My Lords, I regret to say that in this amendment I am obliged to refer to a rather contentious matter. As I have made clear, I am not going to divide the House, but a serious question needs to be answered. I tabled the amendment to delete Clause 14 because of my concern that what the Government claim Clause 14 does is at material variance with the wording, as I see it, of the Bill. It is also at serious variance with what I understand to be the current assumptions regarding the, as it were, state and condition of the hereditament for valuation purposes not in terms of its individual condition as to the fabric but where it sits in its economic and practical environment.
As I understand it, the Government claim to be restoring matters to those understandings that prevailed previously, but the proof of the pudding shows that is not so or we would not have this clause before us because it would then be unnecessary. In my view, an earlier measure to remove the status of Covid as a material change of circumstances—which is what this is all about—was legitimate. It was deliberately circumstance specific and affected the whole country and so could rightly be described as a pan-national economic event. But the Government now seek to extend that principle to any change affecting the physical enjoyment of the hereditament as a consequence of what is described as an “economic” matter and that that should be disregarded as a material change of circumstances. In other words, it should not be possible if that change occurs for somebody to challenge their assessment.
I dispute that this approach has ever been the test of a material change of circumstances hitherto. Copious cases—Addis Ltd v Clement (VO) in particular—have clarified this. There is an obvious reason: where a public authority takes steps that deny or degrade the benefits of enjoyment of a hereditament, it is offensive that a tax unadjusted to reflect this fact should continue to be levied. This is not just a modern confection but goes to the heart of fair and just administration, the rule of law, confidence in government and the certainty and security of process that affect investment, productivity, and commitment to medium and long-term partnership. It is an essential part of a social and economic contract—unwritten it may be but there all the same. Any Government would be wise to observe these obvious and potent economic factors in administering the needs of the nation. We are talking about an ancient principle.
The Government make a distinction in relation to an economic matter affecting society at large but then go on to define this as any matter directly or indirectly attributable to a “relevant factor”. In fact, these are not economic matters at all but the fiat of some authority exercising powers that are not of general economic application to the nation at large or a significant part of it. The definition of “relevant factors” is set out at Clause 14(l)(d) in new paragraph 2ZA(3)—near the bottom of page 32 for those noble Lords following this astutely. In effect, it means that any legislation, regulation or advice of any country or public authority or steps to comply with these is to be disregarded in terms of what amounts to a material change of circumstances—so much for being ruled by our own laws. It also does not clarify the status of pronouncements
from organisations such as the WHO, the UN or International Monetary Fund. So, in future, if a local authority alters the entire geometry of the use and enjoyment of a business premises through, let us say, planning powers, it will not count as an MCC, regardless of how severe the impacts may be. This provides a perverse incentive to disregard negative effects of sudden policy decisions which, as I say, may be nothing to do with economic choices.
I wonder whether when formulating these measures the Government ever considered the growing mistrust of their handling of the business rates regime generally and the effect, along with others no doubt, on high streets from trader and investor confidence, or ever paused to consider off balance sheet indications in any of these respects. The Government in seeking to differentiate general economic changes from direct physical enjoyment at hereditament level do not seem to be able to make a tidy distinction between the two, so they take a line of least resistance and bundle them together. That is Clause 14.
By way of further explanation, there are of course two poles to consider: first, those matters which affect the economy as a whole to be dealt with on revaluations—there is no dispute about that; we accept that as we accepted it in Covid. Then there are other more rapid and acute physical changes to the hereditament itself. Again, there is no dispute on that because they will continue to be treated as material changes of circumstances. In between, there are those immediate and localised regulatory and other measures affecting an individual property or those in a defined location and not shared with the wider economy of a town or a region.
I wanted some further clarity on this, so I sent some examples of queries to the department. I hope it received those and that, in replying, the Minister may be able to throw some light on them. The first one was where a local authority reduces the hours of operation of certain licensed premises to provide better amenity for nearby residents and as a result business is curtailed— I referred to the conflicts earlier today. Secondly, an important town centre car park is closed due to concerns about the concrete frame and as a result footfall for traders in that part of town declines substantially. Thirdly, a small corner convenience store is affected because the large residential block next door is ordered to be evacuated over fire safety concerns and the occupiers are dispersed into other accommodation elsewhere. Fourthly, an authority in a popular holiday area makes licensing of holiday let premises mandatory but then limits or conditions the licences it issues to reduce the impact on local housing availability and as a result the income to certain operators is significantly affected. Finally, a biosecurity exclusion zone is declared in a defined area due to an animal disease outbreak. The public are advised to stay away and traders in the area suffer a sharp downturn in business. As I understand it, every one of those would be ruled out as being a material change of circumstances by virtue of Clause 14. The only qualification is on the last one. Does the geographical extent of the biosecurity exclusion zone alter the degree to which the effects fall to be disregarded as an MCC or does it make no difference?
Let me give an extreme example of what the effects might be. A metropolitan mayor decides to ban all petrol and diesel sales in his or her area under some statutory or regulatory power or perhaps on the advice of health officials concerned about air pollution, but by virtue of Clause 14—and maybe for up to three years until the next revaluation—petrol filling stations in the area would have to continue paying business rates as if nothing had happened. If that is not what the Government intend, they need to revise Clause 14 because that, on the best authority I know, is what it will do. The best authority I have—Members of this House, particularly learned Members, excepted—is rating counsel Luke Wilcox, who provided me with a note which says
“my main concern with clause 14 as it is currently drafted is that its effects will be much wider than the Government’s stated intention. The Government’s intention appears to be to treat general legislation as part of the general market conditions affecting revaluations, rather than as matters capable of being MCCs”.
He goes on to say that
“the phrase ‘indirectly attributable to’, as it appears in para 2ZA(2)(a), is so wide in its scope that matters affecting an individual property or class of properties, such as a planning or licensing decision, will cease to be MCCs (because they are made under a general legislative provision). Such an effect would appear to be beyond the Government’s stated intention. If such a significant alteration is to be made to the established law of rating, then it should be made following proper deliberation, rather than as an unintended consequence of a provision aimed at a different policy effect”.
In all this, there appears to have been little or no discussion with ratepayers or their professional advisers, nor any wider consultation with that class of stakeholders. It is undoubtedly a major departure from what is known as the “reality principle”—namely, that rating should reflect the real circumstances of the hereditament in assessing it for rating purposes. The Valuation Office Agency’s own rating manual does not use the approach now suggested. Whether it is going to be amended, I do not know—I suppose it will be—but, as it clearly states the situation that has commonly been understood for many years, that rather suggests that the Government’s claim of restoring what they say were the previous understandings is unsupported.
Many will feel that this is getting us towards the realms of no-appeals regulations—in other words, “Let’s not have any appeals at all and dispense with them, and the whole thing can be dealt with through by the arbitrary exercise of power through the Valuation Office Agency”. But that would have profound implications for the rules-based system—something that I have referred to before in relation to several government Bills.
This clause cannot go unchallenged. Although I am not proposing to press the amendment, I think it warrants a detailed comment from the Government as to how they think it will work fairly and equitably in the context of the rating system. I beg to move.