Baroness Hayman of Ullock:

Moved by Baroness Hayman of Ullock

1: Clause 1, page 2, line 25, at end insert—“(za) the chargeable day falls after the day on which qualifying energy efficiency improvements are completed,”Member’s explanatory statementThis amendment, and others to Clause 1 in the name of Lord Ravensdale, would allow qualifying energy efficiency improvements improvement rate relief until at least 1 April 2029.

My Lords, the noble Lord, Lord Ravensdale, is unable to join your Lordships’ House today due to work commitments, so he has asked me to introduce his amendments in the first group as I have added my name to them. Amendments 1, 2 and 3 in this group all relate to rate relief for energy efficiency improvements. Specifically, they allow qualifying energy efficiency improvements improvement rate relief until at least 1 April 2029. That contrasts with the current position of the Government, who have previously made it clear that they intend to offer improvement relief for only one year.

I understand from the noble Lord, Lord Ravensdale, that he has had constructive meetings with the Minister, but that during those meetings she raised two particular concerns about the implementation of his amendments, if the Government were to accept them. First, she raised the issue of the reduction in rates revenue that would come if the amendments were passed. The noble Lord asked me 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 the Minister raised was about the classification of energy efficiency measures for valuation purposes when compared with renewables and energy storage. The argument here is that this would mean that almost any building works could potentially qualify: for example, replacement windows and anything to do with the fabric of the building itself. We understand what the Minister is saying about this and why she raised that point, but we would add that, while an insulated extension might have an incidental efficiency benefit, we believe—as does the noble Lord, Lord Ravensdale—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. We should be able to differentiate between the two. The suggestion the noble Lord made is that the Government could look at tweaking the draft regulations on which they have recently consulted. It would be very constructive for the Government to discuss this further with the noble Lord to see whether this is an option going forward and whether it could actually be achieved.

We support the steps that the noble Lord is suggesting to encourage businesses to carry out energy-efficiency improvements. They are important because that would not only align with the UK’s climate and emissions targets but lead to long-term savings for ratepayers and bring about efficiencies all round. The recent increases in energy bills have created enormous uncertainties —very much so for high street retailers, who have been in a volatile market for some time since Covid—and the Government should explore incentives such as this. I beg to move.

My Lords, I listened carefully to what the noble Baroness, Lady Hayman of Ullock, said in support of the amendments tabled by the noble Lord, Lord Ravensdale. Looking at those amendments and their context, I think they present a viable option for the Minister to examine and respond to. It is important to consider where the benefit is likely to fall should these amendments be accepted. As I see it, it will primarily benefit SMEs above the small business rate relief threshold. That is not a guaranteed threshold, by the way; it is at the discretion of the Government of the day, from time to time.

For many of those smaller SMEs above that threshold, business rate costs easily exceed energy costs, even in this day and age. Therefore, 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 skilfully joins those two things. It offers, to those who find the rates burden excessive—and perhaps we could add “Who doesn’t?”—a mechanism for reducing them by investing in energy performance measures. I certainly agree with what the noble Baroness said about the shape of the guidelines, which would obviously be produced if these amendments were passed, and what those energy improvement measures should be and how they might be properly measured.

There is a clear incentive mechanism here, which is clearly needed because there is no doubt that businesses in that sector in particular are lagging behind on energy efficiency—for the reasons I have outlined: they have other business pressures on them and it is certainly not at the top of their to-do list. Also, they probably do not have an ESG policy or a policy statement committing their enterprise to getting to zero carbon by 2050. These are a band of enterprises which are core to the British economy, but they are not exactly headline-making businesses when it comes to developing their social and environmental policies. They need a nudge. To give them a nudge which reduces their rates bill seems a mechanism which merits careful exploration.

The measures in these amendments would be helpful in that hard-to-reach SME sector, often occupying hard-to-improve premises. To join those two things up would be very worth while. We cannot rely on reaching our 2050 targets for the built environment purely on the good will and common sense of hard-pressed SMEs, which have so much else to do.

There is a greater public good to be achieved. If the Government feel that there is any element of giving money away that they do not need to do, I would simply argue that this is, or could be, an important step in delivering that public good, which is reaching zero carbon by 2050—reducing our carbon emissions and avoiding climate extinction. I very much look forward to what the Minister has to say by way of response on behalf of the Government.

My Lords, I support these amendments. As we are at this stage of the Bill, I declare that I am a chartered surveyor, a registered valuer and a member of the Rating Surveyors’ Association. It is some time since my bread and butter was generated from dealing with non-domestic ratings; the concepts are well trod, but I will not claim to have any up-to-date knowledge on some of the finer points.

The noble Baroness, Lady Hayman of Ullock, mentioned some of the concerns that the Minister has put forward. My ears pricked up a bit, as they always do when I hear about ministerial concerns. The first was a reduction in revenue. Let us be clear: we are talking about not making an increase—not actually losing something that was there before. It is the increase created in value that is discounted under the Government’s proposals, for no more than one year. The purpose of these amendments is that the increase should not bite for a longer period. That is important, because the work to improve energy efficiency of buildings is sometimes only really justifiable over quite a long period of time. There is no instant fix. In the meantime, it has to be funded, by a loan or an imputed opportunity cost of money for that period. As I said at an earlier stage of the Bill, one year is simply too short and would be no incentive. The other question about the reduction in revenue is: what is better, not to be able to charge the increase in rates, or someone not to do the work at all because they consider that they should defer the evil day for doing it? There has to be some incentive all round.

The second point that the noble Baroness referred to about what the Minister had said was on the classification of energy-efficiency works in valuation terms. I really do not see that there is any particular difficulty with that. Valuers are dealing with these sorts of things all the time, whether they be tenants’ improvements that are disregarded for rental value purposes, which is actually the nearest open-market analogy to what one is dealing with in business rates valuation, or whether it be for some other purpose—the cost-benefit of some scheme or other. One obviously has to look at these things in the round. If somebody is just replacing the windows and nothing else, clearly they are doing a bit to the U-value to make it more efficient, but it is not a holistic approach. Alternately, if they are part of any type of scheme that one would put forward—that may come out of the further guidance that was referred to by the noble Lord, Lord Stunell—they will have to look at these things on a holistic basis, because you cannot just put a draught-proof strip on a door and expect your bills to go down. It does not happen like that.

These amendments are very important. I do not see the difficulties that the Minister raised in discussions with the noble Lord, Lord Ravensdale, so I wholeheartedly support this. The Government could afford to be a little more generous-minded over the whole thing. I encourage the Minister, when she is replying, to perhaps apply that metric.

My Lords, I am grateful for the amendments in this group presented by the noble Baroness, Lady Hayman of Ullock, and tabled by the noble Lord, Lord Ravensdale. They give us the opportunity to discuss this important matter again.

I assure noble Lords that we can and do keep under review the system of business rates reliefs and, in particular, how it impacts on matters such as energy efficiency. Where we see an opportunity to support energy efficiency and net zero through the business rates system, it is carefully considered.

The recent business rates review looked at this. As a result, eligible plant and machinery used at on-site renewable energy generation and storage, such as rooftop solar panels, wind turbines and battery storage, are now exempt from business rates until 31 March 2035. On-site storage used with electric vehicle charging points is also exempt. Low-carbon heat networks have also benefited from 100% relief from 1 April 2022, and this Bill will put that relief on a firm statutory footing.

Furthermore, 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. Broadly speaking, these include energy-efficiency improvements added to the property by occupiers that improve the physical state or add rateable plant and machinery. In 2028, the Government will review the improvement relief scheme and I reassure the noble Earl, Lord Lytton, that the Bill includes a power to extend the relief beyond 2028. Additionally, energy-efficiency improvements that take the form of non-rateable items, which includes most process plant and machinery, will have no impact on the rates bill.

We understand the desire to go further and provide a more general relief for energy efficiency in buildings, but we do not consider this to be something that we can agree to, at this time, in this Bill. First, there are necessary practical questions about when and how energy-efficiency improvements impact rateable values and rates bills. Many energy-efficiency improvements are to the fabric of buildings, such as to the walls, windows and roofs, and how these improvements impact the rateable value of the property would be far from clear. We would need to be confident that the value of such energy-efficiency improvements could be accurately measured and captured in order to then provide a properly targeted relief.

As previously mentioned by my noble friend Lady Scott of Bybrook, and as was referred to by the noble Baroness, Lady Hayman, in her introduction, the Treasury also has to balance the desire for tax breaks against the need to fund local government and balance the books. 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.

However, given the interventions this afternoon, it seems appropriate to say a little more about the Government’s wider approach to energy efficiency in buildings. Last year, we announced a new long-term commitment to drive improvements in energy efficiency to bring down bills for households, businesses and the public sector. Our stated ambition is, by 2030, to reduce the UK’s final energy consumption from buildings and industry by 15% against 2021 levels.

For small and medium-sized enterprises, the Government have also sponsored an energy management standard publication to help businesses understand their energy usage and identify where they can make savings. We are also establishing a dedicated energy advice offering for smaller businesses to help them to reduce their energy costs.

Several capital allowances may also help businesses to make energy-efficient investments. For example, this year the Chancellor announced that we will allow companies to write off the full cost of qualifying plant and machinery investment in the year of investment. This is in addition to the annual investment allowance, which has been set permanently at £1 million, and the structures and buildings allowance.

I hope it is helpful to have this wider context on the record, alongside our reasoning about why a new relief is not necessary. I thank noble Lords and hope that they will not press these amendments.

My Lords, I thank noble Lords who took part in this debate and gave their strong support for the amendments of the noble Lord, Lord Ravensdale. It is much appreciated.

I feel that the Minister gave the reasons for the Government not doing this that I mentioned at the beginning, when I explained why we thought that they could, so I am not hugely convinced. It is good that the Government are looking at energy efficiency—it is really important and has not been taken seriously enough in the past—but, as the other areas that the Minister mentioned have been included, why not expand this to include the amendments from the noble Lord, Lord Ravensdale, and what they would achieve? Anything that improves energy efficiency should be encouraged, in a nutshell.

I hear what the Minister has said and I am sure that the noble Lord, Lord Ravensdale, will look carefully at Hansard, but I think it would be good if the door to discussion could be kept open. On that note, I withdraw the amendment.

Amendment 1 withdrawn.

Amendments 2 and 3 not moved.

Clause 4: Local rating: discretionary relief