Non-Domestic Rating (Chargeable Amounts) (England) Regulations 2022

Motion to Approve

Moved by

That the draft Regulations laid before the House on 23 November be approved.

My Lords, this statutory instrument delivers a transitional relief scheme to protect businesses from large increases in their business rates bill when new property valuations come into effect on 1 April 2023. This will help around 700,000 properties with £1.6 billion of relief over the next three years.

The scheme, which is a significant part of the measures on business rates announced by my right honourable friend the Chancellor at the Autumn Statement, will cap bill increases after the revaluation by a set percentage each year. This will give certainty to businesses and, for the first time, ensure that 300,000 properties with falls in rateable value will see a full and immediate fall in their bills on 1 April.

As the Chancellor set out in his Autumn Statement, revaluations are an important and necessary part of the proper administration of the business rates system. By updating valuations so that they reflect market conditions, we make sure that the tax burden is fairly distributed. The new set of rateable values, which were published in draft last month and will be applied from 1 April, will therefore produce a fairer business rates system in which rates bills follow the up-to-date valuation of the property. The revaluation will build on measures we already have in the system to help ratepayers. Noble Lords will likely be aware that there is already a substantial amount of support through, for example, small business rate relief, which ensures that about 700,000 of England’s 2 million business properties pay nothing at all.

This scheme, at £1.6 billion of the total £13.6 billion package, will help around 700,000 properties transition to their new bills. Unlike previous schemes, it will not require ratepayers to wait years to see the benefits of falling valuations. The results of the Government’s recent transitional relief consultation were published alongside the Autumn Statement and clearly show businesses’ preference for the type of scheme we are putting in place.

My Lords, I declare my interest as a chartered surveyor and valuer once upon a time in the employment of the Inland Revenue Valuation Office, and a member of the Rating Surveyors’ Association, of whose annual parliamentary reception I am pleased to be the sponsoring Peer.

Bearing the mark of Cain in that respect, I thank the Minister for convening a drop-in session yesterday, even though my noble friend Lord Thurlow—who I am glad to see here—and I very nearly missed it. I am grateful that she has moved these regulations and for her explanation. They are very welcome and long overdue.

I warned the Minister, however, that my welcome would include some finger-wagging, so here goes. Although these regulations right an historic wrong, they do not by any test make it all okay. Leaving aside the impenetrable algebra of Parts 1 and 2 of these regulations—I do not recommend any noble Lord to pursue that too diligently—this measure is rendered necessary because of the effects of transition on those who, at revaluation, have their assessments reduced.

As noble Lords will know, transition is designed to smooth the adjustment process and prevent a cliff edge but, due to Treasury insistence on enshrining in law the principle of fiscal neutrality, the phasing in of increases is currently matched and compensated for by a miserably slow phasing down of reductions. In short, those whose assessments are reduced, possibly due to sectoral overvaluation of one sort or another, often do not see the benefits within the lifetime of a valuation list—the five-year life of a revaluation as at present. In fast-changing situations, this matters quite a lot and frankly is objectively unfair.

Although these regulations set out to redress that gross injustice, there is a sting in the tail, in that the £1.6 billion subsidy that enables these regulations to function will be clawed back from business rate payers in the last year of the 2023 revaluation lists, due of course to the question of fiscal neutrality. The only thing that stands in the way and would eliminate that is the long-promised move to a further and as yet undelivered overhaul of the entire system. I am very grateful to the Minister for her comments and hope that other speakers may be able to enlighten us on the likelihood of that. This may not be dealt with before the end of the current Parliament—it may be beyond that—and it will need all-party buy-in.

My Lords, I thank my noble friend for bringing forward the regulations this afternoon. If I understood correctly, she said that the burden would be placed on the general ratepayers, which means that the electors would have to pay 3.4p per elector. Obviously this is a time of great concern for local residents and local electors, so they are going to look very closely at any increase on their council tax bills. To what extent can she justify this?

I echo some of the points made by the noble Earl, Lord Lytton, particularly the timescale for those who are going to face lower bills. That is to be welcomed, but could my noble friend say more about the timescale and how it is justified?

Presumably, there will be winners and losers. Can my noble friend say that there will be no pubs, clubs or restaurants in England that will face an increase in rateable value? If there is to be an increase, what is the timescale for it to be rolled out?

With those few remarks, I welcome the regulations, but I have a number of concerns and I look forward to hearing my noble friend’s response.

My Lords, I declare my vice-presidency of the Local Government Association. I too welcome the regulations, with some caveats. I agree with the noble Earl, Lord Lytton, that they are welcome and long overdue, and I agree with many of the points that he made, not least on the need for the reform of the business rates system. I am looking forward to hearing the Minister’s reply to his specific points.

The Government have made the right decision to press ahead now with implementing the revaluation because it reflects changes in market value since 2015, a period now of eight years. The decisions on the transitional relief scheme seem appropriate since they will give targeted support for the next five years to those businesses facing increases in their bills, in very difficult economic circumstances; they will freeze the multipliers in 2023-24; they will give extra, specific help to the retail, leisure and hospitality sectors; they will provide extra protection for small businesses that have lost rates relief because their property has been revalued upwards; and, as the Minister said, they will give some 300,000 businesses entitled to reductions an immediate and full implementation of the fall in their bill by ending the policy of downward caps. Welcome though all that is, it represents a temporary fix to a system that has not been working well and needs reform, as the noble Earl said.

The Government have brought forward the next revaluation to 1 April 2026, just over three years away. In my view that is the right timing because rental values, and thus rateable values, over the next three years may face pressures, given the overall state of the economy. It will also present an opportunity to take further account of online retailing. As part of this revaluation, total business rates paid by the retail sector will fall by 20% but the bills of large distribution warehouses will go up by 27%. That is welcome. As the letter dated 16 December from the Financial Secretary to the Treasury says:

My Lords, I declare my interest as a former chartered surveyor, and one who worked in the dark ages in the world of rating. As a former chartered surveyor, I opened the statutory instrument with interest and excitement, and, as we heard from the noble Earl, Lord Lytton, found it was full of what I thought was trigonometry: pages 4 to 26 were theorems, fractions and things that I certainly did not understand. But the objective of the regulations is clear, and I support them.

The position of non-domestic rates has become, I am afraid, a shambles over a number of years. A failure of the authorities to remain abreast of trends in rental value—rateable value should be based on the revaluations in the commercial property markets—has led to a gross imbalance between sectors and, in some cases, competing users within single sectors. That is gross unfairness. This certainly applies to hospitality and leisure sectors, and, in some cases, competing uses, with traditional retail perhaps being most affected.

For several years now, the Government have failed in their promise to address the unfairness in commercial rates to deal with the likes of Amazon, as we heard from the noble Lord, Lord Shipley, and to allow our high street retailers to compete with these big-box retailers. They have a much lower cost of delivery model, and that cost is further increased by the rateable value system. Although we have heard that a 40% increase in industrial and warehouse rates, and a 20% reduction for retail, are proposed, this is de minimis in real terms—it is tiny, and it is not a percentage on like-for-like terms. A 40% increase in industrial rents of £10 a foot and a 20% reduction in the rent of zone A shops of £150 a foot are absolutely not comparable. That needs to be spelled out and made clear, and the Government need to do a great deal more very soon. This injustice continues to be kicked into the long grass at the expense of our high streets, and the important social benefits that they provide continue to decline.

My Lords, I thank the Minister for her introduction. As we heard from her and other noble Lords, the SI gives relief to businesses, particularly to help them cope with next April’s increase in business rates. We know that many businesses have been struggling following the pandemic, and this, combined with rising energy bills and high inflation, means that they need further support.

While we very much welcome the Government’s provision of relief, we do not think that the regulations go far enough. The Labour Party has been calling for an increase in the threshold for small business rates relief from £15,000 to at least £25,000, because the burden of business rates is disproportionately heavy on small businesses, as we have heard from other noble Lords. Having said that, we do not want to impede the passage of the instrument going forward.

I will ask the Minister a couple of specific questions. Part 10 of the draft Explanatory Memorandum considers the consultation outcome. It says that:

“A total of 102 responses were received”—

despite the instrument intending to help around 700,000 businesses—and that only “16 local authorities” responded. Can the Minister say whether the department feels that there is a reason for such a low response to the consultation? Because of that low response, what further steps have the Government taken, or are intending to take, to engage with those who are affected? We may hear, in broader terms, many of the concerns that have been raised by noble Lords previously in the debate.

The noble Baroness, Lady McIntosh of Pickering, asked about timescales; similarly, I will ask about the fact that we are debating the instrument only today. The instrument comes into force on 31 December, which means that it needs to receive parliamentary approval before the Christmas Recess. But given that the consultation finished in the summer, why has it been left so late to approve it? The Local Government Association made it clear in its response to the consultation that any transitional arrangements for 2023, whether part of the formal scheme or supplementary, should be announced no later than the autumn that has just gone, when the draft list of provisional multipliers was announced. We are debating this on the penultimate day before the Recess, so can the Minister shed any light on why the House has not been given the opportunity to scrutinise it any sooner?

I thank noble Lords for their thoughtful contributions and for the cross-party support—although there were some questions that they probably want me to answer.

The statutory instrument delivers a key part of the business rates support package, providing much-needed protection for businesses and delivering the fairness rate payers have been calling for. By limiting bill increases each year, we will protect 700,000 properties from uncertainty and give years for them to adapt to their new bills. Without that measure, hundreds of thousands of taxpayers would face significant and immediate bill increases in just a few months’ time. We are providing this protection in a new way that allows bills to fall immediately and in full on 1 April, benefiting 300,000 properties. With the statutory instrument, businesses will have the certainty they need and the fairness they expect from their Government.

A number of questions and themes came up, the first of which, about the reform of the whole system, was brought up by the noble Earl, Lord Lytton, and mentioned by my noble friend Lady McIntosh of Pickering and the noble Lords, Lord Shipley and Lord Thurlow. The Government remain committed to implementing the outcomes of the business rates review and will bring forward legislation as soon as parliamentary time allows—that is all I can say on timing.

The Government consider a tax on the use and value of non-domestic property an important part of a balanced business tax system, alongside taxes on profits and consumption, and it is a common feature of tax systems internationally. Business rates raise over £20 billion a year in England to fund vital local services, and there is no alternative with widespread support that would raise sufficient revenue to replace them. Trying to raise that money elsewhere in the tax system would create significant trade-offs against the current fiscal background. More generally, there is no merit in radically overhauling or abolishing a tax with such benefits, as has been suggested by what is, I have to say, a minority of stakeholders.

Quite rightly, there was concern about small businesses and the high street. That was brought up by the noble Lord, Lord Thurlow, the noble Baroness, Lady Hayman of Ullock, and my noble friend Lady McIntosh. The Government are committed to supporting businesses and communities that make our high streets and town centres successful, and have provided a comprehensive package of some £400 billion of direct support, including business grants, coronavirus loan schemes, the coronavirus job retention scheme and income tax payment deferral. This builds on long-term investments in our high streets and small businesses, including the £3.6 billion towns fund and the future high streets fund, as well as the £4.8 billion levelling-up fund. We are aware of this issue and are doing everything we possibly can.

As for business rates, there is small business rate relief through which one-third of properties, more than 700,000 in total, will pay no business rates at all, with an additional 65,000 receiving relief of between 0% and 100%. In addition, the supporting small business scheme means that properties losing some or all of their small business rate relief at the revaluation time in April will have their bill increases capped at £600 a year, and the tax rate will be frozen for the third successive year.

My noble friend Lady McIntosh and the noble Lord, Lord Thurlow, brought up the issue of retail, hospitality and leisure. The Government have been clear that they want to support these organisations; that is why there is 75% relief for retail, hospitality and leisure up to the cash cap.

The noble Earl, Lord Lytton, referred to the concern over delivering this policy. Yes, it has to be delivered in two stages, as I explained: first, with the regulations, and later with a Bill to deliver the second part to remove the self-funding requirement, so that no business pays a supplement in 2027-28. There is money—there is the £1.6 billion—but I am afraid we will have to ask the noble Baroness whether, if anything changes, the Opposition will support that. I hope that, in the light of the answer I gave earlier, this will be dealt with in a much timelier manner.

My noble friend Lady McIntosh asked whether pubs would see an increase. Nearly two-thirds of properties will not pay a penny more next year, and thousands of pubs, restaurants and small high-street shops will benefit. Many will also benefit from retail, hospitality and leisure relief, as I have said.

I think the noble Lord, Lord Shipley, was alluding to online sales tax in his question. The Treasury recently undertook a consultation on online sales tax, and the Government have since decided not to introduce such a tax at this time. The decision reflects concerns raised about its complexity and the risk of creating unfair outcomes between different retail business models. That includes challenges of defining the boundaries between online and in-store retail—the click-and-collect type orders. Stakeholders also expect that it would lead to higher prices for consumers. A full response detailing the complexities of implementing an online sales tax will be published in due course, but we should not forget what this revaluation is doing to rebalance the burdens of business rates, as we have heard. Properties that online businesses use, such as the large distribution warehouses, will see average rates increases of 27%, the highest grouping. We are looking at this issue, and I am sure we will hear more about it in this Chamber in the not too distant future. It is complex and needs careful consideration.