‘(1) Prior to the compilation of a rating list, the Secretary of State must prepare and publish a report describing the performance of the Valuation Office Agency (VOA) within the reporting period in relation to non-domestic rating.
(2) The report must set out any recommendation that the Secretary of State believes the VOA should implement to improve its performance in light of the number of outstanding appeals regarding business rates.
(3) The Secretary of State must lay a copy of the report before Parliament.
(4) In this section “reporting period” means the period of 12 months beginning with 1 April prior to the date on which a rating list is to be compiled.’.
Welcome back to the Committee, Mr Davies. I remind the Committee that clause 22 amends those parts of the Local Government Finance Act 1988 that prescribe when rating lists should be compiled. It might be helpful to the Committee if I explain how business rates are calculated and say a little more about revaluations more generally.
Business rate bills are calculated from the rateable value for the property and the tax rate, otherwise known as the multiplier, set by the Government. Rateable values are based on annual rental values. Rental values are set out on a rating list. There are two types of rating list: a local list and a central list. Local rating lists are compiled for every billing authority and comprise all business properties in that authority’s area. The central list contains properties that are more difficult to attribute to a particular area; for example, network properties such as electricity and water supply networks.
As we have made clear, revaluations do not raise any extra revenue. Although the total business rates paid do not change on revaluation, some ratepayers’ bills increase as a result, and some decrease. Since the last revaluation in 2010, there have been some extraordinary movements in values. The Valuation Office Agency’s best estimate of rateable value movements as at January 2012 suggests a 14% drop in values since the last revaluation, but because revaluations are revenue-neutral, that does not mean that rates bills will fall. In fact, it means exactly the opposite, as I said. Large numbers of ratepayers could face increases in rates in order to maintain the total amount of tax raised. Postponing the next revaluation, due in 2015, will therefore provide businesses with certainty during a time of exceptional economic circumstances.
The five-yearly revaluation cycle for both lists is set out in sections 41 and 52 of the 1988 Act. Section 41 deals with the compilation of local lists, and section 52 with the compilation of the central list. Subsection (2) of each section sets the revaluation cycle by requiring the compilation of the rating lists on 1 April 1990 and every five years thereafter, so the next revaluation in England was due in 2015.
Clause 22 breaks that cycle by inserting a new subsection 2A into both sections. New subsection 2A has two limbs: it removes the requirement for a list to be compiled on 1 April 2015, and it sets a fresh five-yearly cycle to run from 1 April 2017, providing certainty about future revaluation dates. Clause 22 also contains consequential provision to ensure that the current local and central rating lists remain valid until 2017 and continue to be maintained as usual throughout that time.
Tax stability is vital for businesses looking to grow and help improve the economy. Postponing the 2015 revaluation in England will avoid sharp changes, preventing businesses and local shops from facing unexpected hikes in their business rate bills over the next five years. The reform will encourage local economic growth by removing any doubt about future rate bills and giving businesses the stability that they need to plan and invest. I commend the clause to the Committee.
It is great to have you back in the Chair, Mr Davies. What you missed on Tuesday was the Minister accusing my hon. Friend the Member from Scunthorpe of gloominess. We also had alligators with my right hon. Friend the Member for Greenwich and Woolwich. You missed a bit of poetry in the drafting of some our amendments, and charm from my hon. Friend the Member for City of Durham. Very late on Tuesday we also had snakes and ladders from my hon. Friend the Member for Scunthorpe, because having got all the way to clause 22 we ended up going down the snake to debate clause 1. I hope that we make progress and get to the end of this piece of legislation before we finish this evening.
The debate on clause 22 stand part is important, because most of the communications that have been received by the Committee since the Bill was proposed have come from business organisations and the like, which do not want a postponement until 2017. A number of sectors that the Minister mentioned—retail in particular—have been badly hit by the economic downturn. The Mary Portas review was part of the analysis to try to help local high streets. A revaluation would benefit the sectors that have been hit the hardest, with open-market rents plummeting and the number of empty properties increasing, particularly on local high streets.
The revaluation is supposed to maintain fairness by ensuring that rateable values are based on an up-to-date rental value, the purpose being a redistributive model, sharing the burden of liability fairly as property values move up or down. The Secretary of State produced evidence showing that there would be more property losers than winners in that model, but on Tuesday my right hon. Friend the Member for Greenwich and Woolwich pulled that analysis apart in proposing his amendments. I am disappointed that the Government did not accept far greater analysis of the figures.
Our new clause 9 would require the Government to give a full report on the workings of the VOA, to deal with the concerns expressed to the Committee by a number of stakeholders, including, crucially, CVS.The new clause would give business some certainty, provide clarity to the ratings lists that are already being compiled by the VOA and provide for a report on how it may be able to process appeals and other issues.
CVS produced a good overview of postponing the 2015 revaluation, and referred directly to the backlog of appeals sitting at the VOA. It mentioned the rationale for postponing the revaluation on the basis of some figures not having been updated because of the backlog of appeals. CVS concluded in its overview, which prompted the new clause:
“By settling claims more efficiently, businesses will no longer have to carry the financial burden of the VOA’s delay, waiting for years for refunds for money they have overpaid and will be given more certainty on whether they are paying the correct rates.”
I appreciate that I am just about to cross the border into Scotland, where all business rates are devolved, but let me mention an example from my personal circumstances. When I ran my small business, business rates trebled and, under the process, we had to continue paying until such time as any appeal was granted or otherwise. That was a massive strain on the business that I ran, and it took 18 months for the appeal to go through. Given the pressures on businesses, particularly small businesses, and our local communities, the thrust behind the new clause is to get some new analysis to see whether the backlog of appeals from the previous revaluation can be cleared, thereby giving us a better indication of the analysis required for the revaluation of 2015.
Rates are the third largest expenditure for any business. It is important to ensure that the system is fair and that businesses are supported. It is therefore surprising that the Government have brought forward the provisions without consultation, ignoring the industry’s concerns. As Liz Peace told us—it was mentioned on Tuesday—the clause is not relevant to the rest of the Growth and Infrastructure Bill. In the evidence-taking sessions, Edward Cooke told us that the policy to postpone the revaluation of 2015 and the analysis behind it was speculative and “woolly” at best. There must be a thorough review of all the impacts of delaying the system before any decision is taken to postpone until 2017. That was the thrust behind amendments tabled by my hon. and right hon. Friends.
We have the VOA’s analysis. The Minister addressed many issues to do with that in debating some amendments proposed by my right hon. Friend the Member for Greenwich and Woolwich. Table 2 contains a rather colourful analysis of winners and losers. It is also broken down into regions, with three specifications: tax payments that are likely to rise more than 2%, tax payments that are likely to fall by more than 2%, and tax payments that are termed “no change”, which are those with an increase or decrease between 0% and 2%. The analysis clearly shows that in places other than the east midlands and London, retail and industrial uses will benefit from a revaluation taking place in 2015. Only in the east midlands region will retail, office and industrial be worse off.
We have to bear in mind that table 2 is speculative at best. The Minister did say that the VOA has tried as best as possible to do a proper analysis, but it is difficult to do that without a total revaluation. That seems fairly obvious and a strong point to make. I appreciate that he said that office space in London would be the biggest winner, were a revaluation done now, but the analysis clearly shows, for example, that office space in the west midlands would see a projected 6% drop; office space right across England would receive an 8% drop; retail in the north-east would be 3% down and so would retail in the north-west. The Mary Portas review reflected on all those figures.
The Government are trying to include many properties that fall into the “other” category in the figures. That raises the average payments of non-domestic rates by 5% across the country and skews the analysis. As the analysis is speculative and skewed, delaying the revaluation beyond 2015 is a gamble both for the Government and for many of the businesses that may win from it. Because the system is about fairness, if the VOA’s figures in table 2 are correct, they should be used to distribute the rateable values around the country.
The Royal Institute of Chartered Surveyors said that if the Government are concerned that their modelling would produce more winners than losers and large swings in liability, it could be cushioned by the transitional relief that has been used for every revaluation for more than 20 years. In order to do that, however, we need robust figures that take into account the actual effect of a revaluation in 2015, and the impact on the businesses themselves and the public funding financial element in the regions of England.
It is extraordinary that the Minister could not tell the Committee on Tuesday what analysis has been done of the situation in 2017, even if we accept the figures that have been presented to back the suspension. The position then could be far worse, and given the dire situation we heard about in the autumn statement yesterday, the gamble of postponing the 2015 revaluation by an arbitrary two years to 2017 on the basis of speculative figures may make the situation worse and back up many of the issues that the Minister raised in justifying the postponement.
A consortium of organisations wrote to us about the issue. The Association of Convenience Stores, which is the voice of local shops, the Association of Town Centre Management, the British Council of Shopping Centres, whose motto is “Shaping retail property”, the British Independent Retailers Association and the British Property Federation have all come together to give us their views on the Government’s postponement of revaluation. The consortium essentially said that the Government’s evidence does not stand up to scrutiny, which I have mentioned already. It said:
“The Minister for Local Government, Brandon Lewis MP, has suggested that VOA estimates indicate that if there were a revaluation now, ‘800,000 premises would see a real-terms rise in their rates bill’”,
but the consortium suggests that all the evidence is anecdotal. It concludes:
“That consultation exercise should take place before any definitive decision to delay the revaluation is taken.”
That is what our amendments would have done. The Government should have accepted them, because they would have given us proper evidence of whether the justification for delaying the revaluation is true.
It is not just organisations involved in the industry that are concerned. The Minister said on Tuesday that many of the organisations that had written to the Committee had vested interests, such as those that may gain from the revaluation being done in 2015 because of their business interests. However, that cannot be said of the CBI, which produced quite a comprehensive view regarding the delay of the revaluation. In paragraph 29 of GIB 34, the memorandum that it submitted to the Committee, it said:
“The announcement of the two-year delay to the revaluation of commercial property for business rates received a mixed response from business. Where property values have decreased, companies would have reasonably expected their rates bills to fall after revaluation, with the burden shifted to businesses occupying properties that have maintained or increased in value.”
That seems to relate to the fairness argument in this issue.
The CBI concluded that it
“has concerns about the lack of consultation and impact assessment that has taken place on this policy. Ministers themselves admit that the assumptions behind the change are based on ‘limited rental market evidence’”.
That backs up the issues regarding the Valuation Office Agency.
The British Property Federation called the announcement a “surprise” that prompted
“chagrin across the retail and real estates worlds”.
It said that the delay could
“further exaggerate existing market imbalances” across the country.
I want to say a little about the position in Scotland, if you will allow me, Mr Davies. Non-domestic rates are fully devolved to the Scottish Parliament, but the Scottish Government decided in 2007 to reflect completely the position in England. Therefore, if, as happened last September, non-domestic rates bills rise by 5.6%—the rate of indexation last September—the Scottish Government will reflect that. They have now said that they will delay the revaluation in Scotland until 2017 and have laid the blame squarely on the UK Government.
There is therefore a bit of a problem with the Scottish Government. They have decided to follow the UK Government like sheep, despite their protestations that they no longer want to be part of the United Kingdom. They have blamed the UK Government for making a decision when they are able to make the opposite decision. That is important to put on the record, because the Scottish Government have been making noises in both Scottish and national media about the disgraceful decision to delay the revaluation, even though they could carry out the revaluation tomorrow if they so wished.
We encourage the Government to publish a full assessment of the winners and losers of the revaluation delay, the effect on regional economies, the impact on the finance of local authorities and the impact on our under-pressure high streets. There is no need for the clause. The Government should listen to all the organisations that have contacted the Committee, from the CBI to the Association of Convenience Stores, and remove the clause from the Bill.
I welcome you back to the Chair, Mr Davies. My hon. Friend has made an excellent case against the clause, so I do not want to add too much.
We had a positive afternoon on Tuesday, so it is disappointing that I have to start today by saying something negative: I was disappointed by the Minister’s introduction. A lot of evidence was presented to the Committee questioning the impact of the clause, but from his comments, I do not think he has taken them on board in any way at all.
We have already said how poor we think the impact assessment on the postponement of the compilation of rating lists until 2017 is. We know that the purpose of revaluation is to redistribute the rates burden based on rateable values. The impact assessment seems to concentrate on saying, “There is a total sum of money. Who the winners and losers are depends.” It does not go on to give us any firm information on which to base a judgment. That goes to the heart of the Opposition’s concern.
As my hon. Friend said, we have all received a paper from the Association of Convenience Stores—the “voice of local shops”—the British Property Federation and many others, which calls into question the Government’s assertion that 800,000 premises would see a real-terms rise in the rates bill if the revaluation went ahead in 2015, with only 300,000 premises losing. It then gives us information that the Minister has not adequately addressed to date. A whole collection of organisations that are in the position to have some real understanding of the possible impact of the measure wrote:
“We believe that relatively few areas disproportionately owned or occupied by larger, stronger businesses, will have seen rents perform better than the national average since 2008, with the majority outside those areas therefore standing to benefit from a revaluation and lose from its delay. Essentially this change will thus see those that have suffered most from the declining retail sector, for example Middlesboro where there are empty shops with rents at a quarter of rateable value and still no takers, subsidise those that have benefited from retailers strategy to focus their property requirements on far fewer locations.”
Such comments really get to the heart of my feeling about the proposed measure. Not only have we not received firm evidence of why it is necessary, but the Government have not made a case for why it is necessary at this time or how it is a growth measure. Growth is a key matter for areas such as Middlesbrough that are suffering heavily from the economic downturn and the recession, but the measure offers them no hope whatever. I accept that no hope was given to us yesterday, but we have in front of us a provision that will really add to the concern of several businesses throughout the country, particularly those that are having to struggle the hardest.
The who wrote that paper have said that, if the Government want to prove them wrong, they can easily do so. They can take on board the arguments that have been made and provide real evidence. They need to publish independent assessments so that the figures can be properly interrogated and we can have a clear understanding of the winners and losers. The case for that was put strongly by Liz Peace in her oral evidence to the Committee. The right hon. Gentleman still needs to answer several questions that were posed in the Gerald Eve letter that we all received and, to date, he has not done so to our satisfaction.
I want to leave the Minister with one particular point. A lot of organisations that have been in touch with us have said, “It is interesting, isn’t it, that the Government have at last recognised that what businesses seem to need is certainty?”. Those organisations mean “certainty” about the whole economic climate, not only about what business rates they will have to pay. Most importantly, they have said that if certainty means that they have to pay more for longer, it is not the certainty that they are looking for, and I should be grateful if he would respond to that in his comments.
I shall try to deal with some of the points made about the clause and comment briefly on new clause 9. I say first to the hon. Lady that the impact assessment does refer to the Valuation Office Agency analysis—it is on page 73. She talked about certainty and asked what the clause had to do with growth, but growth is about certainty. It is about giving businesses certainty about exactly where they will be during the next five years.
I certainly cannot accept what the hon. Lady said about yesterday’s autumn statement. I do not know whether she was in the Chamber to hear the Chancellor announce a further increase in small business rate relief for 2013-14, which will be very welcome for small businesses, whether in Middlesbrough or Durham, and additional empty property rate relief for new builds, worth £150 million over the lifetime of the scheme. So I do not accept that the autumn statement did not help.
The comments made by the hon. Members for City of Durham and for Edinburgh South return us to the issue of winners and losers. I have said it several times, but I repeat that none of us can be exactly sure who the winners or losers would have been if we had actually gone ahead with the revaluation exercise, spent the £40 million, and perpetuated the uncertainty for the next few months as to who would gain and who would lose. We have now reached a position where the Friends of Canary Wharf on the Opposition Benches have conceded that one of the big winners would certainly have been central London offices and banks. Whoever the losers, I think it is now accepted that offices in the centre of London would be among the biggest winners. At this particular point, economically, I would wonder whether they are the most obvious target for help.
The real issue is not just who the winners and losers are, it is how we would deal with what would certainly happen if we carried out the revaluation now. It would result in immense volatility. There would be a large number of winners and a large number of losers, and a lot of businesses would see huge swings upwards or downwards in their rates. That is what we must avoid.
Would the Minister accept, notwithstanding the need for certainty, which everybody recognises, that the evidence we have heard from across business is that businesses that need relief from inappropriate business rates will not get it, and that that will damage them?
I do not wholly accept that. We do not yet know who exactly the winners and loser would be. We have had examples from the Valuation Office Agency’s estimates of how different sectors would be hit in different ways, which I gave to the Committee. Of course, if a firm is losing a reduction it was expecting, that is obviously not good news for that firm, but that is balanced by gains elsewhere in the system.
Exactly, and the point I made to the Committee was that I am not sure shovelling more money into that sector, as the Friends of Canary Wharf would like, should be the first target of any Government spending decision.
The hon. Member for Edinburgh South asked me what would happen in 2017. We cannot possibly know what will be happening with rateable values in five years’ time. We do know that in 2017 the economy will be growing strongly. Indeed, by then, thanks to the coalition’s tough decisions, we have every prospect of clearing the appallingly high structural deficit that we inherited. That is the one thing we do know will be happening by 2017. It is a great shame that the Opposition are not helping us in taking or supporting any of the tough decisions that Conservatives and Liberal Democrats have joined together to take, and to defend, in order to deal with the deficit.
May I bring the Minister back to 2015? His whole case is predicated on VOA figures that have been shot to pieces by all the expert witnesses who gave evidence to us. He cannot feel comfortable defending the statement that there are 800,000 potential gainers from the postponement when such figures are clearly not substantiated or supported by the industry.
They have been substantiated in the Valuation Office Agency’s analysis. I am surprised that the right hon. Gentleman puts greater faith in some of the evidence put forward by some commercial agents in some particular sectors.
The hon. Member for Edinburgh South, however, was implicitly putting a slightly different question. How do we know that there might not be further delays beyond 2017? I say to the Committee that it is important for us to have regular revaluations and that we do not get further out of date. We are having a two-year postponement, which is helpful in the current economic circumstances, but we have no plans to allow rateable values to fall any further out of date and the next revaluation will therefore be in 2017, and they will be every five years thereafter. That strikes the right balance between certainty now for businesses struggling in the current climate and keeping rateable values up to date.
The Minister is being incredibly generous in giving way—[ Interruption. ] Gracious and generous, if not a bit gloomy like my hon. Friend the Member for Scunthorpe.
We suggest that the VOA figures are speculative and therefore—as I think you admitted on Tuesday—until a full revaluation is done, we will not know them exactly. In fact, you said to the Committee in evidence that the VOA data were based on “limited rental evidence”—at column 7 of the evidence we took from the ministerial team directly on 13 November. What is the danger in leaving a revaluation until 2017, given the figures before us? We dispute that they are accurate enough to be able to make this judgment. What if that central London office figure doubles to 28% gain, will you then delay it further until such time as—
Of course it is true that the Valuation Office Agency analysis cannot be complete—it cannot be complete until a complete revaluation is done. Is that not self-evident? Its analysis, however, is the best analysis we have and, therefore, there will be a revaluation in five years’ time.
Although the hon. Member for Edinburgh South did not dwell on new clause 9 too much, it raises some important issues concerning the rates system and the role of the Valuation Office Agency. I want to deal with that because, in tabling the new clause, Opposition Members have given us the opportunity to discuss a subject that is important not only to the ratepayer but to local authorities, now that the Government are giving them a direct interest in business rates income.
I agree that it is important that the Valuation Office Agency is accountable for its performance. The agency is already held to account by a number of mechanisms which, I suggest to the Committee, the new clause simply duplicates. Accountability of the agency is important, however, and I will remind the Committee of the existing arrangements. First, the Valuation Office Agency is an agency of Her Majesty’s Revenue and Customs and is therefore answerable to Parliament through Ministers in the Treasury. The Exchequer Secretary can and does answer questions about the Valuation Office Agency, and senior officials from the agency can be and are called to give evidence to the Treasury Committee.
The Treasury Committee last interrogated the VOA on 15 October 2008. If the Committee members read that transcript, they will see some vigorous questioning led by the then Chair of the Treasury Sub-Committee on the ports revaluation, a serious issue that the previous Labour Government dumped on us and which this Government had to address quickly, and did so on coming to power in 2010. In 2008, however, there was a serious scrutiny session about the performance of the agency and the unfairness for ports of the backdated rates bills, which were subsequently cancelled thanks to the rapid action of the coalition Government.
In addition, the agency is required to prepare an annual business plan, which is approved by Ministers and published in full. It sets out what the agency is doing to support the Government’s agenda and includes some high-level performance measures. The agency also publishes an annual report and annual financial statements, which are laid before the House. In that, there is an explanation of its work and a review of its performance against its objectives, as well as a section on the priorities for the coming year. For 2011-12, for example, the agency was able to report that it had met all but one of its key performance indicators and 28 out of 30 operating targets. All key performance targets relating to the operation of the rating list were met.
As an Executive agency, the Valuation Office Agency is also subject to the framework review process, in which the parent Department—HMRC—reviews whether the agency continues to support the Government’s objectives. That is a thorough exercise, usually taking several months, and leads to the publication of a detailed report on the operations of the agency. The last framework review was done in 2009 and published in June of that year. The timing of framework reviews is decided by Ministers, but can be as frequent as every three years.
The report required by the new clause would duplicate the existing arrangements, but, as I have said, we take the performance of the agency very seriously, and beyond the annual reporting cycles, officials and Ministers in the Treasury and the Department for Communities and Local Government meet the agency regularly to discuss its work.
The Minister has given the Committee a rather glowing account of the Valuation Office Agency’s performance. Does he accept the evidence from CVS—Commercial Valuers and Surveyors—that at March 2012 the VOA carried forward 241,000 outstanding appeals—a backlog 74% higher than in the equivalent stage of the previous list? Is that a satisfactory performance?
I was coming to the backlog of appeals, but let me just say to the right hon. Gentleman that I did not give a glowing account in any way. The point is that there is regular scrutiny of the agency’s performance, through all the mechanisms that I have described. We do not need to duplicate those in the way that the new clause sets out, but let me deal specifically with the issue that he raised.
These are the facts. The agency clears vast numbers of rating appeals. In 2011-12, the agency cleared more than 190,000 appeals, and its performance has continued to improve. This year, it had cleared 120,000 by the autumn, and it hopes to double that to 250,000 appeals cleared by the end of 2012-13, so by the end of this year, it will have cleared more than 400,000 rating appeals over two years. The Committee might like to know that more than 70% of those appeals result in no change at all.
It is also perfectly true—this may be the point to which the right hon. Gentleman referred—that the level of outstanding appeals is still above 200,000, but that is because appeals continue to be received. The number is falling, and I am optimistic that the agency’s progress will be maintained. It has prioritised the clearance of appeals by improving efficiency, diverting resources from other work areas and recruiting additional front-line staff. Although it is not the reason for the revaluation being postponed, it does follow from the postponement of the revaluation that the agency will be able to continue its focus on clearing appeals.
I hope that I have reassured right hon. and hon. Members that proper scrutiny arrangements already exist to ensure that the agency reports to Parliament and to the public on its performance, that as a Government we continue to work actively with the agency to improve its work and that new clause 9 is not needed as any further reassurance on that.