My Lords, I do not think I have spoken in a debate before Second Reading in the Moses Room before and I do not think I have spoken when the department staff almost outnumber the speakers, which probably points out why we are in the Moses Room.
Many of the issues I am going to cover have already been covered by previous speakers. I am quite relieved about that. Given the vast experience in local government of one speaker and the experience in the property market of the other speaker, I am rather glad that I am covering some of the same ground, because we appear to be in the right place.
Covid has shocked the commercial lives of our villages, towns and cities across the country. As we have heard, the Bill is designed to help deal with one of the big aftershocks, rent debt. The Minister said earlier that there is £6 billion of rent debt. To put this into context, all town centres and high streets have been hit, but businesses with physical premises—bricks and mortar—tend to have suffered the most. For example, some shops have lost close to one year’s trading in value terms over the course of the Covid pandemic.
I am sure the Government will say that help has been on hand on during this process, which it was, but, meanwhile, as we have heard, rent has been accruing, Covid loans will soon need to be repaid and there is much catching-up to be done. It should be noted that the Covid shock has come on top of other difficulties that already make trading hard. The noble Earl, Lord Lytton, alluded to some, as did my noble friend. They include supply chain issues, difficulties hiring and retaining employees, wage inflation and energy costs. So this Bill is welcome, and the Minister will be pleased to know that we will be more in lock-step than we were during the previous Bill on which we worked together.
The Bill is important not least because a lot is staked on the way businesses develop going forward. Communities will be deprived of their focal points and their services if we get this wrong. Local jobs will go, and a deprivation spiral will sink further. The Minister set out the number of businesses that are currently in arrears—some 60%—which is falling, but what is the geographical breakdown? While “only” 40% of leisure businesses are still in arrears, are they focused in particular communities? My suspicion is that they are, so the concentration of damage will be higher in some areas than in others. Frankly, they will be the areas that have already experienced more problems. This is really important, and it is coming at a time when we are all being urged by the Government to reopen our economy.
As set out, there is a balance to be established between the needs of tenants and those of landlords. As has been said, it is in nobody’s interest for great
holes to open up across real estate. It is right that we should remember that not all landlords are large corporates. They are private individuals or small firms and, as my noble friend Lord Shipley pointed out, in many cases they are local authorities, which are quite big players in some communities. When the Minister kindly met me, he spoke about consultation. I should have asked whether local authorities have been explicitly consulted on this issue. I would appreciate an answer to that.
When it comes to striking a balance, we support binding arbitration as a way forward. Therefore, the role of the arbitrator will be crucial, and we heard comments along those lines. The Minister told us that he has consulted bodies which will serve up the necessary arbitrators and said that they are satisfied with the way this Bill is going. Although the Minister reported that they are confident that this process will be doable—I do not know whether it is straightforward—I echo some of the comments made on the complications. Not only will there need to be an assessment of what has been lost, which should be a relatively straightforward calculation, but there needs to be a reasonable sense of business prospects. This is a much harder call. That is not only because of the hardening business environment that I have just described but because consumer and work habits have changed. We do not know to what extent these changes are permanent and how they will develop, but we do know that those changes will influence the trading prospects of many of the businesses that will come up for discussion. The definition of “viable business” will by no means be clear-cut in a lot of cases. That has already been pointed out. My noble friend asked about challenging a ruling on the viability of a business, which I think will be an issue that rears its head. How will the department support arbitrators in the definition of “viable business”?
The next point is around the source and supply of arbitrators, which both noble Lords spoke to. It is not clear yet how many arbitrators the Minister believes are necessary, assuming the 7,500 figure is a reasonable estimate. Has that number been matched with the available people? Furthermore, what is the plan for quality control and training of these people? This comes to the point made by the previous speaker. This is a different situation and role. It is a national role, and we want to see equivalent quality across the country.
Does the department have some outreach plan to make sure that the arbitrators are working from the same statistics, for example, inflation estimates? If one arbitrator is using inflation estimates of one level and another is using a different one, their outcomes will necessarily be different. How will they be kept in line? That is just one area.
The Minister outlined that, using the code, we hope there will be a diminishing need for arbitration. In a sense, as he set out, the main purpose of this Bill is to put something in place that will not be used too often. He called it a “backstop”, a term which I was going to suggest, so we are in line on that one. Its presence will hopefully act as an incentive, as we have heard, to drive prior agreement before arbitration is called on. The access process for triggering arbitration is not
completely clear to me. I might have missed it in some of the guidelines, but it would be helpful if the Minister could outline how, if I am a landlord or a suffering tenant, that process is triggered.
Like the noble Earl, Lord Lytton, I have concerns about asymmetry. We discussed this when we met. When you have a big landlord and a small tenant, there is a clear opportunity for a mismatch. The Minister was clear when we met that the low cost of entry should prevent this being an issue, but can he explain how other costs will be controlled? How will the ancillary costs of preparing one’s case be limited? It is quite clear that a corporation with a large chequebook has much more firepower in preparing its case for the arbitrator than a small sole trader. Of course, sometimes the mismatch is in the opposite direction. It is not just the cost of entry but the cost of preparing one’s defence or offence in the arbitration process.
Assuming that the Government are successful in maintaining this low-cost, symmetrical situation, how will they communicate the availability of this process to landlords and tenants across the country? What is the communication plan sitting underneath all this?
I do not expect subsequent stages to be long, but I will set out a few questions it would be helpful to answer. What consultation has there been with local authorities? Are sufficient arbitrators available? What modelling has been done and what training and quality control process is sitting under this? Can the Minister remind your Lordships what constitutes an arbitrator? In our meeting he mentioned country solicitors. On reflection afterwards, a reg flag went up, given country solicitors I have known. Are changes planned in the arbitration accreditation process to acknowledge the new nature of this role? Will there be ongoing communication with arbitrators—for example, providing them with not just data and results but case studies of how those results arose, as a previous speaker mentioned—or are they effectively on their own, inventing it every time? What is the process for triggering arbitration? How will the Government go about communicating all this to tenants and landlords?
Even if this Bill is successful and the number of bankruptcies is reduced, there is going to be a waterfall of bankruptcies in our towns, cities and villages across the country. As well as this—and I would like the Minister to acknowledge it—there is other work to be done in maintaining local economies, particularly in the most underprivileged and least well-off areas. This Bill will not be sufficient to keep our way of life running in some parts of the country.
I look forward to hearing the noble Baroness, Lady Blake, and the Minister’s response to these speeches.
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