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However, the argument is that the Secretary of State cannot make this change in legislation because it requires primary legislation. That specific comment has been made in written form and hinted at on the Floor of the House when this matter has been debated. It is that the change cannot be made retrospectively. It will require primary legislation, which will take time, and by the time it comes into effect the businesses will be lost, and so on. We have received advice via Andrew Finfer, who has secured counsel's advice on this, that at the stroke of a pen the Secretary of State has all the necessary powers to address this issue immediately. He could waive the retrospective element with immediate effect. Will the Minister say whether primary legislation is required, as the Government have been claiming, or whether it could be done by a minor amendment in secondary legislation? In respect of that, I assure him of the utmost co-operation from this side of the House in ensuring that that can be gone through in a matter of a few days. Will the Minister confirm that that is the case, because we have evidence to suggest the contrary?
This issue has been before the House on many occasions and twice the House has expressed an opinion. A majority of Members of this House have voted in favour of urging the Government to think again on this. The Government have said that they admit that there was an error and a major fault. We have a parade of Ministers making approaches to the Government privately, not publicly-most notably Mr Johnson-and making it clear that an egregious error has occurred which is impacting on many businesses.
We also have, as part of that process, an implicit examination in which the Valuation Office Agency has been found to be at fault and culpable in this whole
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The final point I addressed and invited the Minister to consider was the UK's reputation overseas and the representations he had received via UK Trade & Investment and the noble Lord, Lord Mandelson, concerning the impact that this was having not only on existing investors within the UK who may be considering repatriating their investments, but also on much needed planned foreign direct investment in the UK. Can he confirm that the Government have all the powers necessary to deal with this matter at this very moment to save hundreds of jobs and to repair Britain's tarnished reputation overseas?
Earl Attlee: My Lords, I support the Motion of Regret of my noble friend Lord Bates. He reminded your Lordships that I raised this matter by means of a Motion of Regret on 18 March this year. I invited your Lordships to support my view that the regulations that were referred to by my noble friend would not prevent port companies from becoming insolvent. In a Division, the House agreed with me, including some noble Lords on the Benches opposite. Since then it does not appear that the Government have heeded your Lordships' counsel. They may have had some internal discussions but they have failed to provide a solution. Everything that I said would go wrong is going wrong. I will not repeat the excellent analysis of the current situation by my noble friend or go over the history again.
When he replies, the Minister will tell your Lordships that businesses must expect to pay rates and other taxes. Generally speaking, he is right. But this case is different and I will repeat the argument that I put in March this year; it is a simple one to understand. If an ordinary business takes on new or altered business premises inland and is subject to normal rating principles, any competent surveyor can indicate, reasonably accurately, what the rateable value will be, and hence the rates to be paid. An allowance for those rates can be made in the company's business plan and cash flow forecasts. If the local authority, for any reason, delays or omits to issue a rate demand, the business will not be able to organise a party on the proceeds; the business knows what the costs will be and they must be allowed for. The estimated rates will have to be shown on the balance sheet as an accrual, and provision will have to be made in the cash flow forecast.
The port companies, however, are different. The commercial arrangements between the port owners and the port businesses were predicated on the pre-2005 rating arrangements. So for those businesses rates were not an issue: they did not to consider them; they did not need to put rates into their cash flow forecasts or their balance sheets; they simply did not need to be considered by a port business as long as the port was operating under the prescribed rather than the normal rating rules.
It is most unfortunate that Ministers have not been able to sort out this mess. I accept that they did not create the problem, but the longer they procrastinate
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Lord Greaves: My Lords, as noble Lords on the Conservative Benches have said, this is not the first time the House has discussed this matter. When we debated a similar Motion last March, it went to a Division. I advised my colleagues to support the Conservative Front Bench and together we were able to defeat the Government. If the Conservatives put this to a vote again today, we Liberal Democrats will support them again.
I do not want to speak at great length because we have heard an eloquent and extremely long speech from the noble Lord, Lord Bates, which has covered a great deal of the ground. I want to give the Minister time to respond in some detail because this is an important matter which has not yet been resolved satisfactorily. There is no doubt that there has been a serious mistake; it has been a cock-up. The Government and the Valuation Office Agency between them have created this problem. They started in the spring by saying, "It is not really a problem. We will allow them eight years in which to pay this money and it will not make a great deal of difference".
However, the experience is that it is making a great deal of difference. For example, on 22 August 2009, the Daily Telegraph-if it is in the Daily Telegraph it must be right of course; that is an ironic comment but I have no doubt that it is right-reported that two small businesses in the port of Goole on the Humber had received a backdated bill of just under £1 million and an ongoing liability of £350,000 a year, which is somewhat hefty for businesses with a joint annual turnover of just £2.5 million. A business at Birkenhead on the Mersey with annual sales of £7.5 million received a retrospective bill of around £2 million and an ongoing liability of £500,000 a year. These are substantial sums of money. They are, if I may use a nautical metaphor, an anchor that has been hung around the neck of these businesses, and simply saying to them, "You have got eight years to pay it back", is not satisfactory. These businesses will have this liability and this weight around their necks for a considerable period of time.
There are two problems: one is the increased valuations of the rates because of the new system that was introduced retrospectively from 2005; the second is the retrospective demands for the payment of these rates between 2005 and 2008. It may be that the new valuations are appropriate and correct. If that is the case-the businesses may not agree-then at least if they had had advance notice they could have planned for them, but to put in the retrospective element in addition is unacceptable.
Retrospection is in the news at the moment. A newspaper article this morning suggested that where people had been overpaid child credit through no fault of their own, in future they would not have to repay it. I do not know whether that is the case but, if it is, it is a good thing. There is a great deal of talk about retrospective payments in relation to the House of Commons at the moment, but we perhaps should not interfere today in that argument in this House. But it is in the news. Whenever a Government or an authority
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The port industry is vital to the British economy. This is a burden for about 670 or 680 businesses and is utterly unacceptable. Cancelling the back payments does not create a precedent for other back rights because of the retrospective element here, which was caused entirely by the agency and the Government. We therefore urge the Government to maintain port ratings at the level published in the 2005 lists until the next scheduled revaluation of statutory ports is undertaken in 2010. Even if that results in increased payments, at least people will know about them and can plan for them. We support the Motion.
Earl Cathcart: My Lords, sadly, this subject comes before your House yet again, and quite rightly too. The Government have not listened to our previous debates and, from what I can gather, they do not intend to listen tonight. Why do they seem pathologically incapable of saying, as in this case, that they have got it wrong and that they will look at it again?
Before I continue, I should declare that I have been a councillor in Norfolk for more than 10 years, I am a director of businesses paying business rates and I am an accountant. I mention that I am an accountant because it is relevant to this issue. A number of accountancy firms have made submissions saying that although the Government have deferred payment of these retrospective taxes and spread the payment over eight years, the accountants can do nothing else but ensure that the full liability is disclosed in the latest set of accounts. That means that many firms are insolvent or technically insolvent.
If you look at the problem from the port businesses' point of view, in this time of recession when cash flow is of the essence and their import and export business is thin on the ground, they may need to go to the bank for a loan to tide them over until business picks up. But what bank in its right mind is going to lend good money to a company whose auditors have just declared that the business is not a going concern, or that it is technically insolvent? Indeed, I understand that while this House was in Recess, 60 port businesses have already gone bust, and no doubt more will follow.
What can these port businesses do? Well, they could go into voluntary administration, set up a new company, buy back any assets and continue to trade in the new company, thus leaving the backdated rates liability with the old company. Or they could just shut down their English operation and carry on their business from a continental port, and then transport their
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What we need is a vibrant shipping import and export industry. We are told that the carbon footprint for shipping is much less than for air or road, so, from the climate change point of view, we should be nurturing and encouraging the expansion of the shipping business, not encouraging the expansion of airports and road usage, and certainly not putting forward measures that will drive our ports businesses to the wall. Despite the assurances we are given that the Government are helping businesses all they can through the recession, why do they seem determined, with these measures, to drive a nail into the coffin of the ports businesses?
As we have heard, not all the members of the Cabinet agree with this policy. During the Recess Alan Johnson, the Home Secretary, wrote a snorter of a letter to John Denham, the Secretary of State for Local Government, urging him to,
I could not have put it better myself.
It is not just Cabinet Ministers who have broken ranks over this issue. I understand that there are many Labour Party Back-Benchers who feel equally as strongly as the Home Secretary.
I cannot understand why the Government will not listen to the concerns of port businesses and do something about it. Are they genuinely concerned with saving jobs and businesses? We are left with the distinct impression that they do not really care. They have made their decision, they are going to stick with it and they certainly will not admit that they have got it wrong. When we next hear from a government Minister that the Government are doing all they can for jobs and business, just remember what they have done for jobs and business at our ports.
Baroness James of Holland Park: My Lords, retrospective taxation is unfair, unjust and immoral. It is also scandalous that any Government claiming to support jobs should be the direct cause of their loss, with all the misery that that causes to people who lose their jobs and to their families. We should always resist such appalling and dishonourable proposals for retrospective legislation whenever they rear their heads. I support the Motion.
The Parliamentary Under-Secretary of State, Department for Communities and Local Government & Department for Work and Pensions (Lord McKenzie of Luton): My Lords, my script starts with the words, "I am grateful for the opportunity to debate this important issue and its effect on business", but of course, as the noble Lord, Lord Bates, said, we have been here before. I know that backdated liabilities and their effect on ports have been of concern to many in your Lordships' House, and indeed in wider government.
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First, before I address the arguments put by the noble Lord, I shall place in a policy and regulatory context the regulations that came into force on 31 July-the underlying point of the Motion-and what they aim to achieve. I feel that the noble Lord may be confusing the issue of ports with the actual aims of the regulations.
The regulations to which the noble Lord refers in the Motion are not aimed at ports, or indeed specifically at those who find themselves with backdated liabilities. They are intended to provide targeted help to business in the current economic climate by allowing them to spread the payment of increases in their 2009-10 business rates bills over three years. That is what the regulations are about. The effect of the scheme is to provide all ratepayers with the flexibility to help them manage their rate bills in the current economic climate, help their cash flow and give them time to adjust to the impact of inflation. The deferred payment scheme that the regulations establish is a separate policy from the schedule of payments scheme in place, under which businesses, including ports, are given an unprecedented eight years to pay certain significant and unexpected backdated liabilities.
It may help if I provide some background about why the Government introduced the deferred payment scheme. As with many other rates and thresholds, business rates are increased in April each year to take account of inflation as measured by the retail prices index in the previous September. This is a consistent and generally accepted approach since the introduction of the national business rates in 1990. In September 2008 RPI was 5 per cent, much higher than the level of RPI in March 2009, which was 0.4 per cent. Ratepayers therefore faced a significant increase in their bills from 1 April 2009. In addition to this sharp increase in RPI, some ratepayers' bills increased due to the end of the 2005 transitional relief scheme, which was designed to phase in increases from the previous revaluation. The transition period for the 2005 revaluation lasted for four years and ended in 2008-09. The rationale for the four-year period was to ensure that ratepayers paid their correct bill during the life of the 2005 rating list. However, this has resulted in higher rate bills in 2009-10 for those coming out of transition.
The Government have listened to the concern of business and have taken action. In response we introduced the deferred payments regulations, enabling businesses to spread a proportion of the increase in their 2009-10 business rate bills over 2010-11 and 2011-12, thus providing practical help for businesses when they need it most. Noble Lords may be interested to know that the amount that ratepayers can defer is 3 per cent of the entire 2009-10 bill, equivalent to 60 per cent of the increase in bills and 60 per cent of any increase caused by the ending of the transitional relief scheme for the 2005 revaluation period. Ratepayers, including businesses in ports that wish to defer, need only to complete and return a simple application form to their local authority.
In addition to the deferred payments and schedule of payments schemes, the Government have introduced other measures to help businesses, which must be seen
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On the Motion of Regret in the name of the noble Lord, Lord Bates, you must forgive me but, as the effect of backdated liabilities on ports has been debated several times, in this House as well as in the other place, noble Lords will inevitably recognise much of what I say, as it has already been said. This Motion of Regret is about one thing-the waiving of the backdated liabilities for ports. Before I set out yet again why this cannot be done, I reiterate that although, unfortunately, the port businesses have been largely affected by backdated liabilities, they are not the only businesses to be affected by this and that backdating of rates is not a new concept in the world of rating. It happened under the noble Lord's period of government, as well. Therein lies one of three important reasons why we cannot waive the backdated liability-backdating has been a fundamental and accepted part of the rating system for many years. It is not new.
Earl Attlee: Is the Minister saying that my argument was incorrect?
Lord McKenzie of Luton: I am not sure which of his arguments the noble Earl is referring to.
Earl Attlee: I was making the point that an ordinary business knows that it will have to pay rates on its premises, but the ports, which are in a situation where they did not know that, are very different from ordinary businesses.
Lord McKenzie of Luton: I do not accept that position. That is part of the confusion around this. There was a change from the old basis of dealing with ports but, even when that basis was in place, those hereditaments that were exclusively occupied and under control were still subject to rating in the normal way. The change generally for ports did not change any of that and businesses should be well aware that they should be subject to business rates. So I do not accept the noble Earl's point.
I have given one of the three important reasons why we cannot waive the backdated liability. Why are we backdating? It is due to constant changes to the commercial property market. In this way, the system seeks to ensure that all rateable property pays its fair amount of rates, from the point at which the property should be rated, and with all businesses being treated equally. It is not in those terms anything like equivalent to what might be commonly known as retrospective taxation. The requirement to backdate liabilities is set out in legislation. It is important to note that, apart from the new port businesses, the CLG does not receive representations on the general backdating of rates liability. It is accepted as part of the system.
The second reason we cannot waive the liability, especially under the deferred payment regulations, is because the statutory framework gives no discretion to remove a liability to taxation. This is the advice that we have received, although we have recently been notified of a different view, and I shall certainly follow up on that point. I do not say that we accept it; our advice is that primary legislation would be required to undo the effective date from which properties have already been added to the rating list.
Lord Bates: Will be the Minister be absolutely clear on that point? Is he saying that at the moment the view of the department is that primary legislation would be required, but that the recently received counsel opinion or legal opinion states that that may not be the case?
Lord McKenzie of Luton: I think that we received a copy of the opinion to which the noble Lord referred, and I have a note on it which I may come to in more detail in a moment. I do not believe that it is a separate opinion that we have gone out and sought that contradicts the position we have taken to date. I shall come to it in a moment.
The third reason for not waiving the backdated liability for ports is because to suddenly remove this principle for a single sector is out of the question. Quite apart from the state aid concerns this would raise, the fundamental issue is that government would selectively let some businesses off a legally established tax and would actively disadvantage those companies that discharged their tax liabilities on time. Our starting point, rightly in my opinion, is that in principle the tax system must be equitable to all and any solution to a perceived injustice must not confer a disadvantage upon other taxpayers who have already paid. To do so temporarily for the 2005 list would be completely inequitable to the businesses that have also already been served and indeed discharged backdated liabilities in the past, as well as those that may possibly be liable in future.
Noble Lords may like to know that as at 8 October, 221 properties with ports have fully discharged their backdated liability and a further 200 business properties within ports have been granted a schedule of payments. To be clear, what is suggested would mean that, unlike all other tenants across England liable for rates, including the separately assessed properties in ports identified for the start of the 2005 list, these newly rated businesses would be given a directly favoured tax advantage over other separately assessed properties within ports and elsewhere. I ask the noble Lord whether that is seriously the sort of tax regime that he and his party would support. Furthermore we do not believe it would be in the interests of fair competition or in line with the principles of taxation for such a liability to be waived.
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