Non-Domestic Rating Bill passes Lords committee

The Bill’s committee stage took place on Monday 3 July. The Bill seeks to reform the business rates system in England by increasing the frequency of valuations from five years to three and introducing a new business rates relief for improvements to properties.

In a briefing, CIOT said there is “much to welcome” in the Bill, but questioned whether a new consolidated Business Rates Act, simplifying and laying out all the legislation, would have been better than amending the existing Local Government Finance Act. The Institute added that while moving to three-yearly valuations was a good step, “even more frequent valuations should remain under evaluation”, while also raising concerns about data provision and penalties.

Improvement relief and energy efficiency

Speaking to an amendment which would have allowed some energy efficiency improvements an unlimited timeline for improvement rate relief, Lord Ravensdale (crossbench) said while the 12-month improvement relief is “very welcome”, it should not apply to energy-efficiency improvements, as there is a risk it will “disincentivise improvements” which take place over longer timescales.

The Earl of Lytton (crossbench) agreed the reliefs should be extended to five years, adding: “some types of improvement may take a considerable time to translate into a business benefit”.

Labour spokesperson Baroness Hayman of Ullock said that the overall reform of business rates should have the “underlying principle and aim to encourage green improvements to business properties”. She thanked the Chartered Institute of Taxation for its “helpful” briefing questioning why the new relief for improvements will not be introduced until 2024. “Its concern is that leaving it until then will incentivise a delay in undertaking improvements,” she added.

Lib Dem spokesperson Baroness Pinnock (Lib Dem) said energy efficiency “is the non-glamorous side of getting to net zero” and backed the amendment, adding: “giving just one year’s relief is a drop in the ocean.”

Responding, the minister, Baroness Scott of Bybrook (Con) said the government understands concerns over the length of the relief and the importance of energy-efficiency improvements to properties but all tax breaks must balance the need for support with the need to fund vital public services.

She said: “The 12-month relief will provide a breathing space for the investment to start to generate returns before business rates have to be paid. As I explained to the House at Second Reading, this relief is designed to help occupiers make improvements to their existing premises rather than subsidising general commercial property development.”

The amendment was withdrawn.

Revaluations

Baroness Pinnock called for the revaluation period to be reduced from the proposed three years to two years, saying that a shorter gap allows for valuations which more closely reflect business confidence and rental values.

She said: “Businesses, as we are all very aware, are facing considerable challenges as a result of factors well outside their control. The significant fluctuation in economic outlook, reflected, for instance, in the level of inflation and the rise in interest rates, creates uncertainty for businesses.”

The Earl of Lytton said concerns that more frequent revaluations would lead to “potential instability” were unfounded, while Lord Thurlow (crossbench) also supported the amendments, but asked if it would be better to wait until the three-year review process has “bedded in” before it was reduced. He said: “It is possible that an annual or biannual revaluation will become unworkable.”

Lord Shipley (Lib Dem) said more frequent revaluations would mean fewer appeals because the valuation would be more accurate, would be fairer to businesses and reduce complaints about the system.

Baroness Hayman said the CIOT’s briefing agreed that moving to three-year revaluations would “provide a balance between the administrative costs and the need for regular revaluation to reflect the economic conditions of business”, while also suggesting the government consider a phased approach to more frequent revaluations.

The amendment was withdrawn.

Small business rates

Baroness Hayman spoke on an amendment to reduce the threshold for small business rate relief. She said: “We know that business rates remain one of the largest fixed costs for retailers and that they fundamentally impact business planning and investment decisions. We also know that retailers are facing a particularly difficult time at the moment.”

She said April’s revaluation of business rates will hit smaller high street stores which have already struggled during the pandemic and now face higher energy bills, and called for short-term support via an increase in the threshold for the small business rate relief from £15,000 to £20,000.

Baroness Hayman added that the reduction in business relief should be funded by an increase in the digital services tax, targeting “global tech giants”.

Baroness Pinnock called for a review and reform of the non-domestic rateable value system between different parts of the retail sector, notably “‘chain stores with multiple premises in city centres and out-of-centre shopping malls’ and ‘mainly online operations’ by global businesses, which do not pay their fair share of taxation in any case”.

She said a system that was “more equitable between different parts of the retail sector” would encourage more high street activity, benefitting local businesses, while “extracting more money from those who have most and who have avoided taxation the best” (global online retail businesses).

Lord Thurlow (crossbench) added that he thinks the non-domestic rating system “is broken”, and “it has become easier to throw taxpayers’ money at reliefs than to review it”. He said the survival of high street businesses, which are “struggling to survive against the onslaught of internet shopping” is important for the “public interest” and called for a new rating use class to address the issue of much cheaper rates for out-of-town warehouses, used by many online retailers.

The amendment was withdrawn.

Other issues

Lord Thurlow said amendment 15 “questions why the VOA should be so secretive”, requiring registration for the check, challenge, appeal process before the office reveals the evidence it relied upon in assessing rental value. He said 10,000 appeals were started from January to March this year, an “unusually high number”, with 30% of challenged between 2017 and 2023 resulting in a reduction. Lord Thurlow also questioned why the VOA can factor occasionally confidential evidence into its assessment when the ratepayer cannot, adding: “The ratepayer must be empowered to challenge all the evidence used against them.”

The Earl of Lytton also called for a duty on the VOA to provide information, subject only to data protection legislation, and the prevention of retrospective increases in rating liabilities where the agency has not acted “promptly” on the receipt of ratepayer-provided information.

Speaking on the penalty system, the Earl of Lytton said while he does not object to penalties as a whole, guidance and advice provided by the VOA should be a “relevant defence”.  He also questioned why there appeared to be no cap on penalty amounts for non-compliance on VOA notifications, as well as the “inverted” requirement for taxpayers taken to the Valuation Tribunal for England’s determination of penalties to prove “beyond reasonable doubt” that they did not commit the offence. He said: “That cannot be right or reasonable.”

Baroness Pinnock backed the amendments, saying: “We do not have the right balance of responsibilities between the VOA requiring information, what business rate payers are required to provide and where the final duty lies. The VOA needs to be more transparent and responsive to business rate payers. It also needs to be accountable to them.”

The Earl of Lytton also called for a reversal in a proposed change to what is considered a material changes in circumstances (MCC) for business properties, which affects ratings. In the past, this included local infrastructure and the surrounding business environment, including bus routes and road layouts, as well as “physical” characteristics.

He said: “It appears that this is a response to matters that arose during Covid. The various Covid lockdown regulations significantly altered the way in which occupiers could occupy their premises. This in turn gave rise to a number of requests for mid-list alterations, since the regulations affected the ability of occupiers physically to enjoy their properties.”

Baroness Scott responded that, during the coronavirus pandemic, the MCC system “was not working as intended”, with a large number of challenges seeking reductions between revaluations. This led to the introduction of the Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Act 2021, with clause 14 simply applying those regulations “more generally to all legislation, guidance and advice from public bodies”.

All amendments were withdrawn, and the Bill was reported without amendment.

Read the full transcript of the session.