Examination of witnesses (Questions 120
- 139)
TUESDAY 9 MAY 2000
MR JOHN
BALLARD, MR
HENRY DERWENT,
MR MICHAEL
GAHAGAN and MR
MARK LAMBIRTH
120. So that is the assumption you have made
about the losses when the non-domestic rating multiplier was set
at 41.6 per cent?
(Mr Lambirth) That is absolutely right. The current
best estimate off the losses on the 1995 list is the best estimate
for the 2000 list as well.
121. When do you think you will be in a position
to make it really accurate?
(Mr Lambirth) That is a final and definitive figure.
As you know, the system requires us to make an assumption about
losses on appeal at the start of the process of the evaluation
cycle and we have to set a fixed adjustment to the multiplier
to have that in mind. In principle, however, if we turn out to
be wrong—and what we think has happened is we have now got
to a relatively stable rate of losses on appeal of about five
per cent forecasting for 1995 list—the legislation does
allow us, with the Treasury's approval and also with the consent
of Parliament, to raise the multiplier by less than the normal
RPI increase in any one year. So if we have aimed too high we
can make sure that we are not penalising industry that way round.
On the other hand, if we aimed too low there is no way we can
recover the shortfall.
Mr Blunt
122. What were the reactions of the CBI and
other representatives of business to the idea of moving to a banded
value system of business rates?
(Mr Lambirth) The stage we have reached, as you doubtless
know, is we have set up a small group of the key stakeholders
which is the business community, the Local Government Association
and the government departments who run this bit of the tax system.
We have also engaged in a consultation exercise ahead of this
summer's Green Paper in which we have sought views from the wider
community. I think the reaction across the board has been that
whilst people can well understand the attractions in principle
of a banding system, they have also pointed out to us some fairly
serious practical problems with it. I will cite just one example
which I think is the single most important one. On the council
tax we have nine[2]
bands. If you try to create nine[3]
bands to cover all businesses in the country for all hereditaments,
which is everything from an individual hoarding up to Heathrow,
you would end up with an incredibly broad band and the change
to an individual taxpayer's tax bill as a result of moving just
at the margins from one band to another could be very steep indeed.
So I think the consensus of the views that have been put to us
is that probably, despite its attraction, it does not work for
business rates in anything like the same way as it does for council
tax.
123. Has the Department carried out any analysis
of how rateable values of individual properties have changed in
the 2000 revaluation? If so, do the value of properties with similar
values in the 1995 list in either different sectors and/or different
parts of the country change in broadly the same way?
(Mr Lambirth) We looked at this obviously at the time
but I am not aware of any comprehensive piece of research that
gives definitive answers to those questions. It was quite difficult.
Other than the fact that there were some clear pronounced regional
patterns, obviously in Central London very steep increases indeed
for both retail and office properties, to an extent reversing
what had happened in 1995, with that exception it was extremely
difficult to identify any consistent pattern in what was happening.
On the face of it there were some quite odd looking results coming
out in some parts of the country and in some business sectors.
124. So you think that after your review of
the business rate valuations you are going to be able to come
up with a significantly better system than the one we have got?
(Mr Lambirth) The aims we set ourselves in the review
are mainly to try to find something that delivers rather greater
predictability and stability in terms of the tax bill for the
taxpayer and to Government and to local government in terms of
the cost of underwriting the scheme and receipts which local government
gets from it. To try to make it a bit simpler if possible and
to try to keep it reasonably fair I hope we have come up with
something that delivers across the board on those objectives.
125. If rateable values in London went down
by 40 per cent in 1995 and up by 60 per cent in 2000 it would
seem that you are not going to be able to get predictability,
are you, if the system is going to follow valuations?
(Mr Lambirth) There is a tremendous tension here.
For instance, taking transitional relief as an example, what we
had to do this year was first of all decide whether there was
actually to be a transitional relief scheme. It is not enshrined
in legislation, there is no political commitment to necessarily
running a transitional relief scheme. Then at relatively short
notice we had to devise the terms of a transitional relief scheme.
You are absolutely right, no individual ratepayer under a system
where the rateable value is adjusted to reflect movements in rental
value can have absolute certainty about what their rate bill will
be until the valuation is actually made. You could pre-determine
the terms of transitional relief schemes so the Department knew
exactly what the Government would do based on various types of
movement in the value of properties.
Mr Cummings
126. I am going to refer to non-domestic rating
of out-of-town centres. The Committee have been told that town
centres themselves are suffering because of the lower rateable
values applied to out-of-town shopping centres and warehouse-type
developments. Do you agree that out-of-town shopping centres and
shed-type developments have in the past been under-valued for
business tax purposes?
(Mr Lambirth) For business rate purposes they are
valued on exactly the same set of principles out-of-town or town
centre, which is by reference to the rental value. If out-of-town
developments have a lower rental value then obviously they will
have a lower rateable value; if they have a higher rental value,
as does happen in some areas of the country, then they will have
a higher rateable value. The rates bill is just following what
is happening in the rents of properties.
127. Do you agree with the formula that is laid
down?
(Mr Lambirth) Ministers have looked at the business
rate system. There are a few cases where exceptions have been
made and special one-off treatments have been agreed for specific
types of business. One that springs most obviously to mind is
rural post offices. In general, Ministers' views are to keep the
business rate system that they have inherited, that people understand
and that commands across the field a degree of acceptance from
ratepayers.
128. Do you feel that town centre developments
have suffered because of this system of rating?
(Mr Lambirth) I do not think I do agree that town
centres in general have suffered as a result of this system of
rating. For example, there are plenty of areas of the country,
Sheffield for example, where for the Meadowhall Centre the rateable
values are roughly twice what they are in Sheffield City Centre
and Lakeside Thurrock, which is a prime out-of-town development,
are roughly three times what they are in Basildon Town Centre.
There is no consistent trend here. I do not think that our rateable
value system is doing anything other than following the market.
People are locating out of town for a whole host of reasons, one
of them being particularly to attract lower rates.
129. So you think that the Inland Revenue has
it right in assessing warehouse-type retail outlets as warehouses
rather than retail outlets?
(Mr Lambirth) We are talking about very different
types of retail operations in out-of-town shopping centres. For
those which are a combination of a shop and a warehouse then the
retail component is valued on retail values and the warehouse
component is valued on warehouse values. That seems to me to be
a fair and reasonable system given what out-of-town developments
are doing. Those types of shops that operate on that basis are
trying to combine the advantages of warehousing with retailing
and, incidentally, that has benefits of Government policy as well
in terms of reducing transport movement.
130. You see, the Committee has been informed
that in earlier valuation lists Inland Revenue regarded these
warehouse-type retail outlets as though they were sheds and warehouses
rather than retail units. We all know the phenomenon which is
occurring at the present time of factory outlets on out-of-town
developments, indeed there is a very large one in the pipeline
for my area which has been given the go-ahead by the Secretary
of State. Are we on the same wavelength here? Are you contradicting
the evidence given to the Committee?
(Mr Lambirth) My understanding of the current Valuation
Office Agency practice, and I will check this and if I am wrong
I will send you a note on it, is where you are dealing with something
like a DIY outlet which combines both a warehouse function and
a retail function, the two parts of the premises are rated separately,
part as retail, part as warehouse.
Chairman
131. In my area, and I think in many parts of
the country, you have got B&Q Warehouses, that is what they
call themselves. They have a huge amount of storage and shoppers
are able to go around almost all of the aisles, although it is
quite difficult to pick things out six feet or more up, but that
is the situation. Are those really rated as warehouses or are
they rated as shops? If not, how do you split the rating between
the two?
(Mr Lambirth) My understanding of current practice
is that they are rated as a combination of the two. I would need
to give you a note on precisely how this is done and, also, if
that understanding is wrong to correct it.
Mrs Ellman
132. You are considering adopting a grant distribution
system based on local authorities' corporate plans. How is that
going to be done? Who is going to make the assessment on the work
of those plans, on what basis?
(Mr Lambirth) We are quite a long way from final decisions
on that. What we have done so far is work jointly with the Local
Government Association to produce a report to the Central Local
Partnership which they considered back at the end of March. Ministers
now intend to publish a Local Government Finance Green Paper in
the summer which deals with the revenue grant distribution system
with the capital finance regime and the issue we have just been
talking about, business rate revaluation. There will not be any
final decision as to whether the better approach is to stick with
trying to allocate grants wholly by formula or to move to a system
which takes account of local authorities' own forward plans until
the end of that formal consultation exercise, so it is quite difficult
to answer detailed questions about how a plan-based system would
work at this stage. What has been said to us quite strongly in
our consultation with the LGA by those authorities who are interested
in plan-based approaches is that they would expect the final decisions
to be taken by ministers and they would expect their authority
to have a day in court with a minister before those final decisions
were taken if we went down a plan-based route. That might be underpinned
by a lot of work by civil servants on appraisal of the plans and
possibly by people like the Best Value Inspectorate but the final
decision is very much for ministers. That is what has been said
to us.
133. Is a corporate plan system seriously being
considered?
(Mr Lambirth) It is a very serious contender.
134. Does the Government have an unspoken policy
of taking over local government?
(Mr Lambirth) No, the Government does not have an
unspoken policy of taking over local government. In the Local
Government Finance Green Paper in the summer, one of the issues
I said we will be looking at is the capital finance regime. The
report to Central Local Partnership there said that nobody could
see any practical reason why we should not abolish credit approvals
or the existing requirement that local authorities come to government
for permission to borrow. There are a lot of pros and cons to
plan-based grant distribution systems but I really do not think
they are part of a sinister attempt by government to take over
local authority responsibilities.
135. Would a plan-based system mean that the
authorities doing something the Government approved of most got
the most funding?
(Mr Lambirth) Satisfying local government that is
not the intention is one of the biggest issues we have to address
in terms of framing the Green Paper. It is a very understandable
fear of local authorities that central government's objective
will prevail at the expense of local authorities' objectives.
That is not the Government's intention. One of the attractions
of a plan based system is that it really does allow ministers
to take account of local circumstances and take account of what
individual local authorities are trying to achieve in a way which,
by definition, formula does not, but we will have to see how far
we can get on that in terms of providing that reassurance to local
government in the Green Paper thereafter.
136. Would that not be the judgment of the minister
not the judgment of the electorate in place of local authorities?
(Mr Lambirth) That is absolutely true, but the judgment
of ministers would be being made under a plan-based system as
now under a formula-based system in terms of determining how much
grant central government provides to local authorities. I cannot
see any way in which that decision can be taken by anyone other
than ministers but the, risks, the fear, the concern about plan-based
systems is indeed at the end of the day a national judgment made
by ministers which does not override the wishes of local people
but puts very considerable constraints upon what a local authority
can do in terms of meeting those wishes.
137. Could not the national judgment of ministers,
as you described it, be at odds with the manifesto of a party
which had won an election in a local authority or indeed a manifesto
of a directly elected mayor?
(Mr Lambirth) The judgments that ministers would be
making would be, I think, within the context of proposals also
put to the Central Local Partnership about greater predictability
and stability in local government finance. The proposal there
is that there should be both floors and ceilings on the increases
in grant that any local authorities in England can get. Therefore
in framing their plans local authorities would be trying to make
out a case from moving from the floor level increase up towards
the ceiling level increase. At the end of the day all they would
be getting from ministers is a decision about the total level
of funding. They will not getting any sort of directive from ministers
not to invest in this or spend on this but instead to invest or
spend on that. They would only be getting a funding decision.
The fear on the part of local government is an understandable
one, not that ministers are going to give directives about how
money is spent but that some cases for increased funding will
attract ministers more than others.
138. You do not think this would be the case
where the local authority's wishes coincide with the minister's
wishes?
(Mr Lambirth) That is the fear on the part of local
government. One of the challenges in the Green Paper and thereafter
is to demonstrate the Government's seriousness about the local
best value plan and local community consultation driving this
as well as national priorities.
Chairman
139. Is this not actually going to enshrine
almost in perpetuity the whole concept of the present distribution
of funds, that those authorities that did well in the past are
going to be guaranteed that they will do well in the future and
those who did badly are going to get screwed again?
(Mr Lambirth) That is an issue that arises whether
you move to plan-based grant distribution or stick with formula-based
grant distribution if you accept the idea of floors and ceilings
on grant increases. The extent to which you are enshrining the
status quo depends on how wide the gap is between the floors and
ceilings but to a degree you are doing that no matter where you
pitch the floors and ceilings. Nevertheless, I have to say the
reaction of local government, and local authorities of all shapes,
sizes and descriptions, has been that the degree of predictability
and stability they have had in recent years as a result of the
three-year spending review settlements and the SSA formula freeze
has been a tremendous boon to them. It is not just us saying that
floors and ceilings look to be an attractive long-term solution,
it is very strongly the view from local government itself from
officer level and from member level.
2 Witness correction: eight. Back
3
Witness correction: eight. Back
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