Motion of Regret

Non-Domestic Rating (Deferred Payments) (England) Regulations 2009 – in the House of Lords at 7:30 pm on 14th October 2009.

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Moved By Lord Bates

To resolve that this House regrets that the Non-Domestic Rating (Deferred Payments) (England) Regulations 2009 (SI 2009/1597) do not remove the retrospective application of a revaluation of non-domestic rates for port-side operators.

Photo of Lord Bates Lord Bates - Shadow Minister (Also Shadow Minister for the Cabinet Office and Communities and Local Government), Shadow Minister, - Shadow Minister (Also Shadow Minister for Communities and Local Government and Energy and Climate Change), Shadow Minister, - Shadow Minister (Also Shadow Minister for the Cabinet Office and Energy and Climate Change), Shadow Minister, Shadow Minister (Business, Innovation and Skills), Deputy Chair, Conservative Party, Shadow Minister 7:33 pm, 14th October 2009

My Lords, this is not the first time that the case of backdating taxes on port-side operators has been drawn to the attention of this House and I suspect that it will not be the last. What Her Majesty's Government should know is that we on this side of the House will take every possible opportunity to raise the matter in order to protect vital jobs, because the threat is real. The conduct of the Valuation Office Agency has been shambolic and the culpability of the Government in failing to address this manifest injustice and instead choosing to fight among themselves as to who is to blame rather than to get a grip on the situation before it is too late is lamentable. It is something that people will remember.

On 18 March 2009, my noble friend Lord Attlee moved a Motion of Regret similar to this one in respect of the Non-Domestic Rating (Collection and Enforcement) (Local Lists) (Amendment) (England) Regulations 2009. The House listened to a debate in which deep expertise on the impact of the backdating of this measure was shared. When the opinion of the House was tested, the Motion of Regret was carried by a majority of eight votes.

On 9 June 2009, I moved an amendment to the Business Rate Supplements Bill that would have removed the ability of the Government to levy retrospective tax increases where there was a liability affecting the business rate supplement, the responsibility for which was not in any way due to an error made by business but was actually an error on the part of the Valuation Office Agency. The opinion of this House was again tested and the result was a majority of 60 votes in favour of this principle. The Government would not accept the amendment in another place and used the Parliament Act citing privilege to refuse to allow it to be debated again in this House, even though the principle that we were arguing and fighting for was in fact government policy.

Current rating legislation provides for this in the Non-Domestic Rating (Alteration of Lists and Appeals) (England) Regulations 2005. It imposes an obligation of responsibility both on the Valuation Office Agency and the ratepayer. If the Valuation Office Agency makes a mistake because of an error or default by a ratepayer, the ratepayer has imposed on it retrospective liability to pay any increase in business rates that it would have paid but for the mistake by the Valuation Office Agency. Equally, if the Valuation Office Agency makes a mistake without an error or default on the part of the ratepayer, the ratepayer does not have imposed on it retrospective liability to pay any increase in business rates that it would have paid but for the assessment undertaken by the Valuation Office Agency. I realise that that is difficult to comprehend at this late hour, but sadly that is what the regulations say.

On the matter of retrospection, the Government's own guidance is set out in Regulation 14(6). The central case of the argument that we are again putting to the Government is that, contrary to the Treasury's own guidelines, no impact assessment was made of the effect of backdating these taxes. Similarly, no consultation was undertaken. As stated in Hansard on 6 October 2008 at col. 351W, no assessment has been made of the effect on the wider economy, a charge that was acknowledged by the Government in Hansard on 14 January 2009 at col. 761W. The policy also contravenes the Treasury's own guidance on retrospective taxation as stated in Hansard on 9 October 2008 at col. 802W. I say again: no assessment of the impact of backdating was made, no consultation exercise was undertaken and no assessment was made of the impact on the wider economy. The policy contravenes the Treasury's own guidance. In many ways, these charges show the chaos at the heart of government on this issue.

It may seem that the point is being made on a partisan basis. However, the Home Secretary—no less—Mr Alan Johnson, wrote in July of this year to the Minister responsible, John Denham, Secretary of State for Communities and Local Government, and said the following:

"These businesses are damaged by a Government that on the one hand is looking for ways to help small businesses through the recession whilst at exactly the same time is imposing a completely unfair, retrospective system that will destroy jobs and put these companies out of business ... The VOA has committed an egregious error, failed in its duties and failed to obey the instructions given by Government".

What does the Minister make of Mr Johnson's representations? Has he seen a copy of them? Has Mr Johnson made any further representations in person to the Secretary of State on this issue?

What consideration has been given by HMRC's review team to the mistakes that have occurred in the Valuation Office Agency during this time? Perhaps I may quote some references in support of that question to let Members know how we have come to make that charge.

There was an indication that the Valuation Office Agency acknowledged that it had made a mistake in one in three of the assessments that it had undertaken in respect of the ports. Sixteen hundred port-side operators were affected by the change and it is estimated that one in three of them had had mistakes made. Will the Minister confirm that assessment of the impact of this measure, which was made on the record in another place?

Will the Minister report on the review of the Valuation Office Agency's performance to date? The review looked at two aspects. Responding in another place to a reply that he had received from the Minister, Rosie Winterton, Austin Mitchell quoted the review as saying that 600 hereditaments in England should have been separately assessed. These hereditaments were not occupied by the port operator on 1 April 2005, it was admitted. So a catalogue of errors on the part of the Valuation Office Agency had been occurring.

I was interested to come across a document entitled The Review of the Valuation Office Agency 2009. It is dated 10 June 2009 and runs to some 91 pages. I was slightly disappointed not to be able to find any reference in it to the debacle of the retrospective element of the non-domestic rating. Has the Minister seen a copy of the report? The complacency of an agency that has been responsible for the loss of many jobs and the closure of many viable businesses—let alone the well documented mistakes that it made in evaluating domestic properties—is staggering. The executive summary states:

"The Agency has made year-on-year improvements in delivering its key targets and has done so despite falling resources—staff levels have been reduced by more than 22 per cent".

It goes on to say that the agency's "world-class vision" was launched around the time of the 2005 framework review. Well, the "world-class vision", which is set out on page 17 of the report, looks slightly hollow in the light of the spectacular errors in respect of the port-side operators.

Further to that, a review was undertaken by the Treasury Select Committee, which stated:

"We have received clear evidence that firms will be forced to declare themselves insolvent as a result of the demands for retrospective levying of this taxation ... The Government's proposal to extend payment terms for port businesses comes too late for those firms which have already ceased to operate in the face of the huge rates bills presented. It is probable that, even with an eight year period to pay, the backdated and prospectively increased rates bills may make many firms technically insolvent. We recommend that, in recognition of the fact that the Valuation Office Agency is to blame for the situation faced by the port firms, the Government takes steps to mitigate further the difficult position faced by port businesses. Consideration should be given to the proposal to maintain the rateable values of premises in statutory docks and harbours at the levels published in the April 2005 rating lists until the new ratings list is published in April 2010".

Has the Minister seen a copy of that finding from the Treasury Select Committee? If so, what was his response? Moreover, given the woeful inadequacy of the review of the Valuation Office Agency, will he undertake to follow the desire of this side of the House for an independent review of the conduct of the Valuation Office Agency in respect of this matter?

The Minister will recall my asking him in our debate on the Commons amendments in July of this year whether he would undertake to approach the noble Lord, Lord Mandelson, to see whether he would be prepared to initiate an investigation into what had gone wrong with the Valuation Office Agency. It is clear that the five-yearly review has made no effort to the get to the bottom of the errors—errors which it is now demonstrated and accepted have cost the jobs provided by many hundreds of port-side businesses. Will the Minister say whether he feels now is the time to undertake an independent review of the Valuation Office Agency?

Will the Minister comment on that fact that the Treasury rules that apply to all Treasury taxes, which require that impact assessments be made, that advance notice be given and that consultation be carried out, do not apply to the Valuation Office Agency? Will he confirm that that is the case? The retrospectivity and the need to consult, which apply to all other changes in taxation levied by Her Majesty's Treasury, appear not to apply to the Valuation Office Agency, as it is an executive agency. If that is the case, does the Minister believe that the time has now come to correct that anomaly, particularly in the light of these changes? Should not the Valuation Office Agency be brought within the same remit as all other taxation divisions of the Treasury, given that it is an executive agency of it?

This is a technical point, but had that provision in terms of retrospective levying of taxation been in place, we would not be having this debate now, firms would not have gone out of business and dockers would not have lost their jobs. It is simply that the Valuation Office Agency has taken advantage of a loophole whereby it seems to be exempt from the Treasury's rule, despite being a Treasury agency. That is a specific issue. If it were the case, it would seem to open the door to a massive legal challenge to the whole validity of this retrospective taxation. Perhaps the Minister will comment on that.

Will the Minister also comment on reports of the level of legal bills that will be felt by this Government in pursuing and defending the Valuation Office Agency judgments in tribunals? There have been many appeals, all of which have to be heard and defended.

Ultimately, we are talking about £200 million, which is a significant sum—of that there is no doubt. However, the ports of this country are responsible for 95 per cent of its trade. I am sure that the Minister would agree that, as such, they are every bit as integral to the viability of and every bit as strategic in their importance to the British economy as the banking system. All Members of this House will know that, when it comes to the banking system and liquidity in banks, the Government cannot wait to get their chequebook out. Billions and billions of pounds have been poured into the banks to keep that important element of our economy liquid and moving, with varying degrees of success. The ports are a vital element of our economy, particularly in times of recession. Surely £200 million is not too great a price to pay in order to save thousands of jobs and thousands of viable businesses.

Will the Minister say what estimate the Government have made for the legal costs of pursuing appeals or defending the Valuation Office Agency, which has already acknowledged that it has made a mistake in one-third of all cases? What bills will the Government ramp up in defending the indefensible through the Tribunals Service?

As regards the impact on UK Trade & Investment, there is no doubt that the decision to apply retrospective taxation—changing the rules of the game after they have been set—has severely damaged the UK's reputation internationally. By all means tell businesses that, with effect from 2010, the rules will change in respect of this or that tax. They can make a judgment, an investment decision, based on that evidence and on that decision. We should remember that companies in the portside operation and the shipping and maritime business are the most mobile of all corporations on the global scene. They can take their trade to Zeebrugge and elsewhere very easily. Therefore, the fact that they should be levied with millions of pounds of backdated taxes is, to them, a breach of trust. Will the Minister put on record what representations Her Majesty's Government have received from overseas foreign direct investors in the UK as to the impact of this retrospective taxation?

Informal dialogue from many sources has led to a question, to which I will come back at a later opportunity. I do not expect the Minister to answer this tonight, but I should be grateful if he would consider writing to me and putting some comments on the record. What representations have been received from foreign direct investors, via embassies at home and abroad, concerning this? Is the Minister aware of any evidence presented to him by UK Trade & Investment that major planned foreign direct investment into the UK has been cancelled as a result of the change of rules in retrospectivity of taxation? That is a very specific question. At this stage, I am not making an allegation. I should like the Minister to come back with some comments on the record. In many ways, that is also a game changer in this whole debate. Until now, we have been talking about existing jobs under threat. Month on month, hundreds of jobs are going in businesses which are being forced into closure. However, if the UK's reputation abroad has been tarnished as a result of this, and if planned foreign direct investment, which could create vital jobs in this economy, is now being withheld because of this measure, that needs to be factored into the equation and dealt with and addressed head on.

Finally, various representations were made to the Secretary of State for Communities and Local Government and his then opposite number in the Treasury, Mr Healey, on this matter. The argument, as recounted to me because I was not privy to the meetings, goes something along the lines of, "Listen, it is a dreadful mess. We acknowledge that there was a mistake". In fact, the Government have consistently acknowledged that this is a dreadful mistake, which is one reason why they have introduced the period of eight years to allow the retrospective tax to be levied. I am sure that the Minister will not question that at all.

However, the argument is that the Secretary of State cannot make this change in legislation because it requires primary legislation. That specific comment has been made in written form and hinted at on the Floor of the House when this matter has been debated. It is that the change cannot be made retrospectively. It will require primary legislation, which will take time, and by the time it comes into effect the businesses will be lost, and so on. We have received advice via Andrew Finfer who has secured counsel's advice on this, that at the stroke of a pen the Secretary of State has all the necessary powers to address this issue immediately. He could waive the retrospective element with immediate effect. Will the Minister say whether primary legislation is required, as the Government have been claiming, or whether it could be done by a minor amendment in secondary legislation? In respect of that, I assure him the utmost co-operation from this side of the House in ensuring that that can be gone through in a matter of a few days. Will the Minister confirm that that is the case, because we have evidence to suggest the contrary?

This issue has been before the House on many occasions and twice the House has expressed an opinion. A majority of Members of this House have voted in favour of urging the Government to think again on this. The Government have said that they admit that there was an error and a major fault. We have a parade of Ministers making approaches to the Government privately, not publicly—most notably Mr Johnson—and making it clear that an egregious error has occurred which is impacting on many businesses.

We also have, as part of that process, an implicit examination in which the Valuation Office Agency has been found to be at fault and culpable in this whole mess. We have asked that the Valuation Office Agency should be the subject of an independent inquiry; that that independent inquiry be allowed to run its course; and that during that time there should be a moratorium on the repayment of any of the backdated taxes.

The final point I addressed and invited the Minister to consider was the UK's reputation overseas and the representations he had received via UK Trade & Investment and the noble Lord, Lord Mandelson, concerning the impact that this was having not only on existing investors within the UK who may be considering repatriating their investments, but also on much needed planned foreign direct investment in the UK. Can he confirm that the Government have all the powers necessary to deal with this matter at this very moment to save hundreds of jobs and to repair Britain's tarnished reputation overseas?

Photo of Earl Attlee Earl Attlee - Shadow Minister (Maritime and Shipping), Shadow Minister 8:00 pm, 14th October 2009

My Lords, I support the Motion of regret of my noble friend Lord Bates. He reminded your Lordships that I raised this matter by means of a Motion of regret on 18 March this year. I invited your Lordships to support my view that the regulations that were referred to by my noble friend would not prevent port companies from becoming insolvent. In a Division, the House agreed with me, including some noble Lords on the Benches opposite. Since then it does not appear that the Government have heeded your Lordships' counsel. They may have had some internal discussions but they have failed to provide a solution. Everything that I said would go wrong is going wrong. I will not repeat the excellent analysis of the current situation by my noble friend or go over the history again.

When he replies, the Minister will tell your Lordships that businesses must expect to pay rates and other taxes. Generally speaking, he is right. But this case is different and I will repeat the argument that I put in March this year; it is a simple one to understand. If an ordinary business takes on new or altered business premises inland and is subject to normal rating principles, any competent surveyor can indicate, reasonably accurately, what the rateable value will be, and hence the rates to be paid. An allowance for those rates can be made in the company's business plan and cash flow forecasts. If the local authority, for any reason, delays or omits to issue a rate demand, the business will not be able to organise a party on the proceeds; the business knows what the costs will be and they must be allowed for. The estimated rates will have to be shown on the balance sheet as an accrual, and provision will have to be made in the cash flow forecast.

The port companies, however, are different. The commercial arrangements between the port owners and the port businesses were predicated on the pre-2005 rating arrangements. So for those businesses rates were not an issue: they did not to consider them; they did not need to put rates into their cash flow forecasts or their balance sheets; they simply did not need to be considered by a port business as long as the port was operating under the prescribed rather than the normal rating rules.

It is most unfortunate that Ministers have not been able to sort out this mess. I accept that they did not create the problem, but the longer they procrastinate the greater proportion of the responsibility they must bear. I urge noble Lords to support my noble friend if he takes the matter to a Division this evening.

Photo of Lord Greaves Lord Greaves Spokesperson for Environment, Food and Rural Affairs, Spokesperson for Communities and Local Government

My Lords, as noble Lords on the Conservative Benches have said, this is not the first time the House has discussed this matter. When we debated a similar Motion last March, it went to a Division. I advised my colleagues to support the Conservative Front Bench and together we were able to defeat the Government. If the Conservatives put this to a vote again today, we Liberal Democrats will support them again.

I do not want to speak at great length because we have heard an eloquent and extremely long speech from the noble Lord, Lord Bates, which has covered a great deal of the ground. I want to give the Minister time to respond in some detail because this is an important matter which has not yet been resolved satisfactorily. There is no doubt that there has been a serious mistake; it has been a cock up. The Government and the Valuation Office Agency between them have created this problem. They started in the spring by saying, "It is not really a problem. We will allow them eight years in which to pay this money and it will not make a great deal of difference".

However, the experience is that it is making a great deal of difference. For example, on 22 August 2009, the Daily Telegraph—if it is in the Daily Telegraph it must be right of course; that is an ironic comment but I have no doubt that it is right—reported that two small businesses in the port of Goole on the Humber had received a backdated bill of just under £1 million and an ongoing liability of £350,000 a year, which is somewhat hefty for businesses with a joint annual turnover of just £2.5 million. A business at Birkenhead on the Mersey with annual sales of £7.5 million received a retrospective bill of around £2 million and an ongoing liability of £500,000 a year. These are substantial sums of money. They are, if I may use a nautical metaphor, an anchor that has been hung around the neck of these businesses, and simply saying to them, "You have got eight years to pay it back", is not satisfactory. These businesses will have this liability and this weight around their necks for a considerable period of time.

There are two problems: one is the increased valuations of the rates because of the new system that was introduced retrospectively from 2005; the second is the retrospective demands for the payment of these rates between 2005 and 2008. It may be that the new valuations are appropriate and correct. If that is the case—the businesses may not agree—then at least if they had had advance notice they could have planned for them, but to put in the retrospective element in addition is unacceptable.

Retrospection is in the news at the moment. A newspaper article this morning suggested that where people had been overpaid child credit through no fault of their own, in future they would not have to repay it. I do not know whether that is the case but, if it is, it is a good thing. There is a great deal of talk about retrospective payments in relation to the House of Commons at the moment, but we perhaps should not interfere today in that argument in this House. But it is in the news. Whenever a Government or an authority tells people that they have to pay retrospectively money which they had not known about previously, there is a major problem, whether it is for individuals, Members of Parliament or businesses. This problem has been acknowledged and has not been solved by the Government. The time has come when they should put their hand up and say, "Yes, there is a problem and it should be sorted out". Our line is exactly the same as it was when we discussed the matter in March and subsequently; the mess has been caused by the Government and the Valuation Office Agency and the Government should take full responsibility and sort it out.

The port industry is vital to the British economy. This is a burden for about 670 or 680 businesses and is utterly unacceptable. Cancelling the back payments does not create a precedent for other back rights because of the retrospective element here, which was caused entirely by the agency and the Government. We therefore urge the Government to maintain port ratings at the level published in the 2005 lists until the next scheduled revaluation of statutory ports is undertaken in 2010. Even if that results in increased payments, at least people will know about them and can plan for them. We support the Motion.

Photo of Earl Cathcart Earl Cathcart - Shadow Minister (Also Shadow Minister for Environment, Food and Rural Affairs and Scotland), Shadow Minister, - Shadow Minister (Also Shadow Minister for Communities and Local Government and Scotland), Shadow Minister, - Shadow Minister (Also Shadow Minister for Environment, Food and Rural Affairs and Communities and Local Government), Shadow Minister

My Lords, sadly, this subject comes before your House yet again, and quite rightly too. The Government have not listened to our previous debates and, from what I can gather, they do not intend to listen tonight. Why do they seem pathologically incapable of saying, as in this case, that they have got it wrong and that they will look at it again?

Before I continue, I should declare that I have been a councillor in Norfolk for more than 10 years, I am a director of businesses paying business rates and I am an accountant. I mention that I am an accountant because it is relevant to this issue. A number of accountancy firms have made submissions saying that although the Government have deferred payment of these retrospective taxes and spread the payment over eight years, the accountants can do nothing else but ensure that the full liability is disclosed in the latest set of accounts. That means that many firms are insolvent or technically insolvent.

If you look at the problem from the port businesses' point of view, in this time of recession when cash flow is of the essence and their import and export business is thin on the ground, they may need to go to the bank for a loan to tide them over until business picks up. But what bank in its right mind is going to lend good money to a company whose auditors have just declared that the business is not a going concern, or that it is technically insolvent? Indeed, I understand that while this House was in Recess, 60 port businesses have already gone bust, and no doubt more will follow.

What can these port businesses do? Well, they could go into voluntary administration, set up a new company, buy back any assets and continue to trade in the new company, thus leaving the backdated rates liability with the old company. Or they could just shut down their English operation and carry on their business from a continental port, and then transport their goods to this country by road. That would not be a good solution for our economy, as jobs and businesses would be lost for ever.

What we need is a vibrant shipping import and export industry. We are told that the carbon footprint for shipping is much less than for air or road, so, from the climate change point of view, we should be nurturing and encouraging the expansion of the shipping business, not encouraging the expansion of airports and road usage, and certainly not putting forward measures that will drive our ports businesses to the wall. Despite the assurances we are given that the Government are helping businesses all they can through the recession, why do they seem determined, with these measures, to drive a nail into the coffin of the ports businesses?

As we have heard, not all the members of the Cabinet agree with this policy. During the Recess Alan Johnson, the Home Secretary, wrote a snorter of a letter to John Denham, the Secretary of State for Local Government, urging him to,

"remove this totally unfair burden on businesses that are already struggling to survive" by,

"imposing a completely unfair, retrospective system that will destroy jobs and put these companies out of business".

I could not have put it better myself.

It is not just Cabinet Ministers who have broken ranks over this issue. I understand that there are many Labour Party Back-Benchers who feel equally as strongly as the Home Secretary.

I cannot understand why the Government will not listen to the concerns of port businesses and do something about it. Are they genuinely concerned with saving jobs and businesses? We are left with the distinct impression that they do not really care. They have made their decision, they are going to stick with it and they certainly will not admit that they have got it wrong. When we next hear from a government Minister that the Government are doing all they can for jobs and business, just remember what they have done for jobs and business at our ports.

Photo of Baroness James of Holland Park Baroness James of Holland Park Conservative

My Lords, retrospective taxation is unfair, unjust and immoral. It is also scandalous that any Government claiming to support jobs should be the direct cause of their loss, with all the misery that that causes to people who lose their jobs and to their families. We should always resist such appalling and dishonourable proposals for retrospective legislation whenever they rear their heads. I support the Motion.

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Parliamentary Under-Secretary (also in the Department for Communities and Local Government), Department for Communities and Local Government, Parliamentary Under-Secretary (also in the Department for Communities and Local Government), Department for Work and Pensions, Parliamentary Under-Secretary (Department for Communities and Local Government) (also in Department for Work and Pensions), Parliamentary Under-Secretary (Department for Work and Pensions) (also in the Department for Communities and Local Government) 8:15 pm, 14th October 2009

My Lords, my script starts with the words, "I am grateful for the opportunity to debate this important issue and its effect on business", but of course, as the noble Lord, Lord Bates, said, we have been here before. I know that backdated liabilities and their effect on ports have been of concern to many in your Lordships' House, and indeed in wider government. That is exemplified by the number of times that we have debated this issue through the passage of any legislation related to non-domestic rates.

First, before I address the arguments put by the noble Lord, I shall place in a policy and regulatory context the regulations that came into force on 31 July—the underlying point of the Motion—and what they aim to achieve. I feel that the noble Lord may be confusing the issue of ports with the actual aims of the regulations.

The regulations to which the noble Lord refers in the Motion are not aimed at ports, or indeed specifically at those who find themselves with backdated liabilities. They are intended to provide targeted help to business in the current economic climate by allowing them to spread the payment of increases in their 2009-10 business rates bills over three years. That is what the regulations are about. The effect of the scheme is to provide all ratepayers with the flexibility to help them manage their rate bills in the current economic climate, help their cash flow and give them time to adjust to the impact of inflation. The deferred payment scheme that the regulations establish is a separate policy from the schedule of payments scheme in place, under which businesses, including ports, are given an unprecedented eight years to pay certain significant and unexpected backdated liabilities.

It may help if I provide some background about why the Government introduced the deferred payment scheme. As with many other rates and thresholds, business rates are increased in April each year to take account of inflation as measured by the retail prices index in the previous September. This is a consistent and generally accepted approach since the introduction of the national business rates in 1990. In September 2008 RPI was 5 per cent, much higher than the level of RPI in March 2009, which was 0.4 per cent. Ratepayers therefore faced a significant increase in their bills from 1 April 2009. In addition to this sharp increase in RPI, some ratepayers' bills increased due to the end of the 2005 transitional relief scheme, which was designed to phase in increases from the previous revaluation. The transition period for the 2005 revaluation lasted for four years and ended in 2008-09. The rationale for the four-year period was to ensure that ratepayers paid their correct bill during the life of the 2005 rating list. However, this has resulted in higher rate bills in 2009-10 for those coming out of transition.

The Government have listened to the concern of business and have taken action. In response we introduced the deferred payments regulations, enabling businesses to spread a proportion of the increase in their 2009-10 business rate bills over 2010-11 and 2011-12, thus providing practical help for businesses when they need it most. Noble Lords may be interested to know that the amount that ratepayers can defer is 3 per cent of the entire 2009-10 bill, equivalent to 60 per cent of the increase in bills and 60 per cent of any increase caused by the ending of the transitional relief scheme for the 2005 revaluation period. Ratepayers, including businesses in ports that wish to defer, need only to complete and return a simple application form to their local authority.

In addition to the deferred payments and schedule of payments schemes, the Government have introduced other measures to help businesses, which must be seen within the wider context of the steps they have taken to aid the recovery of businesses through these economically hard times. This Government are providing real help for businesses, designed to address the cash flow, credit and investment needs of medium-sized businesses. For example, the £10 billion working capital scheme, the enterprise finance guarantee scheme, securing up to £1.3 billion of additional bank loans to small firms, and the £75 million capital for enterprise fund are all an integral part of a fiscal stimulus that the noble Lord's party has opposed all the way.

On the Motion of Regret in the name of the noble Lord, Lord Bates, you must forgive me but, as the effect of backdated liabilities on ports has been debated several times, in this House as well as in the other place, noble Lords will inevitably recognise much of what I say, as it has already been said. This Motion of Regret is about one thing—the waiving of the backdated liabilities for ports. Before I set out yet again why this cannot be done, I reiterate that although, unfortunately, the port businesses have been largely affected by backdated liabilities, they are not the only businesses to be affected by this and that backdating of rates is not a new concept in the world of rating. It happened under the noble Lord's period of government, as well. Therein lies one of three important reasons why we cannot waive the backdated liability—backdating has been a fundamental and accepted part of the rating system for many years. It is not new.

Photo of Earl Attlee Earl Attlee - Shadow Minister (Maritime and Shipping), Shadow Minister

I was making the point that an ordinary business knows that it will have to pay rates on its premises, but the ports, which are in a situation where they did not know that, are very different from ordinary businesses.

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Parliamentary Under-Secretary (also in the Department for Communities and Local Government), Department for Communities and Local Government, Parliamentary Under-Secretary (also in the Department for Communities and Local Government), Department for Work and Pensions, Parliamentary Under-Secretary (Department for Communities and Local Government) (also in Department for Work and Pensions), Parliamentary Under-Secretary (Department for Work and Pensions) (also in the Department for Communities and Local Government)

I do not accept that position. That is part of the confusion around this. There was a change from the old basis of dealing with ports but, even when that basis was in place, those hereditaments that were exclusively occupied and under control were still subject to rating in the normal way. The change generally for ports did not change any of that and businesses should be well aware that they should be subject to business rates. So I do not accept the noble Earl's point.

I have given one of the three important reasons why we cannot waive the backdated liability. Why are we backdating? It is due to constant changes to the commercial property market. In this way, the system seeks to ensure that all rateable property pays its fair amount of rates, from the point at which the property should be rated, and with all businesses being treated equally. It is not in those terms anything like equivalent to what might be commonly known as retrospective taxation. The requirement to backdate liabilities is set out in legislation. It is important to note that, apart from the new port businesses, the CLG does not receive representations on the general backdating of rates liability. It is accepted as part of the system.

The second reason we cannot waive the liability, especially under the deferred payment regulations, is because the statutory framework gives no discretion to remove a liability to taxation. This is the advice that we have received, although we have recently been notified of a different view, and I shall certainly follow up on that point. I do not say that we accept it; our advice is that primary legislation would be required to undo the effective date from which properties have already been added to the rating list.

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Parliamentary Under-Secretary (also in the Department for Communities and Local Government), Department for Communities and Local Government, Parliamentary Under-Secretary (also in the Department for Communities and Local Government), Department for Work and Pensions, Parliamentary Under-Secretary (Department for Communities and Local Government) (also in Department for Work and Pensions), Parliamentary Under-Secretary (Department for Work and Pensions) (also in the Department for Communities and Local Government)

I think that we received a copy of the opinion to which the noble Lord referred, and I have a note on it which I may come to in more detail in a moment. I do not believe that it is a separate opinion that we have gone out and sought that contradicts the position we have taken to date. I shall come to it in a moment.

The third reason for not waiving the backdated liability for ports is because to suddenly remove this principle for a single sector is out of the question. Quite apart from the state aid concerns this would raise, the fundamental issue is that government would selectively let some businesses off a legally established tax and would actively disadvantage those companies that discharged their tax liabilities on time. Our starting point, rightly in my opinion, is that in principle the tax system must be equitable to all and any solution to a perceived injustice must not confer a disadvantage upon other taxpayers who have already paid. To do so temporarily for the 2005 list would be completely inequitable to the businesses that have also already been served and indeed discharged backdated liabilities in the past, as well as those that may possibly be liable in future.

Noble Lords may like to know that as at 8 October, 221 properties with ports have fully discharged their backdated liability and a further 200 business properties within ports have been granted a schedule of payments. To be clear, what is suggested would mean that, unlike all other tenants across England liable for rates, including the separately assessed properties in ports identified for the start of the 2005 list, these newly rated businesses would be given a directly favoured tax advantage over other separately assessed properties within ports and elsewhere. I ask the noble Lord whether that is seriously the sort of tax regime that he and his party would support. Furthermore we do not believe it would be in the interests of fair competition or in line with the principles of taxation for such a liability to be waived.

No one in your Lordships' House can disagree that the unexpected backdated liabilities, combined with the current economic climate, have hit businesses hard in all sectors and areas across England. Yet despite what the Opposition may purport, we in government recognise this and sympathise with their plight, which is why, among other initiatives to help businesses, we are specifically providing assistance to all businesses, not just ports, affected by significant and unexpected backdated liabilities through the schedule of payments scheme, which came into force in April this year.

Photo of Lord Greaves Lord Greaves Spokesperson for Environment, Food and Rural Affairs, Spokesperson for Communities and Local Government

The Minister is going very heavily on the fact that backdated revaluations happen quite frequently in the rating system, which is true. However, is there not a fundamental difference between a backdated revaluation, which results in a higher bill, and the backdated complete change in the system that applied to these businesses? In 2005, it was not that their rating obligation was revalued upwards but that the system changed that resulted in these huge increases, which were backdated for three years. Is there not a difference between those two things?

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Parliamentary Under-Secretary (also in the Department for Communities and Local Government), Department for Communities and Local Government, Parliamentary Under-Secretary (also in the Department for Communities and Local Government), Department for Work and Pensions, Parliamentary Under-Secretary (Department for Communities and Local Government) (also in Department for Work and Pensions), Parliamentary Under-Secretary (Department for Work and Pensions) (also in the Department for Communities and Local Government)

This is a fundamental point, which is why I disagree with the noble Lord. There was a change in the basis on which ports were generally assessed for rates, but it was not that which drove these backdated liabilities. The change indicated that there was a need for the valuation office to have more information, because it seemed that there were properties there that, under the old as well as the new system, should have been separately rated. That continues, whether or not we switch from the old to the new basis for ports generally. So it was not affected by that change.

Under the schedule of payments, ratepayers who meet certain criteria and are faced with unexpected significant backdated liabilities can repay the amounts over an unprecedented, interest-free eight years instead of as an immediate lump-sum payment. The scheme is providing real help to affected businesses by reducing the backdated amount to be paid up front by a huge 87 per cent. The Government are just as concerned as others about the impact of backdated rates liability on the trading prospects of businesses, including ports, particularly in the current economic conditions. We have explored and indeed debated at length the possible solutions put to us.

I will now try to deal with the whole raft of questions that were posed to me. If there are any I cannot cover tonight, I will certainly look at the record and write to noble Lords. The noble Lord, Lord Bates, asked why there was no impact assessment of backdating, no consultation and no assessment of economic assessment. There has been no change in rates policy, which is why there was no impact assessment. Backdating rates is an inherent part of the rating system and has been so for some long while.

The noble Lord asked whether we should accept the view of the House of Lords that there should be no principle for business rate supplement for retrospective backdated rates liability. The Government disagreed with the principle, as the purpose of backdating rates is so that all ratepayers pay a fair amount of rates from the date it should be rated and to ensure that there is no avoidance of rates. The noble Lord asked about a letter from Alan Johnson. I have not seen that letter.

The noble Lord had an assault on the VOA. The Government do not accept the blanket assertion that the Valuation Office Agency is to blame for this situation in what is a complicated position. The original assessments in the 2005 list were produced in good faith on the basis of information provided by the port operators and discussed between them, their professional advisers and the VOA. The separate assessments resulting from the port review are a result of additional information coming to the VOA's notice largely as a result of its own inquiries and with varying degrees of co-operation from the parties concerned. The Valuation Office Agency recognises that a number of businesses feel that they were not kept adequately informed and it will certainly look to improve communications in the event of any future such reviews. However, it wrote to all port operators in May 2006 and in that letter asked them to advise tenants whose contact details would not necessarily have been available to the VOA at the time that the review took place.

It has been suggested that prescription is the answer and that the Secretary of State should prescribe rates at the original 2005 level. First, as I said a moment ago, prescription will not change the person liable for the rates. Properties now separately rated will continue to be billed separately. Secondly, prescription cannot be done retrospectively, so prescribing rates now will not alleviate the backdated rates bill from 2005. Thirdly, the original 2005 level was in some cases zero, but some of the properties were omitted from the rating list. Prescribing rates at zero is effectively removing a liability for taxation and could therefore be construed as state aid. Fourthly, properties are rated on the basis of market rent levels. In order to deliver some benefit to businesses, we would need to prescribe a formula that generated results below the market rental value. However, none of the other 1.7 million properties on the business rating list is valued other than on the basis of market rent and there is no clear rationale for special treatment. In particular, there is no basis on which the low rateable value could be established.

The noble Lord, Lord Bates, asked what representations had been made from investors on the ports issue. I will write to the noble Lord on that matter. He also stated that one in every three valuations was in error and that out of 1,600 properties assessed, 600 were wrong. I suggest that that analysis is incorrect. Some 1,600 properties were identified and assessed on 1 April 2005. The review of ports found an additional 600 properties to be due and added to those 1,600.

I now revert to the point we touched on earlier—that we have received information that the Secretary of State does have powers to waive the retrospective element. As I said a moment ago, yesterday we received the briefing mentioned by the noble Lord, and we will have to look at that matter again and revert if necessary. However, the position as of today is as I have announced: the Government believe that primary legislation is necessary and those powers do not exist.

The noble Lord asked about whether there was time to review the VOA's conduct. A recent framework review of the VOA found that there was a communications issue, as highlighted by the ports review. The review recommended that proactive communications should be reviewed and improved. The DCLG and the VOA are looking to address that recommendation.

The noble Lord, Lord Bates, said that the Government had admitted that the VOA made an error. The Government have not admitted an error. The Government have agreed that the VOA had not communicated the review very well, but not that it was in error in the assessments that were undertaken.

In the exchange that we just had we dealt with the point made by the noble Lord, Lord Greaves, about the new systems introduced in 2005. The noble Lord also asked why we did not wait until the 2010 valuation to introduce these changes, as suggested by the Treasury Select Committee. To delay the findings of the review would effectively remove the liability for taxation, and the statutory framework for business rates gives no discretion to remove a liability to taxation. That is our advice. We believe that it would not be in the interests of fair competition or in line with the principles of taxation for such a liability to be waived.

The noble Earl, Lord Cathcart, referred to potential insolvency issues arising from these arrangements. A few affected businesses have said that, despite the schedule of payments, which represents an exceptional arrangement to spread payments over eight years, they will have to add this liability to their balance sheets and therefore become technically insolvent. As a result, although they may be in a position to continue their business, technically they will have to cease trading. We have taken advice on this matter from experts in the Insolvency Service and the Department for Business, Enterprise and Regulatory Reform, as it then was. Clearly the outcome will depend on the individual circumstances of each business on a case-by-case basis. It will depend on the level of both the existing assets and liabilities when the backdated rates bill was received, and the directors' reasonable expectations of being able to meet their liabilities as they fall due in the future.

Our correspondence with the Inspector General of the Insolvency Service indicated that liabilities would have to be booked immediately. However, he said that when an arrangement has been made to pay by instalments, companies can discount the liability, which will partly mitigate the impact by effectively reducing the amount shown on the balance sheet. He makes the distinction of a company being balance-sheet insolvent—which, of itself, would of course not necessarily cause a company to have to cease to trade—for as long as it was unable to pay its debts as and when they fell due. I think that that point needs to be seen in context.

I have dealt with most of the questions that have been raised. If any noble Lord thinks that I have not, I give them the opportunity of challenging me, but I will review the record and write further if necessary. To conclude, if the Government accepted the principle that the port occupiers should not pay their legally established rates liability, current secondary legislative powers would not be sufficient to achieve this aim. That is our advice. It is not reasonable to confer on any one particular sector an advantage over the others, which is what waiving the backdated liability for businesses in ports would do, were it even possible under the deferred payment scheme regulations, as this Motion of Regret suggests. It is right that businesses should pay the tax that is due, but in the current economic climate we must do all we can to support businesses with unexpected and significant backdated liability. We have done what we can, and we have done things for the first time by introducing the unprecedented eight-year schedule of payments. The Government have established that this will benefit up to 1,500 properties a year across England, both within and outside ports, and will help with cash-flow problems faced by some companies.

We have been around and around this issue. We cannot waive the liability under secondary legislation. We cannot even consider waiving the liability for a single sector. Ultimately, the most effective and immediate help that could be provided is already available via the schedule of payments. Therefore, I respectfully ask the noble Lord not to press his Motion of Regret.

Photo of Lord Bates Lord Bates - Shadow Minister (Also Shadow Minister for the Cabinet Office and Communities and Local Government), Shadow Minister, - Shadow Minister (Also Shadow Minister for Communities and Local Government and Energy and Climate Change), Shadow Minister, - Shadow Minister (Also Shadow Minister for the Cabinet Office and Energy and Climate Change), Shadow Minister, Shadow Minister (Business, Innovation and Skills), Deputy Chair, Conservative Party, Shadow Minister 8:30 pm, 14th October 2009

My Lords, the Minister has made an attempt at a defence, but it goes nowhere near the real defence that was needed regarding the jobs that are being lost and the businesses that are going out of business as we speak as a result of an own goal by the Government and an unbelievable level of intransigence. I would again leave ringing in the ears of Members opposite the words of Mr Johnson—the Home Secretary, and he who would be king—who wrote to the Secretary of State, saying:

"The VOA has committed an egregious error, failed in its duties and failed to obey the instructions given by Government".

Those are the words of the Home Secretary. We very much endorse and support them. I urge my colleagues to support this Motion of Regret. I wish to test the opinion of the House.

Division on Lord Bates's Motion.

Contents 72; Not-Contents 66.

Motion agreed.

Division number 1 Non-Domestic Rating (Deferred Payments) (England) Regulations 2009 — Motion of Regret

Aye: 70 Members of the House of Lords

No: 64 Members of the House of Lords

Ayes: A-Z by last name

Tellers

Nos: A-Z by last name

Tellers