Oral evidence: Impact of Business Rates on Business, HC 1944

Oral evidence, 10 July 2019.

Witnesses

Melissa Tatton and Alan Colston.

Chair

Welcome to our first panel on business rates. I ask you to introduce yourselves very briefly, and then we have a series of questions. As you know, we are seeing the Minister and one of the Treasury officials after this session. Ms Tatton, perhaps we can start with you.

Melissa Tatton

Thank you. I am Melissa Tatton, chief executive of the Valuation Office Agency.

Alan Colston

I am Alan Colston, chief valuer at the Valuation Office Agency.

Chair

Thank you very much for being here this morning. I am sure that you have been following, or at least have been briefed on, the evidence that we have been hearing throughout this inquiry. It will not surprise you to know that the work of the VOA, its resourcing and case load have come up quite a number of times. We are going to explore that this morning. Ms Tatton, we have had a lot of evidence. Here is just one extract, from Powis Hughes Ltd: “The ‘Check, Challenge and Appeal’ process is cumbersome, awkward and administratively burdensome. The system is so predicated against ratepayers that there is potentially a denial of justice and ensures due to the jargon and complexity that in virtually every instance a ratepayer needs to instruct a competent professional at additional cost.” How does that make you feel as the chief executive?

Melissa Tatton

That is not something that I would agree with. When I last appeared before you, we recognised that there were some early teething problems to resolve. When I came before you last summer, I explained that we had an improvement plan in place, which we have delivered to time and to plan. The system is working. People are using it. It is not possible to compare it with the previous system.

Chair

I am not asking about comparisons. As it currently is, the system is unworkable. There is a whole issue about the complexity of the business rates system, which I appreciate is a question for Ministers, and we will be exploring that with them, but the check, challenge, appeal system can often be the difference between someone staying in business or not. They cannot work the system and it is taking too long. They cannot work it without having a professional adviser who they have to pay more money for. That can’t be a system that you are proud of.

Melissa Tatton

It really matters to me that we provide good customer service and that people are able to check and challenge when they want to do so. But the system is working and people are using it. There has been a steady increase over the last year of people using check and challenge. It is straightforward in terms of the steps—I have been through the process again more recently, just to re-familiarise myself with it—but it does require people to provide evidence supporting their check and their challenge, particularly at an earlier stage. That is different from the old system, where it was possible to put in a speculative appeal with little or no evidence.

Chair

We will come on to some of the requirements for employees who use the system and have to put in evidence. Surely one of the KPIs of the system is how many appeals are outstanding. I wrote to you in June, and you kindly replied to me. Your letter noted that there are 16,000 appeals outstanding from the 2010 rating list. I notice that you distinguish this from the 53,000 cases held up in litigation or awaiting listing by the independent Valuation Tribunal Service—I take it that is not your responsibility. But there are 16,000 appeals outstanding from the 2010 rating list, of which 320 relate to appeals before March 2013 and a further 7,000 relate to between April 2013 and March 2016. We are now in 2019 and the new rating list came in in 2017. Why are there still appeals outstanding from 2010?

Melissa Tatton

It is a reflection of why the previous system wasn’t working. We have had over a million appeals—many of them speculative—and 70% of them resulted in no change. But, as you say, of those that did come through, over 50% came through for the last two years of the list. Although they are not appeals that were made in 2010, they relate to the 2010 list. The system has since been reformed. We have cleared 98% of those that are within our control, and we are on track to meet our commitment of clearing those by September 2019—this year.

Chair

Of those in your control, how many, when it is finally decided, are subject to downward transitional relief based on inaccurate 2008 data, using the 2010 list?

Melissa Tatton

So 30% of the overall result in change, but over 50% of the change relates to a change in the property or location that happened after the date of the list. So they are changes that happened subsequently rather than inaccuracies.

Chair

I don’t understand that about a change. I understand about inaccurate information—rooms that were not counted or whatever. It cannot be related to the location, because the one thing we have heard in evidence is that we have a property tax because a property cannot be picked up, moved and traded online.

Alan Colston

Under the 2010 list, and indeed under the 2017 list, there are various grounds on which you can make a challenge: insertion, deletion, split/merger, and physical change in the locality or to a property. You are allowed to make a proposal over the life of the list. So 51% of the appeals that we received on the 2010 list were after 1 April 2010. In fact, under the current legislation you can still make a 2010 appeal in certain circumstances until 31 December this year.

Chair

How many appeals are driven by—this is not your problem—the fact that business rates are too high? You talk about speculate appeals. Are people basically saying, “We can’t afford this. We are going to give it a go to see if we can get the amount down”?

Melissa Tatton

That is not something we are in a position to comment on.

Chair

You used the word speculative. How many appeals are speculative?

Melissa Tatton

There were 70% that resulted in no change. Not all of those would have been speculative; some would have been a difference of opinion. But what it was possible to do—we have seen plenty of it—was send in a piece of paper that said, “Rateable value should be £1” and provide no evidence or rationale for that.

Chair

In your letter you said that it is not possible to quantify the potential cumulative value of these outstanding appeals. Would you acknowledge that local authorities face difficulties in ensuring they have retained sufficient reserves if the VOA is not able to give them a value for the appeals outstanding? This will all come back from the local authorities—they have got to provide for this.

Melissa Tatton

Absolutely. I will bring in my colleague, Mr Colston, to explain, but we do work really closely with local authorities and are able to pass on data about appeals as and when we receive it.

Alan Colston

We have 348 local rating lists. We have a relationship with all local authorities. We exchange data weekly with them. It is an issue, but it is one we have grappled with over a number of years with local authorities. We have a good working relationship with all the local authorities we work with.

Chair

Since your letter has been published, we have received evidence that says that the real level of appeals is much higher than the numbers you have given. Is that correct?

Melissa Tatton

No. I have provided you with the data that we have on our system.

Chair

But are you sure that the data on the system is completely accurate and up to date?

Melissa Tatton

Sorry—are you talking about the 2010 appeals or the checks and challenges?

Chair

All of it.

Melissa Tatton

I am confident about the data we have provided. If there is a suggestion that it is otherwise, I would be interested to hear that, but we have provided the data that we maintain.

Chair

Okay. As you said, there were over 1.1 million appeals made in England and Wales related to the 2010 rating list. Have valuation techniques improved since then? Is that what is happening to the numbers?

Melissa Tatton

We learn every time we do a revaluation. Alan is the expert on revals. At the moment, we are part way through doing a 2021 revaluation, and we learn each time.

Alan Colston

Again, I would just remind you that under the 2010 list you can make proposals and challenges for lots of reasons—it is not just about the valuation, and it is similar for the 2017 list—so it is not necessarily about valuation accuracy.

Chair

The operations director at the Valuation Tribunal Service said publicly on 13 June that “it could take us until 2024 to clear…appeals” from the 2017 valuation. Is that a fair statement?

Melissa Tatton

He also indicated a volume range that is not one that we would particularly recognise. I think that probably indicates that this is the first cycle for us and for our customers and colleagues. We will not know how many appeals we will have until the end of the cycle, so it illustrates the uncertainty. We are not anticipating the position that he describes, no.

Chair

But it is possible.

Melissa Tatton

As I say, it is not the range—it is not the estimate that we are working to.

Alan Colston

At the moment they have 70 appeals. They have cleared half of them, I think.

Chair

He said, “it could take us until 2024 to clear business rates appeals against 2017 assessments.”

Melissa Tatton

That is based on their estimate of the number of appeals that may well come through the system. Again, it is an uncertain number that we will get, so it will depend.

Chair

Before I hand over to Steve, I just want to probe your figure about how 70% of appeals result in no change. We have had evidence that says that part of the problem with the appeals system is the lack of transparency, as the VOA does not publish or release the basis on which the valuation is calculated. Under the 2017 list, the VOA calculation is not disclosed until the process goes all the way to the appeal stage—the end of the process—and the onus is heavily on businesses to somehow prove the VOA values wrong, despite not having sight of the VOA methodology. That is why people are aggrieved. There is a system there—allegedly they can appeal—but they do not necessarily know how you have got to your numbers, so they are appealing blind. No wonder people are putting in information, perhaps with not enough evidence, and then finding that the system is not working for them. This is a system that is just not working. I think the whole business rates system is not working, by the way; if the Ministers are watching now, that is exactly what we will be asking them about, because they have to do far better. This bit of the system—the bit that actually needs to be efficient, so that businesses get the right amount that they are paying, and if they need money back they get it quickly—is not working, is it?

Melissa Tatton

If I may, I will start, and then I will ask my colleague to come in. We are sharing more at an earlier stage under CCA than we have done previously. Publicly available data can be accessed by anyone under “Find your business rates”, which allows people to look at the survey valuations and methodology and compare that.

Chair

The methodology for the individual property, or the valuations? I can look up my office and see exactly how you have calculated the business rates on my property, can I?

Alan Colston

Yes, you should be able to see the summary valuation online.

Chair

The summary valuation, not the detailed working or methodology.

Melissa Tatton

And that will provide the links to over 200 practice notes that explain our approach. Once you have registered for check, even before you submit for check, it shares even more data on your own property valuation. In challenge, there is disclosure on both sides of our approach and your approach as the ratepayer, and that is all before you get to an appeal.

Alan Colston

It is important to realise that when we are compiling our revaluation, we get the data from the ratepayers and their advisers at that point. We also engage with stakeholders early in the valuation process; at this point in time, for the ’21 reval, we are engaged with over 100 stakeholders in discussions. We have taken evidence to support the work that we do, and we have published 350—

Chair

What sort of stakeholders are they?

Alan Colston

They are representative bodies for a range of industries. There are about 350 property classes. We publish 220 valuation practice notes each time we do a new valuation list. We obtain that information at an early stage. We are happy to hear from ratepayers and their advisers, and for them to engage with us at an early stage. When we publish a list, we publish the scheme valuation. There are something like 50,000 to 60,000 regional valuation schemes that will provide a summary of, for example, offices in Canary Wharf—the range of value is from £300 to £400 per square metre, or whatever it happens to be. We publish an awful lot of information and we produce summary valuations that allow people to compare the valuation for their property against the valuation for their neighbour’s. We engage and publish an awful lot of information during a revaluation and subsequently.

Chair

People who provide evidence to us will be listening to this evidence. I hope that they will come back and let us know what they agree with and what they don’t.

Mr Baker

I listened really carefully to that. Before we go any further, I was just checking how long each of you have been in post and I want to say thank you for doing the job. It is not often I say this, but I would not want to swap places with you. It seems to me that you are drowning in the bureaucracy in the system that you have to operate. I want to say that by way of context, but I have some hard questions that I have to go through anyway. On response times, for the benefit of the record can I take you through the process? Once a business has registered on the system, it can take 15 working days for a claimed property to be approved, we understand, at which point you can request valuation details which can take another 20 working days. After a check has been made, it is only if you have not heard back from the VOA after 12 months that you can go to challenge. The VOA then has 18 months to respond before somebody can proceed to appeal. That means that a business will potentially wait 950 days before it can lodge an appeal against its rateable value. Is that right?

Melissa Tatton

Those are the statutory timelines. We have targets to process cases more quickly than that.

Mr Baker

When it was set as a statutory timeline, presumably it went through as a statutory instrument, not in primary legislation.

Melissa Tatton

That I don’t know.

Alan Colston

Yes, that’s correct.

Mr Baker

I wonder whether we might look at what was said during that Committee, and whether any Member—I hope I was not on it—spotted it.

Melissa Tatton

We are clearing the majority of checks within three months and challenges within 12 months.

Mr Baker

Even so, for a business that might be really struggling with its rateable value that is still a long time. I feel sure that you would accept that.

Melissa Tatton

It is an improvement on the previous 2010 appeal system. By being able to weed out cases that have little or no evidence, we are able to focus on those cases that need attention.

Mr Baker

Okay, let’s just drill into that. When you focus on those cases that need attention, how do you prioritise?

Melissa Tatton

They are cases that have provided evidence and come through. I am comparing it with the 2010 appeals, where a large number of cases had no evidence provided. When you come through check, you look at the facts, you agree them or correct them, and then the valuation can be amended at that stage. Your point was that it takes a very long time to get to an appeal. The whole purpose is that you may not need to get to an appeal. It is quite possible to resolve the case at a much earlier stage without needing to go to tribunal. If what you disagree with are the facts of your case, they can be resolved at check stage, so we are clearing the majority within three months. That may be all that is required in order to get your valuation amended. When you then proceed to challenge, you are working on the basis of agreed facts between the agency and yourself, and there is a chance to provide evidence. Again, it is possible for the valuation to be amended at that stage. Only cases that really need to go to appeal do, so it is actually supporting much earlier resolution, and cases can be resolved at an earlier stage.

Mr Baker

Could you provide us with some statistics about the majority that you are doing in three months? Is it 60% or 90%?

Melissa Tatton

In 2018-19, we achieved 79% of checks within three months. Our target is 90. We recovered in quarter 1, so that has gone up. For last year, we had quite low volumes—81 of our challenges were resolved within the 12-month period.

Mr Baker

I think it is going to be quite difficult to get through these numbers in oral evidence, so I wonder whether you could write to us.

Melissa Tatton

I am very happy to do so.

Mr Baker

Could you explain for businesses, which will be very concerned about this—I have some in mind—why you are allowed to take up to a year to check on the rateable value?

Alan Colston

They are legislative backstops; the legislation requires it. They are not something that we would seek to rely on; it is just that you have to have an opportunity for the ratepayer to progress their case through the system.

Mr Baker

Let’s not pretend that Back-Bench Members of Parliament drafted this timeline. It was drafted by the Government somewhere. It was an official recommendation to Ministers that Ministers signed off. Can you just talk through why that recommendation of 12 months will have been made to Ministers?

Alan Colston

It is not our legislation.

Melissa Tatton

I cannot comment on the policy, but perhaps I can speak in very general terms about timelines in terms of operational activity. We have targets that set us deadlines that are far sooner, and I am really keen that we work as quickly as possible to ensure that we deliver really good customer service, but in any sort of operational activity there will be some timelines that allow for proper administration of the system. The timeline is longer for challenge than for check, because it is a more complex process. Some of those will, as Alan suggests, require some to-ing and fro-ing between the agency and ratepayers, and possibly their agents, to discuss some quite complex matters. It is not something that you could turn around in a week. That is the reason the deadlines tend to recognise the complexity of the activity and the time it takes to fulfil our obligations.

Mr Baker

I appreciate the answer, but I rather fear we have dived into the mists of how decisions are made in Government among multiple agencies. If you were asked by central Government to give a recommendation on how long you needed, what would you say?

Melissa Tatton

If we are asked for advice on how long is needed for anything, we need to take into account a whole range of things. I cannot comment on decisions that were taken previously, but the things I would take into account are resourcing, funding, IT and data. Those are the sorts of factors that will enable me to decide or give some advice on how long things take.

Mr Baker

As I listen to you, I want to be sympathetic, because I know you have your own difficulties to cope with in all this very difficult work. Equally—forgive me for saying so—it is somewhat excruciating for me, and I suspect for other Members, because we will all have businesses in mind that very clearly have the wrong rateable value. I could give you examples, but it would be invidious to put individual cases before you. The idea that it could take a year for such a business, which may go out of business and leave yet another empty store front on the high street in High Wycombe, makes it very difficult to sympathise with you. What could we do to squeeze down this time to check on rateable value from a year to substantially less? Perhaps you could give us some ideas, Mr Colston, about what we could do to help you squeeze down these times.

Alan Colston

There is already a process for those suffering financial hardship, which we prioritise. If a particular business is suffering financial hardship and thinks its rateable value is wrong, it needs to let us know about that.

Chair

What do they need to tell you?

Alan Colston

Just literally what I have just said: that they are suffering financial hardship.

Chair

Do you ask them for bank statements, directors’ earnings, what people are taking home or the number of employees being fired?

Alan Colston

No.

Chair

Really?

Alan Colston

No. We—

Chair

A business is just going to contact you and say, “I’m in financial hardship. My rates bill is proving to be impossible to pay. Can you please accelerate?”

Alan Colston

And we will.

Chair

How quickly can you do it?

Alan Colston

We will prioritise those cases. We try to turn those around within two months.

Mr Baker

But the statutory limit is 12 months.

Melissa Tatton

We will also flag, where we think it is appropriate, to local authorities if we think there may be reliefs. We do not administer reliefs, but we remind people that they can contact local authorities to discuss the availability of reliefs if that is appropriate. I do understand the issues, and we care very much about customer service, so we will do everything we can.

Mr Baker

I think we could be having a similar conversation about the 18 months to respond to a challenge, couldn’t we? Is that not the case? You get 18 months to respond to a challenge.

Melissa Tatton

To make a decision.

Alan Colston

That is a legislative backstop again. As soon as we receive a challenge, we aim to respond and supply the evidence that we hold in respect of that challenge. Then it is a discussion with the ratepayer and their adviser, and if we can agree, that is the end of the matter. If we cannot, we issue a decision notice.

Mr Baker

Could you write to us and give us a breakdown of how long you actually take within these legislative backstops? I think it would be most helpful to really understand what the facts are, versus the backstop.

Melissa Tatton

Our target is 90% within three months for check and 90% within 12 months for challenge. As I say, last year, we achieved 79% for check and 81% for challenge. Check is increasing; our performance is increasing.

Mr Baker

But in contrast to these rather long times you get as a legislative limit, ratepayers might only have, say, 20 days to respond to you. Is that right?

Melissa Tatton

I don’t recognise that 20 days.

Alan Colston

They submit evidence to us in the first place. They have four months from the date that we have issued a check decision to challenge and supply us with that information, and then we would respond. They then have a time to respond to our correspondence. Most of that is done digitally through our portal.

Melissa Tatton

But a ratepayer, a customer, can instigate a check at any point during the life of the list.

Mr Baker

My brief tells me that ratepayers only get 20 working days to respond to any additional requests from you. The one thing I really want to pick up is this: if a business does collapse during your processes, what steps do you take to examine what went on, and what, if any, recompense do people get if the business did collapse during the process of appealing its rateable value?

Melissa Tatton

Our role is a really important one in the business rates system, but it is quite narrow. I recognise the issues and I have sympathy. We would always look at learning about the speed it takes; we would always look at a variety of data, whether it is complaints data or any other data, to see where we could have done better and feed that back in. In terms of customer feedback, it is not the same as your specific question, but when people go through the check and challenge system, they have the opportunity to provide feedback on particular pages and the system itself, and we take that back in and look at that learning.

Mr Baker

How often does a business go under during this process of check, challenge and appeal?

Melissa Tatton

I do not have that data.

Mr Baker

Could you perhaps let us know, please?

Melissa Tatton

I will. I am not sure whether we will have that data, but I can certainly find out and confirm that in writing to you. What we do is, as I say, value the property rather than look at the business as a whole.

Chair

But there must be businesses that were part of check, challenge, appeal and that suddenly are no longer there, or you get a letter written by the creditor to say that X business has gone under and therefore they have dropped out of the system, I assume. I am going to bring in Kevin, but I just want to read you some evidence that we have had from Jolly Jumpers Playzone—it is their moment to have their name in lights. They have informed us that as their business rates bill is extortionate, they fear that they will have to close within the near future if response times are not improved. They said to us, “We are a small local business, that we set up to provide a healthy safe environment for children and families. We employ over 20 staff, but with the extortionate Business rates, I feel that we will have to close within the near future, with a loss of the facility to the local community and visitors to the area. This has been pointed out to the VOA several times, and despite assurances that our case would be treated as urgent, we are now almost 2 years in and not really got any further to resolving the matter.” I am not expecting you to comment on an individual case. Steve is right; that is not fair. However, that is in direct contrast to the evidence that you have just given us, Mr Colston, so I do not know where the breakdown is. It may well be that at senior management level, you absolutely say, “No, you must treat people who tell you they are in financial stress with sympathy, and accelerate and everything else.” However, two years is not two months, and there is obviously something going on. We can provide specific details about that case, and which valuer and which office they have been dealing with, but they are not getting the response that you have just said to the Committee you would give them.

Melissa Tatton

You are right; I cannot comment on particular cases. Were there any general points to bring out on that, or is there nothing further to add?

Alan Colston

I do not think there is anything further to add. Some cases do take a long time; there is an exchange of evidence. I am not saying that in that particular case we have acted in an acceptable way. I do not know the detail.

Chair

We can pursue that, but I just wanted to point out that people are listening, and Steve is right. What often drives people mad in these sorts of sessions is that what they are hearing from yourselves, who are dealing with many thousands of cases, is completely different from their day-to-day experiences of trying and struggling to pay the business rates bills.

Kevin Hollinrake

I declare my interests: I am a founder and shareholder of a business with quite a large number of retail premises around the UK. I understand that you are suffering IT changes, which are always painful, and possibly a lack of resources—I think we are going to talk about that in a second—but it is important that we confront the brutal facts. It sounds like your position is, “Nothing to see here. Everything is okay.” Is that really your position?

Melissa Tatton

In terms of—

Kevin Hollinrake

In terms of the general system. Are you happy where the system is today?

Melissa Tatton

I acknowledge that there were teething troubles with the system when it was introduced. I think I was before you last in June, and in May we had just published the improvement plan. I can take you through it if you wish, but we instigated and delivered all the improvements that were in that plan. It is much improved. We are far from complacent about timelines, but there is always more to be done and always more to improve. However, it is a much-improved system, and it is working, and people are using it.

Kevin Hollinrake

That’s not the evidence we have heard. In the midst of this inquiry, I think Gerald Eve described the system as “shambolic” and “not fit for purpose”. That doesn’t seem to be consistent with the evidence you have given. He said, “It is the most preposterous, manifestly unfair system of challenging or objecting to rates assessments that anyone could ever possibly devise.” That doesn’t sound like “teething troubles”.

Melissa Tatton

That’s not a view that I would agree with, in a sense—lots of people don’t, in the sense that we have a good number of people. There has been a steady increase of people using check and challenge, and I think I also heard in the evidence that people have recognised that the system has improved since its inception.

Kevin Hollinrake

You said, I think in your earlier evidence, that when an appellant submitted evidence, sometimes they submitted no evidence, just a single blank piece of paper, which must be difficult. Isn’t that what people experience on the other side? Isn’t it a fact that this system is not sufficiently transparent? Is that not the case?

Melissa Tatton

I tried to explain earlier that actually you can go on to find your business rates and you can see—there is publicly available evidence that enables you to compare yours with others. When you go into check, before you submit a check you can actually go in and more evidence is provided about your property in particular. Then, when we come to the challenge stage, which is well before appeal, there is a frank disclosure on both sides, including the agency, of the evidence. So there is evidence—

Kevin Hollinrake

That’s not what we have heard from our previous witnesses, who are very experienced. They have been doing this job; Jerry Schurder of Gerald Eve has been doing this job for many decades. He and other people all have a consistent message that that is exactly not what is happening. I will just read you out a couple of things. The British Property Federation says, “The valuation process is not transparent, which leads to a greater number of appeals and general uncertainty.” Another body said the system “lacks transparency and the process requirement imposed are posing a significant impediment” on engaging with the VOA. The Altus Group said, “The new appeal system, Check Challenge Appeal, lacks transparency: it places no obligations on the VOA to explain how a rateable value has been set and puts the onus entirely on the ratepayer to prove that they have been over-assessed.” That’s not consistent with what you are saying.

Melissa Tatton

I think it’s very important for me to really understand the work of the agency. As I explained when I was before you last, I am out and about, actually seeing our systems working. In advance of coming here, I was taken through—again—the check, challenge, appeal system. In the light of the evidence, that was really important. I have seen for myself the amount of evidence that you are able to obtain from the system. I don’t know whether you want to come in to explain, with your experience, Alan.

Alan Colston

Yes. I think we have already said in lots of instances that we publish the vast majority of our valuations and the way we have undertaken those valuations. I think the evidence you are referring to, in terms of Gerald Eve, may be to do with the rental evidence that we have used—

Kevin Hollinrake

Precisely. Isn’t that the key element of this?

Alan Colston

If I could just expand a little on that, when we are compiling a new list for revaluation, the evidence that we obtain comes from ratepayers and those agents that supply us with that detail. We will then discuss the rental evidence at challenge stage. There is an issue here, in that people give us information confidentially and we need to respect that confidentiality. The evidence, if we are going to disclose it under the law, needs to be necessary, relevant and proportionate. As I said earlier, lots of challenges that come to us do not require the exchange of rental information. You can make a challenge for physical change of locality, for the property, for insertion or deletion. It is only certain challenges and until we know what those challenges are, we don’t know how to respond to them. I think we are treading a fine line on protecting the taxpayer’s interest, in terms of the information they provide to us confidentially. It may actually jeopardise the collection of the rental evidence that underpins the system if we disclosed it more fully.

Kevin Hollinrake

The basis of valuation is comparables—what comparables you have used to make an assessment of the property that you are assessing. Are you not providing the evidence of the comparables that you have used?

Alan Colston

We will, at the point in time that we understand whether that is required.

Kevin Hollinrake

But not at the check stage. If I want to see whether my valuation record is accurate, I cannot see the basis of how you have arrived at the figure.

Alan Colston

You can see all of our valuations and all the other valuations of your neighbouring properties. Remember, the check stage is for physical confirmation of the facts; it is not about the valuation at that stage. It is about telling us whether the factual information we hold is correct. You can see our valuations. What you can’t see is the information that has been supplied to us by taxpayers.

Melissa Tatton

But we are providing more information at an earlier stage under CCA than we would have done under the 2010 appeals, where the only option was for you to appeal. You are able to engage with us and we are able to engage with you at a far earlier stage, which includes disclosing evidence at challenge stage.

Alan Colston

It does. We do have a process for large agents and for ratepayers to group together, called a group pre-challenge review. They can submit checks and provide us with evidence at a really early stage if they want to. Currently, we have fewer than 20 of those that we are dealing with. We can collectively discuss all the rental evidence available.

Kevin Hollinrake

In terms of navigating the system, is it easy for people as individuals to go on there and submit their own data without professional help? Can they do that?

Alan Colston

Yes.

Melissa Tatton

It is quite possible, and people do so.

Kevin Hollinrake

Quite possible?

Melissa Tatton

Yes. People do.

Kevin Hollinrake

One of our witnesses said that they have had to provide a 32-page guide to help people make that submission themselves. They have had to do that—that is not something that is provided by you—because it is so complex. Is that not something you recognise?

Melissa Tatton

No; in terms of check, it is really very straightforward in terms of going on. You need the information in front of you, but it doesn’t take very long if you have everything to hand.

Alan Colston

At check, we supply our information. They check it and supply additional details if it has changed. At challenge, we require three things. We require what rateable value they want, what evidence they hold to support the figure they have asked for and a supporting statement as to how the evidence links to the reduction. I can give you a relatively simple example: “My rateable value is £50,000; I would like it to be £25,000; I enclose my lease.” I then say, “The rental evidence that I have paid my lease is the best evidence I have got of rateable value—it was £25,000, not £50,000.” That is a challenge. It is a valid challenge, and we would respond to it.

Kevin Hollinrake

Do you not accept the position that businesses have to put in all their potentially relevant data before a challenge and only then can they see the basis for your valuation? You don’t accept that that is the case.

Alan Colston

No.

Kevin Hollinrake

You don’t accept that at all.

Alan Colston

No, I don’t, because we publish all of our valuations in advance. We engage with the industry very early when we are compiling and maintaining a rating list.

Kevin Hollinrake

It would be good to engage with some of the witnesses we have spoken to over the last few weeks, because they don’t accept that as a position at all. There is some mismatch between your understanding of how the system works and how our other witnesses, who use this system every day, have experienced it.

Melissa Tatton

I want to be clear: yes, people do use it. It is straightforward to use and we have people who are using it. You refer to some of those who are agents—who operate with large numbers of clients. Some of the additional functionality that we have provided through APIs—application programme interfaces—since our May improvement programme has specifically enabled people to interact with our system to do that. We worked really closely in partnership with rep bodies, stakeholders and agents to understand what the priorities were for those that need to link in bulk or exchange information with us. We have prioritised those and we have delivered those. They are working. We are having numbers coming through in steady trickles. Agents themselves are having to work on their own software development that slots into ours, but we have made improvements that will make it easier for those larger agents, some of whom you reference.

Kevin Hollinrake

Can I ask the same question? Is your understanding of the system that, “I do not have to move to challenge or appeal before I can see all the data. I can see all the data for the basis of my valuation before I get to the challenge or appeal stage”? Is that correct?

Melissa Tatton

No. As I say, I understand that there is some data that we bring out—

Kevin Hollinrake

That is not what we just heard. You said all the data.

Alan Colston

That is not what I said. I said that you could see all our valuations. We publish the valuations online and we also publish the scheme’s evaluation. Some of the witnesses that you have heard from want a public lease register or for all rents to be published. We do not do that. We disclose the rental evidence at challenge stage when we know that that is required. That is the law as it currently stands.

Kevin Hollinrake

Why do you not publish that? We have heard evidence of other jurisdictions, such as South Africa and Slovenia, where they make that information available. I understand about the resources, but would it not be simpler to allow people to see all this data, so they can at least understand where they are in a transparent manner, as in other jurisdictions.

Melissa Tatton

We are bound by the law—in this instance, the CRCA 2005.

Kevin Hollinrake

Which law, sorry?

Melissa Tatton

The Commissioners for Revenue and Customs Act 2005. That requires us to make sure that any provision of information publicly is necessary, relevant and proportionate to our function. We do not consider that confidential rental evidence fulfils that legal requirement.

Chair

Is it not more the case, in your experience, that the property industry would not want their rents and leases publicly available?

Alan Colston

Certain elements.

Chair

Mr Colston, you are an experienced valuer. You have worked in the property industry and have presumably been exposed to it for a long time. It is more about that, isn’t it? I completely understand that you have to operate within the law.

Alan Colston

That would be one view that has been expressed, yes.

Chair

I bet it is.

Wes Streeting

In 2007, the VOA had 3,800 members of staff working on non-domestic rates and council tax. In 2019, you had 2,800 staff working on non-domestic rates, council tax and corporate services—a reduction of 1,000 staff but with a greater range of responsibilities. In your letter, you are unable to tell us how many staff worked on non-domestic rates. Why don’t you know how many staff work on one of your key functions?

Melissa Tatton

Because we work flexibly across those, so we know how many people we have in the organisation, but in terms of flexing staff across those, we do not keep separate numbers and certainly would not have those historically.

Wes Streeting

Regardless of the exact number, the headcount of relevant staff has fallen. In that time, the proportion of your staff who are qualified chartered surveyors has stayed at 25%. Given that the number of hereditaments has increased over the same period, how have you carried out more work with fewer staff?

Melissa Tatton

Probably in the same way as many organisations have done. I am charged with running the organisation effectively and efficiently, and like for many organisations, the number of tools, data and digital transformation have enabled us to do things in a different way. We continue to refine our processes and the way that we operate. Modern technology has enabled us to do things differently.

Wes Streeting

So better ways of working and better use of technology have meant that you have been able to manage the losses?

Melissa Tatton

Reductions, yes.

Wes Streeting

The thing that I find difficult about that is that in every oral evidence that we have had during the course of this inquiry, and certainly in the large amount of written evidence received, ratepayers have told us that the VOA is understaffed, there is a lack of consistency in decision making and they are experiencing increasingly slower response times, which is similar to what we have heard this morning. I would find what you are saying more plausible if you had said, “We have had serious losses, as lots of parts of the public sector have. I am afraid that we can’t deliver the standard of service that we would like.” That would be more convincing. What I am hearing is, “We’ve got resource challenges but it’s okay because we’re managing our staff flexibly and we have technology in place.” That is not reflected in the customer experience.

Melissa Tatton

Whole agency staff numbers as at April ’18-19 were fairly static. Obviously, a number left the agency for a range of reasons, and we recruited a number. We are looking to recruit a next addition to the agency of around 100 for this coming year, so we are looking to grow. Clearly, bringing forward the revaluation from 2022 to 2021 and the announcement of more frequent evaluations has changed the picture, so we are looking to grow in the future and will certainly grow this year. We are sufficiently resourced for this year, assuming we are able to recruit all those that we need to recruit. The challenge will come in later years—those years will be covered by the spending review.

Wes Streeting

What would you say to customers who have been telling us that they are dissatisfied with the service they are currently receiving?

Melissa Tatton

I’m always disappointed when we are unable to provide the level of service that people expect and that I would want to deliver. We have set targets and deadlines, which we are working very hard to meet. I am confident that, when we get the check target, it is going to be more stretching on challenge, which is a more complex area, particularly because some of the same resource is looking for the 2021 reval. Future funding and resourcing of the agency, and what shape and size we need to be, is a matter for the discussions for the spending review, which will be soon.

Wes Streeting

We hope.

Melissa Tatton

I’m not complacent about customer service. We have targets that we work really hard to meet. I care about all the things that others care about, and my people are very proud of the work that they do. I’m very keen to keep a really strong service.

Wes Streeting

I certainly appreciate that. If I am honest, I think one of the challenges is exactly what you’ve been through. It’s such a familiar pattern right across other publicly-funded bodies and public services: deep cuts, at a pace that is quite challenging; you try to put in place what you can to maintain a good service; just when you are trying to get on to an even keel, then, if you are lucky, you might get a resource uplift; then you have the recruitment and you try and put things into place. This is all really difficult, so I am not trying to be a high-handed Select Committee member telling you how easy your job is. As other Members have said, it is really difficult. What I am concerned by is that the relationship with the Treasury and the political sensitivity of the spending review means that you are perhaps not as candid as I think you ought to be with Parliament about the resource challenge, so that we are also giving Ministers a hard time about how they are making decisions, particularly on the spending review. I don’t think you are currently being given sufficient resources to do the job. Your customers also seem to think that—they are not even attacking the VOA itself, as such, but saying, “We think they are understaffed.” If I think that and your customers think that, that’s a good resource case. Why don’t you think that?

Melissa Tatton

I’d like to take us back a step. When I wrote to the Chair I explained that we had to have additional funds, some to reflect the volumes and some to reflect the bringing forward of the reval by a year. It is always possible to do more with more, but the questions we would have are how easy it would be to recruit and to train people. There is something of that balance. Going forwards, we will be making a strong case for resourcing of the agency under the spending review.

Wes Streeting

Okay. I have a few other specific things, falling out of the broader discussion. We have been told that if someone calls the VOA the individual who answers the call can only send an email to a relevant surveyor but cannot transfer calls. Is that correct?

Melissa Tatton

That sounds possible but I’m not clear. Alan?

Alan Colston

70% or so of the first calls that we get into our call centres are dealt with at the first point of contact. If it needs a call back, the person will take a message and email the person who needs to call back. It won’t necessarily be a surveyor. It depends what the query is.

Wes Streeting

Is that the most sensible way of working?

Alan Colston

Our staff are often in different locations or they are out on site. They are not always at their desks. It is quite effective in getting them through and getting a response from the right person in the second line. The vast majority of our work is cleared at first line.

Melissa Tatton

And we have improved our performance and our ability to deal with calls at first point of contact, which is something I am really proud of. We are strengthening our customer service centre and moving to a two-centre model, which will enable us to upgrade our flexibility and consistency. Alan is absolutely right. Sometimes the person you might need to speak to may well be out of the office. I think it might be far more frustrating to a customer to be passed on to another phone that then goes to answer machine or is picked up by someone else.

Wes Streeting

Okay, so it is not necessarily ideal from a customer point of view, but clearly something you are continuing to work at and making further changes to. Let me move on to the antecedent valuation dates and its implementation. Why does the VOA need a two-year gap?

Melissa Tatton

The gap set out in the legislation enables us to collect the evidence in advance. There is a complex process to doing revals—it is something the agency does really well. It has a strong track record, and we improve on it each time. Alan is the expert, but there are a number of stages. For us, the first stage is complete, but it is about gathering evidence. Is there anything that you wanted to add, Alan?

Alan Colston

Yes, there are often lags in the property market, depending on when the deal is done. Rent renewal or lease renewal might have a date of, say, 1 April, but the two surveyors involved in agreeing that deal might not agree that rent for nine or 10 months afterwards. The antecedent valuation date gives us the best possible window to gather all the available evidence.

Wes Streeting

How can you deliver more frequent valuations if you need so long to agree each listing?

Melissa Tatton

The process for each reval is normally around three years. We will be starting by 2024, which sounds like a long time away, but probably isn’t. It is sooner than we would have done previously, and it will require us to work differently.

Wes Streeting

Finally, let me turn to staff perceptions and staffing engagement. Your 2018 staff survey has only 28% positive responses to the question: “Senior managers in the VOA actively role model the behaviours set out in the civil service leadership statement.” Should we be concerned about the ability of senior managers to lead the agency through the challenges presented by check, challenge, appeal? Furthermore, your staff engagement level is also low by civil service standards. How do you feel about that situation?

Melissa Tatton

That troubles me. It is not the score that troubles me. What troubles me is how people feel about the organisation. Our scores have been at the same level for about the last six years. I don’t think there is any correlation with CCA at all. I am out and about a lot, and I see people who are highly engaged and committed, but I recognise the scores. We really need to do something. This year, I and the senior team of which I am a part have committed to do something about the way that our people feel. We have three really clear priorities. The first is something that is very live at the moment: the point about leaders. We get very low scores at leading and managing change—our perception about doing that. That is something we absolutely need to tackle. By the end of July or the beginning of August, I and my senior team will have been out to visit—in person, as a group— each and every office to engage with people, listen to them and discuss how and why we are changing. It is very early days and I am hoping that will feed through, but early indications are that people welcome that approach. We are also ensuring that we engage people in change more directly, so they feel less “done to”. We are acting on feedback and tackling some of the niggles that people raised with us, and we are continuing to invest in training and development programmes.

Wes Streeting

What is staff retention and turnover like?

Melissa Tatton

Our attrition rate—I will have to come back if this is not quite right—is, I think, somewhere between 7% and 10%.

Chair

Could you confirm that?

Melissa Tatton

I will come back to you in writing.

Kevin Hollinrake

Mr Colston, you said earlier in your evidence that you encouraged surveyors or whoever to engage with you at an early stage, yet isn’t it true that you have taken away the direct lines for your surveyors? People cannot contact them anymore. I can describe one of the experiences that a local surveyor explained to me. You now call a call centre in Durham, which cannot connect you with any other regional offices. That is why they always tell you that somebody will ring you back within two working days. Most of the time, it takes 10 to 15 minutes to get through on this line. If they are busy, they switch you to other offices—my rating appeal in Wakefield could be dealt with by somebody in Exeter. Is that not an accurate description of what actually happens?

Alan Colston

No.

Melissa Tatton

No. We have moved to a customer-centred model, and we now have details of the core handling and waiting times—the average time is about 5 minutes. I am sorry if some people have to wait longer. The reason we moved to a two-centre model is to give greater consistency. Actually, that is one of the ways to drive efficiency. Some of the work is done nationally rather than locally, and it enables us to make the best use of the resources that we have. I don’t know whether there is anything more that you wanted to add about how you can work with a surveyor once you get in more detail.

Alan Colston

Yes, we have a regional valuation unit structure and a national valuation unit structure. If it is a regional case, they will deal with somebody usually within that region. If it is a national case where there is a national rental market or there is a particularly complex valuation, they will deal with somebody in a different part of the country because it is a national team. It very much depends on what case it was.

Kevin Hollinrake

But the reality is you have taken away the direct lines for the surveyors, which they had before, and made it more difficult to engage with the surveyors that you said earlier you encouraged them to do.

Alan Colston

They have phones and mobiles. They might not be contactable at that particular point in the example that you raised, but they certainly do contact them. Quite a lot of our information is done online now through our digital portal, so there is an exchange of information online rather than by phone.

Kevin Hollinrake

So those phones and mobiles are made available to the people who are trying to go through this process?

Melissa Tatton

Can I take us back to—

Kevin Hollinrake

Is it a yes or a no to that question?

Alan Colston

It depends on which part of the process you are referring to and what the nature of the query was.

Kevin Hollinrake

Is it available at the check stage? At which stage is it available?

Alan Colston

For surveyors it would probably be at the challenge stage. They should be contactable at the challenge stage.

Melissa Tatton

Can I go back to the objectives of check and challenge? It’s about ensuring we make the best use of the resources we have, in particular our surveyors. Having people go through the check stage in the first place enables us to deal with straightforward, factual, accuracy points, at which point you should not need to engage with a surveyor. It really is very simple to go and confirm the facts of your case or amend them if you believe them to be different. That is not a stage at which you would normally need to engage, unless Alan tells me differently, with a surveyor. That means you are then engaging with surveyors. Once you have gone through the challenge stage and put your evidence forward, that is a part of the system.

Mr Simon Clarke

To continue on the theme of the check, challenge appeal, can I raise the issue of multi-site businesses, which at the moment have to appeal multiple sites independently. They cannot do it all in one go, which I understand they can in Wales, thanks to an “authority to act” provision, which the VOA has introduced. Why does England have this situation?

Melissa Tatton

I don’t know. I was going to pick up and explain APIs, which have enabled people to do the bulk property linking that is in place. Is there anything that you want to add?

Alan Colston

Wales does not have check, challenge and appeal currently.

Mr Simon Clarke

So Wales effectively is in a completely different situation and does have the ability for multi-site business to all be grouped together into one application.

Alan Colston

It is largely the same system as the 2010 list. In England, check, challenge and appeal came in on 1 April 2017.

Mr Simon Clarke

I appreciate there is this distinction, but why hasn’t that feature been incorporated into England because, however much the old system clearly had its drawbacks, the ability to process an application for multiple sites in one go if you happen to own multiple sites seems logical regardless of the system?

Melissa Tatton

One of the improvements that we made in our May 2018 improvement plan was to allow you to create multiple property links through an API. That was one of the key features. We know that that is something that our customers and stakeholders were very keen for us to put in place, and that is now in place.

Mr Simon Clarke

Is your answer that that is the route people should go down if they find themselves in that situation? In terms of the VOA online system and whether or not it is fit for purpose, we have heard that the software is still in beta mode, which means that significant changes occur with minimal notice; that electronic interfaces between businesses and the VOA are still being tested; and that overall the system is seen to lack core functionality. Do you recognise that description?

Melissa Tatton

No. Beta systems happen in government. It means that you continue to look at other opportunities. It does not mean that we do it at short notice at all. If we made a major change, we would obviously notify our customers. There has been some misunderstanding with the application interfaces. The APIs have all been tested, and are working and monitored. All of those things are being done in line with normal industry guidelines.

Mr Simon Clarke

Is it or is it not the case that the website is still in beta mode?

Melissa Tatton

It is still in beta mode, but I would not read too much into that. That is standard. It does not mean that it will radically change.

Mr Simon Clarke

Just to take the written evidence we had from Gerald Eve LLP: “It is unacceptable that some two years after the compilation of the 2017 List the VOA systems remain in beta mode and have been developed with only the occupier of a single property in mind…The VOA portal is subject to ongoing change which means that the method of communication by the VOA varies from direct e-mails to dashboard updates with no consistency or reasonable warning as to when changes will occur. The nature of the beta mode has resulted in some significant changes being made which have caused major operational difficulties to most substantial users.” Are they just wrong? Is that just frankly not right?

Melissa Tatton

We have made changes that our customers and stakeholders have been keen for us to deliver. We engage really closely. There is a particular forum—the eComms forum—which Alan is familiar with, in which we engage, provide notice and issue information, so I am surprised that this has come as a surprise to people. The changes we have made have been changes that people have wanted.

Mr Simon Clarke

Who comprises that forum?

Alan Colston

It is comprised of our IT developers and the main ratepayers, their agents and their IT developers. We worked hard to deliver things that they actually wanted to see improved, such as the technology talking to each other, which you just mentioned, and the APIs. We have APIs for property linking and for check and challenge. All those things have been delivered as part of the improvement plan that Melissa set out earlier.

Mr Simon Clarke

Was the current system actually tested on businesses before it went live?

Melissa Tatton

Before it went live it would have gone through standard beta testing.

Mr Simon Clarke

I suppose I am asking whether it was piloted before it went full scale across the whole system.

Alan Colston

It was certainly tested but, as we acknowledged when it was launched on 1 April 2017, it was an individual system—you had to individually check and challenge. It was functional and live, and it was tested, but we have improved it substantially for large ratepayers and their advisers over the last 12 months.

Mr Simon Clarke

We have heard from businesses such as John Lewis that it has taken them a year to register their business and their property on your system. I assume that John Lewis has a highly sophisticated team of computer specialists and has great expertise in property management. If it has taken them a year to register all their businesses, does that not suggest that there is still a real problem with the system?

Melissa Tatton

I said before that we cannot comment on any particular ratepayer customer. In general, I do not recognise a year for registration. As Alan explained, registering can sometimes happen in moments, but for some it can take up to 15 minutes. I do not know whether there is some conflation between making a check or whatever, but I do not recognise it taking a year to register on the system.

Alan Colston

It is probably that they are not yet using the application that we have launched, which includes the multiple property linking functions and the API for check. They are probably just developing their systems now to be able to use that. However, I cannot comment on a specific case.

Chair

We will ask them to clarify. I am sure they are watching.

Mr Simon Clarke

It would be helpful to get an understanding of the particular circumstances. Finally, for a business to actually register with the VOA, an employee needs to provide varying amounts of very personal data, including their national insurance number, their date of birth, their P60, their payslips and their passport. Why, as a matter of necessity, does an employee need to share that with you in order to register things on your systems on behalf of their employer?

Melissa Tatton

I will briefly explain the registration system. There are two steps. One is to verify identity, which is what you are talking about, through the Government gateway system. You may well have an account for another Government service. That is standard. We don’t keep that data—it goes through HMRC. The second stage is to create a profile with CCA, for which we require your contact details and your name. Those are the only data that we keep in the system. One key thing we did as part of the improvement plan was simplify the registration journey, so that only the administrator for the company scheme needed to provide those details rather than everyone. We heard loud and clear that people did not like that, so we made it much simpler so that only one person in a company needs to do it.

Mr Simon Clarke

Just to be clear, if that employee subsequently leaves the business, I assume the VOA takes steps to ensure that their data isn’t retained.

Melissa Tatton

That data isn’t held by the VOA. My understanding is that it is held by HMRC, very safely and securely. I will need to come back to you on our exact process.

Mr Simon Clarke

It would be helpful to understand that process to ensure that we are not jeopardising people’s personal data.

Melissa Tatton

But personal data is taken very seriously by VOA and HMRC—

Mr Simon Clarke

I am sure it is, but it would be helpful to get on the record how that process works.

Chair

I am going to bring in Charlie in a moment, but on that point, did you have a discussion when you were developing the system about why there is a link between the Government gateway and your system?

Melissa Tatton

It is in order to provide some verification of identity to make sure that the right person is able to access the system. We spoke previously about the great amount of information about your property that we provide on check and challenge. In order to do that, we need to make sure that it is the right person accessing it, so—

Chair

Again, I do not think this is your problem, but there was a requirement somehow—somebody came up with the idea that they were going to get it. Let us say that my secretary decides to be the person responsible for paying business rates in my office or overseeing the challenge of the system, and she has to give all that personal data to act on my behalf, which is going to go to HMRC. She has not made the decision that she wants her details registered on the Government gateway with HMRC, yet somehow there is the Government hoovering up all that personal data. You can see how people would think, “Hang on, I’m acting in an employee capacity; I haven’t made the personal decision to register with the Government gateway, which might help me to find out my national insurance contributions in another guise.”

Melissa Tatton

I think ratepayers might value the fact that we are doing identity checks and making sure that we are verifying identity, which is standard for any digital system.

Chair

There are other ways to verify identity than P60s, as most of us know from financial systems.

Charlie Elphicke

Good morning. I want to ask about various valuation methodologies, because the system seems quite quirky. Let us start with pubs. There is the whole idea of a fair maintainable trade basis of valuation, which might have made sense in the days when tied pubs were the normal way of these things but, since then, the market has developed. We have pubcos that squeeze their tenants until the pips squeak and we have independent-type pubs as well. Do you think FMT is out of date? Would it not be more sensible to use a clearer profit-and-loss valuation instead?

Melissa Tatton

Alan is the expert on this one. I will let him explain in a bit more detail how we value pubs.

Alan Colston

The rateable value is an estimation of the rental value. Pubs have a rental market, so we use a rental comparison approach. We use that for 89% of the properties that we have in the list, actually. We cannot use floor space as a comparator—for shops and offices, we use floor space—because you could have a large old Victorian pub in a poor location trading poorly and paying low rent, and hence a low rateable value, and equally a modern pub in a really good location on a small floor plate paying a much higher rent. The market does not use floor space as a comparator; it uses the fair maintainable trade of a reasonably efficient operator. We are not valuing the actual occupier; we are valuing the property vacant and to let. The rent is determined by the trading potential of the property. A good pub in a good location will tend to pay a higher rent, and hence a higher rateable value, than a poor pub in a poor location. The scheme is agreed by a wide representation of the industry. I also refer you to the Royal Institution of Chartered Surveyors 2010 guidance note on capital and rental methods for valuing pubs, bars, restaurants and nightclubs. The concepts of fair maintainable trade and the reasonably efficient operator are included in that guidance. That is what the market does and that is what we then use in assessing the rateable value.

Charlie Elphicke

Let me put it to you again. You have a basis on which you think, “What could a decent well-run pub get out of this?”, but in reality, that is not necessarily the same thing as a profit-and-loss account. Would it not be simpler, fairer and easier to just use the straight P and L account basis of rating?

Alan Colston

We are valuing the property, not the occupier. We are looking at it vacant and to let and looking at the trading potential of the pub. The market values pubs using the approach I have just described, so all we are doing, in trying to assess the rateable value and the rental value, is using what the market does as an approach. To do anything else would be contrary to our necessity to arrive at a rateable value, which is an estimation of rental value.

Charlie Elphicke

So you think that fair maintainable trade is the right thing to do, and the VOA take the view that everything is fine and does not need any kind of changing or any review?

Alan Colston

I think the valuation approach is absolutely fine. There are 45,000 pubs in diverse premises. Inevitably, there is a wide range of rateable values and rents. We are reflecting the market in coming to our valuation for an individual property.

Melissa Tatton

It is probably worth adding that Alan’s people work really closely with the industry and with bodies that represent businesses large and small in that sector. The guidance that we produce is in consultation with those. We work really closely with our stakeholders.

Charlie Elphicke

My concern is that you have consultations—so you tick that box—and you might get a whole load of responses saying, “We really hate this valuation method.” You ignore them, but you say, “Well, we have consulted, and it is all in line with what the market wants.” I raise that because every pub and restaurant in my constituency seems to be complaining about this. Many Committee members find that in our constituencies, pub owners and restauranteurs complain about that. Something is not right here, is it?

Alan Colston

If the market set the rent in a different way, we would look at our approach. The fact is that rents are set in the marketplace using the approach I described. That is what we are trying to do, and assess the rateable value. That is not to say that we tick a box of consultation; we actively meet on a regular basis with the representative of the licensed trade. The 2017 scheme was agreed with five different industry bodies, so it has wide representative support. What you might be describing is the individual valuations on the premises, rather than the scheme of valuation. The scheme is consistent.

Charlie Elphicke

So if we call all five industry bodies to give evidence, they will all sit here and nod and say, “Yes, we are very happy with this scheme; it is great and wonderful, the VOA listened to us and we are happy.” Do you think they would say that?

Alan Colston

I hope so—it is published on our website and all the associations are shown as agreeing to the scheme.

Charlie Elphicke

Moving on, we now have another quirk in the system: valuation of pharmacies. What is the basis for the variation of using per square foot compared with using a rate per patient?

Alan Colston

Pharmacies are another diverse class—there are probably 3,500 pharmacies, give or take. You can have a very large department store-type pharmacy—I do not need to name those—and equally you can have a very small dispensing room in a health centre. What we do with pharmacies is to look at the underlying rental evidence and the rental approach. There will be a rental market for large shops, a rental market for small shops in retail locations and a rental market specifically where the property is located near, adjacent to or in a health centre. You will find that the relationship with size tends to break down when it is close to the health centre. There is a premium paid for the location of the premises, because you can come up to the doctor’s surgery and go straight to that chemist for a prescription.

Charlie Elphicke

Do you think it is reasonable to levy business rates on a pharmacy against footfall in the nearest GP surgery?

Alan Colston

What we are doing is reflecting the market and the rent paid. If the rent paid reflects the premium for that location, as it does with a pharmacy right next to a health centre, the rents tend to be higher and the rateable value will be higher. If the pharmacy is located in a shopping parade, you might find that the rents are very similar to the rest of the shops in that parade, and the rateable value will be similar.

Charlie Elphicke

Let’s take a Boots in a shopping centre, nowhere near a GP surgery—you are not valuing that on the basis of the rate per patient.

Alan Colston

Correct.

Charlie Elphicke

When do you make the decision to change the basis of valuation from a little pharmacy in a small town to a big pharmacy in some shopping parade?

Alan Colston

That would depend on the rental evidence for the particular property that we were valuing, and would follow the approach of the market in valuing that property. It would not be us who sets the market; we look at how the market has arrived at a rental figure.

Charlie Elphicke

In general terms, which methodology overall on a per-square-foot basis leads to higher business rates paid in reality? Are higher business rates paid by the little pharmacy or by the big town centre parade pharmacy?

Alan Colston

The rateable value would be much higher for a large store than for a small dispensary room in a health centre. The relative rateable value is probably higher for the small one.

Melissa Tatton

The rating system overall is clearly not one for us. Our role is really important, but it is limited to valuing the property for the purposes set out in the law.

Charlie Elphicke

The other question we sometimes get is about the different valuation bases for different types of shop. A forecourt shop in a garage seems to be more highly rated, and more expensively business rated, than, say, a large out-of-town supermarket, and then there seems to be a different basis of valuation for, say, a high street shop. Overall, it seems that the large supermarket does better. In addition, can you explain how the rating works with shops in airports? As you know, airports these days are shopping centres with a runway attached. Do they, overall, pay higher or lower?

Alan Colston

There were quite a lot of questions there. Let me start with the rental value for shops. The vast majority of shops are valued using a common approach—the comparison approach that I described earlier—and we look at the rents that are paid for shops. In terms of the high street, we would look at the rent paid within that high street. For the large supermarkets and the large national stores, there is a national rental market. There are rents paid for those particular shops, and we look at the rents that are paid in deriving the rateable value. We are always following what the market does, rather than trying to invent our own basis. There are about 5,000 petrol filling stations with a shop attached. The scheme was agreed with the industry for 2017. The underlying rental basis is comparative again, so we have rents on petrol filling stations with shops attached, and we follow the market. Again, that approach is agreed with the industry.

Charlie Elphicke

Then why have they been complaining to me about it from time to time, and saying that it is unfair and that out-of-town supermarkets get away with murder? Are they just making it up?

Alan Colston

I am sure that your constituents are writing to you with their individual concerns about their individual properties. What I am suggesting to you is that the rental market for a particular sector is what we follow. We do not make up the basis of the valuation; we follow the particular rental market for a particular class of property, and we look at how the market does it. That is how we then assess the rental value and rateable value.

Melissa Tatton

Our role is in the valuing of the property, not the overall business rates system.

Kevin Hollinrake

There seems to be a big difference between what information you think you provide at check stage and what the other witnesses are saying that you actually provide. You mentioned comparison data, Mr Colston. Could you send us some examples of what we would expect to see—typical examples of the basis of your valuation at check stage that people would see, having made that initial—

Chair

Redacted, obviously.

Kevin Hollinrake

Redacted for addresses and all that kind of stuff, but so that we could see exactly what basis these decisions are made upon, and what information is provided at that stage. Could you send us some examples? Alan Colston indicated assent. Melissa Tatton indicated assent.

Chair

Thank you both very much indeed for your evidence this morning. It has been very helpful. I think there are a few points that you are going to write to us on, including that last one, and we look forward to receiving that. Examination of witnesses

Witnesses

Jesse Norman MP, Rishi Sunak MP and Mike Williams.

Chair

Good morning to our second panel. I welcome back Mr Norman, who has been a member of this august Committee at various points in his political career in this place. I am going to ask you to introduce yourselves for the benefit of those watching, and then we will get started with some questions.

Rishi Sunak

My name is Rishi Sunak, Minister for Local Government.

Jesse Norman

I am Jesse Norman, and I am the Paymaster General.

Mike Williams

I am Mike Williams, and I am the director of business and tax at the Treasury.

Chair

Lovely. You might have heard some of the last session with the Valuation Office Agency. We have had a lot of evidence, as you might imagine. As MPs, we know that business rates generate a huge amount of interest in our constituencies. The firm conclusion of the evidence we have heard so far from those who are paying business rates is that we have a big problem in this country—the Treasury has a big problem. There is a system that is raising £30 billion a year, and it is regarded as inconsistent, inaccurate, unfit for purpose. It is not considered to be keeping up with the modern economy, and it is seen as putting businesses out of business, meaning that they are unable to pay their bills. The situation is deeply unsatisfactory, and the status quo cannot be maintained. Do you agree, Mr Norman?

Jesse Norman

Thank you, Madam Chair, for having me along. I am unaccustomed to being on this side of the rotisserie. I am grateful to you for inviting me and my colleagues to talk to the Committee. I speak with the benefit of six weeks of experience in this job about an area of tax that people struggle to master in 30 years, but let me say a couple of things. I quite disagree with your characterisation of this system. There is no doubt that the system of business rates is struggling for contingent reasons, which have struck it over the past few years, but I am far from agreeing that it is chronically broken or should be replaced. Let me develop that point, and then you can tell me why I am hopelessly wrong.

Chair

Very quickly.

Jesse Norman

First of all, the system collects 98% of the tax that is due. Very few other taxes do that, anywhere in the world. That is an attractive quality. It is easy to see who is liable, relatively speaking. It is hard to evade and easy to collect. It has all the good qualities that you want in a tax system. That has been recognised by the IFS, the OECD and a whole suite of outside experts. You have heard a lot of testimony—I have read all the testimony you have received—from different sources, many of whom pay the tax or represent people who do. There are undoubtedly concerns, which it is important to address, and which I know we will discuss today, but I do not think that the system is irretrievably broken. I also do not think that anyone has yet come up with a suite of alternatives that would raise anything like the amount of money that this does, let alone as equitably and as well.

Chair

Leaving to one side the amount it raises—although it has outpaced the rate of CPI and RPI, so it is unsustainable on that basis—

Jesse Norman

Hold on a sec. I don’t agree with that either.

Chair

It just has.

Jesse Norman

To look at it another way, it currently takes—depending on how you measure it and who for—£25 billion to £30 billion. It operates at about 1.25% to 1.5%, depending on how you measure it, of GDP. That has been pretty stable.

Chair

Sorry, but the multiplier has gone from 34.8% to 50.4%.

Jesse Norman

That is true. You were talking about the amount that it takes; I am just pointing out that it takes, roughly, the same amount of money as it has taken—

Chair

Absolutely not. The increase at a gross level is from £10.4 billion in 1990 to well over £30 billion, well outstripping the rate of inflation, whatever measure one uses.

Jesse Norman

Madam Chair, you are a former Financial Secretary to the Treasury as well as Chair of the Treasury Committee. You will know that if you gross up £10 billion over 29 years by 2% to 3%—that is what we are talking about, if we are talking about long-term interest rates or inflation—you can get into the order of £20 billion to £25 billion, so I do not accept that it has changed enormously.

Chair

This is going to be a really painful session if we carry on like this, Jesse. [Laughter.] I am not laughing. I am interested in the fact that the Treasury appears to put more weight on the views of the IMF and the OECD than on those of the constituents that we are sent here to serve, and the businesses that are trying to thrive in your constituency, my constituency and the other Minister’s constituency.

Jesse Norman

I do not think there is any evidence for that at all.

Chair

That is basically what you have just said.

Jesse Norman

Absolutely not. We take those issues extremely seriously. You will have heard from the Valuation Office Agency that it takes them seriously as well, no matter what other difficulties it may have. You asked a question, which required some expertise, and I have quoted a series of experts in support of my view. I do not think that is inappropriate.

Chair

First of all, the issue of how much is paid has come from Gerald Eve, which used the system a great deal and advised on it for many decades. The pillars of good taxation are that it should be fair, support growth, encourage competition, provide certainty and be coherent. The business rate system fails on every single one of those. It is perceived as unfair, on the basis that there are bricks and mortar businesses paying taxes and those online that are not, or that are not paying sufficiently; it is not supporting growth and encouraging competition, because businesses on the high street are being put out of business; it is not providing certainty, because there is no duty on local authorities to provide advice on reliefs and we have to wait until every Budget to know what the reliefs might be for the following year; and it is not necessarily coherent, because, as we have heard, many businesses are unable to work out their own valuations due to the inadequacies of the information on the system.

Jesse Norman

This is going to be quite painful. Of course, whether you think something is fair depends in part on what norms of fairness you apply to it. In this case, business rates are levied neutrally across businesses and sectors, by and large, allowing of course for democratically agreed reliefs. The rates are based on rents, which are agreed, by and large, in open market transactions between the two sides. They are based on the same calculation, by and large. There is the capacity for appeal. Those are not characteristics of an unfair system. I could go through the other ones as well, if you would like.

Chair

You are very welcome to do so, but I am going to ask you a question. If the business rates system is not broken, why are so many reliefs needed?

Jesse Norman

This is a very important point. There is no doubt that the circumstances of the 2017 revaluation created a serious temporary difficulty. The question for the Committee is, in part, whether it regards this as a temporary difficulty or as a sign that the system is irretrievably broken. There is no doubt that when a tax system has lots of reliefs in it, that is a sign that the system is under a lot of pressure. Business rates, for the reasons the Committee has identified and have been amply testified about in previous testimony, are under some pressure. In the 2017 valuation, as you will recall, you had a situation in which there was a unique combination of relatively high inflation applied and a relatively low increase in rents. That created difficulty. There are important things that the Government can do to try to restrain and respect that, but, as a temporary matter, it is using reliefs. Over the longer term, one would expect it to move to more frequent valuations, and with more frequent valuations should come a much smoother link to the way in which economic activity is changing and, of course, hopefully a reduction in the requirement to appeal because the effects are less lumpy.

Chair

We have had evidence from a number of people saying the burden of business rates is just too high, and that is why there have to be reliefs. It is interesting: we have moved in your testimony so far, in a few minutes, from, “It’s a system that meets all the relevant tests, which experts say is fine,” to, “It’s one that is under some pressure.”

Jesse Norman

I didn’t say that. That is simply not true, I am afraid.

Chair

We are going to move on. I am going to ask you whether you think the business rates system is sufficiently responsive to changes in the local economy.

Jesse Norman

The answer is no. There are definite pressures in that area as well. Of course, there is a degree of responsiveness. It is responsive to relative changes—in economic activity between the north and London, to take an example—but it is not as responsive as we would like, and it is not as responsive as a better functioning system would be. If we had more frequent valuations—this is why the Government are trying to reduce the length of the revaluation periods—you would have a more responsive system. I have not suggested it is perfect on any of the criteria; I have just indicated that there is a case to be made on all four and actually it does okay on all four, considered as a system, although one has to recognise it is under some pressure at the moment.

Chair

I think “does okay on some measures” would be challenged by those who have given evidence and those who are watching. You will have heard some of the evidence from the Valuation Office Agency. One of the issues in relation to the Valuation Office Agency is the ability to challenge the system when there has been a material change of circumstance—this might be something Minister Sunak has a view on as well—relating to events that disrupt the business, such as roadworks outside the building. Of course, if the event relates to an entire street, it results in multiple material changes of circumstances being raised by each of the businesses potentially affected, and of course they are not able to do that while the event is going on. Things like roadworks, particularly if they go on for some time, potentially affect the likelihood of survival of a small business. Why does the system make it so difficult for people to say, “Actually, this is affecting our takings. We need some extra help here”?

Jesse Norman

Again, that is a good question. Of course, there are discretionary reliefs locally, but the local government budget is under a lot of pressure. I do not know whether Mike or Rishi would like to comment on the other aspects, but the point is it is designed to build in a degree of flexibility. Part of the problem has been that the mandatory reliefs inevitably tend to be slower to implement and less well targeted than local reliefs and, as I said, the local government funding settlement is under some pressure.

Chair

Mr Sunak, what do you think about whether the system is responsive to changes in the local economy?

Rishi Sunak

In our Department, we do not have policy control over business rates—which I know you are aware of—so it is hard for me to comment further than what Jesse said. However, we have the legislative responsibility, and one of the Bills that we are bringing through Parliament is the shrinking of the time between revaluations. Currently, it is five years; there have been long-standing calls from business to reduce that period in order to make the system more responsive to economic conditions changing on the ground. The Bill going through Parliament is saying that we should do it at three years, which strikes the right balance between more responsiveness and having some stability in your rates bill. We have had evidence sessions on business and rating, and companies seem to be relatively fine with that being the right trade-off. It will make an improvement—clearly, five years is a long period—and it is something that all businesses have called for. It was also a Treasury commitment in the Budget last year, and we are now delivering on it.

Chair

We will move on to the Chair of the HCLG Committee.

Mr Betts

To follow on, the Treasury seems awfully resistant to change—to recognising the changing world we are living in. Is it fair that Amazon pays 0.8% of its turnover on business rates, but most shops on the high street pay between 2% and 6%?

Jesse Norman

In general, the criticism is a fair one. The Treasury is often quite resistant to change, and that is because it operates in part under a mandate to continue to collect tax, and the stability of the tax system and tax revenues has been a priority of Government ever since tax was invented. That’s hundreds of years old. It is a fair criticism. What is interesting is that in this case, that does not really apply to this new digital services tax that we are bringing forward. It is not intended or likely to raise an enormous amount of money, but is a stopgap before we get a wider international recognition. It is not the same thing as an online sales tax; it is a tax on marketplaces and platforms, by and large. However, it represents a pioneering attempt to reach into the online marketplace and to fillet out some of the tax that is due. There are, of course, many wider issues—related to tax manipulation and movement of money around—that are for the taxman as well.

Mr Betts

It is not going to change the balance between Amazon and the high street, is it, in terms of the business rates paid?

Jesse Norman

I don’t think some of the testimony we heard was entirely consistent. There are offline businesses like John Lewis that are heavily online businesses as well and would push back against a poorly designed tax, but Tesco, which is more an offline business than an online one, is keen on the idea. People tend to talk their own interest, and the job of Government is to find a sensible way through.

Mr Betts

Why does the Treasury not at least accept that there is a problem here? Then it can find a solution to it, rather than simply resisting by saying that.

Jesse Norman

I do not think that there has ever been any resistance on that front. The reason why we are to have a digital services tax is in recognition of there being a problem. I have myself written extensively on the problem of what might be called rent extraction with the online platforms, and have even proposed various methods of my own outside the Treasury to address this. There is every recognition of what you describe.

Mr Betts

Right, but that is not what has come across so far. The Treasury has decided that it has gone a bit down the route of dealing with the digital issues and taxation, but it has not really started to address how that might affect the overall business rates system. Are you saying, as a Minister, that there is new thinking in the Treasury and that you will look again at this balance between who pays what in the business rates system, and look at ways to shift that balance more towards online sales?