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Amendment 61 makes a rule so that insurers would not lose legal privilege in respect of advice on the underlying claim when trying to defend themselves against a claim. It would also serve to discourage vexatious litigation. It is intended to address the problems in a way that creates a balanced and fair playing field, and allows claims for late payment to be determined without delay. It has market-wide consensus support, including buyers, and reduces the risk of satellite litigation under Clause 20. Objection has been raised to the proposal on the grounds that it would enable the insurer to conceal the fact that the advice was cautious or caveated, but given that the section requires the insurer to have only,
“reasonable grounds for disputing the claim”,
the fact that the advice may have been cautious or caveated seems irrelevant.
In the light of Colin Edelman and Richard Harrison’s independent further opinion—provided, I regret, only this morning—I hope that the Minister may be willing to at least consider Amendment 61 or to offer something similar to be raised in the other place.
We have also heard from the Law Commission on these matters and, interestingly, the key things it has to say is that the proposed amendments are related to the legal process and do not undermine the main policy aims in the way in which it felt the previous amendments did. It says that the Law Commission prefers to work on a consensus basis and will be pleased if a compromise could be reached if there were something that could align the concerns of the market without unduly prejudicing policyholders.
I am sorry to have gone on, but I wanted to put those points on the record because they are complex and obscure. Unless we get them right, the international insurance business in London is potentially at serious risk of moving elsewhere. Again, in my lifetime I have seen business en masse move elsewhere when this country has got things wrong in either regulatory or fiscal terms. I beg to move.
Baroness Noakes (Con): My Lords, these amendments raise difficult issues. My noble friend Lord Flight overstates his case when he says that the whole of the £60 billion insurance market is at risk of moving abroad because of a late-payment provision in the Bill.
We need to go back to basics. Clauses 20 and 21 are about providing protection for policyholders. They would have been included in the Insurance Act—a Law Commission Bill—which was processed through your Lordships’ House through the special procedure for Law Commission Bills, in which I had the honour to take part. This provision was excluded only at the last minute because of the objections of traders in the London market, who have continued to maintain their objections to these clauses. The most important thing is to have Clauses 20 and 21 in the Bill when it is finally enacted.
I have been looking very carefully at the arguments that have been put forward by those who have been promoting the amendments to which my noble friend Lord Flight attached his name. I certainly did not support the amendments which we debated in Committee —which I said at the time of the debate in Grand Committee. I have looked carefully at the paperwork that has emerged subsequently, including the opinions of Colin Edelman—both the one that came out today and the one that came out recently. It is, of course, not our custom to make the law on the basis of counsel’s opinion, however eminent the lawyers happen to be. At the end of the day, it is a matter for the Government and parliamentary counsel to determine the correct way to express the law.
Having said that, I have some sympathy with the limitation amendment. It replaces a somewhat uncertain provision, which is effectively six years from the date when reasonable payment should be made, to a very clear one of one year. It is fair to say that the Law Commission has said that at the very least it arguably provides more certainty to insurers without materially undermining policyholders’ rights. If that analysis is correct, it seems to me to do no harm to the basic provisions but provides more certainty to the insurance world.
However, I am less convinced by the privilege amendment. I understand what the arguments are based on, but this is a funny Bill in which to be messing about with legal privilege—to single out one particular clause to exempt from the normal provision that when you claim legal privilege you disclose the legal advice on which you are basing your use of bringing that legal advice into play. I am far less convinced that that is the case. The Law Commission is of the view that a reasonable grounds test is an objective test and not a subjective test, as counsel’s opinion asserts. We may have different legal opinions on this; I am just not sure that the case is made.
I suspect that it is unlikely that my noble friend the Minister could accept the amendments at this late stage, given that they were tabled quite late, but I hope that my noble friend might at least be able to take away the limitation clauses for consideration, without commitment, between here and Third Reading. I underline that the most important thing is that Clauses 20 and 21 are retained.
Lord Lea of Crondall (Lab): My Lords, I congratulate the noble Lord, Lord Flight, on this further rear-guard action in his retreat towards Dunkirk with Amendments 61 and 62. He has now reached the sand dunes and is within sight of Dover, so I hope he can find a small boat on which to embark.
It is worth reminding noble Lords how many stages it has taken us to get to where we are with this whole question. The noble Baroness, Lady Noakes, and I were on the Special Bill Committee that followed the Law Commission’s report in the summer of last year. We did not report unanimously on the final outcome of the committee because she and I were in a minority—although not registered by votes—in saying that the Law Commission procedure, which means that if a matter is “controversial” it would not be taken forward in Parliament by a Special Bill Committee, translated into the fact that Lloyd’s of London had a veto over what Parliament could do in this case. I found that quite extraordinary. It is the first time that I have encountered such a procedure in a democracy and I hope that it is the last.
Happily, a year on, we are doing, in broad terms, what the Law Commission recommended in the first place. We should be dealing with the unadorned principle and with nothing else. I am not sure how far emails, which I have not seen, from the Law Commission saying what someone in the Law Commission thinks is part of parliamentary procedure. As far as I am concerned, the Law Commission procedure concluded a year ago. So I do not see how Law Commission emails are evidence, any more than a QC’s opinion. I echo the noble Baroness, Lady Noakes, on that matter.
Amendment 61 bears all the hallmarks of an attempt to introduce what the noble Earl, Lord Kinnoull, called “grit” into the system. This bit of grit is being introduced by the same constituency in the suggested provision, opening up a sort of litigation. I quote what the noble Earl said on 2 November. He said that a particular clause that he objected to could lead to more,
“disputed claims, leading in turn to … a lot of aggravation for the insurers concerned—in other words, grit in the machinery. That would naturally be less attractive to capital. Many factors decide where you want to deploy your capital as an insurance group, but I put it to the Minister that one wants to try to ensure that we do not have grit in the London machine, because any redirection of capital elsewhere would be damaging to the London markets”.—[
Official Report
, 2/11/15; col. GC 305.]
This has been the leitmotif of one particular part of the insurance market, of which Lloyd’s is, I think, 20%. It is the tail wagging the dog, as we all know. I was very sceptical when I saw the suggestion that we need to further accommodate the special pleading of Lloyd’s of London in its campaign against having late payments covered by the law of the United Kingdom, as they are elsewhere in the world.
On this point about the collapse of London, far from being against the interests of our competitiveness, the truth is totally to the contrary. I will also quote what I think everyone in the House will think is a reasonably pertinent piece of evidence given by the Law Commission—by Mr Hertzell—a year ago. He quoted from a publication called Commercial Risk Europe, which quoted,
“a risk manager of a global company operating in 28 countries and employing 9,000 people”.
“said of insurance generally, bearing in mind that his purchasing programmes are all around the world: ‘I agree that most claims are paid on time. The London market is a different story’”.
This person had a global perspective. He continued:
“‘Claims can be harder to deal with in London as you come up against 20 lawyers’”.
We have not had 20 tonight, but we have had one or two.
“‘The system is not working and a lot of European companies will not go to London any more because if there is a claim you are in deep trouble’”.
That is straight from the horse’s mouth on this preposterous supposition that following what is the normal legal process around the world of dealing with late payment will destroy the competitiveness of the London market. That special pleading patently must be rejected by any independent observer.
Amendment 62 seems to shift the balance in favour of an insurer, against the background that we have read in many pieces of evidence given to the Bill Committee that one year is a short period before the claim is settled. Three years is given as an average for some large claims. Perhaps the Minister has more research to bring to bear on this subject. However, I wonder why this issue is being put forward by Lloyd’s of London. That is a gift horse one might certainly look in the mouth. I think that—
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Lord Flight: The noble Lord may not be aware that the measure we are discussing has the support of the Association of British Insurers, the London and International Insurance Brokers’ Association as well as Lloyd’s and, indeed, the International Underwriting Association, so it is not just Lloyd’s but the whole insurance industry that agrees with these points.
Lord Lea of Crondall: I spoke to some of those people yesterday and the general tone of their remarks was that they did not feel as strongly about this issue as they did about some of the other comments that Lloyd’s has made. They did not want to be quoted as being on the opposite side. That was the message I got from them.
Baroness Hayter of Kentish Town: My Lords, like the noble Baroness, Lady Noakes, we cannot support Amendment 61 as it would enable an insurer to rely on the fact that it is had received legal advice to bolster the reasonableness of its position where a consumer had sued for an unfairly refused or delayed claim. However, it would not have to disclose the contents of the advice to the court, as the noble Baroness said. We consider that this would be an unbalanced tussle between the insurer and the insured.
Surely, if insurers refuse to make the content of their legal advice public, they must set out their other grounds for any delay without relying on their legal opinion. That should be sufficient for courts to assess, objectively, whether the grounds for delay were reasonable in the circumstances. It would be slightly absurd to allow an insurer simply to say that it had received legal advice saying that its grounds for dispute were reasonable, without requiring it to disclose the substance of that
advice. Indeed, it would put insurers with deep pockets to obtain expensive legal advice in an unfairly strong position compared with the policyholder.
The House will be aware that the Law Commission takes a similar line to ours on whether an insurer’s defence to a late payment being that it had “reasonable grounds” for disputing the original insurance claim could be bolstered by the assertion that a lawyer told it that it had such grounds. In the Law Commission’s view, whether the insurer had reasonable grounds is an objective question based on the grounds themselves, not on a lawyer’s letter. Indeed, the mere fact that it had received legal advice would have no evidential value. Surely, an insurer should not need to rely on its legal advice to prove the reasonableness of its position. Furthermore, it seems only fair for any such legal advice to become disclosable where a party wants to rely on the fact that it has received it to bolster the reasonableness of its position.
On Amendment 62, as has already been made clear, the Law Commission has written extensively on limitation periods. I have to confess that two colleagues present tonight have read all that in more depth than I have. During the insurance law project, the Law Commission considered recommending a special limitation rule in respect of late payment of insurance claims when it accepted that insurers with many claims would need certainty about when they could close their books on a claim. At that point, the commission decided that that was not the right way forward and that it was more consistent to recommend the application of general limitation laws. It said at the time that special limitation periods in particular circumstances add unnecessary complexity which can lead to further confusion and can disadvantage claimants.
Despite this, the commission, perhaps along with the noble Baroness, Lady Noakes, has some sympathy—the emphasis being on “some”—with Amendment 62, which sets out a measured change to the limitation period to give insurers more certainty about when they might close their books, knowing that their liability had been fully satisfied in relation to a particular claim. Although this could have the effect of shortening the limitation period for policyholders, possibly to their disadvantage, the commission also acknowledges that it is not an unreasonably short period and might even give insurers an incentive to make payments more quickly to start the one-year period rolling and we hopefully close that file.
We hear those arguments but remain to be convinced that this amendment is necessary, as we have seen no evidence of likely detriment, only assertion of it. We were particularly concerned that the Law Commission concluded that Amendment 62 would not “materially undermine” policyholder rights. That sounds a bit like some undermining of policyholder rights. Therefore, we look to the Minister to provide assurances on this point, should the Government be minded to consider this amendment further.
I am aware from what the noble Lord, Lord Flight, said that the insurers very much support this measure. Well, they would, wouldn’t they? I have not heard the same from policyholders. We agree that there is some sense attached to Amendment 62—although not to
Amendment 61—although I think a little more evidence still needs to be produced before the Government take that fully on board.
Baroness Neville-Rolfe: My Lords, I am grateful to my noble friend Lord Flight for his comments and for the work done by the absent noble Earl, Lord Kinnoull. I am very grateful to my noble friend Lady Noakes for injecting realism into our discussion this evening. I agree that Clauses 20 and 21 are very important and overdue, and should improve London’s reputation, as the noble Lord, Lord Lea of Crondall, said.
The Government and the Law Commissions that first developed the clauses have been keen to find a solution which would satisfy all stakeholders, allowing the London market to support the provisions. I am grateful to the market for its continued efforts. The latest amendments proposed by industry stakeholders relate to the complex legal areas of limitation periods and legal privilege.
I will deal first with Amendment 61, but I should say at this point that the Government have more sympathy for Amendment 62, which I will come to. The starting position in both areas is that the default rules should apply unless there is a very strong justification for making special exceptions for particular circumstances.
Amendment 61 seeks to answer some insurers’ concerns that they will be forced to disclose legal advice they received in relation to the underlying insurance claim if they seek to show they had reasonable grounds for disputing that claim. Whether an insurer has reasonable grounds to dispute an insurance claim is an objective question, based on the substance of the grounds themselves rather than whether the insurer has received legal advice in relation to them. The insurer can establish these grounds without waiving privilege by setting out the grounds for dispute in its pleadings or by relying on the content of its correspondence with the policyholder.
Legal privilege is an important protection for parties, particularly during ongoing litigation. But the existing rules concerning waiver of legal privilege already balance the competing interests in the question of when legal advice should become disclosable. This amendment threatens to put policyholders at a disadvantage, which is not justified by a corresponding need on the part of insurers.
We have read the further legal opinion, which my noble friend Lord Flight kindly sent to me today. However, legal privilege is a complex topic which has been developed over the years by the courts and should not be changed in a specific context without very good reason. While I note all the work that has been done, the Government, like my noble friend Lady Noakes and the noble Baroness, Lady Hayter, are not convinced that such good reasons exist here. I therefore ask my noble friend to withdraw Amendment 61.
The Government have “some sympathy”, to pick up the wording quoted by the noble Baroness, Lady Hayter, with Amendment 62, which relates to limitation. Some insurers have argued that the vast number of claims they deal with on a daily basis means that they need to know when they have satisfied all their liabilities
in respect of a certain claim. I agree that it does not seem unreasonable to expect a policyholder to bring a late payment claim within a year of being paid the substantive insurance claim or the final payment under it.
It appears that Amendment 62 would increase certainty for insurers without materially prejudicing policyholders. It might even have the effect of encouraging insurers to make that final payment, to commence the one-year period for any subsequent late payment claim and bring the matter to a close. If that were the case, it would, of course, be a benefit to policyholders.
To that end, I believe that the amendment at least deserves further consideration. I agree that the policy intention behind it might represent an improvement to the late payment clause, which could be in the interests of both policyholder and insurer. In the light of this debate, I would like to explore the details of this possibility further and to discuss it with all interested parties. In the circumstances, I hope my noble friend will not move Amendment 62.
Lord Flight: My Lords, I thank the Minister for her professional and courteous reply. I am grateful that the Government are willing to further consider the issues raised in Amendment 62. With regard to Amendment 61, I say simply that I hope the relevant individuals will read the Edelman opinion. The bottom line is that if Clause 20 goes through as it is, it opens the door to vexatious litigation. But I thank the Government for their response and beg leave to withdraw the amendment.
Amendment 63 had been withdrawn from the Marshalled List.
Clause 22: Disclosure of HMRC information in connection with non-domestic rating
64: Clause 22, page 40, leave out lines 3 to 5 and insert—
“(1) An officer of the Valuation Office of Her Majesty’s Revenue and Customs may disclose Revenue and Customs information to—
(a) a qualifying person for a qualifying purpose;
(b) a ratepayer for a hereditament.
(1A) Information disclosed under subsection (1)(b) may—
(a) be disclosed for the purpose of providing the ratepayer with all information used to assist determination of the valuation of any hereditament for which the ratepayer is responsible for the non-domestic rating liability and may be retained and used for that purpose, and
(b) include information relating to hereditaments not owned by that ratepayer.”
The Earl of Lytton (CB): My Lords, I declare my relevant interests: as a business rate payer; as a one-time employee of the Inland Revenue Valuation Office, the antecedent body of the present Valuation Office Agency;
my membership of several professional bodies concerned with business rates; and as a landlord of let premises. Since this matter relates to local government finance, I further declare my vice-presidency of the LGA.
I thank the Minister for her forbearance, her communications with me and the facility of meeting her officials some days ago. I also thank the many noble Lords who have expressed an interest and listened to my sometimes convoluted explanations. I am particularly grateful to the noble Lords who have added their names to this amendment, and for the fact that they raised the matter in Committee when I was not able to attend.
In explaining the background, I start by noting that the valuation of business premises for rating purposes is a specialist field. Indeed, one feels that one is dealing with a rather narrow and slightly nerdy area of activity. It is true that it relates fundamentally to the rent that a hereditament, as it is called, would let for at a specified antecedent valuation date on a series of statutory assumptions, but the manner in which this calculation is made is obscure, may not bear any relationship to the actual rent and may be valued according to a pattern of rental evidence, precedent or a formula that is not immediately obvious, even to experts. There is an assumed state of repair. Some tenants’ improvements and production plant will increase the assessment; others will not. That opacity defies most ratepayers’ comprehension and is in itself offensive to the principle of transparency.
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Currently, entries in the present rating list are by reference to an antecedent valuation date of 1 April 2008 —the peak of the property market. The national non-domestic multiplier—the number of pence in the pound which the rateable value is factored by to give the amount of rates payable—has been going up year on year by a percentage above inflation and now amounts to nearly 50% of the assessed rental value. In real terms, that is probably about 30% to 35% of the amount payable to the landlord in rent in most of the south-east of England; it is more in the north-east and north-west, and I have heard of some instances where ratepayers are paying more to their landlord in rates than in rent.
For decades it was customary for the Valuation Office Agency to share freely evidence underlying a rating assessment, but since 2010 it has pleaded confidentiality of information outside the arena of formal appeal processes due to its interpretation, after a pause of five years, of the Commissioners for Revenue and Customs Act 2005—the CRCA. Roughly speaking, this was to prevent the disclosure of private tax affairs. I never understood why it was appropriate to take the extraordinary step of extending this to the realms of business rating.
Faced with some 250,000 outstanding rating appeals, the agency has blamed the rise of slick but often unprofessional operators offering cut-price rating appeals for this state of affairs. It points out that some 50% of the appeals are eventually withdrawn and a further 25% are dismissed by the valuation tribunal in the appeals process. This has coincided with increased pressure on departmental budgets, reductions in the
number of skilled staff and a legacy of failure going back much further to keep the rating system in a proper state of care and maintenance. This has been exacerbated by the fact that rates are being levied on the historically high 2008 antecedent valuation level and at absolute levels that ratepayers consider unfair and inequitable, coupled with the deferral to 2017 of the revaluation that would have taken place this year, leaving them paying rates on historically high tax bases.
I note with considerable regret that standards in the VOA seem to have slipped. I have been presented with some disturbing evidence of several high-profile cases in which valuation officers have been a great deal less than candid about the interpretation that can reasonably be placed on the evidence available or have attempted to conceal relevant facts in the context of rating appeals. This has reached the point where the confidence of ratepayers and professionals in the VOA has reached rock bottom. It is commonly believed that the agency has moved from being the dispassionate and objective government valuer to a partisan tax-gatherer as a proxy of Her Majesty’s Revenue & Customs—HMRC. That matters. It matters professionally and in terms of the fair administration of this tax.
I do not blame individuals, who I suspect have been forced into a straitjacket caused by insufficient resources, coupled with demands to maintain the tax base at all costs. The problem is the system, which even the immediate past president of the Valuation Tribunal for England said in a recent interview in the Estates Gazette is broken and no longer fit for purpose. Seen in that context, the refusal to disclose information to ratepayers at the very earliest stage is identifiable as a deliberate blocking measure designed to frustrate access to essential information which otherwise the ratepayer cannot be expected to divine for himself or herself. It effectively ensures that a formal appeal is the only route to obtaining the full facts. This is to keep the hapless payer on the hook for continued payment of escalated rates bills for as long as humanly possible.
Despite attempts by the Minister’s officials to reassure me, I remain utterly unconvinced by what is in Part 6, so my amendment is designed to cut through all that: to prevent the Valuation Office Agency citing CRCA and to free up the entire system by a process of transparency. It is the antithesis of what I see as the Government’s retreat behind a further wall of regulatory barriers in Part 6. The Minister mentioned earlier today the intention to remove red tape and simplify things for business, so it is instructive to note what is actually in the draft regulations recently published under the Bill, under the Check, Challenge, Appeal consultation, and to contrast and compare this with the express thrust of government policy and the ostensible purposes of the Bill.
First, Part 6 will enshrine what I might call the confidentiality embargo in law. There is an obvious question as to whether it will thereafter seep into an extended embargo at appeal stage, so as to become like the public immunity certificates which apply in other areas of the law. I would like the Minister, if she would be so kind, to clarify what is intended there. That would be very helpful. Secondly, Part 6 would
pave the way for fees to be charged for making an appeal. This was an additional item put in following the earlier consultation in 2013. Thirdly, it may require a full statement of case and supporting evidence to be supplied ab initio by the ratepayer, failing which the valuation officer may declare the proposal to alter an assessment invalid—due, it might be added, to the absence of the sort of information that I am trying to ensure would be disclosed but which would, under the Bill, continue to be denied to ratepayers. All these measures are to be operated by the Valuation Office Agency as judge, jury and executioner without any apparent rights of challenge as to the fairness or appropriateness of what is imposed.
It seems to me that this is aimed at protecting the operation of the Valuation Office Agency and, perhaps, the tax base, but it is specifically to the unreasonable prejudice of ratepayers, the huge preponderance of whom are small businesses. It is clear to me that no additional funds for administration are to be available. Such reform as the Government have committed to is on the premise of fiscal neutrality. The Minister referred to small business relief; I would cite that in connection with fiscal neutrality because I remind your Lordships that small business relief is paid for by an additional amount levied on the ratepayers of larger properties. To say that all this is a manifestly disgraceful state of affairs is an understatement. It really looks more like the stuff of a police state and goes to the heart of confidence in fair taxation, impartial administration and the rule of law.
I turn briefly to the matter of confidentiality. This was looked at very closely in an opinion given by David Holgate QC, now the honourable Mr Justice Holgate, in which he debunked the fine distinction made by the Valuation Office Agency as between the CRCA and the Local Government Finance Act 1988. He points to the mismatch between this and the overriding duty under Section 41 of the 1988 Act, which requires valuation officers to maintain correct levels of value. In one Docklands offices case in 2014, the vice-president of the valuation tribunal made some unusually critical comments about the VOA straying from its assessment and valuation duty into revenue protection mode. As I have said, the principles of justice, honesty and fairness are at the core of any taxation code in a western democratic society, so there is an important principle at stake here.
My amendment has pan-industry support from such bodies as the Association of Convenience Stores, the British Council of Shopping Centres, the British Property Federation, the British Retail Consortium, the Federation of Small Businesses, the major rating surveying practices, relevant professional bodies and so on. I have seen the trade industry’s most recent letter to a government Minister about this. In other words, all the arguments against the consultation that was commenced in 2013 and then not proceeded with in 2014 remain unresolved and unallayed.
In every other walk of life, the direction of travel is to reduce conflict and speed up process, ensure disclosure at the earliest stage in pursuit of those and reduce thereby costs, risks and delay. What is it about the Government’s stance in the Bill so that, of all the
measures that they might have chosen, this flies in the face of those admirable aims? What do the Government not understand about businesses that they choose what appears to be a deliberate racking-up of bureaucracy, a restriction of access to justice and a perpetuation of creeping malpractice? Concealing evidence is manifestly and objectively wrong. This is the only area of taxation I know of where what will have become statutory concealment applies.
Assuming that the measure gets through this House and the other place—although I hope that this debate will be noted and acted upon—I predict that it will foster dismay and a further cultural shift among ratepayers of equal and opposite magnitude to what I regard as this outrageous part of what is otherwise a good Bill. Part 6 is, ultimately, a temporary prop which will eventually fail. In any event, it will not work. People talk to each other—and in the property world, they talk to each other a lot. That is what makes our property industry so transparent and fluid. The common enemy will be seen as the system and its administrators. In a culture of growing scepticism and disregard, the provisions of Part 6 will simply provide further fuel to the flames. I hope that, even at this stage, the Minister will reconsider.
Perhaps I may say a brief word about government Amendment 65 while I am on my feet. This amendment, too, consolidates a principle of non-disclosure. In any event, I do not see how the disclosure of facts relating to a property transaction, the vast majority of such evidence being held by the Valuation Office Agency, equates to disclosure of personal or corporate tax affairs. The Government’s stance on this is narrowly founded, oblique and, I suggest, flawed. That said, I beg to move.
Lord Stoneham of Droxford: My Lords, I somewhat regret that we are down to the last 10 people standing in the Chamber on what I regard as probably the most important issue to involve small businesses that we have looked at tonight. This amendment deserves some consideration because it is important. I think that the Government are going off in completely the wrong direction.
Clause 22 opens up information for local authorities and the Valuation Office Agency, but it does not go back to the legislation of 2005 and open up that information for ratepayers. That is the simple issue. The problem is that the Government are trying to overcome a large number of appeals made against rate assessments. There have so far been more than 850,000 challenging the 2010 rateable values. It is no wonder that the Government want to do something about it. We know that this ties up resources dealing with what the Government consider to be some unnecessary and frivolous claims, given that 70% of appeals lead to no change, but why is this happening? All the experts tell us that it is mainly because the only method to extract information from the Valuation Office Agency is to appeal. We ought to listen to them. I think the assertion—which I agree with—is that if the Valuation Office Agency shared more of this information upfront, it would deal with much of this problem, and the ratepayers and small businesses would be much more satisfied with their clarifications.
We have a consultation at the moment, with the Government looking to set up a three-stage appeal procedure: check, challenge and appeal. The check stage ought to be where businesses can check the evidence that the Valuation Office Agency is using, but all they are allowed to validate is information that they already have about their property and the current occupier’s rent. They will know that themselves, so that is hardly very helpful. This stage can take up to 12 months, and it then takes three years to complete the process for making an appeal. There are even more requirements on ratepayers to provide even more information and more grounds for appeal. It is very bureaucratic.
The Minister told us in Committee that the information that the ratepayer wants is confidential and therefore difficult to provide. But this information is known to landlords and their agents; it is simply information that is not available to the small businesses and the ratepayers, who do not have the resources to get it. We heard the quote from Graham Zellick, the recently retired president of the Valuation Tribunal for England, but it is worth quoting him again in this debate on this very important issue, because we think the Government are heading off in the wrong direction. According to the Estates Gazette, to which he gave an interview recently:
“The problem, he explains, is that the ratepayer is never given the full explanation for the valuation. As a result, every time there is a new rating list, ratepayers initiate a challenge … partly to protect their position but chiefly to ‘flush out’ more information”.
“Unless information is given up front, the system will remain defective and unsatisfactory and unjust. I don’t know any other tax that can be levied where the taxpayer doesn’t understand in full down to the last detail the basis on which the taxman has calculated the tax due. It’s unprecedented, it’s unique and it’s wrong.”
What are the Government doing? They are doggedly refusing to require the Valuation Office Agency to help businesses by making this information available. Instead, the entire burden of proof is being shifted back on to businesses. We have a cumbersome series of administrative steps, with targets and timescales in the way, failure to meet any of which can invalidate the whole appeal. This is not the direction in which the Government should be going. They need to have a good look at the direction they are taking: they are not helping small business and they need to change course. It may be too late now to do it in this House, but by goodness, if anybody is interested in small businesses, they ought to address this in the Commons.
Lord Mendelsohn: My Lords, I express our side’s strong support for Amendment 64 and will also speak to Amendments 66 and 67. This is one of those issues which seems small when it is first presented but then grows and grows as the significance of it becomes ever more apparent and as the voice of the people whom it impacts starts to find its full volume. I strongly associate myself with the speech of the noble Earl, Lord Lytton, which I thought was absolutely outstanding. It set out all these issues extremely clearly and demonstrated the quite extraordinary consensus that there is on this subject in every quarter—except in the Valuation Office Agency and, it would seem, in the Government. I also
congratulate the noble Lord, Lord Stoneham, on an extremely impressive speech and a great summation of the issues, including a view on how check, challenge and appeal could actually work more sensibly.
I also declare an interest and an experience. Recently, at the business that I set up and where I spend a lot of time, surprised that our rates were significantly in excess of our rent, we decided that we would try to see why that was and what the situation was. I had never really dealt with this issue in any of my other businesses, and I did not know the answer. So we tried to find out what it was. We were given short shrift by pretty much everybody and were set the challenge that we would not find anything until we appealed. So we were invited to appeal by the very agency that is not happy about the level of appeals, because that was the only way we could find out information. We thought about whether we should do it. The hurdles were considerable—I do not think anyone does it particularly lightly in the first place—and we took the view that we had better things to do and that a full calculation of time and value would probably show that it was not worth it. So we left it.
Along came a chap knocking door to door in our building who said to us, “We do rating appeals. In fact, we have done most of the area and you, I am sure, are eligible to pay less”. We asked how he could be so sure. He said, “I will tell you what everyone else is paying”—and he did. He said, “I have done most of their appeals and I have won. I think that you and others in this block should appeal. I’ll tell you what: I am so confident, I’m not going to charge you anything; I will just take part of the upside”. We thought that sounded fantastic. So I am one of those people currently in the queue waiting for an appeal. I am coming up to my one-year anniversary of absolutely nothing happening, except that I have now found out that there is a whole group of us who have either been through or are going through the experience in a particular geography.
In fact, I met someone who is in a block that I consider to be considerably plusher than mine—underground car park, very fancy and much, much newer—and who is paying less than I am, in what I consider to be a somewhat rum building but we call it our office. They said to me that they appealed because someone else in another building who was paying more thought that they were due to pay less. It seems that a lot of people have a certain level of knowledge and a lot of appeals are generated as a result.
I have experienced that myself. I know that a huge number of people—the noble Earl, Lord Lytton, said that it is 250,000—are waiting for an appeal. That is a considerable number given the overall number of business premises. I would be very interested if the noble Baroness could give us more detail about the people waiting for an appeal, particularly the ageing profile—that is, how long they have been waiting for their appeal to come through.
There is a complete misapprehension that 70% of cases lead to no change and that therefore there is a problem with vexatious appeals. You do not find out any information until you appeal and then you make a judgment as to whether it is worth pursuing. The system has created the wrong question, which has then been given the wrong answer. That is where we stand.
Non-domestic rating is a highly significant form of revenue for the public sector, as well as having a high impact on business. Naturally, in the new digital economy it is easier to tax anything with a physical presence. Retailers alone are paying £2.40 in business rates for every £1 in corporation tax.
However, our question is about who benefits at what level and whether it is the right system; it is also about the operation of the current system. Some experts have concisely highlighted the problem facing non-domestic ratepayers. Individual valuation officers are the sole judge of what is proportionate. Ratepayers are still denied the details of how their valuations are calculated for classes of property, and they lack the capacity to make a proper, sensible judgment through a denial of information.
I am very tempted to add to those noble Lords who have quoted the distinguished professor and Queen’s Counsel, Graham Zellick, who, as the former president of the Valuation Tribunal for England, provided the best possible quote to summarise the situation. I have such a high regard for Professor Zellick that I agree with it without much hesitation, but the evidence of my personal experience is also strong.
Not only is the existing system unfair but it is hugely counterproductive. The lack of transparency has only resulted in more appeals, further burdening an overstretched process and creating a backlog which delays appeal results. In its current form, the Bill does not address the information deficiency between the ratepayer and the Valuation Office Agency.
The noble Baroness has previously stated that information cannot be shared with the ratepayer because assessments of other ratepayers are confidential commercial information. Let me be clear that we do not advocate the Valuation Office Agency sharing commercially sensitive information which may create some competitive or other advantage—or lead to the collapse of Western civilisation. We are not calling for the disclosure of individual commercial assessments which will never see the light of day in any other circumstances, but the information to contextualise a decision about the rate paid is important for the tenant.
As it happens, I do not agree with the assessment that there is such a thing as confidential information in this situation. The person who is deficient in information is usually the small business, the tenant, because larger companies and landlords can be provided with details of almost all the other deals in the area—a fact that I did not know until recently. I now declare another interest: I chair an advisory board of a property investment business. It specialises in residential property. I was shown a building needing refurbishment and we were able to get from all the agents—the estate agents and the large valuation agents—every detail of every deal in the surrounding area to make our commercial calculations. If it is good enough for other interests—particularly the landlords—why is it not good enough for the tenants? I really do not understand.
The inclusion of Amendment 65 is a matter for concern. I am grateful to the Minister for giving me an indication of why it is there, but I am rather more persuaded by the assessment that it prevents a sensible flow of information. It creates a new statutory bar to
apply to identifiable taxpayer information that has been shared by the Valuation Office Agency under Clause 22, so the protection from disclosure under FoI is not lost with transmission. I am very concerned that we are just adding hurdles for the individual ratepayer.
I am inclined to believe that the check-stage process has some positive features—such as offering opportunities for more dialogue between stakeholders—but it does nothing to resolve the underlying issue that ratepayers enter into discussions with the deck stacked against them. They are expected to enter into a time-consuming and potentially costly endeavour with little knowledge of where they stand—unless they are fortunate enough to meet someone so confident and with such a strong record that they will do it for free. The amendment resolves the information asymmetry, enhancing considerably the check stage while protecting commercially sensitive ratepayer information.
Amendment 66 is designed to establish performance targets for the Valuation Office Agency. The timescales for the check, challenge and appeal process are unclear, and this ongoing lack of precision will further entrench a climate of uncertainty into the rate review and appeal process.
In Amendment 67, we are firmly against the imposition of any upfront fee for appeals. If the rationale for that is to discourage ratepayers from making appeals, penalising businesses and diminishing their access to justice is surely the wrong way to go about it; providing information seems much more sensible.
At its very core, in business rates, your liability depends not on your property but what is being paid by lots of other people, and you have no right to obtain that information or the context of their deals, while others have ready access to it. It is clear that there is a beneficiary from the measures—and we should play “hunt the beneficiary”. The Local Government Association and the treasurers in local government see benefits neither for themselves nor for business. Experts and commentators suggest that these measures achieve little and do nothing to help enterprise or business, so who do they help? They help the Valuation Office Agency by making its exchange of information easier within government and by raising the bar on appeals. Surely this is not right. If the Bill was called, “Making the Valuation Office Agency’s Life Easier at the Expense of Enterprise” then I would understand it. But this is the Enterprise Bill and it is meant to help businesses.
What is the calculable benefit to enterprise of any of these measures? If it is filling in one form, which has previously been suggested, then what we now have is a procedure that will require much more work, time, effort and resource—including cost—for businesses to pursue. Given that we have strong support for Amendments 66 and 67 from the Federation of Small Businesses—from the experience of small businesses— I hope that the Government will take these matters seriously.
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I am inclined to believe that there is a problem with the efficient running of the Valuation Office Agency, as there is in a variety of areas of government. I was recently informed that the DVLA chooses to suggest
that it is unable to search on its computer by any means other than a number plate. I hope that some of these agencies have much more complex computer systems than my children have. It is probably better to review the operation of agencies rather than provide legislative cover for their failings and for the failings of the system.
There are 250,000 cases. Agents find it especially easy to establish astonishing success rates for the appeals that they apply, and some of them do this for free. I also understand that the Valuation Office Agency is now saying that the case officer dealing with an individual matter will no longer be the person who will necessarily appear at a hearing. This is extraordinary. I was rather inclined to doubt that this was something that I would find so extraordinary. How is it possible for such a person who just arrives with such a case to claim any expertise? I was comforted to know that even the Valuation Tribunal has warned that such a person might be disbarred from giving expert advice because they are not considered to be expert in that case. Surely that speaks to the problems at the Valuation Office Agency and nothing that this measure will address.
I have also heard reports that the central region of the Valuation Office Agency is suspending all activity on appeals. This again is an extraordinary measure. Is this because there is already such a large backlog? I am concerned, once we change these measures, about what will happen to that backlog. I am sure that there are a number of people who are concerned. As I said, I have a direct interest, so it would be nice to know. I am reaching my anniversary, so should I buy a cake, or will it be that these measures will wipe out and everyone will have to start again?
I do not accept the premise of the arguments in favour of these measures, and these incidents in themselves provide a commentary on the stated objectives which the Government have presented before. Interim findings are that rating appeals are made with little supporting evidence and take too long to resolve; that is one of the central claims. That is absolutely true. The reason for this is that you have no other option to pursue any part of the case other than to appeal on an instinct. You are not given any assistance, so if you ask the wrong question, you end up with the wrong answer.
Secondly, businesses can be confident that their valuations are correct and they are paying the right amount of rates. No, unfortunately not: I cannot see in this measure any way of doing that. If you were to do that at an earlier stage, in keeping with Amendment 64, you probably would not need to go through an appeal process.
Finally, the new staged process provides a structured and transparent approach with clear expectations about timescales, requirements and actions, even though there are not any established—we tried to establish it in one of our amendments—and there is not a transparent approach at the very core of it, which is what Amendment 64 does. I share the feeling of the noble Lord, Lord Stoneham, that this is one of those issues that actually has a direct and material benefit—a major, calculable and serious benefit to small businesses in an area where small businesses are at a material disadvantage. It seems to me a terrible
shame that a couple of potential amendments that would have such a detrimental impact on business and a huge benefit only for an agency should form part of the Enterprise Bill. I really hope that the Minister will consider keeping this one open. It has become clearer to me that there are many people outside who have a very deep sense of grievance and a feeling that this is a matter that needs to be resolved. I hope that she will consider this very carefully and come back at Third Reading with at least something that will give some people some comfort.
Baroness Neville-Rolfe: I thank the noble Earl, Lord Lytton, for his amendment, and, in particular, for his words and the work that he has done in this very complex area. Having said that, some very critical comments have been made this evening which seem unfair. I will, therefore, take time to go objectively through the amendments and respond where I am able to do so.
The experience of the noble Lord, Lord Mendelsohn, underlined to me the urgent need for reform. That is why we brought forward provisions in the Bill, the consultation and the modernisation and improvement plan for the agency. I will look into the point that the noble Lord made, on which I am not briefed, about the fact that the backlog seems to be increasing and cases are not being dealt with—but I am not able to answer that this evening.
Amendment 64 would allow the Valuation Office Agency to share HMRC information with ratepayers. Members of my team greatly appreciated the meeting noble Lords held with them to discuss these issues. A subsequent meeting has now been held with ratings agents and further meetings with businesses will follow. I understand that our proposals to address the high volume of ineffective appeals and delays under the current system have been recognised as worthwhile, not least in speeding up any refunds. We will continue to work with businesses to ensure that the new system is practical, workable and beneficial.
As the noble Lord, Lord Stoneham, said, we have been running a parallel consultation on implementation, in which we set out a clear and structured three-stage process. The consultation is still open and I am sure that the bodies mentioned this evening will respond. The reforms promote full and early engagement between parties. Factual information will be established during check stage, with arguments and evidence exchanged at the beginning of the second challenge stage—far earlier than happens at present. This significantly brings forward the point at which the Valuation Office Agency is able to provide information to address the ratepayer’s case.
Business rates are a unique tax which require the collection and holding of commercially sensitive information. This can include details of market deals such as rent-free periods or the treatment of fit-out costs—information that the landlords and tenants in question may well not wish to make available to their competitors. I note the concern about the Valuation Office Agency but we should abstract from that to some extent because it has a duty to protect information and the interests of the ratepayers must be taken into account. That is a fundamental principle of data
protection and to override it and allow routine sharing of confidential information would undermine the basis of trust on which the system depends.
Amendment 66 allows the Secretary of State to regulate the operation of several aspects of the appeals system. I share many of noble Lords’ aims: to support small business, of course; to see high performance standards in the appeals system, which is obviously not fit for purpose at present; and to ensure that decisions are made quickly. I have some good news today for small businesses in that the spending review extended the doubling of small business rate relief for a further year. Given the discussions, particularly in Committee, noble Lords will also be pleased to hear that the Valuation Office Agency will now prioritise small businesses within the appeals system. Of course, the majority of rates are paid by larger businesses and they bring the most appeals, but I think we all agree that the small business interest is extremely important.
Performance is more appropriately addressed by a service-level agreement than in the Bill, and that is what we proposed in the consultation. The requirement for parties at every stage to provide specified information in a structured way will ensure that the Valuation Tribunal for England is able to deal with cases in a quicker and more efficient way. However, it would not be appropriate for Parliament to prescribe the operation of an independent judicial body, which is what would happen with the amendment.
The Government agree that ratepayers should be able to move on to appeal stage if no decision is forthcoming at challenge stage. The proposal for trigger points in the consultation paper will provide that right. The 18-month figure in the consultation paper is obviously longer than the six-month figure proposed by noble Lords. However, we have made a commitment to reduce that figure as the system develops and beds in.
Amendment 67 would remove the power to introduce the payment of fees at appeal stage. This is a fundamental part of our reforms, because it will increase the incentives for early and full engagement in the first two phases. It will promote quicker decisions and reduce costs for businesses, as well as helping to reduce the large number of speculative appeals, which I do not think anyone has mentioned but which clog up the system for everyone else. We need to get away from that.
In the three-stage process, there are no charges at check or challenge stage, where it is our expectation that the majority of cases will be resolved. We are also proposing that appeal fees will be refunded where appeals are successful. Discussions on these important matters will continue as part of the consultation process. The consultation closes on 4 January, and we will consult further next year on the draft regulations.
The Government are not, as the noble Lord, Lord Stoneham, implies, clamping down on taxpayer information. These measures introduce earlier information exchange and will help the ratepayer. The new system enables businesses to make the judgment on the basis of information provided at stage 2, before launching an appeal, which is stage 3. So the Bill addresses the information deficit, which I think is of mutual concern.
Finally, Amendment 65 changes Clause 22 to protect taxpayer’s information. Identifiable taxpayer information which is held by the Valuation Office Agency is exempt from FOI requests, but that exemption does not extend to information shared with local government under Clause 22. Therefore, as the clause stands, identifiable taxpayer information could become exposed to disclosure under FOI. The amendment will exempt from FOI anything shared under the clause which would identify the ratepayer; it will not exempt any other information from FOI and will merely ensure that taxpayer confidentiality is maintained. I reassure the noble Lord, Lord Mendelsohn, that the amendment, far from restricting the flow of information, is key to enabling the safe transmission by giving the agency the confidence and security to share data without risk under FOI.
It has been a long debate and it is late. I commend Amendment 65 to the House and ask the noble Earl to withdraw his amendment.
The Earl of Lytton: I thank very much those noble Lords who have supported this amendment, and the Minister for her thoughtful comments. I particularly took to the comments of the noble Lord, Lord Stoneham, which were elegant, to the point and delivered much more effectively than I could ever have done.
I make one point on the point raised by the noble Lord, Lord Mendelsohn, on the check, challenge and appeal process, which relies entirely on resources being available at the check stage. I, too, had heard the point about resources being withdrawn from appeal handling until, I think, the 2017 revaluation is out of the way. So there is an ongoing structural problem. On that point, the Minister did not answer the question that I put about at what level disclosure would take place. If, under the check, challenge and appeal process, the disclosure does not appear at the check stage, we are precisely back where we are at the moment.
There are two other things. With regard to what the Minister said about HMRC information being disclosed, the label “HMRC information” in this context is by proxy only because this is information that has always been dealt with as a Valuation Office Agency matter under the relevant legislation. It is about the valuation officer role rather than the person concerned with general taxation, the district valuer. There is a very important difference—which was pointed out in the Holgate opinion, which I have circulated—between the two. There is a morphing into HMRC information under that label which should not be used. It is mislabelling where that information comes from, the purposes for which it is compiled and the route by which it comes.
My final point is on confidentiality. Why would a lessor or business want to keep its rental information confidential? Given what is known and the leakage through the system, that would be a tough call in this country. We are not dealing with the sort of closed shop that applies in many other jurisdictions. However, I can think of some very good reasons why a confidentiality clause might be included, for instance, where a letting is procured ostensibly at a headline rent but is actually underpinned by a three-year rent-free period in a five-year review cycle. Of course, someone
would not want that to be bandied about. If the Valuation Office Agency could be counted on to sift that out, so that there was absolutely no question of the integrity of the body in analysing that and it was a true reflection of what that rent was in real terms, as opposed to just the headline rent, I do not think we would have any problem. However, it cannot be. I know that from direct experience.
It is unfortunate that this very important point of principle occurs so late when there are not so many people in the House let alone in the Chamber. It would clearly be wrong even to consider pressing this amendment in the circumstances. Had it been in any other circumstances, I would have been sorely tempted to test the opinion of the House, but now is not the time or the circumstances to do that. It is with great reluctance that I withdraw this amendment because from having spoken with the clerks I am not at all clear that it will be possible to bring it back at a later stage. If it is not possible, we will have to rely on the good offices of the other place in order to raise this and, I hope, do it.
I will end on one thing. We stand in all this in terms of what we are doing to foster business in the construct of an Enterprise Bill, and we should never forget that mission. As the noble Lords, Lord Mendelsohn and Lord Stoneham, said, this runs entirely in the wrong direction. It is the wrong question and you get the wrong answer. It is a false premise. It is a reductio ad absurdum in terms of where we are. That has to be addressed. It is clear that this is an area of tax that is long overdue for fundamental, thoroughgoing reform. It is a failing of many Administrations over many
years that it has not been dealt with. Businesses are the worse for it. With that, I beg leave to withdraw the amendment.
65: Clause 22, page 41, line 38, at end insert—
(1) Revenue and customs information relating to a person which has been disclosed under section 63A or 63B is exempt information by virtue of section 44(1)(a) of the Freedom of Information Act 2000 (prohibition on disclosure) if its further disclosure—
(a) would specify the identity of the person to whom the information relates, or
(b) would enable the identity of such a person to be deduced.
(2) In this section “revenue and customs information relating to a person” has the same meaning as in section 19(2) of the Commissioners for Revenue and Customs Act 2005.”
Clause 23: Alteration of non-domestic rating lists
Amendments 66 and 67 not moved.
Consideration on Report adjourned.