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Non-Domestic Rating (Collection and Enforcement) (Local Lists) (Amendment) (England) Regulations 2009

My Lords, I want to make it clear that I am not opposing the principle of the order, which seeks to give more time for certain port occupiers to pay a backdated and retrospective non-domestic rates liability, in order to avoid an immediate collapse of many, certainly in normal times, healthy businesses. The problem is that many businesses will become balance-sheet insolvent as soon as they receive their rate demands. For this reason, some local authorities have delayed issuing rate demands because they are waiting for this SI and its regulations. The situation is unusual. When matters go awry, it is usually due to the errors and omissions of Ministers some time ago. This is not the case today. The problem is that the Ministers are unwilling or unable to put the situation right. It may be helpful if I explain the background to the problem. In the beginning, at the time of the nationalisation of the ports, it was decided that it would be appropriate for the Secretary of State to prescribe the rateable value of the whole port. The local authorities raised a rate demand on the whole port based upon the prescribed rateable value. When the 55 statutory ports were privatised, prescription continued. The businesses within the port did not pay rates; they occupied premises within the port, under a licence, as part of a commercial contract with the port owner. The terms and conditions of those contracts would vary depending on the nature of the operation of the occupier. For example, it may have been a crane hire company, a stevedoring company, a storage company, a freight-forwarding company or any one of the numerous operations that take place within a port. However, rates were not an issue as they were covered by the port owner. Quite properly, the Government decided to return all 55 statutory ports to what are termed "normal rating principles"; in other words, the same principle which every business in the United Kingdom works under. This was fine, but in 2000 the then junior Minister at the DETR, Beverley Hughes, had to prolong prescription until 2005, and there were good reasons for that. The Valuation Office Agency has a statutory duty to compile and maintain accurate rating lists, which for the port businesses had to come into force on 1 April 2005. The VOA obviously had to undertake this valuation of the ports before that point. Unfortunately, the VOA woke up to its obligations only in 2006, and while it may have informed the port operators and owners, the port businesses and occupiers were not informed in advance of any change in the system or any increase in rates. We are not talking about one isolated firm being out of the loop; this affects many different businesses in many different ports. Businesses in ports are now receiving massive retrospective and totally unexpected rate demands. In many cases these are financially devastating. Of course, for some port businesses these increases are modest and they have been able to pay the rate demand without any serious difficulty. I have no doubt the Minister will draw your Lordships’ attention to this. Let me give a few examples to illustrate the magnitude of the problem. I have been informed that for each of the past four years TTS (Shipping) Limited has paid corporation tax, national insurance contributions and PAYE of between £425,000 and £860,000 a year. In 2007 its retained profit was less than £40,000 and it believes it has a backdated liability for rates of more than £1 million. If your Lordships should uncharitably think that TTS Shipping is a small firm which would benefit from improved information acquisition, how about DFDS Tor Line plc, which has a backdated rates demand of £9.9 million and an increased annual liability of £3 million. The MD of DFDS Tor Line has written to me indicating that his main board is considering relocating the business outside the UK. The rates bill of Freshney Cargo Services has gone from £48,000 to over £850,000, far more than its best ever year’s profit, and its retrospective liability is £2.4 million, something it never expected to have. All these businesses will have had proper plans and a proper cash-flow forecast. They had commercial arrangements with the port owners and their own customers and they thought they knew what their cost of operation was. Without the SI, these retrospective rate demands will have to be paid almost immediately. The effect of the SI to which my Motion refers is to give the companies concerned up to eight years to pay the rate demand. This demonstrates that a very serious problem exists, otherwise why would the Minister have done it? I am not opposing the order, because it will solve the problem for a few, but for many it will only prolong the agony in that on their balance sheet their liability will exceed their assets. However, if directors of affected businesses reasonably believe that they can trade through the problem, it might be legal to continue trading. Expensive legal advice will have to be taken—and often—because presumably every time they have a setback it will increase their liability on the balance sheet, and being balance-sheet insolvent will mean banking covenants may be breached; it will be even harder to raise finance, which is extremely difficult in any case; and if finance can be raised, it will be very dear. For many, the financial strain will be too much and the business will collapse, with the attendant loss of employment. Your Lordships will have noticed that the SI experienced a rough passage through this House’s Merits Committee. I will not rehearse the committee’s concerns in detail, but it was extremely disappointed about the amount of information accompanying the order and, therefore, the ability of Parliament to properly consider the regulations. There was also concern about European state aid rules being breached, but I shall not weary your Lordships with that argument. The situation I have described is serious. The regulations do not solve the problem; the solution is to revert to the old system of prescription and the original rating lists. It is important to understand that it is not as if the ports, and the businesses within them, were exempt from rates; it was just a different system. I am sure that the Minister will not tell us that no rating system was in place prior to 2005, and I hope that she will not suggest that I am proposing to write off the debt; I am not. I am suggesting reverting to the original system. Ministers constantly say that these retrospective rates are due under the law, which is quite right, but the law implemented by the Government is having completely unintended consequences that arise not from ministerial failings but, frankly, from incompetence at the VOA. Ministers need to go for primary legislation, delay implementing normal rating principles until April next year, and continue to use the old rating lists. I fully appreciate the difficulties that the DCLG and transport Ministers find themselves in. Even in normal times, it is not easy to find a slot for primary legislation. It will be even more difficult now; my noble friend Lord Bates will say a little more on this point from the Front Bench. I am convinced that, at some stage, the Minister will have to return to this House with primary legislation. I urge her to do that sooner rather than later. The Minister will not come to the Dispatch Box unarmed; she will tell your Lordships that many businesses are relisted during the year, and the ratings change. That is right, but the ports are different. If an ordinary business takes on new or altered business premises inland and is subject to the normal rating principles, any competent surveyor can indicate, reasonably accurately, what their rateable value will be, and hence the rates to be paid. An allowance for those rates can be made in the company’s business plan and cash-flow forecasts. If the local authority, for any reason, delays or omits to issue a rate demand, the business will not be able to organise a party. The estimated rates will have to be shown on the balance sheet as an accrual, and provision will have to be made in the cash-flow forecast. The ports, however, are different. The commercial arrangements between the port owners and port businesses were predicated upon the pre-2005 rating arrangements, so, for those businesses, rates were not an issue. They simply did not need to be considered by a port business, as long as the port was operating under the prescribed rather than normal rating rules. The Minister will say that to write off debt would be unfair to other ratepayers. First, I have already explained that I am not proposing a write-off. Secondly, to which other ratepayers would it be unfair, since there was always a rating system for the ports? Finally, the favourite phrase at the moment is, "in the current economic circumstances". These circumstances are not good; shipping is already badly affected, as the ports will be. We cannot save every business, but let us avoid making it unnecessarily difficult for those companies to survive our current economic problems. I beg to move.