The Chairman: Order. Before we proceed, I have two things to say to the Committee. First, we are seeking to amend existing regulations, so copies of those regulations are available in the Room for those Members who do not have them. Secondly, for those Members who have not already noticed, let me explain that the matter before us is very narrow, so I shall not be able to allow general discussions of business rates, revaluing or any other subject with which Members might be tempted to occupy our time.

The Parliamentary Under-Secretary of State for Communities and Local Government (Angela E. Smith): I beg to move,

Thank you, Mr. Wilshire, for your assurance that you will judge us if we test our ingenuity in raising wider issues in relation to the regulations.

The regulations are made under section 57A of the Local Government Finance Act 1988, as inserted by section 65 of the Local Government Act 2003. They make a small change to the transitional relief scheme that applies to non-domestic properties on current rating lists. The need to introduce the change stems from a High Court challenge that was brought by the British Waterways Board earlier this year. The regulations will bring into the transitional relief scheme a limited group of properties that were not covered by the original scheme.

The regulations that are being amended—those that introduced the current transitional relief scheme in 2005—are quite technical, but I will do my best to explain how the scheme works and how the change will impact on the existing regulations. Although the change will affect just a few ratepayers, it is worth emphasising at the outset that this is a positive outcome for them and that they stand to benefit financially.

By way of background, let me say that the transitional relief scheme that the British Waterways Board challenged was introduced alongside the revaluation of non-domestic properties for the purposes of rates that took effect in April 2005. The scheme was designed to soften the impact of sudden and dramatic rises in business rate bills that can occur as a result of revaluation.

The rateable value of a property is generally based on the assumed rent that the property would attract if let on the open market on a specific date. The original 2005 transitional relief scheme defined which properties—or hereditaments, to give them their proper name—should come within the scope of the scheme. Properties that had a rateable value of zero pounds on the last day of the previous rating list—the day before revaluation, 31 March 2005—were not included in the transitional relief scheme. The change that we are introducing through the amending regulations before us brings those properties into the scheme.

The transitional relief scheme works by putting a limit, or cap, on the amount by which rate bills can increase or decrease over the rate liability for 2004-05. The caps differ depending on whether the relief is being given to a large or a small property. There is a more generous arrangement for small properties in recognition of the fact that rates generally pose a far greater burden for small businesses than for larger ones.

The current scheme lasts for four years. In practice, that means that all ratepayers have to pay their full rates liability in 2009-10—the final year of the five-year life of the current rating list. The cost of capping increases in rate bills for ratepayers in upward transition is funded by capping reductions in rate bills for ratepayers in downward transition.

I should say that transitional relief schemes are not new. There have been similar schemes as part of each revaluation of non-domestic properties since 1990. There were schemes in 1995 and 2000, in addition to the scheme that was introduced in 2005.

Broadly speaking, under the current transitional relief scheme, the rates bill for 2005-06 onwards is calculated by multiplying the rates liability for 31 March 2005 by the relevant cap for the year in question. Properties of a rateable value of zero pounds on 31 March 2005 have a zero rates liability on that day, so it follows that any such property would continue with a zero liability for the four-year life cycle of the 2005 scheme because the result of multiplying anything by zero is zero. The most that ratepayers in that position would have to pay would be a small contribution each year towards the cost of the small business rate relief scheme.

In setting up the transition scheme in 2005, we were keen to address the situation that arose from the 1995 and 2000 transition schemes, which both applied to properties valued at zero on the last day of the previous rating list—31 March 1995 and 31 March 2000. Both the schemes last for the full five years of the rating list, so the liability of a property valued at zero on the last day of the previous list remains at zero even if it has had positive valuations. As liability on the final day of one list was used to calculate the transitional bill for the following five-year rating period, the property never had liability and would have continued to pay zero indefinitely. We wanted to avoid that when we devised the 2005 transitional relief scheme, so we excluded from that scheme properties that had a rateable value of zero on 31 March 2005 and a positive rateable value on 1 April 2005. Those properties were treated in the same way as properties that were first entered on the rating list on 1 April 2005. For both types of property, there was no liability on the 2000 list, but both had a positive rates liability from 2005 onwards.

British Waterways was the main institution affected by being excluded in that way. It went from paying no rates during the life of the 2000 rates list to having a rates liability of more than £700,000 for 2005-06. The British Waterways Board challenged that aspectof the regulations, and the High Court found that excluding properties with a rateable value of zero on31 March 2005 from the transitional scheme was unlawful. British Waterways is the only ratepayer on the central rating list—ratepayers who pay rates directly to the Secretary of State rather than the local authority—affected by the court judgment. However, some properties on local lists are in a similar position.

When these amending regulations were laid before Parliament, the Valuation Office Agency had identified 13 properties on local rating lists that were in the same situation as British Waterways. Further changes to the rating lists have meant that we have now identified 18 such properties. The regulations bring British Waterways and other affected ratepayers into the transition scheme in line with the court’s decision. For the ratepayers concerned, instead of having to pay their full rates liability each year from 2005-06 to 2009-10, they will now have a greatly reduced rates bill until the final year of the scheme.

In addition to the properties that we have already identified, the rateable values of other properties may be reduced to zero for 31 March 2005 as a result of appeals that are yet to be determined. As long as those appeals are outstanding, it is not possible to predict how many could be affected in that way.

As required by the court, the Secretary of State has refunded British Waterways with money that it paid for its 2005-06 liability. When these amending regulations have been approved and come into effect, refunds that are due to other affected ratepayers on local lists will be calculated and paid through the relevant billing authority. We have informed local authorities of the impending change and let them know when the revised arrangements come into effect so that they can reassess the liability of affected properties and adjust payments accordingly.

We estimate that the total cost of refunds to the affected ratepayers and lost income to the non-domestic rates pool comes to around £2.9 million. Most of that relates to British Waterways’ altered liability. The other 18 properties account only for about £90,000 in refunds and loss to the non-domestic pool. Of that amount, refunds account for about £45,000, but that does not mean that local authorities will get less money toward the cost of providing local services. The amount payable to local authorities through the local government finance settlement, which includes redistributed business rates, will be unaffected. The draft regulations give effect to the court judgment and impact on few ratepayers. I commend them to the Committee.

Mrs. Jacqui Lait (Beckenham) (Con): When one starts to look at the draft regulations and explanatory memorandum, cold towels immediately come to mind. I am grateful to the Minister for her clear exposition of the issue that was created by her Department, I assume, either deliberately—I do not wish to incur the Chairman’s wrath—or accidentally. Zero per cent. business rates were treated as being exempt, whereas in the VAT system, 0 per cent. VAT is a very different beast from being exempt from VAT. That fine difference has obviously caused the problem. I am not sure whether that was deliberate and a nice way of increasing the Government’s stealth tax and, hence, income. Perhaps it was an oversight or—perish the thought—sloppy drafting. Whichever is the case, I have no objections to the changes—far be it from me to object to a court’s decision—so we shall not press for a Division.

I am grateful for the Minister’s explanation of the number of bodies affected. I hope that any other body that goes down to zero as a result of appeal will be treated fairly in future should a VOA valuation suggest that its zero percentage will go up, and that the regulations will apply. The principal victim is British Waterways, which is largely but not wholly a public body, so we are talking about taxpayers’ money. Are any of the other 17 bodies that are affected or may appeal also public bodies? The Minister said that British Waterways is in for a large sum of money and the others are not, but if any of them are public bodies, taxpayers’ money will be churned.

Who, other than the poor taxpayers, will pay for British Waterways’ judicial review to get the regulation overturned? Have there been any costs to the billing authorities so far, and if so, what proposals are there for reimbursing them? Have British Waterways and the other bodies already paid towards any demands for increased business rates, have they been repaid and have they received interest on the repayment? In one sense, it is just churning money around the system, but taxpayers would like to know how their money is being wasted.

The Minister confirmed that no local authorities have lost money—

Angela E. Smith indicated assent.

Mrs. Lait: I note that the hon. Lady is nodding, so I take that as further confirmation. I should be most grateful if she would answer my questions. I am sure that there will be other contributions, but unless she provokes me into making a further contribution, I would have no objection to the regulations.

Tom Brake (Carshalton and Wallington) (LD): I commend the Minister for reading out her speech with a straight face. I wondered whether the fact that there was a television behind her meant that we would see a video about hereditaments, which might or might not have been more stimulating than what she said. However, she managed to convey slightly more effectively than the written document precisely what the issue is about. Clearly, this debate lends itself to those detailed, intricate and tricky questions that Ministers hate. Fortunately, I cannot think of any to add to those that have already been posed and I shall listen to her response with interest, but I will not oppose the change.

Michael Fabricant (Lichfield) (Con): I am concerned about just one area. You do airports, Mr. Wilshire, and I do cathedrals and canals in Lichfield. British Waterways has already been hit quite hard by the debacle in the Department for Environment, Food and Rural Affairs because 180 people will be made redundant. What impact will the taxation change have on British Waterways’ finances? Will there be further redundancies as a consequence, and how will that affect the maintenance of the canals and inland waterways that we all cherish in the United Kingdom?

Angela E. Smith: I shall respond first to the comments by the hon. Member for Carshalton and Wallington. It was a bit rich of him, with his speaking style, to suggest that I was not stimulating in my speech today.

The hon. Gentleman talked about the detailed and intricate questions asked by the hon. Member for Beckenham. I welcome them and will address them because perhaps my comments were not quite clear and I want to help to move things forward. If he cannot think of any detailed and stimulating questions, the hon. Member for Beckenham may be able to help.

I congratulate the hon. Member for Lichfield on his ingenuity in raising wider issues concerning British Waterways. Government grants to British Waterways have increased significantly since 1997 and at no stage have they been less than around £10 million greater since then. The hon. Member for Beckenham referred to British Waterways as a victim, but that is hardly the case. It has been subject to delayed payment and transitional relief has been brought back. Previously, it would have had to make a payment of around £700,000, but that is now subject to transitional relief and it will not now make that full payment, which will assist its financial position.

Mrs. Lait: It is only because of the regulations that British Waterways is not a victim; otherwise, it would have had to pay the £700,000 immediately.

Angela E. Smith: The question posed by the hon. Member for Lichfield was about the cost of the regulations. The cost is a positive effect on British Waterways. The hon. Lady asked whether it was deliberate or a cock-up. A decision was made and it was a deliberate policy. If we had not brought in the original regulations and not exempted British Waterways, any organisation with a zero liability at one point, even if it had a positive valuation later, would always have had a zero liability because the calculation on which the transitional payments were judged was on the basis of multiplying by zero, so they would never have had to pay any rates. That is why the decision was taken to exclude British Waterways and others that had a zero rate on 31 March 2005. It was a positive decision and that is why the Government challenged it. When British Waterways sought to review the decision, the Government defended that for a very good reason. Having said that, we are obviously happy to bring the regulations forward to give effect to the court’s judgment.

The hon. Lady asked about public bodies. My understanding is that no public bodies are affected, but four schools are—[Interruption.] To be technical, no non-departmental public bodies are affected, but four schools are.

The cost to the Department will have to be found from the Department’s budget and there are no additional costs. There are negligible costs to the billing authorities, but no significant costs because they do not have to find the money; they are collecting agents for the money.

The hon. Lady asked whether any organisations had already paid. British Waterways had already paid and the payments must be returned. The court decided that the repayment should be subject to 8 per cent. interest, which is being paid.

I hope that I have addressed the questions raised by hon. Members. I thank them for their contributions and urge them to give effect to the regulations.