as the objective in the process of increasing the frequency of reviews.

We also need the Government to address the imbalance of the rates burden between the high street retailers and the big-box dark retailers—the internet retailers. We know, of course, that many smaller high street retailers operate mail order businesses. That is not what I am referring to; I am referring to enormous warehouses, measuring hundreds of thousands of square feet. We all know of Amazon—this is effectively the Amazon amendment. The small retailers in the high street cannot compete, and rates alone create a massive disadvantage to the high street retailer. What are we doing? We are doing nothing, and we should be doing something about it.

The impact is felt in the high street as retailers lose competitiveness and the unfairly subsidised competition gains more and more market share. It is not just small, independent businesses; it is the national chains as well. It was in yesterday’s Times that the chief exec of one of the largest national retailers, controlling numerous brands across the country, including hundreds and hundreds of high street units, explained that, for them, in a number of cases, the rates that they pay are now as high as the rents that they pay. That implies that rateable value is 200% of where it should be. Rateable value is meant to be a reflection of rental value. We then apply the rate poundage, or whatever the latest phrase is for it, which is approximately 50% above. That should take it back, at best, to 50% of rent paid by a retailer. That article, from a chief executive, said that the rent and rates payable were the same in many cases for their properties on the high street. It is a disgrace, and it should not be accepted.

Revising non-domestic rates is not going to be easy, but the review—which we all look forward to with great anticipation—will no doubt tell us how the Government think that it can be done, if indeed they want to do anything about it. My Amendment 19 simply asks the Government to assess the potential to address the injustice. Experts will assist—and we have been talking about the regulation of experts and cutting out the rogues and rogue agents. Those experts are the specialists, and they should have an important role in redesigning the current system of NDR.

As the noble Lord, Lord Shipley, stated, the system of non-domestic rates is effectively broken. The heart of my Amendment 19—the Amazon amendment—is simply to introduce fairness for high street retailers and the small businesses in the high street. I hope that the Government will respond with their intentions, specifically to address what I describe as the Amazon factor.

I strongly support Amendment 19 from the noble Lord, Lord Thurlow. I too read the article in the Times yesterday to which he referred. The fact of the matter is that, while rents have decreased substantially due to inflation and other measures, rateable values are very high and the rates payable are now no indication at all of the actual rental value of the properties. That is one of the reasons why, in an unstable market, it is very important to have the valuations done as often as possible, to reflect the actual rental value of properties.

The second point on which I very strongly support the noble Lord, Lord Thurlow, relates to what he has called the Amazon amendment. This is the one critical factor that would bring rates into the modern world. Unless we address this critical issue, we are ignoring the reality of modern-day retail life. It is critical that the Government address this Amazon amendment as soon as they possibly can. If one reads the professional press—such magazines as the Estates Gazette—this is always raised by every retailer as one of the greatest iniquities, and possibly the greatest iniquity, of the current rates system.

My Lords, I congratulate the noble Lord, Lord Thurlow, particularly on Amendment 19. It is a pleasure to follow the noble and learned Lord, Lord Etherton, on this because it strikes at the heart of what I have always felt about the rating philosophy. The noble Lord, Lord Shipley, inferred a few minutes ago that rating is demanding too much of the tax base to which it is applied. I have made the same point myself over many years. I remember one eminent rating surveyor telling me, “You know, once the rate in the pound starts to get near to 50%, things start changing. People’s attitudes start changing”.

I am afraid that HMRC, which has global responsibility for this, has been extremely slow to catch up with what is happening and to realise the paradigm shifts created by the increasing burden of business rates. Leaving aside things such as small business relief and so on, I did a calculation—a few years ago, so the analogy is even more potent now—showing that business rate payers in small premises of between 1,000 square feet and 3,000 square feet were paying materially more by reference to property value and square footage occupied, by some considerable factor, than their residential counterparts. I use that because when I first started working in this area, in what was then known as the Valuation Office, all those years ago, there was a common rating system, and residential and commercial had a common base. That is why I got little old ladies in cottages in Lewes High Street in Sussex complaining that the pub next door, which sold all this liquor, had a rating assessment that was half theirs.

What has happened is that, because of the burdens, markets have shifted. The noble Lord, Lord Thurlow, referred to traders who operate from industrial estates— I think that was one of his examples. I used to joke about this, because the archetypal online operation was a stockroom that was a van on the motorway somewhere, a showroom that was a glossy website, a till that was an online payment portal and a communications system that was a pocket mobile and an email address—this was how the thing operated. People have got very slick, because now you have a big industrial shed at the front of which is a retail and trade counter, which occupies quite a small part of the footprint, and the rest is a big storage shed. We all know the names they have. They sell plumbing, electrical equipment, household goods, all of which you can order online. This is one of the difficulties, because seeing the opportunities of online, many of these operators have seen that the two operate very beneficially with the physical hereditament they occupy as well: the two have a synergy that works effectively. This is absolutely a moment when the Government need to take stock.

The amendment of the noble Lord, Lord Thurlow, refers to high streets. I will return to this in a few minutes when I get to amendments of mine. Unless we get this right, the attrition of high streets will continue, and they will change into something that is not a general purpose destination for people wanting to shop for everyday goods. They will become a sort of entertainment centre with restaurants and bars and the night-time economy. That may be a good idea, but there is an area of conflict here. If we want to bring residential property back into town centres, then residential occupiers do not relish the thought of people turning out at eleven o’clock at night, having had a jolly good time at the bar. That is one of the issues. Another issue is that a lot of these places need to be serviced; they need to have their bins emptied. If there is a local authority or contractor refuse lorry turning up at 6 o’clock in the morning, people will get fed up with that.

We have to start getting this right, as to what the complementary uses are and how to deal with them. More particularly, how do we reverse this process of the alienation of people—who are otherwise willing and able traders—from our traditional high streets? This matters because that is how they are designed and built. That is the social construct that led to the buildings being built and appearing the way they are. I shudder at trying to transform them into totally different uses. When I see things like permitted development for change of uses in town centres, I worry about what will happen and whether that is an irreversible change that will produce more of the conflicts that I have referred to.

Although I slightly shudder every time somebody mentions a review of business rates, because we seem to have an awful lot of them, I think that this is a body of work that needs some serious thought from academics, practitioners and particularly from people like valuers and retailers, because that is where this analysis comes in. The valuers are not making the roles; they are simply interpreting how people go about their business and do their trade. The derivative is a value, and whether it is a rateable value, a capital value or for investment purposes, we need not alienate these purposes. I congratulate the noble Lord, Lord Thurlow, because he has raised an absolutely fundamental point in relation to non-domestic rates.

I thank noble Lords for their passionate speeches. It is clear to me that we share the same objectives; we may just have slightly different ways of getting there. I hope I can satisfy noble Lords by the end of my speech.

This group of amendments returns to the theme of the effectiveness of the business rates system as a whole. Amendment 15 in the name of the noble Baroness, Lady Hayman of Ullock, and Amendment 19 from the noble Lord, Lord Thurlow, would require a further review of the business rates system to, respectively, expand small business rate relief or rebalance the tax burden between high street and internet retail. Amendments 5, 6 and 7 from the noble Lord, Lord Shipley, concern the frequency of revaluations.

I turn first to whether we should conduct a review of the tax. As noble Lords are aware, the Bill is the product of the Government’s own comprehensive review of the business rates system. That review was delivered in around 18 months in 2020 and 2021, which allowed us to do justice to the significance and complexity of the exercise. The review considered a wide range of evidence and reached clear conclusions about the effectiveness of a tax as a means of funding local services and the limited evidence in support of a fundamental overhaul, but also the opportunities for reform.

The Bill seeks to deliver more frequent revaluations and to enable the abolition of downward transitional relief—two of stakeholders’ key asks—alongside other measures. Making these revaluations more frequent, as we are doing with the new three-yearly cycle, will make the tax more up-to-date and therefore fairer. We agree with noble Lords. I accept that some would like us to go further, but a majority of respondents to the review supported a three-yearly revaluation cycle. Moving from every five to every three years is a major reform of the system, and to do this we must implement significant changes to how ratepayers and the VOA interact, which will take several years to bed in.

I repeat that we will keep the frequency of revaluations under review. It is also our aspiration to go further by shortening the antecedent valuation date gap, where possible. I recognise that, even with more frequent revaluations, there are many who are concerned by the tax burden on our high streets and the potential competitive advantage of internet retailers, but I do not think that this justifies—as the amendment from the noble Lord, Lord Thurlow, implies—departing from the common standard of rateable value. There is a core principle in rating that all properties subject to business rates are assessed to the same standard of rateable value.

In the Government’s review of business rates, there was a strong majority support for retaining the existing basis of rateable value and industry-recognised methodology. Valuing properties by reference to the evidence on the level of rents, which is agreed by landlords and tenants for that property class, provides a trusted and credible basis for taxation. That is especially so when combined with more frequent revaluations, so that relative changes in the open market rental values result in rateable values updating promptly.

By way of addressing the imbalances between high street and mainly online retailers, as well as ensuring that properties are taxed fairly, based on more accurate valuations, the Government also provide extensive reliefs where support is most needed. Some 720,000 properties, including many smaller retailers, continue to pay no rates thanks to the small business rates relief. That is over one-third of properties, with an additional 76,000 benefiting from reduced bills.

On the amendment from the noble Baroness, Lady Hayman, the Government’s view is that the existing eligibility criteria ensure that the relief effectively targets the smallest businesses, where help is needed most, and provides a good balance between support and the costs to the Exchequer. In addition to that existing relief, we have chosen to provide extensive support where it is needed, with £13.6 billion announced last autumn.

It is important for businesses to understand whether they are eligible for reliefs such as the small business rates relief, and the sources of information that they can rely on. Local authorities have a vital role in communicating with local businesses, including high- lighting available reliefs and explaining other changes in the business rates system. Businesses are encouraged to approach their local billing authority for advice on what support is available. This year the Government updated their own extensive guidance on GOV.UK about business rates reliefs, including the small business rates relief. We work closely with the Local Government Association, the Institute of Revenues, Rating and Valuation and individual authorities to understand what works locally, and we will continue to engage with the sector to ensure that aspects of the rates system, such as the small business rates relief, are working effectively.

In the absence of the Minister, my noble friend Lady Scott of Bybrook, I have attempted to explain the context of the Government’s review, how the Government continue to support small businesses with their tax liabilities, and the sources of practical information available to ratepayers. The Government’s firm view is that the recent comprehensive review was thorough and its conclusions clear, and therefore that no further review is needed at this time. On that basis, I hope that noble Lords will not press their amendments.

Before the Minister sits down, perhaps I might clarify something I said that, I think, might have been misunderstood. In the context of Amazon—I am sorry to use a particular company, but we all know what I mean by it—I did not say that I wanted to redefine the way in which the non-domestic rating system works; I simply want to redefine the use of the property. A property such as an Amazon warehouse is being used for retail and should therefore be described in the rating register as retail property in some form, not as warehousing: it bears no relation to warehousing use.

As the noble Lord will probably appreciate, I am not an expert in this area, unlike him. But I will contact the team and make sure that he has a thorough answer in writing. I believe that some of these issues have already been addressed in this review, but I will confirm that in writing to him.

My Lords, I am grateful to the Minister for her reply, and I was pleased to hear her say that we share the same objectives. I very much hope that we do and that we can continue to do so, because there are some fundamental issues here. Theoretically, I do not regard business rates as a good tax, in the sense that I think there are other ways in which taxation could be raised from businesses. However, it is the system that we have, and altering it would take a large amount of time: it would take several years to get movement on that. For that reason, I ask the Government to look very carefully at some of the suggestions that have been made in your Lordships’ Chamber this afternoon. The point that has been made by the noble Lord, Lord Thurlow, is very important. A warehouse should not be counted as a warehouse for business rates taxation if it is delivering a retail function. That is my first point.

My second point is on Amendment 15, moved by the noble Baroness, Lady Hayman of Ullock. It relates to the possibility of reducing the small business rate relief threshold. I take the point the Minister made about the number of properties that have already qualified for business rate relief, but I think the Government ought to look at that being increased. I thought the point made by the noble Lord, Lord Thurlow, was hugely material: business rates used to be half the rental level but have now become almost 100% of the rental level. This is simply not tenable: we cannot go on with that. As the noble Earl, Lord Lytton said, we are witnessing the continued attrition of our high streets and something has to be done about that.

The third point I make on what the Government could do urgently is not to increase business rates by the current level of inflation. I think the Government may well be willing to consider that—I hope the Chancellor would. All these things matter because business rates have got out of balance. Having said that, I beg leave to withdraw the amendment.

Amendment 5 withdrawn.

Amendments 6 and 7 not moved.

Clause 10: Disclosure of valuation information to ratepayers

Amendment 8

Moved by

8: Clause 10, page 19, leave out lines 4 and 5 and insert—

“(2) Subject to sub-paragraph (4), V must disclose the information to P if V considers it is reasonable to do so.”Member’s explanatory statement

This is to reinforce the need for a reciprocal duty of disclosure on the VO by making disclosure mandatory save for the exceptions in sub-paragraph (4).

My Lords, I shall speak also to Amendments 9, 10 and 11 at the same time. All of these cover slightly different things, and I will try and skate through fairly quickly. In each case, I am simply looking for some reassurance from the Government Bench that these matters are in focus and that certain things will be done.

The first is the question of disclosure of information between the Valuation Office and a ratepayer’s surveyor. It may well be that practices have grown up because of these rather unsatisfactory, unqualified surveyors, who have been going around for some time. There are many fewer of them than there used to be. It may well be that the Valuation Office has somehow built a defensive carapace against this, faced with representations that might not have been all they were cracked up to be. But at the end of the day, there is this question, which the noble and learned Lord, Lord Etherton, will understand, of equality of arms: there has to be some common sharing of information and data relating to the value of the hereditament, otherwise negotiations really are in a pretty pickle and, in many cases, will get into worse level of dispute than is absolutely necessary.

As my explanatory statement says, Amendment 8 would reinforce the need for a reciprocal duty of disclosure on the valuation office by making disclosure mandatory, except for the exceptions in sub-paragraph (4), which is basically a data protection exception. I would very much appreciate comment that this will happen and there will be guidance within the Valuation Office Agency to deal with this—to improve transparency and to reinforce confidence.

Amendments 9 and 10 relate to the question of an annual return or confirmation requirement on ratepayers, which is a new provision that the Government are seeking to insert. I had to check my notes from the previous stage of the Bill, but according to the information I had, this would result in some 700,000 hereditaments having to make an additional return or being at risk of making an additional return. The point that was made to me, and that I continue to make, is that this is potentially excessive. In discussions with the Bill team and the Minister, we were given reassurances that there would be piloting and that they would not roll this out unless it was running smoothly and the online system for reporting was robust. I would simply like to have reassurance on that point and that the results of the pilot will be a matter of discussion with stakeholders, so that we do not just have a one-sided arrangement on that. The truth of the matter is that many ratepayers do not understand the terminology because they are traders; they are not people who are involved in getting to understand what a “hereditament” is—as I may have said at an earlier stage of the Bill, it is not a word easily conjured with. There is a great deal that they do not understand about making returns as they are at the moment, so there is a need for a process of general simplification. That deals with Amendments 9 and 10, which are connected.

Amendment 11 relates to something slightly different, which is consequential on this whole reporting business, and that is that, when a business ratepayer advises the Valuation Office Agency that there has been a change, the matter is dealt with promptly, whether it is a reduction or an increase. An increase obviously affects the income from the rating scheme as a whole, but a reduction is something that directly affects the ratepayer. At the moment, I understand there is still quite a considerable backlog within the Valuation Office Agency. The concern is that, unless the backlog is cleared and unless there is better funding and resourcing within the Valuation Office Agency, these things will be held up. The idea here is that ratepayers in particular should not receive retrospective increases in their rating liabilities unless the valuation office acts promptly on receipt of ratepayer-provided information. This is to give an incentive to the valuation office to make a prompt approach and deal with it, but it is all to do with speed of turnaround of necessary changes. Not everything that is advised to the Valuation Office Agency will be relevant, but quite a lot of it may be. If we are going to get into this new era of reporting 60 days after an event has happened and at the end of the year, then we need some reciprocity in relation to that. That is the gist of those amendments.

I just add that, although the Minister has not spoken to them yet, I support government Amendments 12 and 13. They are necessary and appropriate. I have no real views on Amendment 20 either way; it is an administrative consequence of other amendments. I beg to move.

My Lords, I rise to support Amendment 8, moved by the noble Earl, Lord Lytton, and particularly the reciprocal duty of disclosure by the VOA apart from for data protection reasons, to which the noble Earl referred—although I object to the latter myself. However, I think it is repugnant that, in this country, where we so treasure transparency in the law and all its constituent parts, the government department responsible for non-domestic rates does not have to reveal its evidence to an applicant, which may be a small business struggling to survive, unless the rates are challenged formally. To challenge a rating assessment formally inevitably requires that small business, possibly teetering on the edge of survival, to instruct a rating specialist to advise it at a fee. Only when there has been a challenge is the valuation office required to reveal its evidence. Why on earth do we tolerate this opaque behaviour on the part of a government agency? It is fundamentally wrong, and I congratulate the noble Earl, Lord Lytton, on raising this very important issue. If it did not involve cost in this way and impact those vulnerable smaller businesses particularly—we are talking not just about shops but about businesses, offices and small industrial properties—it would be less sensitive. But I think this is very important, and I hope the Minister will be kind enough to give us a full response.

My Lords, I also support Amendment 8 in the name of the noble Earl, Lord Lytton. Ideally, it is worth avoiding appeals. Appeals can be avoided only if there is confidence that you have the material available. That presupposes a sharing of information that is open and transparent. One of the criticisms that is often made is of the time taken in appeals, the obscurity of the role adopted by the valuation office and its failure to disclose information. It seems to me that it is in everybody’s interests, economically and in terms of management time and stress, to avoid appeals by an early disclosure of information where requested.

I thank the noble Earl, Lord Lytton, and others for speaking to these quite technical amendments. As the Minister said previously, I would not say that I am an expert on these issues, but it is very important that they have been raised. It is particularly important with valuations and penalties that we properly understand the implications of the Bill.

I have one question for the Minister on government Amendment 12, which limits the daily penalties that are applicable. I wonder where the figure came from and whether the Minister thinks it will be a sufficient deterrent.

The noble Earl, Lord Lytton, has tabled a number of amendments related to the provision of valuation evidence to the Valuation Office Agency. I am grateful for the opportunity to address this again, following the earlier debate in Committee, and to explain how the Government have listened to the suggestions heard in that debate.

As has been noted previously, these reforms are essential to securing the sustainable delivery of more frequent revaluations, which I know noble Lords support. Clause 10 consists of a power to allow the VOA to share valuation information with ratepayers. Amendment 8 would make this power a duty, and I will explain why the Government cannot support this. The Government are absolutely committed to providing greater transparency about how rateable values are calculated. The VOA has recently consulted on how, in practice, they intend to use this clause. It is an important part of the reforms and a key plank of our commitment to ratepayers. However, as that consultation reflects, we cannot overstate the importance of privacy rights. The information relied on by the VOA in establishing a valuation will, in some cases, include personal and sensitive data, so it is right that we take an approach which is common among other data gateways; namely, that the gateway is permissive: it permits the VOA to disclose information rather than placing a requirement to do so. This approach safeguards the interests of ratepayers and their data, but I am clear that within the necessary constraints of the clause we are committed to the transparency of valuations.

Amendments 9 and 10 from the noble Earl, Lord Lytton, seek to remove the requirement in Clause 13 for rate- payers to submit an annual confirmation as well as a notification to the VOA when there is a notifiable change related to their property. On this amendment, the Government are mindful of those concerns. Of course, we should not burden businesses where we do not need to. However, we have a safeguard in place for that very purpose. The Bill provides that the annual confirmation can be brought into force later than the other parts of the VOA duty, and the Government have been clear that we will not bring it into force until we have ensured that it will be sufficiently straightforward for ratepayers to complete. We intend that completing the annual confirmation should be a matter of only a few minutes for those who are already up to date with the duty. Moreover, the annual confirmation will serve a valuable purpose for ratepayers, as well as the VOA. By providing a further opportunity to ensure that they have complied with the duty, the annual confirmation will act as a safety net.

Amendment 11 seeks to prevent the VOA backdating changes to the rating list after a certain period. We are aligned on the importance of the VOA acting promptly and accurately on information received about a property. The VOA takes this very seriously and is performing well—it meets its own targets for processing checks within 12 months and challenges within 18 months in 99.9% and 98% of cases respectively. Of course, as we develop these new systems for the VOA duty, we will review the VOA’s operational targets accordingly, but in light of the VOA’s performance on its existing targets we do not see the need for primary legislation in this space. Furthermore, we hope the noble Earl will recognise that the information provided under the duty may vary considerably by type of property. In the view of the Government, that does not point to a one-size-fits-all approach being appropriate. Instead, it requires effective and transparent performance monitoring, which we will continue to provide under the new system.

I shall explain the steps the Government are taking through government Amendments 12 and 13 to improve the penalties regime for the VOA duty following proposals made by the noble Earl, Lord Lytton, in Committee, for which I am grateful. Amendment 12 deals with the daily penalties which the VOA may apply where a ratepayer continues not to comply with the valuation notification requirement 30 days after being served an initial penalty notice. Its purpose is to encourage timely compliance with the duty. However, it has been noted that in the similar provision for the separate duty to provide HMRC with a taxpayer reference number, a cap on daily penalties equivalent to 30 days of the maximum penalty is applied. The Government have decided to extend this protection for ratepayers to the valuation notification duty. Of course, it is vital that the VOA can secure the information it needs to deliver more frequent revaluations, and to do this it needs effective compliance tools. Nevertheless, the Government have reflected on the points raised in Committee and accept that placing a cap on the total amount a ratepayer may be fined is appropriate. I have a note that I hope helps the noble Baroness, Lady Hayman: this is equivalent to 30 days of penalties, each being £60.

Amendment 13 alters the burden of proof that the valuation tribunal should apply when deciding whether to uphold a penalty decision. The penalty decisions with which this is concerned are for the criminal offence of knowingly or recklessly making a false statement. The Bill prescribes that, for a higher penalty to be applied, the VOA must be satisfied beyond reasonable doubt that the ratepayer has made the false statement knowingly or recklessly. That is the correct standard of proof for a criminal offence.

However, the noble Earl, Lord Lytton, identified an issue with the procedure where a ratepayer appeals such a penalty decision to the valuation tribunal. The tribunal would have to be satisfied beyond reasonable doubt that the ratepayer had not committed the offence. The Government wish to amend this to ensure that the proper burden of proof is applied, to the benefit of ratepayers.

Finally, Amendment 20 is a minor and technical change that we think we should make to the 1988 Act as a consequential effect of the provisions in this Bill concerning business rates multipliers. Clause 15 makes changes to the multiplier rules and separates the multiplier provisions relating to England and Wales. Section 140(2)(b) of the Act refers to Ministers making separate estimates of rateable value for England and Wales. As the provisions relating to England and Wales will now be separate, that section is obsolete and can be deleted. This is simply a drafting correction to improve the clarity of the statute book and the Government do not foresee any practical effect.

I thank the noble Earl, Lord Lytton, for his scrutiny of this area of the Bill, which has allowed us to make important improvements. I hope, with those reassurances and our amendments, he will be prepared to consider not pressing his amendments.

My Lords, before the noble Baroness sits down, there is something that I probably should have asked her about earlier in connection with her Amendment 12, which is the figure of £1,800. Discussions with her noble colleague and the Bill team made it clear that it is intended to be an aggregate figure. I do not know whether she referred to that but I did not hear; if she could confirm that that is so, just for the record, I would be very grateful.

What I can confirm is what I have written on my note, which says that this is 30 days of penalties, which are £60 per day, which comes to the figure of £1,800 that the noble Earl referred to.

My Lords, I thank all noble Lords who have spoken on these amendments. I am not going to add much to anything that has been said. On Amendment 8, there is clearly a significant issue in terms of transparency. I had thought that the wording

“V must disclose the information to P if V considers it is reasonable to do so”

was a sufficient get-out-of-jail-free card, but I take it that the Government do not feel able to accept that.

I am grateful to the Minister for her reassurances on how the making of returns will function, particularly her comment that one size does not fit all. We have been a bit subjected to one size fits all in some aspects of rating valuation and I am very glad to hear that that will not always be the case. With that, I beg leave to withdraw Amendment 8.

Amendment 8 withdrawn.

Clause 13: Requirements for ratepayers etc to provide information

Amendments 9 to 11 not moved.

Amendments 12 and 13

Moved by

12: Clause 13, page 27, line 24, at end insert “(but see sub-paragraph (4)).(4)P’s total liability under sub-paragraph (3) may not exceed £1,800.

P’s total liability under sub-paragraph (3) may not exceed £1,800.”Member's explanatory statement

This amendment would limit the daily penalties that a person can be liable to under new paragraph 5ZD(3) of Schedule 9 to the Local Government Finance Act 1988 (inserted by clause 13(5) of the Bill) for a continuing infringement of new paragraph 5ZC(1) of that Schedule (inserted by the same clause) to a maximum of £1,800.

13: Clause 13, page 31, leave out lines 14 to 17 and insert—

“(3A) On an appeal under this paragraph the valuation tribunal must remit a penalty arising under paragraph 5ZC(3) unless it is satisfied beyond reasonable doubt that P knowingly or recklessly made a false statement (within the meaning of that paragraph).”Member's explanatory statement

This amendment would require the valuation tribunal to remit a penalty imposed on a person under new paragraph 5ZC(3) (inserted by clause 13(5) of the Bill) unless it is satisfied beyond reasonable doubt that the person knowingly recklessly made a false statement (instead of the position under the current drafting which merely permits the tribunal to remit such a penalty in circumstances where it is satisfied beyond reasonable doubt that the person did not knowingly or recklessly make the false statement).

Amendments 12 and 13 agreed.

Clause 14: Alterations to lists: matters not to be taken into account in valuation

Amendment 14

Moved by

14: Leave out Clause 14

My Lords, I regret to say that in this amendment I am obliged to refer to a rather contentious matter. As I have made clear, I am not going to divide the House, but a serious question needs to be answered. I tabled the amendment to delete Clause 14 because of my concern that what the Government claim Clause 14 does is at material variance with the wording, as I see it, of the Bill. It is also at serious variance with what I understand to be the current assumptions regarding the, as it were, state and condition of the hereditament for valuation purposes not in terms of its individual condition as to the fabric but where it sits in its economic and practical environment.

As I understand it, the Government claim to be restoring matters to those understandings that prevailed previously, but the proof of the pudding shows that is not so or we would not have this clause before us because it would then be unnecessary. In my view, an earlier measure to remove the status of Covid as a material change of circumstances—which is what this is all about—was legitimate. It was deliberately circumstance specific and affected the whole country and so could rightly be described as a pan-national economic event. But the Government now seek to extend that principle to any change affecting the physical enjoyment of the hereditament as a consequence of what is described as an “economic” matter and that that should be disregarded as a material change of circumstances. In other words, it should not be possible if that change occurs for somebody to challenge their assessment.

I dispute that this approach has ever been the test of a material change of circumstances hitherto. Copious cases—Addis Ltd v Clement (VO) in particular—have clarified this. There is an obvious reason: where a public authority takes steps that deny or degrade the benefits of enjoyment of a hereditament, it is offensive that a tax unadjusted to reflect this fact should continue to be levied. This is not just a modern confection but goes to the heart of fair and just administration, the rule of law, confidence in government and the certainty and security of process that affect investment, productivity, and commitment to medium and long-term partnership. It is an essential part of a social and economic contract—unwritten it may be but there all the same. Any Government would be wise to observe these obvious and potent economic factors in administering the needs of the nation. We are talking about an ancient principle.

The Government make a distinction in relation to an economic matter affecting society at large but then go on to define this as any matter directly or indirectly attributable to a “relevant factor”. In fact, these are not economic matters at all but the fiat of some authority exercising powers that are not of general economic application to the nation at large or a significant part of it. The definition of “relevant factors” is set out at Clause 14(l)(d) in new paragraph 2ZA(3)—near the bottom of page 32 for those noble Lords following this astutely. In effect, it means that any legislation, regulation or advice of any country or public authority or steps to comply with these is to be disregarded in terms of what amounts to a material change of circumstances—so much for being ruled by our own laws. It also does not clarify the status of pronouncements from organisations such as the WHO, the UN or International Monetary Fund. So, in future, if a local authority alters the entire geometry of the use and enjoyment of a business premises through, let us say, planning powers, it will not count as an MCC, regardless of how severe the impacts may be. This provides a perverse incentive to disregard negative effects of sudden policy decisions which, as I say, may be nothing to do with economic choices.

I wonder whether when formulating these measures the Government ever considered the growing mistrust of their handling of the business rates regime generally and the effect, along with others no doubt, on high streets from trader and investor confidence, or ever paused to consider off balance sheet indications in any of these respects. The Government in seeking to differentiate general economic changes from direct physical enjoyment at hereditament level do not seem to be able to make a tidy distinction between the two, so they take a line of least resistance and bundle them together. That is Clause 14.

By way of further explanation, there are of course two poles to consider: first, those matters which affect the economy as a whole to be dealt with on revaluations—there is no dispute about that; we accept that as we accepted it in Covid. Then there are other more rapid and acute physical changes to the hereditament itself. Again, there is no dispute on that because they will continue to be treated as material changes of circumstances. In between, there are those immediate and localised regulatory and other measures affecting an individual property or those in a defined location and not shared with the wider economy of a town or a region.

I wanted some further clarity on this, so I sent some examples of queries to the department. I hope it received those and that, in replying, the Minister may be able to throw some light on them. The first one was where a local authority reduces the hours of operation of certain licensed premises to provide better amenity for nearby residents and as a result business is curtailed— I referred to the conflicts earlier today. Secondly, an important town centre car park is closed due to concerns about the concrete frame and as a result footfall for traders in that part of town declines substantially. Thirdly, a small corner convenience store is affected because the large residential block next door is ordered to be evacuated over fire safety concerns and the occupiers are dispersed into other accommodation elsewhere. Fourthly, an authority in a popular holiday area makes licensing of holiday let premises mandatory but then limits or conditions the licences it issues to reduce the impact on local housing availability and as a result the income to certain operators is significantly affected. Finally, a biosecurity exclusion zone is declared in a defined area due to an animal disease outbreak. The public are advised to stay away and traders in the area suffer a sharp downturn in business. As I understand it, every one of those would be ruled out as being a material change of circumstances by virtue of Clause 14. The only qualification is on the last one. Does the geographical extent of the biosecurity exclusion zone alter the degree to which the effects fall to be disregarded as an MCC or does it make no difference?

Let me give an extreme example of what the effects might be. A metropolitan mayor decides to ban all petrol and diesel sales in his or her area under some statutory or regulatory power or perhaps on the advice of health officials concerned about air pollution, but by virtue of Clause 14—and maybe for up to three years until the next revaluation—petrol filling stations in the area would have to continue paying business rates as if nothing had happened. If that is not what the Government intend, they need to revise Clause 14 because that, on the best authority I know, is what it will do. The best authority I have—Members of this House, particularly learned Members, excepted—is rating counsel Luke Wilcox, who provided me with a note which says

“my main concern with clause 14 as it is currently drafted is that its effects will be much wider than the Government’s stated intention. The Government’s intention appears to be to treat general legislation as part of the general market conditions affecting revaluations, rather than as matters capable of being MCCs”.

He goes on to say that

“the phrase ‘indirectly attributable to’, as it appears in para 2ZA(2)(a), is so wide in its scope that matters affecting an individual property or class of properties, such as a planning or licensing decision, will cease to be MCCs (because they are made under a general legislative provision). Such an effect would appear to be beyond the Government’s stated intention. If such a significant alteration is to be made to the established law of rating, then it should be made following proper deliberation, rather than as an unintended consequence of a provision aimed at a different policy effect”.

In all this, there appears to have been little or no discussion with ratepayers or their professional advisers, nor any wider consultation with that class of stakeholders. It is undoubtedly a major departure from what is known as the “reality principle”—namely, that rating should reflect the real circumstances of the hereditament in assessing it for rating purposes. The Valuation Office Agency’s own rating manual does not use the approach now suggested. Whether it is going to be amended, I do not know—I suppose it will be—but, as it clearly states the situation that has commonly been understood for many years, that rather suggests that the Government’s claim of restoring what they say were the previous understandings is unsupported.

Many will feel that this is getting us towards the realms of no-appeals regulations—in other words, “Let’s not have any appeals at all and dispense with them, and the whole thing can be dealt with through by the arbitrary exercise of power through the Valuation Office Agency”. But that would have profound implications for the rules-based system—something that I have referred to before in relation to several government Bills.

This clause cannot go unchallenged. Although I am not proposing to press the amendment, I think it warrants a detailed comment from the Government as to how they think it will work fairly and equitably in the context of the rating system. I beg to move.

My Lords, I support the point of view expressed by the noble Earl, Lord Lytton. He has raised this very issue, I think at Second Reading and certainly in Committee, and I have given him support because I have grave doubts about the definition in the Bill of a “material change of circumstance”.

The noble Earl has given a list of possible examples of where there should be a material change of circumstance because of what happens in the area as a whole—perhaps a planning change or a licensing change undertaken by a local authority. When it comes to the Minister’s reply, it would be extremely helpful if there could be a letter to all of us who have taken part in the debate, but addressed to the noble Earl, Lord Lytton, explaining the Government’s view on each of the examples that the noble Earl has given.

I have another one to add to his list. As it stands, Clause 14 means that material changes of circumstance should relate to physical changes only to a property. That is how I interpret it. However, as the noble Earl has demonstrated, there can be many ways in which that physical property can be impacted upon and have a material change of circumstance because of what somebody else does. My example is that a local authority decides that a bus route will no longer come down one road but will go down a different one. The patronage of the shop—if it is a shop—goes down as a consequence. Is that a “material change of circumstance”? I suggest that it is and that it should qualify. I do not think that Clause 14 can apply only to a physical building. That is my position.

I am glad that the noble Earl has decided not to call a vote on this matter, because we all together need to debate how we can get a better definition of the law so that properties that think they have suffered a material change of circumstance are entitled to seek redress for the position that they find themselves in. So I fully support what the noble Earl, Lord Lytton, is urging.

My Lords, I will say very little, other than to echo what the noble Lord, Lord Shipley, has said. The noble Earl raised this issue in some detail in Committee, but we have not had the answers that he asked for. He is not satisfied that Clause 14 is necessary or designed to do what it wants to do. He has great experience in this area and we need to listen carefully to the concerns that he has raised. We very much support the fact that the noble Earl has brought this back to the House’s attention and look forward to the Minister’s response.

My Lords, I thank the noble Earl, Lord Lytton, for this short debate, which has been fascinating. He has quite rightly gone into some detail on this issue, and I hope I will be able to explain part of the thinking behind our inclusion of Clause 14 in the Bill. However, as the noble Lord, Lord Shipley, suggested, once I have read Hansard I will ensure that, if we do not feel we have not gone far enough in explaining our thinking, we will write to the noble Earl, making that available to all noble Lords and placing a copy in the Library.

Amendment 14 gives us the opportunity to consider the reasons behind Clause 14, and I believe the House will have found this debate useful. Where I trust we have agreement is on the role of revaluations, as they have been the main subject of debate on the Bill. Revaluations allow us to reflect in rateable values changes in economic factors, market conditions or the general level of rents for a property. These are familiar terms for describing a revaluation, not just because we have been using them throughout the Bill but because they appear in judgments when the courts have considered this matter.

Clause 14 will therefore ensure that changes in legislation, guidance and advice from public bodies are considered among the economic factors and market conditions for a property and should be reflected at a general revaluation. The noble Earl is concerned that the clause will go further into matters that should not be left until a revaluation and do not concern the general market for a property. However, our view is that the framework of legislation and guidance within which a property is used is in fact a central part of the economic factors and market conditions for that property.

As the noble Earl remarked, he kindly sent a list of examples to the department, and I shall deal with that point now. He raised a number of examples and considered how they should be treated under Clause 14. I hope noble Lords will understand that it is not possible to provide a case-by-case analysis during this debate on these examples, as each will depend on facts. Whether a particular event would result in a material change in circumstances, under the new law in the clause, would depend on whether it was attributable to the relevant factors listed in the clause.

The Government published a technical consultation in 2021 which explained how they intended the law of material changes of circumstances to operate. We also included a section on this in the Explanatory Notes to the Bill. The Valuation Office Agency will of course publish guidance on material changes to circumstances in its rating manual and, as always, it will work closely with professional bodies, with which the noble Earl is familiar, in ensuring that the rules are explained and understood. If, as has been suggested, we allow the matters listed in Clause 14 to be assessed between revaluations as a material change in circumstances, the impact on the rating system may be considerable. It would amount to the Valuation Office Agency conducting a non-stop real-time revaluation, revising large sections of the rating list as and when there were changes in the legislation, guidance or advice concerning how properties can be used.

Such an exercise would jeopardise our objective of moving to more frequent general revaluations.  It would also mean some ratepayers benefiting from a set of more favourable economic factors in their valuations than others.  The clause will ensure that all ratepayers are assessed against the same economic considerations at a set date—the valuation date for the revaluation—and that is updated for all only at the following revaluation. Clause 14 will therefore maintain the stability of the rating system, and it is not surprising that it is supported by the Local Government Association.

As my noble friend explained in Committee, there are safeguards in the clause. I shall not repeat them but, for example, the clause does not apply to changes in the physical state of the property, which will continue to be reflected as and when they occur.

This is not a step we have taken lightly; we consulted on our intentions in the technical consultation in the business rates review. It is a necessary step, to which I hope the House will agree.

My Lords, I thank all noble Lords who have spoken in support of my amendment and the noble Earl for his response. He said that it would depend on the change of rollout of the relevant factors. Let me remind your Lordships what those are; they are in four categories in new paragraph 2ZA(3):

“(a) legislation of any country or territory;

(b) provision that is not within paragraph (a) but is made under, and given effect by, legislation of any country or territory;

(c) advice or guidance given by a public authority of any country or territory;

(d) anything done by a person with a view to compliance with anything”—

covered by the preceding paragraphs. I paraphrase, of course.

I struggle to see what actions would be taken by a municipality or authority dealing with something that makes a substantial change that would not be covered by those criteria and thereby excluded. The noble Earl referred to the difficulties of non-stop revaluation. We have a situation that everyone has been happy with for quite a number of years, and it has not resulted in non-stop revaluation. The noble Earl also referred to the equality of valuation approach, but the tone of the list—the general levels of value, to put it simply—would not be altered; it would simply be that by reference to that general pattern of values, a particular hereditament, if there was a material change of circumstances, had taken a hit. That is what we are trying to deal with.

With the greatest respect to the noble Earl, I find his explanations unconvincing, as I found the explanations of his noble friend when we met her unconvincing, and as I found the explanations of the department officials unconvincing. Although I will withdraw the amendment, I do so with a sense of profound disappointment that the Government have not been able to come up with a better narrative—a better explanation. There is a point behind what they say in getting at what we might call general economic changes, but to extend that to the microcosm of what happens in a locality stretches my credulity beyond breaking point. It does not add up, and I hope that the noble Earl will go away and make it clear to the department that that is what I believe, what a lot of ratepayers believe and what a lot of professionals believe.

For the time being, I beg to withdraw the amendment.

Amendment 14 withdrawn.

Amendments 15 to 19 not moved.

The Schedule

Amendment 20

Moved by

20: The Schedule, page 55, line 30, at end insert—

“67A In section 140(2) of the Act (separate administration in England and Wales)—(a) omit the “, and” at the end of paragraph (a);(b) omit paragraph (b).”Member's explanatory statement

This amendment would omit section 140(2)(b) of the Local Government Finance Act 1988 which is no longer needed as a result of the provision being made by clause 15 of the Bill, which makes separate provision about the calculation of multipliers for England.

Amendment 20 agreed.