The Earl of Lytton:

Moved by The Earl of Lytton

14: Leave out Clause 14

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.

My Lords, I support the point of view expressed by the noble Earl, Lord Lytton. He has raised this very issue, I think at Second Reading and certainly in Committee, and I have given him support because I have grave doubts about the definition in the Bill of a “material change of circumstance”.

The noble Earl has given a list of possible examples of where there should be a material change of circumstance because of what happens in the area as a whole—perhaps a planning change or a licensing change undertaken by a local authority. When it comes to the Minister’s reply, it would be extremely helpful if there could be a letter to all of us who have taken part in the debate, but addressed to the noble Earl, Lord Lytton, explaining the Government’s view on each of the examples that the noble Earl has given.

I have another one to add to his list. As it stands, Clause 14 means that material changes of circumstance should relate to physical changes only to a property. That is how I interpret it. However, as the noble Earl has demonstrated, there can be many ways in which that physical property can be impacted upon and have a material change of circumstance because of what somebody else does. My example is that a local authority decides that a bus route will no longer come down one road but will go down a different one. The patronage of the shop—if it is a shop—goes down as a consequence. Is that a “material change of circumstance”? I suggest that it is and that it should qualify. I do not think that Clause 14 can apply only to a physical building. That is my position.

I am glad that the noble Earl has decided not to call a vote on this matter, because we all together need to debate how we can get a better definition of the law so that properties that think they have suffered a material change of circumstance are entitled to seek redress for the position that they find themselves in. So I fully support what the noble Earl, Lord Lytton, is urging.

My Lords, I will say very little, other than to echo what the noble Lord, Lord Shipley, has said. The noble Earl raised this issue in some detail in Committee, but we have not had the answers that he asked for. He is not satisfied that Clause 14 is necessary or designed to do what it wants to do. He has great experience in this area and we need to listen carefully to the concerns that he has raised. We very much support the fact that the noble Earl has brought this back to the House’s attention and look forward to the Minister’s response.

My Lords, I thank the noble Earl, Lord Lytton, for this short debate, which has been fascinating. He has quite rightly gone into some detail on this issue, and I hope I will be able to explain part of the thinking behind our inclusion of Clause 14 in the Bill. However, as the noble Lord, Lord Shipley, suggested, once I have read Hansard I will ensure that, if we do not feel we have not gone far enough in explaining our thinking, we will write to the noble Earl, making that available to all noble Lords and placing a copy in the Library.

Amendment 14 gives us the opportunity to consider the reasons behind Clause 14, and I believe the House will have found this debate useful. Where I trust we have agreement is on the role of revaluations, as they have been the main subject of debate on the Bill. Revaluations allow us to reflect in rateable values changes in economic factors, market conditions or the general level of rents for a property. These are familiar terms for describing a revaluation, not just because we have been using them throughout the Bill but because they appear in judgments when the courts have considered this matter.

Clause 14 will therefore ensure that changes in legislation, guidance and advice from public bodies are considered among the economic factors and market conditions for a property and should be reflected at a general revaluation. The noble Earl is concerned that the clause will go further into matters that should not be left until a revaluation and do not concern the general market for a property. However, our view is that the framework of legislation and guidance within which a property is used is in fact a central part of the economic factors and market conditions for that property.

As the noble Earl remarked, he kindly sent a list of examples to the department, and I shall deal with that point now. He raised a number of examples and considered how they should be treated under Clause 14. I hope noble Lords will understand that it is not possible to provide a case-by-case analysis during this debate on these examples, as each will depend on facts. Whether a particular event would result in a material change in circumstances, under the new law in the clause, would depend on whether it was attributable to the relevant factors listed in the clause.

The Government published a technical consultation in 2021 which explained how they intended the law of material changes of circumstances to operate. We also included a section on this in the Explanatory Notes to the Bill. The Valuation Office Agency will of course publish guidance on material changes to circumstances in its rating manual and, as always, it will work closely with professional bodies, with which the noble Earl is familiar, in ensuring that the rules are explained and understood. If, as has been suggested, we allow the matters listed in Clause 14 to be assessed between revaluations as a material change in circumstances, the impact on the rating system may be considerable. It would amount to the Valuation Office Agency conducting a non-stop real-time revaluation, revising large sections of the rating list as and when there were changes in the legislation, guidance or advice concerning how properties can be used.

Such an exercise would jeopardise our objective of moving to more frequent general revaluations.  It would also mean some ratepayers benefiting from a set of more favourable economic factors in their valuations than others.  The clause will ensure that all ratepayers are assessed against the same economic considerations at a set date—the valuation date for the revaluation—and that is updated for all only at the following revaluation. Clause 14 will therefore maintain the stability of the rating system, and it is not surprising that it is supported by the Local Government Association.

As my noble friend explained in Committee, there are safeguards in the clause. I shall not repeat them but, for example, the clause does not apply to changes in the physical state of the property, which will continue to be reflected as and when they occur.

This is not a step we have taken lightly; we consulted on our intentions in the technical consultation in the business rates review. It is a necessary step, to which I hope the House will agree.

My Lords, I thank all noble Lords who have spoken in support of my amendment and the noble Earl for his response. He said that it would depend on the change of rollout of the relevant factors. Let me remind your Lordships what those are; they are in four categories in new paragraph 2ZA(3):

“(a) legislation of any country or territory;

(b) provision that is not within paragraph (a) but is made under, and given effect by, legislation of any country or territory;

(c) advice or guidance given by a public authority of any country or territory;

(d) anything done by a person with a view to compliance with anything”— covered by the preceding paragraphs. I paraphrase, of course.

I struggle to see what actions would be taken by a municipality or authority dealing with something that makes a substantial change that would not be covered by those criteria and thereby excluded. The noble Earl referred to the difficulties of non-stop revaluation. We have a situation that everyone has been happy with for quite a number of years, and it has not resulted in non-stop revaluation. The noble Earl also referred to the equality of valuation approach, but the tone of the list—the general levels of value, to put it simply—would not be altered; it would simply be that by reference to that general pattern of values, a particular hereditament, if there was a material change of circumstances, had taken a hit. That is what we are trying to deal with.

With the greatest respect to the noble Earl, I find his explanations unconvincing, as I found the explanations of his noble friend when we met her unconvincing, and as I found the explanations of the department officials unconvincing. Although I will withdraw the amendment, I do so with a sense of profound disappointment that the Government have not been able to come up with a better narrative—a better explanation. There is a point behind what they say in getting at what we might call general economic changes, but to extend that to the microcosm of what happens in a locality stretches my credulity beyond breaking point. It does not add up, and I hope that the noble Earl will go away and make it clear to the department that that is what I believe, what a lot of ratepayers believe and what a lot of professionals believe.

For the time being, I beg to withdraw the amendment.

Amendment 14 withdrawn.

Amendments 15 to 19 not moved.

The Schedule