Non-Domestic Rating Bill Lords report stage: Peers make changes to penalties regime

These changes were made at report stage of the Non-Domestic Rating Bill in the House of Lords. They were put forward by the government in response to concerns raised by backbench peers at the Bill’s committee stage. A number of opposition and backbench amendments were also tabled and debated but were not pressed to a vote.

Five groups of amendments were discussed.

Improvement relief and energy efficiency

Baroness Hayman of Ullock (Lab), who spoke for Labour during the debate, began the discussion by introducing amendments 1 -3 concerning the rate of relief for energy efficiency improvements. These amendments would extend the qualifying relief until at least 1 April 2029. Their lead sponsor was crossbencher Lord Ravensdale who was unable to attend the debate.

Hayman highlighted that during Ravensdale’s meeting with the minister, the minister had raised two main concerns about the implementation of these amendments. The first was about a potential reduction in rates revenue that would come if the amendments were passed. Hayman said Ravensdale had asked her 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 reportedly raised by the minister was about the classification of energy efficiency measures for valuation purposes when compared with renewables and energy storage (in other words, most building works could potentially qualify). Here Hayman said she understood the point but thought “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”.

Lord Stunell (Lib Dem) observed that amendments 1 -3 primarily benefit SMEs above the small business rate relief threshold. “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 skillfully joins those two things”, he said.

The Earl of Lytton (Crossbench) was surprised to hear the Minister’s first concern in relation to the implementation of these amendments. “[W]e are talking about not making an increase—not actually losing something that was there before,” he noted. “It is the increase created in value that is discounted under the Government’s proposals, for no more than one year.”

Responding for the government, Baroness Swinburne (Con) detailed a number of measures that the government has introduced in the recent business rates review and noted that “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”.

The minister acknowledged the desire to provide a more general relief for energy efficiency in building but stated that at the current stage the government is unbale to agree due to practicality issues. She continued that the Treasury has to balance the desire for tax breaks against the need to fund local government. “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”, she said.

Baroness Hayman was not convinced with the minister’s response, asked the government to keep the discussion door open and suggested that encouraging any energy efficiency improvements should be a priority.

Rate relief, regulation, exemptions and avoidance

Lord Shipley (Lib Dem), a Vice President of the Local Government Association, reminded members that business rates are burdensome for many businesses. He said that with the rise of online sales, high streets are being destroyed. He hoped that the government would freeze property taxes (a call that the British Retail Consortium has recently campaigned for).

Shipley described the amendments 4, 16, 17 and 18 that he has put forward, noting that amendment 4 will remove “the prohibition on a billing authority giving relief on a hereditament occupied by a billing authority, precepting authority or GLA functional body”. (NB. A hereditament, in this context, means any property which is assessed for rating purposes.)

Amendment 16 which calls the Secretary of State to consult on the benefits and practicality of a system of accreditation for rating advisers, could tackle rogue practices, according to Shipley.

The peer argued that: “The current business rates system is challenging the viability of advertising-funded social infrastructure and community services”. This led him to propose amendment 17 which would provide 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. There are 36000 advertising sites subject to business rates, with each being valued, invoiced and paid separately, he told the House, explaining that this results in a significant workload for the Valuation Office Agency (VOA), local authorities and operators.

In regards to his amendment 18 (anti-avoidance regulations), Shipley suggested that it would be good to take further action on business rates avoidance similar to what is in place in Wales and Scotland. He said that approximately 1 per cent of total business rates income is lost to business rates avoidance annually.

Baroness Hayman questioned the government about council flexibility in granting relief to certain buildings and wondered about the revenue generated from social infrastructure sites which carry advertising. She expressed concern about apparently increasing numbers of rogue agents and warned of businesses “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”.

Responding for the government, the Earl of Courtown (Con) told Hayman that the ‘revenue for local government [from advertising on social infrastructure sites] is minimal’. For instance, for electronic or digital displays at bus shelters in central London, the annual rates revenue is between £1,400 and £4,000 per display. He said that the logic for amendment 16 “is not clear”.

The minister appreciated members’ concerns about rogue agents and cited the government’s consultation on this matter, promising to review and potentially consider comments from professional bodies after its closure. Furthermore, he highlighted that the VOA is developing a standard for all rating agents, aligning it with the present HMRC agent’s standard.

The Earl also advised members that the government has made “permanent the permitted development rights which enable markets to be held by local authorities for an unlimited number of days” in response to their concerns about amendment 4. However, he argued that allowing councils to relieve their own rate fees for marketplaces, would contradict a “long-standing principle and not be the right way to support markets”.

Revaluations and reviews

Lord Shipley proposed amendments 5 – 7 which sought to reduce the planned revaluations period from three years to two years. He argued that up to date valuations make things easier for businesses and reduce costs and confusion.

Amendments 15 and 19 were tabled by Baroness Hayman and Lord Thurlow (crossbencher) respectively. They sought broader reviews of business rates policy. “One reason we have concerns about the current system is that if reviews are done only over a certain period, the rest of the system needs to be fit for purpose”, said Hayman. She said that her party would like to scrap business rates and introduce a system which works to ‘incentivise investment’. She urged the government to work with business to “get a system that is genuinely fit for purpose and supports local businesses and local authorities in the way it needs to”.

Lord Thurlow asked the government to tackle the imbalance of the rate burden between high street retailers and online shops. He said it was a disgrace that rates now cost many businesses as much as their rents. “Revising non-domestic rates is not going to be easy, but the [government] 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.”

Lord Etherton (crossbencher) supported amendment 19 and highlighted that while shop rents have reduced, rateable values remain high, leading to an unstable market. Another crossbencher, the Earl of Lytton, provided a calculation that he conducted a few year ago that showed that business rate payers in small premises of between 1,000 square feet and 3,000 square feet were paying substantially more in comparison to their residential counterparts, based on property value and square footage occupied.

In response to the amendments in this group the minister, Baroness Swinburne, highlighted that this Bill is a product of the government’s review of the business rates system which reached clear conclusions about the effectiveness of a tax as a means of funding local services. She noted that there was limited evidence supporting a fundamental overhaul and opportunities for reform.

The minister assured peers that changing the revaluation review from every five to every three years will make the “tax more up-to-date and fairer”. She recognised members’ concern over the tax burden on high street retailers and the potential competitive advantage of internet retailers, however she disagreed that the suggested amendments would address the issue. She further noted government reliefs that in her opinion address these imbalances.

Disclosure, reporting, VOA performance and penalties

The government put forward three amendments in this group. Amendment 20 is – in the minister’s words – a minor and technical change relating to business rates multipliers. But amendments 12 and 13 were more significant, seeking to improve the penalties regime for the VOA duty following proposals made by the Earl of Lytton at committee stage.

The minister, Baroness Swinburne, told peers that amendment 12 relates to the daily penalties imposed by the VOA when a ratepayer fails to comply with the valuation notification requirement for an extended period. She acknowledged that, in the similar provision for the separate duty to provide HMRC with a taxpayer reference number, there is a cap on daily penalties equivalent to 30 days of the maximum penalty. Therefore, the government has “decided to extend this protection for ratepayers to the valuation notification duty”. This means that there will be a limit on the total amount of fines a ratepayer can incur. Specifically, the cap will be equivalent to 30 days' worth of penalties, with each penalty being set at £60.

Amendment 13 alters the burden of proof that the valuation tribunal should apply when deciding whether to uphold a penalty decision. “The Bill prescribes that, for a higher penalty to be applied, the VOA must be satisfied beyond reasonable doubt that the ratepayer has made [a] false statement knowingly or recklessly,” explained Swinburne. “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.”

Proposing other amendments in this group, the Earl of Lytton proposed that there should be some “common sharing of information and data relating to the value of the hereditament”, otherwise negotiation could turn into disputes. He argued that amendment 8 would tackle this issue and could improve transparency and confidence.

Lytton’s amendments 9 and 10 sought to remove the requirement for ratepayers to submit an annual confirmation as well as a notification to the VOA when there is a notifiable change related to their property. His amendment 11 sought to prevent the VOA backdating changes to the rating list after a certain period. Connected to this the Earl asked the government for better funding and resourcing within VOA to help clearing the current backlog.

Lord Etherton agreed with Lytton and pointed out that one of the criticism in appeals is usually about “the obscurity of the role adopted by the valuation office and its failure to disclose information”.

Responding on these amendments the minister emphasised the importance of privacy rights, reminding peers that in some cases the VOA’s information include personal and sensitive data. The government believes that it’s more sensible to allow the VOA to disclose the information rather than placing a requirement to do so. The Minister thought no primary legislation was required in relation to the issue raised by amendment 11 and reaffirmed that the government will review the VOA’s operational targets accordingly.

Material change of circumstances

The final debate of report stage was on the Earl of Lytton’s amendment 14, seeking to remove clause 14 from the Bill. The Earl expressed concern that the government's claims about what clause 14 does do not align with the actual wording of the Bill. He suggested that the government is attempting to change the definition of a ‘material change of circumstances’ in a way that departs from established principles.

Lytton agreed that “an earlier measure to remove the status of Covid as a material change of circumstances 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,” he continued, “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.” This went too far, he believed.

Baroness Hayman and Lord Shipley agreed with Lytton with Shipley adding that amendment 14 means that material changes of circumstance should ‘relate to physical changes only to a property’, but there could be several ways that “physical property can be impacted upon and have a material change of circumstance because of what somebody else does”.

Responding for the government, the Earl of Courtown said that clause 14 intends to ensure that changes in legislation, guidance, and advice from public bodies are considered as part of the economic factors and market conditions affecting a property, and they should be taken into account during a general revaluation. Whilst he acknowledged the concerns raised the minister stated that “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.”

Additionally, the minister argued that there are safeguards in the clause, for example it “does not apply to changes in the physical state of the property, which will continue to be reflected as and when they occur”.

You can read the full debate here.

The Bill gained Royal Assent on 26 October 2023, following Commons endorsement of three Lords amendments the previous day. While these amendments had been tabled by the government two of them came in response to issues raised by peers during debate.

Lee Rowley, the local government minister, explained that the government had listened to view of experts in introducing an amendment concerning the civil penalties that the Valuation Office Agency can impose if ratepayers fail to provide information as required.  Daily penalties will be capped at £1,800 in total, aligning this with the existing cap on penalties for being late providing HMRC with a taxpayer reference number.

The second substantive amendment, the minister explained, aims to provide greater protection for ratepayers. It provides “that the valuation tribunal must remit a penalty unless it is satisfied beyond reasonable doubt that the ratepayer has knowingly or recklessly made a false statement”. The third amendment “is a minor and technical amendment that removes some obsolete wording as a result of another part of the Bill”, he added.

James Murray, the Shadow Financial Secretary, confirmed that the Labour Party does not oppose any of these amendments. However, he highlighted Labour’s plan to “scrap the current system of business rates, replacing it with a system of business property tax that rebalances the burden of business property taxation away from the high street and retail firms towards online tech giants”.

Peter Aldous (Con) urged ministers to be committed to completing the task of the fundamental review of business rates, as he argued that this matter is “vital for businesses large and small all around the UK”.

The minister thanked members for supporting the amendments and said “this is a significant change and one that I think everybody accepts is a big leap forward”

You can read the full debate here.