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Manchester City Council (20 007 626)

Category : Benefits and tax > COVID-19

Decision : Upheld

Decision date : 03 Jun 2021

The Ombudsman's final decision:

Summary: The Council was at fault because it registered the complainant’s business at the wrong address for business rates. This meant the business was then wrongly given small business rates relief. The Council has agreed to waive a portion of the backdated payments it now requires the business to make. The Council was also at fault because it did not consider the appropriateness of reclaiming a wrongly-paid small business grant. It has agreed to do so now, and apply the same consideration to any similar future case.

The complaint

  1. I will refer to the complainant as Mr F. Mr F acts as the representative of his business, in its complaint.
  2. Mr F complains fault by the Council means the business is required to pay back a £10,000 grant it received through the Covid-19 Small Business Grant Fund. And, while the business may instead have a qualified for a £5,000 discretionary grant, it was too late to apply for this by the time the Council’s fault came to light. Mr F considers the Council should pay the grant retrospectively to remedy the injustice its fault has caused.
  3. Mr F also complains that, if the reality of its situation had been apparent sooner, the business would have applied to the Coronavirus Job Retention Scheme (the ‘furlough’ scheme). He says the business has therefore missed out on this financial support as well.

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The Ombudsman’s role and powers

  1. We investigate complaints about ‘maladministration’ and ‘service failure’. In this statement, I have used the word fault to refer to these. We must also consider whether any fault has had an adverse impact on the person making the complaint. I refer to this as ‘injustice’. If there has been fault which has caused an injustice, we may suggest a remedy. (Local Government Act 1974, sections 26(1) and 26A(1), as amended)
  2. This complaint involves events that occurred during the COVID-19 pandemic. The Government introduced a range of new and frequently updated rules and guidance during this time. We can consider whether the Council followed the relevant legislation, guidance and our published “Good Administrative Practice during the response to COVID-19”.

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How I considered this complaint

  1. I reviewed Mr F’s correspondence with the Council, and the Council’s (now withdrawn) discretionary grant policy.
  2. I also shared a draft copy of this decision with each party for their comments.

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What I found

  1. During the financial year 2018-19, Mr F’s business moved into an office in a shared building. I will refer to this as Office 1. The business contacted the Council to set up its business rates account, and sent it a copy of its lease agreement.
  2. The Council registered the business for business rates, but wrongly recorded it as occupying a different, smaller office in the same building. I will refer to this as Office 2.
  3. Unlike Office 1, Office 2 is small enough for the occupier to qualify for Small Business Rates Relief (SBRR). This meant the Council did not charge the business the full rates for 2018-19, 2019-20, or initially for 2020-21.
  4. In March 2020 the business successfully applied for a £10,000 grant through the Small Business Grant Fund, after it was introduced as part of the Government’s Covid-19 relief package.
  5. In July 2020, the Council’s error came to light. In August, the Council wrote to Mr F’s business to explain this, and that, because Office 1 did not qualify it for SBRR, it must now make backdated payments to make up for being undercharged in previous years. The Council also asked the business to repay the £10,000 grant, as this was only available to those which qualified for SBRR.
  6. Mr F submitted a complaint to the Council on 7 September. He said he had emailed the Council on 7 August to discuss the grant repayment, and how it would affect the business, but had had no response yet. Mr F also complained the information the Council had sent about the backdated rates payments was unclear, and said the business was therefore now disputing these payments.
  7. The Council responded on 16 September. It acknowledged it had made the initial error in registering the business at Office 2, and noted the lease instead named Office 1, but said neither Mr F’s business, nor the actual occupiers of Office 2, had questioned the various invoices and notices they had received since. The Council said Mr F’s business had also referred to Office 2 as its address in later correspondence.
  8. The Council explained it had now confirmed which office Mr F’s business occupied, which was under a different name in the rating list. As Office 1 is above the rateable value threshold for SBRR, this meant the business was eligible neither for relief nor the grant.
  9. The Council provided a breakdown of what the business owed for each of the relevant financial years, but explained it had transferred over the payments the business had made under its 'Office 2’ account. This left a balance of roughly £17,000 for the business to pay. The Council said it had amended the business’s instalments to account for this.
  10. With regard to the small business grant, the Council explained again it must require the business to repay it.
  11. The Council upheld Mr F’s complaint because of its original error in the address, and also because of the delay in responding to his correspondence. It said it was taking steps to reduce the volume of outstanding correspondence, and identifying possible training needs to avoid a recurrence of the error with the address.
  12. Mr F submitted a Stage 2 complaint on 22 September. He said the Council’s fault had caused the business a significant financial loss, because it had missed the opportunity to apply for a discretionary grant of £5,000, for which it would have been eligible had it not wrongly received the small business grant. In addition, because the business had received the small business grant, and SBRR, it had decided not to furlough two members of staff, which in hindsight it should have done. The business had therefore missed out on this support as well.
  13. Mr F also complained the backdated payments the Council had invoiced the business did not make sense. In particular, Mr F said he could not understand why the business owed approximately £4,000 for both financial years 2019/20 and 2018/19, when it had moved into Office 1 partway through the 2018/19 year.
  14. Mr F said the financial loss would have a significant impact on the business. He asked the Council to reimburse it for the lost £5,000 discretionary grant, and the approximately £19,000 Mr F estimated the business would have been able to claim through the furlough scheme. He also asked it to provide further evidence the backdated payments had been correctly calculated, as well as to confirm the business was now registered at the correct address, and that the office’s rateable value had been correctly calculated.
  15. The Council responded on 3 November. It acknowledged the business’s desire to avoid relying on the furlough scheme, but said the scheme had been available for it to use. The Council said Government guidance required it to reclaim grants which had been paid in error, and that the business had been “put on notice” about the error when it received wrongly-addressed invoices. It also said the Government did not allow it to pay any further discretionary grants after 30 September.
  16. The Council confirmed the backdated payments were correct. It said the full charge for the partial year 2018/19 was approximately £5,000, but this fell to approximately £4,000 when it transferred the approximately £1,000 the business had paid at the time (for Office 2). Similarly, the full charge for 2019/20 was approximately £8,000, falling to £4,000 to account for what the business had paid at the time. The Council explained Mr F could contact the Valuation Office Agency if he wished to challenge the rateable value for Office 1.
  17. The Council referred Mr F to the Ombudsman if he wished to pursue his complaint further.
  18. Mr F complained to the Ombudsman on 9 November.

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Legislative background

Business rates

  1. Business rates (also known as national non-domestic rates [NNDR]) is a local tax on business premises. The Valuation Office Agency (VOA) keeps the business rating list and decides if a property should be rated. The VOA also decides the rateable value of the premises, and the date each premises should enter and leave the list. The local authority then collects business rates, calculated on the rateable value of the relevant premises.
  2. A dispute about the VOA’s decision can be appealed to the Valuation Tribunal. Disputes about whether a particular person or body should be liable for business rates are heard in the Magistrates’ Court.

Small business rates relief

  1. If a business occupies a single premises, which has a rateable value below a set level, it can claim SBRR. This means it will either pay reduced rates, or no rates at all.

Covid-19

  1. In response to the Covid-19 pandemic the Government introduced support for businesses, including the small business grant fund and a discretionary grant fund.

Small business grant

  1. Businesses which, on 11 March 2020, received SBRR were able to apply for a payment of £10,000.
  2. Funding was payable to the person recorded as the ratepayer in respect of the business on 11 March 2020. However, where it was factually clear to the council on 11 March 2020 that the rating list was inaccurate on that date, it had discretion to award the grant based on their view of who would have been entitled to it.

Discretionary grants

  1. In May 2020 the Government published “Local Authorities Discretionary Grants Fund – guidance for local authorities”. This allowed councils to pay discretionary grants of £25,000, £10,000 or any sum under £10,000 to businesses which could not access other grant funding (other than the Job Retention Scheme). The value of the payment was at the council’s discretion. Businesses claiming the grant had to meet the following eligibility criteria:
    • Occupy a property, or part of a property, with a rateable value or mortgage payments of under £51,000.
    • Have relatively high fixed property costs.
    • Have suffered a significant fall in income due to COVID-19.
    • Be trading on 11 March 2020.
  2. The funding was aimed at:
    • Small and micro businesses.
    • Businesses with relatively high fixed property costs.
    • Businesses that have suffered a significant fall in income due to COVID-19.
    • Businesses which occupy a property, or part of a property, with a rateable value or mortgage payments of under £51,000.
  3. As a guide, the Government said the following types of business should be a priority for funding:
    • Small businesses in shared offices or other flexible workspaces.
    • Regular market traders with fixed building costs, such as rent, who do not have their own business rates assessment.
    • Bed & Breakfasts which pay Council Tax instead of business rates.
    • Certain charity properties.

However, councils could decide whether a business was similar and, if so, whether it was eligible for grants.

  1. Government guidance said, councils may want to consider the following when deciding on the amount of the grant:
    • The level of fixed costs faced by the business
    • The number of employees
    • Whether businesses have had to close completely and cannot trade online and
    • The consequent scale of impact of COVID-19 losses.
  2. Councils were asked to set out their discretionary grant scheme on their website, providing clear guidance on which types of business were prioritised, and how they would decide on the level of grant.

The Council’s discretionary grant policy

  1. The Council’s discretionary grant policy explains it would prioritise certain types of businesses, including those located in designated enterprise zones and charities. It would consider applications from other businesses after the priority applications.
  2. The policy also says:

“The Council has a fixed budget that is dependent upon our spend on other government grant schemes and we will be unable to help every small business in the city that has been impacted by COVID 19, due to the sheer number of businesses involved and the limit on the grant.

“The number of grants paid will ultimately depend upon the money that is available and even if a business meets all of the criteria within this document there will be no guarantee that a grant will be paid.”

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Analysis

  1. After Mr F’s business moved to Office 1, the Council wrongly registered it for business rates at a different suite in the same building, Office 2. This was because of confusion over the name of Office 1, with the business’s lease referring to it by one name, and the rating list by another. The name on the lease was, however, very similar to the name of Office 2 on the rating list.
  2. As the Council has recognised, this was fault. However, I acknowledge, as the Council has pointed out, this error was apparent in its subsequent correspondence with the business. For this reason, I consider the business must also bear some responsibility for failing to identify the error.
  3. There have been several direct consequences to this error. It meant the business underpaid its business rates for several years, because of the difference in rateable value between Offices 1 and 2, and also allowed the business to wrongly apply for, and receive, a small business grant. The Council now requires the business to make repayments to address both of these. Indirectly, Mr F also says the business has lost out on a discretionary grant, and the furlough scheme. For clarity, I will address each of these points in turn.
  4. I should say, first, the Council is not responsible for assessing the rateable value of business properties, and so it was correct to refer Mr F to the Valuation Office Agency if he has doubts whether Office 1 has been properly assessed.

Back payments

  1. The Council has calculated the business owes £17,032.78 in unpaid business rates, for financial years 2018/19, 2019/20 and 2020/21. It has arranged instalments for the business to make these payments.
  2. There is no reason for me to dispute the Council’s calculations, and so I accept these monies are properly owed. However, this is a very significant bill for the business to suddenly have to face. And, although I acknowledge the business had the opportunity to correct the Council’s error earlier, the fact remains it was the Council which made the mistake in the first place. The business provided a copy of its lease which clearly stated Office 1, and that this did not match any known entry on the rating list was something the Council should have investigated further.
  3. On this basis, I consider the fact the business now faces this significant bill to be an injustice.
  4. Where we find a council’s fault has left the complainant with a financial burden, we may consider recommending the council offer a financial remedy to help relieve that burden. This can be up to and including the full waiver of a debt. However, where we consider the complainant’s own actions, or omissions, have also contributed to the situation, we may instead recommend a partial waiver.
  5. I note the total figure includes business rates payments for 2020/21. But the Council’s error came to light only a short way into this financial year, and so I do not consider this figure represents a ‘back payment’ in the same way the previous years do. I will therefore exclude this element of £8,857.25 from my calculation.
  6. Of the remaining £8,175.53, I consider the Council should waive half as a remedy. This is £4,087.76. I have made a recommendation to this effect.

Small business and discretionary grants

  1. While the business was still wrongly receiving SBRR, it applied and received the £10,000 small business grant. By the time the error came to light, it was too late for the business to apply for a £5,000 discretionary grant, for which it may have been properly eligible. The Council now requires the business to repay the small business grant, but Mr F considers it should require repayment only of half, to reflect the money the discretionary grant money the business lost out on.
  2. I acknowledge Mr F considers the business would have received a discretionary grant, had it known it should have applied for one at the relevant time. I note Mr F says other, similar business with which he is familiar received discretionary grants from the Council.
  3. However, the Council’s policy explains the discretionary fund was a limited pot of money. Even where a business met the eligibility criteria for a grant, this did not guarantee it would receive one. The scheme worked on an essentially ‘first come, first served’ basis.
  4. And in response to my draft decision, the Council provided some further information about the discretionary grant scheme. It said, although Mr F’s business was eligible to apply under the scheme, the Council had prioritised grants for businesses whose premises did not have a rateable value. As a result, the Council had ultimately not paid any grants to those businesses with a rateable value, like Mr F’s.
  5. For this reason, I am satisfied there is no evidence Mr F’s business suffered an injustice because of the missed opportunity to apply to the discretionary grant scheme. Even if it had applied on time, the business would not have received a grant.
  6. This said, I am concerned the Council has given no consideration to the appropriateness of recovering the wrongly-paid small business grant.
  7. I asked the Council to explain its policy in such circumstances. In response, it referred to the Government guidance, which says:

“The Government will not accept deliberate manipulation and fraud – and any business caught falsifying their records to gain additional grant money will face prosecution and any funding issued will be subject to claw back, as may any grants paid in error.”

  1. The Council says its policy is therefore to recover grants paid in error, and that this is consistent with the guidance.
  2. I do not agree. The guidance makes clear distinction between the recovery of fraudulent payments – which “will” be recovered – and those of erroneous payments, which “may” be recovered. I consider this creates an expectation that authorities will use their discretion to decide whether to recover where, as in Mr F’s case, an erroneous grant has been claimed in good faith. The guidance does not require blanket recovery of such payments, regardless of circumstances.
  3. This is not to say the Council has no right to recover the money, but by failing to give any thought to whether it is appropriate to do so in this particular case, it is fettering its discretion. I consider this to be fault. This fault causes Mr F an injustice because he was entitled to proper consideration of the circumstances before the Council sought repayment.
  4. To remedy this, I consider the Council should now give proper consideration to whether to recover the wrongly paid small business grant. In doing so, the Council should take account of Mr F’s business’s individual circumstances, and the impact of recovery on the business, and also the reasons the errors here occurred.
  5. Further to this, I have considered whether the Council should apply similar consideration to the question of recovery of wrongly paid COVID-19 grants in any similar case.
  6. I do not have information about other similar decisions the Council has already made. But, if the Council has decided to recover other wrongly-paid grants, I must assume it has also not given these cases the consideration I have found fault about here. It is possible, therefore, there are cases where the Council has recovered money, which, with hindsight, it might now consider inappropriate.
  7. However, I am conscious of the practical difficulties reviewing these previous cases will present. On balance, I consider it would be disproportionate to recommend the Council go back and review the recovery decisions it has already made.
  8. I do not consider the same limitation should apply to any future case though, and so I have made a recommendation to this effect.

Furlough scheme

  1. Mr F also says, had the business understood its true financial position, it would have furloughed two staff and applied to the Coronavirus Job Retention Scheme to cover their wages. Instead, the business decided it could afford to keep these staff on, because it was receiving SBRR and the small business grant. Mr F estimates the business has lost out on approximately £19,000 of support because of this.
  2. I understand Mr F’s view here. However, as the Council has said, the furlough scheme was available for the business to use. The fact it had received SBRR and the small business grant did not preclude it from using the scheme, and so I cannot say its decision not to was the direct result of the Council’s fault. I am also unable to investigate what the business may have received from the furlough scheme, as it is administered by central Government and is therefore outside our jurisdiction.
  3. In any case, and without dismissing his comments, I cannot rely solely on Mr F’s assertion, for what the business would have done in a different, hypothetical situation, as evidence to support a finding of injustice. Although the Ombudsman may make such findings on the balance of probabilities, we still need to see some form of persuasive, objective evidence first.
  4. I therefore cannot find the business has suffered an injustice through its decision not to rely on the furlough scheme.

Recommended action

  1. Within one month of the date of my final decision, the Council has agreed to:
  • waive £4,087.76 of the backdated business rates payments arising from the fault. If Mr F’s business has already paid more of the backdated business rates than £4,087,76, the Council should reimburse the balance;
  • give proper consideration to whether it is appropriate to recover the wrongly paid small business grant, in whole or in part. The consideration should take into account the business’s ability to repay it, the impact on it of repayment, and the reasons the grant was wrongly paid. It is for the Council to decide if it needs further information from Mr F’s business as part of this consideration.
  1. And within two months of the date of my final decision, the Council has agreed to:
  • circulate guidance to all relevant staff, explaining they should give similar consideration to the individual circumstances of the case, when deciding whether to recover a COVID-19 grant payment made to a business in error (where this is not the result of deliberate manipulation or fraud).

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Final decision

  1. I have completed my investigation with a finding of fault causing injustice.

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Investigator's decision on behalf of the Ombudsman

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