My Lords, I added my name to this amendment, which, as the noble Earl, Lord Lytton, says, mirrors that moved by my honourable friend Nick Raynsford in another place. Like the noble Earl, I am grateful to those who have briefed us on this matter, particularly Gerald Eve, who has given us some compelling data.
As the noble Earl has explained, the amendment would prevent the postponement of the business rate revaluation scheduled for 2015 until the Government have produced detailed, up-to-date estimates of those likely to pay more and those likely to pay less, depending on whether the revaluation is deferred for two years and, crucially, until there has been a proper consultation with those likely to be affected. Requiring proper analysis and consultation is hardly revolutionary. It is the very least that should be expected if such a significant step as postponing a revaluation is to be taken.
This is a hotchpotch of a Bill, but Clause 25 sits particularly oddly with the rest of its provisions. The lack of prior consultation points to a last-minute decision that by all accounts does not generate unanimity within the ranks of the coalition Government. Our suspicions about this are reinforced by the fact that no mention was made of a possible postponement when we were discussing the Local Government Finance Bill just a few months ago. This is strange, given that we spent some time discussing the VOA and its role in the business rate retention scheme, prompted, as I recall, by the noble Earl, Lord Lytton. Concerns were expressed about its capacity to cope, especially with the backlog of appeals from two prior revaluations, although they were brushed aside by the Minister.
Notwithstanding that, the impact assessment now states that postponement will,
“allow the Valuation Office Agency to focus more resources upon continuing to improve the valuation process and supporting local authorities with the rates retention system”.
In replying, perhaps the Minister will give us a clear update on the capacity of the VOA and the resources available to it, or we might be tempted to revert more directly to this matter when we reach Report.
We should be clear that the purpose of rating revaluations is to achieve fairness in the business rate system by ensuring that rateable values are based on up-to-date rental values. Given that aggregate business rates are kept whole in real terms, revaluation would redistribute resources to those areas and sectors that have fared relatively badly since the last revaluation from those that have fared relatively better. Clearly, the extent to which this fairness is maintained depends on how frequently rateable values are updated. Since 1990, this has been every five years, a period that is seen as the maximum interval between revaluations.
The noble Earl, Lord Lytton, referred to the Michael Lyons report, which suggested that more frequent revaluations are justified, particularly during the economic turbulence and downturn that we have experienced since 2008. If the Government are to change the frequency of revaluations, especially to lengthen it, there is surely an obligation on them to provide a robust rationale for the change from the practice that has been maintained since 1990 free of political interference. This, I suggest, has not been done.
The Government are overwhelmingly basing their case on the VOA estimates of winners and losers should the revaluation proceed—supposedly, 800,000 facing a real-terms tax increase and only some 300,000 facing a fall. However, as the VOA makes clear—and the noble Earl has touched on this point—these are “high level” estimates, not forecasts, they are based on limited rental data, and neither the rental data nor judgments have been subjected to moderation and validation. Moreover, even on the VOA data given, experts have questioned whether the data can be used to justify the figures used by the Government. This has been set out in the briefings we have received, which have specifically drawn attention to the 528,000 hereditaments classified as “other”—not retail, office or industrial—which have been assumed to be the subject of an increase in rates, where some would clearly fall into the category of those that will benefit from a reduction.
The Government’s analysis is at best crude. It does not seek to address the likely level of increases and decreases, and their distribution; nor is there any consideration of what the likely position might be two years hence. The overwhelming suspicion is that this is a political decision taken to avoid a revaluation operating in 2015, at the time of the general election. It is accepted that revaluations bring a degree of turbulence, but transitional relief has hitherto dampened the effects. If the Government are to refute this challenge, they can do what this amendment asks—produce a proper analysis and then consult with those affected.
One clear consequence of postponement will be that those areas and sectors which have done comparatively poorly since 2008 will be denied for an extra two years the reduction in tax they might have expected. Those that have performed comparatively well will have a postponement of the increase in tax. Of course, a reduction in rental values and rateable values will not necessarily generate a reduction in business rates because the tax rate—the multiplier—will rise to keep the aggregate business rates steady. However, if rental values have fallen across England by 14%, those areas and sectors which have done worse than
this are the likely losers from the postponement. The issue cannot be seen just in terms of regions or cities, but information provided by the Investment Property Databank highlights that, between March 2008 and September 2012, rentals have fallen in Leeds by 31%, Nottingham by 27%, Bristol by 25%, Sheffield by 21%, Liverpool by 21%, Manchester by 19% and Newcastle by 18%. In terms of the sectors, although retail has held up in some areas, the situation in many high streets is grim. As the noble Earl, Lord Lytton, said, five out of six of the Portas pilot areas have seen rental falls greater than 14%, and news of major retail closures are all too familiar.
For those who are struggling and who had an expectation of some moderation in their business rates, the decision to postpone will prolong the agony. While “no change” may be good news for some, the undermining of a system for political ends is not conducive to building business confidence. This amendment asks for a proper analysis so they can justify the decision they are seeking to impose.