My Lords, this Bill delivers important changes to the business rates system. Business rates are a key component of the way in which local services are funded and are set to raise almost £25 billion this year. However, in recent years, concerns have been raised about the fairness of the tax and its impact on a competitive business environment.
Taking on board these concerns, the Government committed to reviewing the business rates system. We completed this process in October 2021, following extensive engagement with businesses, councils and others. The conclusions were clear: like any tax, the business rates system has flaws but it also has significant advantages that are important to protect. These include the tax’s relative stability, how easy it is to collect, how hard it is to avoid and its clear links to the locations where its revenue is spent. The majority of respondents to our review supported the continuation of business rates and did not support the disruption of a major overhaul. Overwhelmingly, they favoured measures to modernise the tax—especially moving to more frequent revaluations, which I will turn to shortly.
At the conclusion of the review in 2021, the Government announced a £7 billion package of support for businesses over five years, alongside a package of reforms. Since then, the Valuation Office Agency has delivered a revaluation, completing valuations for around 2 million properties in England, which reflects changes in the property market since 2015. Revaluations are crucial to ensuring a fairer distribution of rates bills. This revaluation, for example, rebalanced the burden between online and physical retail: on average, bricks and mortar retailers saw decreases of around 20%.
We made sure that the revaluation was manageable for businesses by introducing a £13.6 billion package of business support, which included freezing the business rates multiplier at a cost of £9.3 billion over the next five years. The Government have therefore provided considerable support into the business rates system while balancing the needs of local communities, which rely on funding for local services. However, we remain focused on the need for longer-term reform.
Throughout our review, businesses expressed their desire to keep business rates as accurate and responsive as possible. The Bill therefore delivers a more frequent revaluation cycle for business rates, moving from five-yearly to three-yearly. Following the revaluation that took effect this April, the next will occur in April 2026 and every three years thereafter. This is a positive step for business as it will ensure that the tax is fairly distributed more frequently. It is a major reform of the system, responding to the calls of many stakeholders, and is deliverable in the short term.
However, I recognise that there have been calls for greater ambition. Let me be clear: we are prepared to explore how we can go further in future. In particular, we wish to reduce the gap between the date against which rateable values are assessed and when they come into force, which has been set at two years for the 2026 revaluation. We will also carefully consider the case for an annual revaluations cycle in the longer term. However, we must take these steps sequentially. To deliver a revaluation, the VOA must carry out 2 million valuations in the time available—a major endeavour. Moving to more frequent revaluations means that other changes are necessary to enable the Valuation Office Agency to compile more accurate valuations at greater speed.
We have heard repeatedly from businesses that getting these valuations right is vital to sustaining public confidence in the tax. We also heard concerns that
moving to an annual cycle would increase the volatility of bills and potentially damage the accuracy of valuations. It is therefore right that we monitor the implementation of the first three-yearly revaluation cycle and the supporting reforms before taking further action.
Delivering three-yearly revaluations on a sustainable basis will rely on the VOA having access to more timely and complete information. The Bill therefore introduces new obligations on ratepayers to provide the VOA with relevant information. This will bring business rates in line with other taxes, where self-declaration is absolutely the norm.
As part of our wider modernisation of the business rates system, the Bill also introduces a new requirement on ratepayers to provide a taxpayer reference number to His Majesty’s Revenue & Customs. This small extra step will connect the business rates information held locally by councils with HMRC tax data, delivering benefits such as better targeting of and improved compliance with rates relief schemes. Ratepayers will also be able to provide relevant information to the VOA, and their taxpayer reference number to HMRC, through a single straightforward online service on GOV.UK.
It is entirely right that we consider the potential burden on businesses of new administrative requirements. The Government have taken steps to minimise these burdens, have published estimates of the expected costs and will provide guidance for ratepayers.
I want to address some specific concerns about the VOA duty to notify that have been raised with me. First, on what information the Government are asking ratepayers to provide, the duty is not limited to information that the Valuation Office Agency needs to do its job and no more; it is also explicit on the face of the Bill that ratepayers will be expected to provide to the Valuation Office Agency only information that is within their “possession or control” and which they could reasonably be expected to know would assist the valuation office. The VOA will continue to make use of supplementary sources of evidence in order to minimise the burden on ratepayers.
Secondly, let me provide some reassurance about whether this will be complex for ratepayers. To comply with the duty, in practice a ratepayer will only have to visit GOV.UK, use the online service and answer all the questions asked of them. They will receive multiple reminders to support them in providing the right information.
Thirdly, to ensure that the VOA has the most complete set of information to deliver more frequent revaluations, it will be necessary for ratepayers to confirm each year that the information that the VOA holds on their property is correct. For ratepayers whose information is up to date, this step should take only a few minutes. For those who have not remembered to keep their information up to date, this stage will serve as a further reminder to rectify that.
Finally, we will continue to design the new processes in partnership with businesses and interested parties, and we will not activate the duty until we are satisfied that ratepayers can reasonably and efficiently comply. I thank those noble Lords who came to the drop-in
sessions. That gave me the ability to answer those questions up front, although I am of course happy to pick up anything further in winding up.
As we move to more frequent revaluations, the Government have considered how to improve the support that we provide to businesses adapting to changing bills. At last year’s Autumn Statement, the Chancellor announced that he would permanently remove the requirement for revenue neutrality from transitional relief. That change is given effect by this Bill. This means that for the 2023 revaluation, there are no downward caps, which previously restricted falls in bills. Businesses have therefore seen the full benefit of falling bills immediately. As a result, the 300,000 properties with falls in rateable value at the revaluation have seen the full benefit of that reduction in their new business rates bill from April 2023. Going forward, we will use that freedom to permanently fund all future transitional relief schemes without recourse to downward caps. I am happy to give that commitment in the House.
It is also important that we protect the integrity of revaluations. Between revaluations, rateable values should change only for a material change in circumstances, or MCC. MCC challenges are designed for cases such as roadworks outside a shop causing access difficulties. This Bill will preserve that principle by providing that changes in legislation, advice or guidance by a public body are not a material change in circumstances. We consider that such matters are related to the general conditions of the market and so belong in the revaluation process.
Interestingly, the noble Earl, Lord Lytton, identified the scenario of a vaping ban as an example of how this measure could have unwarranted consequences. In fact, his example underlines why we need to clarify the law concerning MCCs. Without this clarity, over recent years the Valuation Office Agency has been forced to consider whether legislation changes such as smoking bans or the introduction of the congestion charge should affect rateable values. The result was uncertainty for the ratepayer and for local government.
In the future, we will have clarity in Clause 14, ensuring that changes in legislation such as that, which clearly concern the general economic conditions and level of rents, are reflected for all at the next revaluation. These revaluations will of course be happening more frequently under this Bill, and any physical consequences of new legislation on a property will continue to be reflected as and when they arise.
This Bill also introduces an important new relief to support businesses investing in their properties, responding to another key stakeholder ask during the review. Currently, our business rates are a tax on the value of the property, so businesses may see an immediate increase in their rates bill for any improvements that they make to their property. From 1 April 2024, this Bill will mean that no business will face higher business rates bills for 12 months as a result of qualifying improvements to a property that they occupy. The Bill prescribes powers for Ministers to set conditions for the availability of the relief, and the Government’s policy on this has been set out in our earlier technical consultation. My department has published draft
regulations for consultation so that noble Lords may review how the Government intend to exercise these powers.
Finally, the Bill makes changes to the calculation of business rates multipliers—or tax rates. In recent years, government policy has been to uprate the lower multiplier each year by the consumer price index rather than the higher retail price index. The Bill ensures that the CPI is the default uprating for both multipliers, reducing the potential inflationary burden on businesses. The Bill also provides a power to uprate at a level lower than CPI, and to directly set which properties are subject to which multiplier, allowing the Treasury greater flexibility in the support it can provide.
In conclusion, this Bill modernises the business rates system by bringing valuations more in line with the property market, improving the data underpinning the system, removing barriers to investment and improving fairness. I look forward to hearing the contributions of noble Lords on this important subject. Many of your Lordships have called for reform of this tax for some time, and I am confident that this Bill delivers it. I beg to move.
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