Loss payments

Local Government Finance Bill – in a Public Bill Committee at 4:00 pm on 7 February 2017.

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Question proposed, That the clause stand part of the Bill.

With this it will be convenient to discuss the following:

New clause 5—Appeals by public bodies—

‘Where public bodies appeal against the ratings value, no external agency may represent or make a financial gain from the appeal.’

This new clause would prevent money being taken away from the public purse through rating appeals.

New clause 6—Backdating of Appeals—

‘Any premises with a rateable value of £500,000 or more will be limited to 6 months backdating following any revaluation arising from an appeal.’

This would limit the duration of backdating in the event of revaluation following an appeal for premises with a value of £500,000 or more to six months.

Photo of Jim McMahon Jim McMahon Shadow Minister (Communities and Local Government) (Devolution)

These two probing new clauses are designed to test the appetite of the Government for a look at how the business rate appeals system operates in practice and who it is there to support.

I tabled new clause 5 because I am deeply concerned about the fact that at the moment more than 100 NHS trusts are appealing their business rate liability to their local authority. I know from my own local authority that that means many millions of pounds being put in reserves pending the appeal, just in case it is successful and the trust is entitled to backdate it.

We all accept that when a public sector business rate payer pays business rates, it is effectively money moving around the public sector and transferring from one public sector agency to another. There is no loss or gain to the public sector; it is just churn through the system. What is different is that when an NHS trust appeals its business rate base where an external agent is employed, the external agent will be charging a percentage fee for the successful appeal, and that could add up to many, many millions of pounds. It is very difficult to understand exactly how much it is, but I know from my own local authority that the rating appeal could be about £5 million —that is just for one local authority. There are 100 NHS trusts with appeals in across the country. Even a 5% fee on that could lead to many tens of millions of pounds being taken away from the public sector as a fee to the private agent representing the NHS trust. That is a net loss to the taxpayer.

New clause 5 tests the appetite of the Government for a new approach. We have framed it so as to restrict private agents from acting on behalf of public bodies—I think that has merit and is worthy of discussion—but it could well be that a public arbitration system could deal with the appeal more quickly and remove the uncertainty from the system, and that that would also remove the requirement for a private sector agent to act on behalf of the public sector body. To be clear, this is not about bashing the private sector or the agents who act on behalf of public sector bodies; it is just a pragmatic reflection. If a percentage fee is being taken out of the system, that is a net loss to public services in this country. The Government should step up and provide some level of certainty.

New clause 6 is intended to probe the appetite of the Government for a differential appeal system, depending on the rateable value of the property involved. We know from many local small businesses that the business rate bill is a significant part of their outgoings. Business rates generally come soon after rent and staffing costs. They are significant. If a small business has been assessed at the wrong value and it is successful at appeal, the value of that appeal backdated could be the difference between whether they survive or go to the wall, because their finances are so restricted.

We ought to debate and discuss whether we should differentiate between the small, local business trying to make its way in the world and the big square-footage ratepayers, such as Tesco and other supermarkets, B&Q and the big sheds, where rateable values can easily be more than £500,000 a year—in many areas £1 million a year. When they lodge a national appeal, that can send a shockwave through the whole business rates system across the country.

New clause 6 is a probing amendment to test the Government’s appetite for reducing the backdating period to six months if the rateable value is over £500,000 a year. Local authorities would not have to hold as much in reserves as they do at the moment. It would reduce the risk to council budgets and of course reduce, the amount of money the Government have to put in their levy pot to cover any potential loss of income. More important, it would also—I hope—provide more of a level playing field, where small and medium-sized independent businesses are given a fighting chance, and we do not have one system that disproportionately benefits large supermarkets and warehouses.

That is the essence of the two new clauses. New clause 5 tests the appetite for a different way of assessing public sector appeals. New clause 6 tests the appetite for a system that protects local authorities from large ratepayers, potentially reducing backdating to six months. I recognise that we are pushed for time but I welcome the Minister’s hopefully constructive approach to the consideration of those options.

Photo of Peter Aldous Peter Aldous Conservative, Waveney

I was not intending to speak on these measures, but as an ex-chartered surveyor I will say a few words. I commend the hon. Gentleman for the spirit in which he presented the new clauses.

Rating is very complicated for a chartered surveyor to carry out. In many ways, it is abstract from the real world. I concede that there appears to be two types of surveyor who get involved in ratings appeals: there are people who have enormous expertise in these fields, but there are also, I dare say, ambulance chasers chasing opportunities and abusing the good will of businesses. I am uncomfortable with new clause 5 because it would bar public sector organisations from getting the highest quality expertise from those expert surveyors. The way forward would probably be to look to the Royal Institution of Chartered Surveyors to set down a scale fee that fairly reflects the work the surveyors do on a job.

Photo of Marcus Jones Marcus Jones Parliamentary Under-Secretary (Department for Communities and Local Government) (Local Government) 4:15, 7 February 2017

I am grateful that the new clauses were tabled, as it gives us an opportunity to consider the appeals system and the implications for local government. There is widespread agreement—this comes back to what my hon. Friend the Member for Waveney was just saying—that the current business rates appeals system needs reform. Too many appeals are held up for too long, and that means costs, delays and uncertainty for ratepayers and local authorities. That is why we have brought forward proposals to reform the system of appeals for ratepayers and local government from 1 April 2017.

From 1 April, the new “Check, challenge, appeal” system will reform the appeals process for ratepayers. The new three-stage process will be easier to navigate and will put the emphasis on early engagement and resolution by all parties. Under the new system, businesses will be more confident that their valuations are correct and that they are paying the right amount of business rates. That in turn will support local government by giving authorities greater certainty over their rates income.

We will ensure that local authorities have a role in the “Check, challenge, appeal” process by giving them the statutory right to provide evidence to the valuation officer. We also recognise, however, that we need to go further in respect of the financial implications of appeals for local government. That is why clause 2 creates a power to make loss payments to local authorities. That will allow us to move towards a system under which the risk of appeals is managed more centrally and shared across the sector. We will then be able to reimburse authorities when they suffer appeal losses due to revaluation errors. That reform has been requested by local government.

Nevertheless, we still have to strike a balance between the interests of local government and the need to maintain fairness for ratepayers. I do not believe the new clauses would correctly strike that balance. New clause 5 would prevent public bodies from using agents or representatives in their appeals. Public bodies are subject to the same rules on business rates as any other ratepayers, and I think it is right that, just as with any other ratepayer, they should have access to professional and expert advice. I think that was the point that my hon. Friend the Member for Waveney was making as a chartered surveyor with significant experience. However, I would expect any public body to only be using qualified and professional representatives, such as members of the Royal Institution of Chartered Surveyors or the Institute of Revenues Rating and Valuation. Members of those bodies must comply with a code of practice for their consultancy and ensure that proper standards are met.

New clause 6 would stop appeals having a retrospective effect of more than six months for large properties. That would clearly be unfair. Ratepayers whose appeals have taken longer to resolve—perhaps for reasons entirely outside of their control—would be penalised by the new clause. I assure the hon. Member for Oldham West and Royton that we do act to limit backdating in the system, where it is fair to do so. In 2016, we acted to stop new appeals being backdated to before 1 April 2015. From 1 April 2017, ratepayers will no longer be able to lodge appeals on the current rating list in most circumstances.

I assure hon. Members that, although we do not believe the new clauses are acceptable, we are taking steps to tackle problems with business rate appeals for both ratepayers and local authorities. I therefore ask the hon. Gentleman not to press the new clauses.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

Looking again at the helpful Library brief, it appears that the Government are dragging their feet again. As the hon. Member for Thirsk and Malton no doubt remembers, the Communities and Local Government Committee reported on this issue in June 2016 and found—I have to say I found this figure staggering—that 33% of the rateable value in Sheffield, 40% in the City of London and 34% in Westminster is under appeal. That is a huge amount. For 33% of the rateable value of the city of Sheffield, which I think is the fourth largest city in England, to be under appeal is extraordinary.

On 19 December last year, the Minister in the House of Lords said that the Government are looking at this again, but, as the Library brief pointed out on 19 January, although the Government are looking at the appeal system, it is not yet known how that it going to be done. Here we are seven months after a Select Committee report that highlighted that this is a big problem, and the Government are still faffing around and cannot make up their mind about what they are going to do and what they are going to propose.

I hope that the Minister will stand up and say that I have misunderstood and say, “There is clarity. We know where we are going and what regulations we are going to propose, so we are going to do what lots of Ministers do and publish draft statutory instruments before the conclusion of Committee stage so Members can see where we are going.” But I fear, going by the Minister’s past performance in this Committee, that he is not going to stand up and say that, and that we are going to have continued procrastination and a lack of clarity from the Government about where they want to go in the light of having their much-vaunted flexibility, which I think does a disservice to the Committee.

Photo of Jim McMahon Jim McMahon Shadow Minister (Communities and Local Government) (Devolution)

I thank the Minister for his response. I hope we can have a mature, cross-party conversation about the fact that there is a need to modernise the system to take out some of the quirks and unfairnesses within it. If we can do that in a mature way, I am sure there is a will to work in the interests of local government.

On the matter of appeals by public bodies, this is not about taking away chartered surveyors’ power to do the job they are employed to do. It is more about the fact that a number of the appeals are not about the individual circumstances of a particular premise in a particular location, but are more about the principle of whether certain premises should be on the ratings list or attract mandatory relief in the first place. For instance, we talk about having a level playing field for everybody, but schools that are not run by a local authority are automatically entitled to 80% mandatory rate relief, while local authority schools are not. A number of the appeals are going through on that basis.

It is the same with healthcare providers. Healthcare providers outside Government attract 80% mandatory relief, but Government departments, such as hospitals, pay full rates. The appeals that are going through at the moment for NHS trusts are not about individual local circumstances, but about the principle of whether those providers should attract the 80% relief. I should confirm the figure—80 NHS trusts are currently appealing through a private agent. It would make more sense for the Government, rather than allowing that churn through the system, to decide whether or not that is in line with non-Government uses in, for example, health and education; this relates to an amendment that we will discuss later. If they did that, they would take out a significant number of public buildings that are currently clogging up the appeals system, which is already under a lot of pressure. We would save public money and keep money in the public sector. That seems to me, in a time of austerity, to be an efficient use of public service support and public money. Hopefully, we can have a proper conversation about that. In that sense, new clause 5 is a productive and constructive new clause.

I accept that new clause 6, on the backdating of appeals and the rateable value, would create a two-tier system. We would have a system whereby those with rateable values of less than £500,000 would have a more generous backdating provision than those with rateable values above £500,000. Nevertheless, we need to look at what that means in terms of the reserves that local authorities have to put in place.

The number of premises with a rateable value above £500,000 that are currently going through the process equates to £2.7 billion worth of appeals. In respect of appeals, a local authority has to take account of the fact that appeals may be successful, and because those businesses are such large ratepayers the authority cannot take the risk that it could with, say, a corner shop, where it could take up that slack within existing budgets. If a supermarket that pays £1 million a year could have its business rate bill halved through appeal, local authorities must accommodate that money within their reserves, to ensure that there is not an impact on public services.

As I say, £2.7 billion is caught up in that system for properties with a rateable value above £500,000, and that money should be spent on frontline services, and not held in ring-fenced reserve accounts by local authorities. Again, if there is a mature, constructive conversation to be had about how we could release some of that money back to the frontline in a different way, we have a responsibility, on behalf of the people who use public services, to have that conversation.

We have had a good debate and on that basis I will be happy not to press the two new clauses.

Question put and agreed to.

Clause 2 accordingly ordered to stand part of the Bill.

Clause 3