The
Committee consisted of the following
Members:
Chairman:
Mr.
Peter Atkinson
Allen,
Mr. Graham
(Nottingham, North)
(Lab)
Cox,
Mr. Geoffrey
(Torridge and West Devon)
(Con)
Dunne,
Mr. Philip
(Ludlow)
(Con)
Efford,
Clive
(Eltham)
(Lab)
Goldsworthy,
Julia
(Falmouth and Camborne)
(LD)
Iddon,
Dr. Brian
(Bolton, South-East)
(Lab)
Kilfoyle,
Mr. Peter
(Liverpool, Walton)
(Lab)
Riordan,
Mrs. Linda
(Halifax)
(Lab/Co-op)
Scott,
Mr. Lee
(Ilford, North)
(Con)
Shapps,
Grant
(Welwyn Hatfield)
(Con)
Teather,
Sarah
(Brent, East)
(LD)
Thornberry,
Emily
(Islington, South and Finsbury)
(Lab)
Tredinnick,
David
(Bosworth)
(Con)
Twigg,
Derek
(Halton) (Lab)
Watts,
Mr. Dave
(Lord Commissioner of Her Majesty's
Treasury)
Wright,
Mr. Iain
(Parliamentary Under-Secretary of State for
Communities and Local
Government)Mark Etherton,
Committee Clerk
attended
the Committee
Eighth
Delegated Legislation
Committee
Tuesday
16 December
2008
[Mr.
Peter Atkinson in the
Chair]
Draft Local Authorities (England) (Charges for Property Searches) Regulations 2008
4.30
pm
The
Parliamentary Under-Secretary of State for Communities and Local
Government (Mr. Iain Wright): I beg to
move,
That
the Committee has considered the draft Local Authorities (England)
(Charges for Property Searches) Regulations
2008.
May
I say what a pleasure it is, Mr. Atkinson, to serve under
your chairmanship? The previous debate that I attended was also under
your superior chairmanship, and I welcome you back to the
Chair.
Property
searches are a well established and important part of the home buying
and selling process. When buying a property, a consumer needs
information to uncover issues relating to the building or its
surrounding environment that may impact on the value of the property or
affect the customers desire to live in it, such as, for
example, an assurance that any previous building work has been carried
out properly or whether planning applications are in the pipeline in
the local area. Local authorities hold all the data required to compile
property searches, but there is a market in producing searches. Local
authorities produce an official search, and the private sector has an
equivalent product known as a personal search, and they compete to
supply those products to consumers. Private search companies are,
therefore, reliant in terms of running their businesses on having
access to local authority-held data. Some authorities are reluctant to
provide access to data, if they cannot recover the costs of providing
it. Similarly, some search companies are reluctant to pay for property
search data, claiming that local authorities do not have the power to
charge for them. Either way, it is consumers who suffer, because they
are caught in the
middle.
In
circumstances where a local authority restricts access, the private
search sector has historically used insurance to cover for missing
data. In practice, this means that consumers do not have all the
information on which to base the biggest financial decision of their
lives. In turn, this can lead to buyers incurring additional costs, if
their solicitor subsequently advises them to commission an additional
local authority search as a replacement. There is also evidence that
some search companies have simply used insurance to avoid paying for
available data, which is not acceptable. Consumers are paying for and
rightly expect accurate and comprehensive information. My right hon.
Friend the Minister for Housing announced on 8 December that the
practice of using insurance for personal searches will end on 6 April
2009. This will allow time for local authorities and the private sector
to adjust working practices to these charges regulations.
These issues
of access and charging are of long standing and were identified by the
Office of Fair Trading in its study of the property searches market in
late 2005. The OFT made a number of recommendations to deliver improved
competition in the delivery of property searches. In particular, it
recommended equal access for all parties to data and clarity on how
local authorities charge. The Government supported the OFT and have
taken action accordingly. In January this year, we acted to address the
first of these recommendations when we published good practice guidance
for local authorities and personal searches. This set a benchmark for
local authorities to provide access to data within three working days
and provided guidance to facilitate better local arrangements between
the public and private sectors.
The charges
regulations are a response to the second part of the OFTs
recommended reforms. They aim to ensure that consumers receive prompt,
quality, value-for-money property searches. The charges regulations are
intended to provide clarity on how local authorities charge for
searches data by establishing a framework that will ensure, first,
transparency on what local authorities can charge for, how they
calculate charges for data and how they must account for those charges
and, secondly, flexibility for authorities to recover the costs of
providing property search data so that local council tax payers do not
in effect subsidise that.
The
underlying principle of the charges regulations is that authorities
must make searches information available to all on equal terms. For
example, if it costs an authority £20 to produce the necessary
data, then it must charge a search company £20 for that
datano more, no less. It is from this starting point that a
level playing field, envisaged by the OFT, is established and from
which competition begins. The charges regulations are based on existing
local authority accounting practicefor example, the best value
approved code of practice. The framework will, therefore, not only
deliver transparency but provide an appropriate route for challenge for
private search companies. We will also be publishing guidance to
support the charges
regulations.
Mr.
Graham Allen (Nottingham, North) (Lab): In my city,
Nottingham, we have pulled people together to see what we can do to
help in the economic downturn. One of the key things that we have
talked about is reducing some of the obstacles to moving forward with
businesspaying bills on time or reducing land charges. Since
the instrument was probably drafted before we were aware of the serious
global economic difficulties, will my hon. Friend assure us that we are
not putting further obstacles in the way of people by preventing them
from pursuing their businesses expeditiously, which would contribute to
diminishing the impact of the
downturn?
Mr.
Wright: My hon. Friend has made an extremely important
point. In drafting the regulations, we have been very much aware of the
economic downturn and the strain on businesses in the past couple of
months. We want to reduce burdens on businesses as much as possible.
However, private search companies will, I think, benefit from the
changes. The changes will help to improve access to data and negate the
need for insurance, and they will therefore improve the quality of
those companies search products, and their acceptability to the
legal professions and mortgage lenders and, ultimately, to the
consumer. Quality will improve, ensuring greater competition, and it
will be possible to push those products still further to
consumers.
Mr.
Peter Kilfoyle (Liverpool, Walton) (Lab): I am intrigued
by my hon. Friends references to search companies and private
businesses. I have not done any conveyancing for a long time, but it
was always a racket to line the pockets of impecunious lawyers, and now
conveyancers are doing the same thing. What they all have in common is
that they do not go down to the Oyez publishing housethey buy a
set form with a load of arcane questions in Victorian English. Those
questions were always answered in the same way by local
councilsthey were basically a checklist. I want to know which
companies we are getting exercised about and where they operate. Do
they operate in the leasehold sector here in London? Which companies
are being punished by how the authorities are dealing with the
matter?
Mr.
Wright: The companies operate up and down the country
providing personal searches. My hon. Friend has made an extremely
important point, which relates to why we are trying to reform the home
buying and selling processwe have had narrow, vested interests
for far too long. We need to put consumers at the heart of the process,
so that they have information up front at appropriate times, to make
decisions on the biggest financial matter of their livesbuying
their house. We need to level the playing field as much as possible, so
that we do not have distortions in the market and we have as much
transparency and accountability as
possible.
Mr.
Kilfoyle: In that case, will my hon. Friend consider
incorporating such searches alongside the Land Registry to simplify the
process, so that people have a one-stop shop rather than having to run
to different people at different stages of the house buying and selling
process?
Mr.
Wright: My hon. Friend has raised some important points.
As I have said, I am keen to simplify the process as much as possible,
so that when people are initially interested in an area or a property,
they can see whether there are any key factors that they need to take
into account, such as building work to a property or possible planning
permission. We want to simplify as much as possible and to provide
important information up front to influence peoples
decisions.
In
developing the charges regulations, we carried out two public
consultations, one from January to April and the second from July to
September this year. Of course, some in the private sector have
expressed concerns about charging. On the one hand, the proposals have
been supported by both local authorities, because of the clarity that
they will provide and because they address long-standing concerns, and
by the OFT, which considers that they will lead to greater competition
and efficiency in the sector and as a result create savings for
consumers. On the other hand, although most in the private sector
accept the principle of the charges regulations, some have expressed
concern whether local authorities can charge for data, if local
authorities are subject to the Environmental Information Regulations
2004, and whether there is a risk that local authorities will pass on
unreasonable
charges.
Derek
Twigg (Halton) (Lab): I have been contacted by a property
search group in my constituency in Widnes, and I would be grateful if
the Minister were to clarify three points that it raised with me.
First, the regulations basically reverse existing points of
lawthere is a change from a presumption against charging to one
in favour of
it. Secondly, local authorities have to keep some of these records for
statutory purposes, so how can they pass on the additional cost if they
have to keep them anyway, regardless of the search? The final point is
about local authorities not being liable to
VAT.
Mr.
Wright: Those big concerns have been conveyed to
me, too. We have tried to address them as we have developed the
proposals, while ensuring that the needs of consumers remain paramount.
The charges regulations would not apply where the information must be
provided free of charge or where another power applies. Property search
charges will also be subject to local government accounting
procedures.
My hon.
Friend has said that there is concern that the regulations reverse an
existing point of law, but I do not agree, because the charges
regulations clarify a point of law that some in the private sector
disputed. It is our view that existing charging provisions allow local
authorities the discretion to charge for data, where statute is silent
on charging. That issue was covered in the original consultation on
charging, which ended in April
2008.
My
hon. Friend has mentioned an important point about VAT. It is true that
local authorities are not subject to VAT, while private search
companies must apply it to their search product. It is the
Treasurys view that in most cases local authorities are
required by law to obtain and maintain the information and to make this
available on request to members of the public, which makes the activity
non-business and so outside the scope of
VAT.
With
the charges regulations in place and insurance no longer allowed,
property searches will improve. We expect consumers to benefit most
from those changes. They should benefit from improvements to the
quality of the searches, which will contain all the required data, so
they will receive better value for money. They will not have to pay
twicein some cases, a second search has to be commissioned
because the initial one includes missing data. There should also be
further reductions in the price that they pay for property searches.
Private search companies will also benefit from improved access to
data, so raising the quality of their product.
I am
confident that the charges regulations are proportionate, transparent
and right. In conjunction with the other actions that we are taking to
reform the property searches market, they will deliver significant
benefits to consumers. It cannot be right that consumers receive poor
value for money through incomplete searches, particularly where data
are already available. I hope that the Committee agrees with me on that
point.
4.43
pm
Grant
Shapps (Welwyn Hatfield) (Con): I echo the
Ministers comments about your chairmanship, Mr.
Atkinson.
The
OFT clearly stated its view in its 2005 study that there should be a
level playing field for all concerned. That level playing field should
extend to the amounts that the local authorities charge, whether they
undercharge or overcharge. It is also important that the private search
companies do not, as the Minister mentioned, rely simply on an
insurance-based system rather than an actuarial system. To the extent
that the order deals with those comments, the Opposition welcome
it.
There are one
or two concerns about the approach, and I would certainly welcome the
Ministers clarification. Every accountant will confirm that a
cost depends on which accountancy practice is followed. The Minister
has said that a particular procedure will be followed, but some private
search companies worry that, for example, not all the costs of
collecting and storing the data will necessarily be taken into account.
What about the costs of delivering the information?
Is the
Minister completely satisfied that the correct costs will be attributed
and the market will be absolutely level and fair? If he is, how can he
justify the ongoing costs to the consumer of a search needing to be
carried out more than once for the same sale, particularly in a slowing
market and bearing in mind the imposition and additional bureaucracy of
the home information pack, which means that searches are asked for time
and again, whereas in the past they would normally be asked for only
once? Those comments aside, and to keep the debate brief, we welcome
the regulations.
4.
45
pm
Sarah
Teather (Brent, East) (LD): May I welcome you to the
Chair, Mr. Atkinson? It seems as though every housing debate
that I participate in takes place under your
chairmanship.
I do not wish
to detain the Committee for long. The regulations are a sensible and
broadly proportionate response to the OFTs recommendations
around, in particular, competition. It seems perfectly sensible to
require local authorities to make that unrefined information available
at cost, rather than at a profit. I imagine that everyone on this
Committee has been lobbied by private search companies. I am not wholly
sympathetic to the view that local authorities should make information
available for free at taxpayers expense, in which case somebody
else pays so that a company can make a profit. The regulations are a
sensible
compromise.
I
want to take the Minister back to his remarks about VAT, which is the
one outstanding OFT recommendation. I entirely accept his argument
around the requirement on local authorities to maintain a database and
that that is not therefore a business expense. The OFT has said that
that allows local authorities to undercut private companies. I
understand that the matter is complex and that it is not a
straightforward argument about what should happenI suspect that
the recommendation would be cumbersome to implement and might have
other implications for local authorities charging VAT. Will the
Minister remark further on why he rejected the OFTs VAT
recommendation?
4.47
pm
Mr.
Kilfoyle: I was fascinated by the Ministers
explanation of what is behind thisI am a great admirer of the
Minister by the way. Unlike my hon. Friend the Member for Halton, I
have not been lobbied by private search companies. I am fascinated by
thisI assumegrowth industry. Private search companies
do a job traditionally done by solicitors, or they may do it on behalf
of solicitors or licensed conveyancers. It seems to be an entirely
spurious occupation. We are looking after a group of people and their
profits rather than house sellers and, in particular, house
buyersthe onus is on house buyers to pursue searches and ensure
that
they are buying what they are supposed to be buying. I would love the
Minister to tell us a little about how he expects the new level playing
field between local authorities and private search companies to benefit
the house buyer. Does he automatically assume that the private search
companies, for example, will pass on whatever savings they make to
their
clients?
4.48
pm
Derek
Twigg: Will the Minister clarify a point that I raised
about the actual costs? If local authorities have to keep statutory
records anyway, should they not be allowed to pass on that cost as part
of the charges? They would have the information and those costs
regardless of whether they gave out further information. That is a key
criticism from the individual property search groups. I would welcome
more
clarification.
4.49
pm
Mr.
Wright: I am grateful to the Committee for the largely
positive comments. I am particularly pleased with the points made by
the hon. Member for Welwyn Hatfield about the OFTs
recommendations and how we are implementing them. He made an important
point about accounting for costs, which was picked up by my hon. Friend
the Member for Halton. The hon. Gentleman was right to say that there
are different criteria for using costs. The charging regulations
contain provisions prescribing how charges must be assessed and, as the
hon. Member for Brent, East has said, prohibiting local authorities
from including a profit margin for providing that data, in order to
have as much transparency and accountability as possible. They also
require local authorities to publish annual information on unit charges
and a summary of total income and
costs.
My
hon. Friend the Member for Liverpool, Walton, if I understood him
correctly, questioned why that does not stop a local authority
recovering all its costs on, for example, land charges departments. I
can tell him that the regulations are very clear on that point. They do
not allow a local authority to fund all the activities of its local
land charges department and allow charges to be made to the private
sectorthis is the key pointonly for access to the
necessary data. It is the assessment of those costs that is limited to
the activity of granting access, not all of the departments
activities, which might involve, for example, facilitating meetings to
allow access to happen. I hope that that reassures
him.
I
understand the concerns about VAT, particularly the point made by the
hon. Member for Welwyn Hatfield about the OFTs recommendation
on VAT. I must clarify that the OFT did not make a specific
recommendation on VAT in its response to the consultation, but it asked
for the matter to be kept under consideration, which is certainly
something the Government are minded to do to ensure that we have as
level a playing field as
possible.
I
hope that I have answered the Committees questions. As I have
said, consumers will benefit, because the regulations will drive
quality up and costs down by making the situation fairer, clearer with
regard to what is being charged and more accountable. On that basis, I
commend the regulations to the
Committee.
Question
put and agreed
to.
4.52
pm
Committee
rose.