4.30 pm

The Parliamentary Under-Secretary of State for Communities and Local Government (Mr. Iain Wright): I beg to move,

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 customer’s 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 OFT’s 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 data—no 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 practice—for 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 business—paying 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. Friend’s 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 house—they buy a set form with a load of arcane questions in Victorian English. Those questions were always answered in the same way by local councils—they 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 process—we 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 lives—buying 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 people’s 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 law—there 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 Treasury’s 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 twice—in 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.

Grant Shapps (Welwyn Hatfield) (Con): I echo the Minister’s 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 Minister’s 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.

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 OFT’s 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 happen—I 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 OFT’s VAT recommendation?

Mr. Kilfoyle: I was fascinated by the Minister’s explanation of what is behind this—I 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 this—I assume—growth 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 buyers—the 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?

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.

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 OFT’s 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 sector—this is the key point—only 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 department’s 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 OFT’s 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 Committee’s 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.