My Lords, I welcome much of what is in the Budget Statement, and I thank the Minister for giving us the opportunity today to discuss it. I want to concentrate on the treatment of businesses, particularly with regard to business rates and allied matters where I have some concerns.
I declare my interests. I am a former employee of the Inland Revenue Valuation Office, now the Valuation Office Agency. I have a professional involvement in aspects of non-domestic rates as well as being a business ratepayer and a vice-president of the Local Government Association. I express my gratitude for the help of the Library staff of your Lordships’ House, who have been splendid, and to the Royal Institution of Chartered Surveyors, the Institute of Revenues Rating and Valuation, the Rating Surveyors Association and the LGA for their advice to me.
The cost of taxation to people in business via rates, or for that matter employee/employer or self-employed NIC, has been a growing issue for some time. Rather than concentrate on just the self-employed NIC, I ask noble Lords to consider the combined employer/employee contribution before jumping to conclusions, because I think that is the driver. It is what has become the disproportionate irritant that sits behind all this.
Business rates are a fixed-charge system in which—however you view it, whether space used, property value or use of services—there is a somewhat unbalanced level of tax, especially compared with its one-time residential bedfellow, now subject to council tax. You cannot disguise this by pointing to other contingent advantages. Migration to cheaper space, whether former industrial space, domestic garages, spare rooms, garden offices or even the virtual world of internet trading, is in part the result. The advent of the new rating lists on
It is the delay in the revaluation by two years, which was paraded as giving businesses certainty, that I object to: objectively, it has been the certainty of continued unfair treatment and, perhaps more cynically, the protection of the tax yield. Meanwhile basic issues have not been addressed and anomalies have grown. The failure to deal with the backlog of appeals has meant difficulties for business finance and, I suggest, for billing authority revenues. The LGA tells me that nationally there is a £2.5 billion provision against rateable-value adjustments and that there are about 240,000 outstanding cases as of last autumn, with more appeals being lodged as we get near the end of the current list.
I feel compelled to point to other ongoing efforts by HMRC to, as I see it, impede due process. For instance, it cites the Commissioners for Revenue and Customs Act to block the disclosure of sources of information, thus compromising the fair discharge and transparency of an independent appeals system. That will include the removal of several previously available and important data fields from the entries on the VOA website.
HMRC is devising a system known as “check, challenge, appeal”—CCA, if you like—which requires the most tortuous and demanding ratepayer registration that could possibly have been devised and, separately but in parallel, an equally tedious system for rating agents to register. The “check” aspect is still at the beta testing stage with, I understand, lots of anomalies and glitches to be sorted out, while “challenge” and “appeal” have yet to run at all. In my opinion it is clearly designed to prevent appeals generally by obstructing access to them and it comes very late in the day, with the new rating list coming into force in a couple of weeks’ time.
Then there is the attempt, as I see it, to introduce through statutory instrument a novel formula of words governing valuation accuracy, a wording that is untested and quite unusual in any other tax environment. Of concern to ratepayers with multiple outlets, appeal registrations must each be dealt with individually, property by property; you cannot replicate the registration for multiple property ownership. This is likely to create an automatic inbuilt two-and-a-half-year lead-in period to get any appeal dealt with and the rateable value sorted out. Meanwhile, pursuing cases that overturn long-accepted practice—the latest being the case of Monk v Newbigin, which went against the Valuation Office Agency on a principle for which I and the noble Baroness, Lady Farrington of Ribbleton, who is not here today, set the scene in this House in 1999—creates adjustments that prejudice business certainty and billing authority cash flows alike.
The statutory instrument dealing with the appeals process is not yet laid before Parliament although it was supposed to have been laid earlier this month. As I understand it, industry queries on the valuation terminology, which I have referred to, the implications for business rate refunds where justified and, furthermore, the extent to which the draft statutory instrument appears to exceed its powers claimed under the relevant provisions of the Local Government Finance Act 1988, as amended by the Enterprise Act 2016, have not been answered. Businesses need confidence that they are being treated fairly and consistently, especially as business rates in this country are the highest of any European equivalent.
For billing authorities moving to 100% business-rate retention, uncertainty and the corrosive effects of an appeals system that is not slick, quick or predictable are damaging and pose significant risks. It is not surprising that many observers are saying the business rates system is unfit for purpose. The continued failure by the Treasury and HMRC to tackle these issues in order to create proper accountability, transparency, simplicity and accessibility for every class of business occupier, along with the ongoing tinkering, are simply not acceptable. HMRC is perfectly capable of designing and managing an online system for tax, VAT and PAYE that can be operated by non-specialist individuals. By this standard, the CCA system is an aberration that will simply add to the number of unscrupulous types already milling around and trying to get instructions from business ratepayers. We can and must do better than this.