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Baroness Maddock: Given the debate that we have had today on these issues and the views expressed outside the Committee by small business groups and the CBI, can the Minister tell the Committee what proposals there are to monitor the effects of the proposals in the Bill? Already the noble Lord, Lord Rooker, has promised that under BIDs they will look carefully at what happens and maybe adjust matters. Certainly the CBI is keen to see the balance of effects between rents and rates on the proposals. Can the Minister give some reassurance that there will be robust monitoring?
Lord Bassam of Brighton: Active, robust, periodic, specific, effective—I am sure that it will be all those things. I believe that there is a commitment in the White Paper to a review process. It would be foolish to do otherwise. Clearly, we do not want a non-domestic rating system to have an adverse impact, for example, on the rate of business formation. We recognise that.
I believe I said earlier in reply to the noble Earl's earlier contribution that we recognise that the burden is there. It is an efficient tax. We have to take account of movements. That is why the multipliers are there to be adjusted according to property values. When there is a slump in property values clearly there will need to be an adjustment to take account of that. We recognise that it is a burden on business and we have to try to set the right and appropriate level for that burden. There will be arguments and disagreements as to what that is, but we are committed to keeping a very careful eye on that.
Lord Hanningfield: There is some unhappiness in the outside world about the proposals. Could there be an element of local discretion? If they go ahead with the proposals, the Government will certainly have to make the proposals clear and understandable to the outside world if they are to be implemented next April.
Lord Bassam of Brighton: I am rather entertained by this commitment to localism from the noble Lord, Lord Hanningfield. I believe I said earlier that the
scheme was introduced in 1990. That got rid of the potential scope for local discussion. Back in the late 1980s I remember, as leader of a council, being asked whether I could provide extra relief to a local company that was then in dire straits and big trouble. Yes, we provided some assistance, but, as I remember, we were not able to do that under the later national scheme, which has to have national conformity. At the end of the day, it is about divvying up to the local authorities an appropriate amount based on the national formulation and the way that national scheme works.I understand what the noble Lord says, but his government introduced the scheme. It has worked well and it is very efficient. In this Bill, we are trying to address some of those global issues where there are sensitivities to a particular sector of businesses—the small business sector, a million of which will benefit from this. We try to take account of that in updating the system.
The Earl of Caithness: I am extremely grateful to the Minister for that very full reply. My only comment on it is that most of it did not address any of the points that I raised, but it was very interesting to listen to and I am sure it was extremely helpful to the Committee.
Perhaps I can ask the Minister to write to me on the following points. He mentioned the impact of the £8,000, but could he tell me the impact if the rateable value were £10,000? What are the amounts of money involved at £8,000 and £10,000? Will the Government look at something like the Scottish system, whereby those immediately above the rateable value have, as it were, a holiday period, which is therefore taken by the bigger businesses? Also, I would like a further note on why all the costs should be borne by other ratepayers. Those are the four issues. I am not asking the Minister to give me an answer now but, if he could write to me before further stages of the Bill, it would be extremely helpful.
7.15 p.m.
Lord Bassam of Brighton: We do not have the work done or access to that information as we debate the issue today. I am sure that the noble Earl understands that; he has been in this position. Of course we are happy to follow up those points. If we do not, I am sure that he will table a parliamentary Question.
The Earl of Caithness: I am sure that there will be no need to when I receive the answers. I am grateful to the Minister. The amendment was quite dramatic, but it was a way to acquire some of the answers that we need. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 138B not moved.]
Clause 66 [Transitional relief]:
The Earl of Caithness moved Amendment No. 139:
- Page 32, leave out lines 39 to 44 and insert—
The noble Earl said: In moving the amendment, I shall speak also to Amendments Nos. 140 and 140A. We move now from skirmishing into real heavy pounding. Rather like the noble Lord, Lord Rooker, I will start to read rather than talk, because the subject is so important that I need to get it on record in the way in which it should be.
The amendment seeks to allow a more flexible system of transitional arrangements on non-domestic rates to be introduced following the next and subsequent revaluations. It achieves that through modifying the excessively restrictive provisions in new Section 57A(10) of the 1988 Act, which is proposed in Clause 66. I was interested when, in the debate on Amendment No. 138, the noble Lord, Lord Rooker, said that there was freedom and flexibility for local authorities. Under the Bill, the Government seek to destroy and nullify freedom and flexibility in existing legislation.
Clause 66 introduces a number of important changes to transitional arrangements following rating revaluations. First, the clause removes the Secretary of State's option of not introducing transitional arrangements. Secondly, the Bill insists that the transitional arrangements should be self-financing within each financial year at no cost to the Exchequer. Previously, the Government could decide whether the results of a revaluation warranted transitional arrangements. The Government could also decide whether they would support transitional arrangements through the Exchequer. The Bill removes the flexibility of government to consider either option.
Rating revaluations work by transferring rates liabilities to properties with relatively higher rental values compared with the previous revaluation. The impact of the revaluation on a particular property is governed by the change of that property's value relative to the average for the whole of England. Thus, if the value of a particular property rises by more than the average, the rates liability will rise. If the value does otherwise, the liability will fall.
As revaluations can produce quite large changes in rates liability, transitional relief has been used to cushion ratepayers against the largest increases through staging changes in rates liability over a number of years. In order to recoup some of the revenue lost due to that capping of increased bills, a transitional penalty has been imposed on those whose bills should be falling, and their reductions have also been capped and phased in.
We regard denying immediate reductions to those whose bills should be falling to be inequitable and morally indefensible. Those businesses, whose relative property values have fallen, are often in the greatest need of reduced rates bills, yet they have been required to pay a premium to protect successful businesses from
The Exchequer has previously made up the balance of revenue lost due to transitional relief. The Bill requires that future transitional schemes should be fully self-financing from within the rating system to avoid the need for any Exchequer support. That policy was criticised by the Select Committee in the House of Commons which scrutinised the draft Bill.
Although I understand the motivation behind the relevant clause, I do not think that the Government should fetter future flexibility to act in that way. In a different economic climate from today, the Government may wish to provide financial support. Indeed, that occurred in 1992 when the previous requirement for a statutory self-financing scheme had to be unwound through primary legislation—the Non-Domestic Rating Act 1992—to permit Exchequer support at a time of recession.
I have even greater concerns over the Bill's requirement that transitional arrangements would have to self-finance with each financial year. That would require either a continuation of downwards phasing, or a substantial UBR premium in the early years of the revaluation cycle to fund transitional relief, or both. The present transitional arrangements are so complex that rates bills are exceptionally difficult to follow and businesses simply fail to understand the derivation of their tax liability.
It was because of those concerns that the Royal Institution of Chartered Surveyors, in conjunction with the two other professional rating bodies, the Institute of Revenues, Rating and Valuation and the Rating Surveyors' Association, funded independent research into options for transitional arrangements. That research was undertaken by Occupiers Property Databank and published in February 2003. It is the only comprehensive analysis of transitional arrangements and revaluations. The report demonstrated that a self-financing transitional scheme without "downwards transition" could be achieved if the Government could accept making the scheme self-financing over the five-year life of a rating period.
The Bill does not allow that flexibility, so the amendment would allow the flexibility to establish alternative transitional arrangements schemes. The alternatives are detailed in independent research and have been provided to the Office of the Deputy Prime Minister. They would allow transition to be implemented with greater simplicity and fairness for the ratepayers, and at the same time protect revenue for the Exchequer. A detailed explanation of those alternatives and how they would affect Treasury revenue from business rates is provided in paragraphs 34 and 35.
The precise format of a transitional scheme is to be determined by regulations. My proposals are achievable, however, through reducing the time that properties are held in transition, avoiding downwards transition and paying for staging increases in rates bills through a small increase in UBR that is unlikely to exceed 1p, spread over the five years of a rating list.
That is complicated stuff, but it is the nub of how the provisions will work. At the moment, the transitional scheme is very complicated. Businesses do not know where they stand, and the Government are depriving themselves of any flexibility to make alternative arrangements should economic changes arise. That was a mistake that we made in the 1990s and had to unwind. I hope that the Government will think again and not fall into the same trap as we did. I beg to move.
"(10) In making regulations under this section, the Secretary of State shall have regard to the object of securing (so far as practicable) that the aggregate amount payable to him and all billing authorities by way of non-domestic rates as regards a relevant period is the same as the aggregate amount which would be so payable apart from the regulations.
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