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Session 2002 - 03
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Standing Committee Debates
Local Government Bill

Local Government Bill

Column Number: 417

Standing Committee A

Tuesday 11 February 2003


[Mr. Win Griffiths in the Chair]

Local Government Bill

9 am


    That the Programming Order of 21 January be amended—

    In the Table—

    (1) leave out first '11th' and insert '12th',

    (2) leave out '11.25 am at 11th sitting' and insert '7 pm at 12th sitting', and

    (3) leave out '12th and'.—[Mr. Woolas.]

Clause 64

Calculation of non-domestic rating multiplier

Question proposed [6 February], That the clause stand part of the Bill.

Question again proposed.

The Parliamentary Under-Secretary of State, Office of the Deputy Prime Minister (Mr. Christopher Leslie): We were dealing, with great sobriety, with the calculation of the national non-domestic rate multiplier. I believe that the matter was made clear and that I dealt with all the points fully in the debate last Thursday. I hope that the Committee is now satisfied on clause 64.

Question put and agreed to.

Clause 64 ordered to stand part of the Bill.

Clause 65

Rural settlement lists etc

Question proposed, That the clause stand part of the Bill.

Mr. Geoffrey Clifton-Brown (Cotswold): Will the Minister explain why the rural relief is being withdrawn for Wales but not for England?

The Parliamentary Under-Secretary of State for Wales (Mr. Don Touhig): The clause will allow the Assembly to prescribe a small business rate relief scheme. The detail of the scheme has not yet been decided. Consultations will take place with a number of stakeholders, including the CBI, the chamber of commerce, the Federation of Small Businesses and the Welsh Local Government Association. In due course, the Assembly will put forward proposals on how the scheme will operate. That is all I can say to the hon. Gentleman at this stage.

Question put and agreed to.

Clause 65 ordered to stand part of the Bill.

Clause 66

Transitional relief

Mr. David Borrow (South Ribble): I beg to move amendment No. 104, in

    clause 66, page 32, line 21, leave out

Column Number: 418

    'as regards a particular financial year'

    and insert

    'over the period of the rating list'.

This is a probing amendment. In the rating revaluations in 1990, 1995 and 2000 there was a problem with phasing in the new valuation lists. It was fairly easy to agree a phasing mechanism for those who would lose out as a result of the change, but was more difficult to do so for those who would benefit. In the previous rating lists, the phasing mechanism led to loss of income by the Treasury to ensure that it worked.

The Bill assumes that the gains will be the same as the benefits in each financial year of any phasing of the new rating list. Many people in the rating world suggest that the advantages to those who will benefit from any change will be balanced by those who will lose out during the five-year lifetime of the list.

Another suggestion is that the rate in the pound of the rating list should be increased slightly so that those who will benefit from the new rating list would receive the entire benefit in year one and throughout the life of the list. For those who will lose as a result of the changes, that would be phased in over the five years. The amendment does not specify that, but I ask Ministers to consider whether it is possible for the phasing to occur throughout the five-year lifetime of the rating list, rather than sticking to the rule that the pluses and minuses should balance out each year. Practice has shown that that is difficult to do, and that it has cost the Exchequer in each of the previous rating lists. I hope that the Government will consider the amendment in the spirit in which it was moved.

Mr. Clifton-Brown: With your agreement, Mr. Griffiths, I propose to stray slightly outside the terms of the amendment, and suggest that we do not have a clause stand part debate.

The Chairman: We shall see. I may think that that is in order.

Mr. Clifton-Brown: Thank you for that clear ruling, Mr. Griffiths. Now you catch me, now you do not.

This is an important clause, which establishes transitional arrangements as a permanent feature of the ratings system. Several professional bodies, including the Royal Institution of Chartered Surveyors, do not welcome it. We understand that the Government want to protect businesses against significant and sudden increases in business rates liability. However, the RICS is especially concerned by the proposal to make transitional arrangements self-financing from year to year by balancing reductions in rates liability for businesses because their properties have lost overall value following a revaluation and to delay increases in rates liability for businesses whose property has increased following a revaluation, as the hon. Member for South Ribble (Mr. Borrow) said.

Why has the discretion been removed? I understand that the Government want to make the transitional relief for small and large businesses self-financing for prudent financial reasons. However, it would be sensible to keep the current discretion. After all, the

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Chancellor decided to alter the business rate in the 1991 Budget, but had to propose separate primary legislation to allow himself to do that. I am not sure why the Government are removing that discretion from the Bill.

The RICS tells us that independent research has shown that downward phasing in the 1995–2000 revaluation cycle cost businesses some £3.5 billion. If a business has its rates reduced, it is phased so that it does not receive the full amount of reduction on revaluation to which it is entitled. That means that struggling small businesses are in effect being subsidised by large, successful ones. That cannot be fair.

British Energy made a separate point to us through the electricity associations. We heard that the valuation methodology was altered in 2002 so that large public buildings, and some large private ones such as power stations, were included for the first time in the rating system. The net result was that the rating assessments of the power stations were generally reduced, in some cases significantly. However, due to the provisions of downward phasing, which I have explained, there was only a partial benefit, and a significant premium was paid over and above the correct liability.

British Energy's rates liability with transition has resulted in a premium payment of over £146 million, or 123 per cent. of the liability without transition. That is a stark example of how downward phasing can affect those that have been revalued. The document goes on to say that the revaluation for 2005 starts on 1 April 2003. British Energy believes that, given current market conditions, the assessments of power stations are likely to be further reduced.

That brings us to another problem, which relates to different transitional cycles. This is where the calculation becomes extremely complex. Representations have been made to us that, when there is a new transition, the old transition should be phased out, because calculating a rates bill involves not only the transition of previous cycles, but all the other rates reliefs—for example, those for large and small businesses and for hardship and those where a property is unused or empty, or a charity and where businesses are in a designated rural area.

When one has one or more of those different transitional reliefs, trying to work out the actual rate payable can be extremely complex. It has been put to us that the Government should consider a form of phasing out to make it easier for the practitioners in the field to calculate the rates payable. With those preliminary remarks, it will be interesting to hear what the Minister has to say.

Mr. Edward Davey (Kingston and Surbiton): I wish to raise three issues, a couple of which the hon. Member for Cotswold (Mr. Clifton-Brown) has touched on. The first issue is whether the transitional relief scheme should be self-financing. The Minister will know because his officials have briefed him that, when the Conservatives introduced the uniform

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business rate, they had a non-statutory scheme for transitional relief to be self-financing. Initially, the Conservatives intended to be robust and stick to that scheme, but when the reality of revaluation came upon them and they heard the cries of the business community, particularly during a period when the economy was not doing so well under the fabulous economic management of the previous Conservative Government—I am using irony there—they had to relax that stance.

This Government are putting in a statutory control to require any transitional scheme to be self-financing. It is unlikely that even they will manage the economy quite as badly as their predecessors, but it is possible to imagine that the revaluation may come in during a period when economic growth is low, possibly due to world economic conditions. The Government may therefore regret the clause. They may regret shackling the hands of future Secretaries of State and Chancellors of the Exchequer and their ability to provide assistance to businesses when that is most needed.

It will be ironic if the Committee imposes difficult tax measures for small and medium-sized businesses in future years that the Government will have to undo through primary legislation. I therefore urge the Under-Secretary to reconsider. Do the Government really want to put this type of restriction in statute? Could they achieve it through non-statutory means, which was the original approach? That would allow them the flexibility to decide whether to pursue the matter, depending on the economic circumstances.

The Government are imposing a straitjacket on themselves. From a strict Treasury point of view, it might be argued that that is admirable, but from another point of view, it is unwise, given that it is impossible to have perfect foresight in respect of the economy. I am concerned about the lack of discretion that will result if the clause is passed.

Two points flow from accepting the Government's assumption in the clause. If one accepts that any transitional scheme should be self-financing, the question arises about how that self-financing should be organised, which is where amendment No. 104 comes in. The Government want to ensure that the transitional scheme is self-financing in each financial year. The transitional arrangements could last for a five-year period, but the Government decided that in every financial year during that period, the scheme should be self-financing.

We are debating complicated matters, and the hon. Member for South Ribble is better versed in them than me. However, as I understand it, his amendment No. 104 would ensure that transitional relief operated over the five-year period, which would mean that although it might not be self-financing in one particular year, it would be over the five years. That would strike a balance between the rigidity that the Government are providing by taking away the discretion and the need for some flexibility, given that we cannot foresee future economic circumstances.

Moreover, in past attempts to have self-financing transitional schemes, small companies, which would

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otherwise benefit from rate reductions, were in great hardship because the reductions were phased in. The hon. Member for Cotswold made that point. They desperately needed that rate reduction in order to stay in business, but it did not come to them because of the nature of the self-financing regime for the transitional scheme. The extra flexibility that is provided by the amendment would be extremely welcome.

My final point is a probing question to the Under-Secretary. The clause gives regulatory powers to the Secretary of State to prescribe the exact nature of the transitional and self-financing arrangements. How does he think that that will be done? Is it through the phasing-in of the various rate increases or reductions or through a supplementary rate, as the Government suggested in their answer to the Select Committee on Transport, Local Government and the Regions? Have the Government chosen one particular approach? I may have been sent the regulations in draft form, but I do not think so. Will the Under-Secretary comment?

9.15 am


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Prepared 11 February 2003