---

Non-Domestic Rating (Chargeable Amounts) (England) Regulations 2004

Lord Rooker rose to move, That the draft regulations laid before the House on 2 December be approved [2nd Report from the Joint Committee; First Report from the Merits Committee].

The noble Lord said: My Lords, as regards delivery, my English is not very good. Having used the English language while dealing with the previous order, I shall now go into local government-speak on these regulations. I warn the House that it is not a pleasant experience. I commend to the House the Non-Domestic Rating (Chargeable Amounts) (England) (Amendment) Regulations under Section 57 of the Local Government Finance Act 1988 and Section 65 of the Local Government Act 2003. They provide the mechanism to introduce the transitional arrangements for the business rates revaluation that takes effect in April 2005.

These regulations establish whether ratepayers should have transition applied to their bills. They provide the calculations to determine the transitional bill. They deal with the various circumstances on how to calculate the
 
9 Dec 2004 : Column 1046
 
bill where a property changes through a split, merger, extension, or renovation of a non-domestic property. In all cases they establish the correct transitional path. Noble Lords will recall that during the course of the Local Government Bill, we discussed at considerable length the issue of transitional arrangements. It would be quite wrong to revisit those decisions today, but the key principles are worth stating.

The Local Government Act defines that there must be a transitional scheme. It must be paid for by other ratepayers without being a burden on the generality of taxpayers. The scheme must work through within the five-year life of the rating list. The Act also provided the power to adjust the business rate multiplier to make good the shortfall if the scheme proved not to be self-financing.

Following a revaluation, some ratepayers face significant rises in their rates bills and others stand to benefit from significant reductions in their rates bills. We only ever hear from one of the groups—wait until we come to domestic re-rating. I should not have said that. I withdraw it.

The purpose of the transitional scheme is to soften the impact of sudden rises in rates bills as a result of revaluation. It provides protection to those ratepayers that might, in the absence of transition arrangements, face significant rises. However, the protection needs to be funded by other ratepayers.

That scheme will cap increases to some rates bills over a four-year period and will be funded by capping reductions in some rates bills. The caps will be structured as follows. Increases on large businesses will be capped by 12.5 per cent in 2005–06, by 17.5 per cent in 2006–07, by 20 per cent in 2007–08 and by 25 per cent in 2008–09. All ratepayers will pay their full liability in 2009–10. Small properties have a more generous arrangement as rates are often a greater proportion of the costs to small businesses. Small properties are defined as properties with a rateable value of under £15,000 outside London and under £21,500 inside London. For those properties, bills are to be capped at 5 per cent in year one and 7.5 per cent, 10 per cent and 15 per cent for subsequent years.

The protection is paid by phasing in the decreases of those who might otherwise have seen significant reductions in their rates bills. That is done by capping their decreases. Large properties will have their reductions capped at 12.5 per cent in the first two years, 14 per cent in the third year, 2007–08, and 25 per cent in 2008–09. Small properties will have the reductions phased in at a much faster rate; namely, 30 per cent, 30 per cent, 35 per cent and 60 per cent for the four years of the scheme. The scheme will apply in England only.

Late in 2003 we commissioned a research project to model the likely effect of revaluation prior to actual data becoming available from the valuation office and established a small stakeholder group to consider options as they emerged. It was soon apparent that any scheme that lasted one or two years would result in significant rises in rates bills when the scheme ended. In consultation with stakeholders, those were ruled
 
9 Dec 2004 : Column 1047
 
out as a suitable option at an early stage, although some stakeholders favoured a short scheme or no scheme at all. Some ratepayer groups anticipated significant rises in their rates bills and, of course, pressed for a five-year scheme. However, a five-year scheme costs more than a shorter scheme.

Moreover, in a five-year scheme, some ratepayers will not pay their true liability if they are subsequently affected by the next transition scheme. That is the point of achieving it within the five-year period. The aim of the scheme is to cushion the impact of revaluation, not to defer payment of the true liability indefinitely. A system where every ratepayer pays the true liability in the fifth year is logical and understandable.

I am quite happy to finish there as I believe that I have summarised what is happening. If there is a great desire for me to continue, which I do not see, I shall. Therefore, I beg to move.

Moved, That the draft regulations laid before the House on 2 December be approved [2nd Report from the Joint Committee; First Report from the Merits Committee].—(Lord Rooker.)

Baroness Hanham: My Lords, on that basis I am inclined not to ask too many questions and we can all quit while we are winning. Perhaps I should draw attention to the extremely short time gap between this order being laid on 2 December and it being considered today. It is so short that the Select Committee on the Merits of Statutory Instruments was forced to meet so that it could give at least some views on the merits of these instruments.

The committee drew helpful attention to the fact that not only has the order been laid with very short notice, but that the research behind it, which the Minister promised would be available before consideration of the provision, was not available when the statutory instruments merits committee met. I found it on the website only this morning and was advised by the Library of the House of Lords that it was only made available there yesterday and that the House of Commons Library is still searching.

The research is very important. It was carried out by Foreign Economics—a company of which I have never heard, but which I am sure will rattle in our future—and was about the transparency of the various systems for phasing in these transitional arrangements and for being self-financing, which is what the Local Government Act 2003 said they must be. That is why we end up with this complicated system whereby there will be downward phasing, so that businesses that have a reduction will not receive it in the first instance but only over a spell of time, so that the money they would have got can go to support the businesses in areas which will be having an increase.

Is the Minister aware that the provision is not universally accepted as being the ideal solution? There have been a number of comments. The Foreign Economics research attracted only 67 responses. That seems to be absolutely extraordinary. So my first question is: how many consultees were there? I am not
 
9 Dec 2004 : Column 1048
 
clear whether the 30 per cent of the respondents—about 21 responses—were totally against this downward phasing and whether they would have preferred the multiplier system where a small multiplier is put on the rate in order to phase it, or no transition at all. However, I think that is a paltry response to a very serious matter which affects businesses very badly.

There were two main methods investigated by Foreign Economics. The first was the downward phasing. Your Lordships will recall that we had a considerable discussion on downward phasing during the passage of the Local Government Bill, when both this side of the House and the Liberal Democrats were anxious about that being included. The second matter is the multiplier on the base rate. Why does the Minister think that the downward phasing is more equitable than having a multiplier on the base?

A sine qua non with transitional arrangements is that nobody can ever understand them and that they are not at all transparent. Does the Minister think that with these transitional arrangements—albeit he only read a quarter of his speech and maybe was lost in the complexity of it all, and quite rightly did not bother us with it—there is any hope that at any time we might have a system that people might understand?

Lord Dykes: My Lords, I do not think that I can better the fairness of the comments of the noble Baroness, Lady Hanham, on the major anxieties felt on this side of the House, both by her party and the Liberal Democrat party and, I think other Members of the House. A number of representations were made from outside sources of which I think the Minister was aware, notably the very excellent work done by the Royal Institute of Chartered Surveyors on making representations to Members of this House about some of the unfair effects of the Government's proposals.

Therefore, I very much agree with what the noble Baroness said about the apparently very firm undertaking given by the Minister on 17 September 2003. If one reads again the record of what was said on that occasion, he seemed to be quite categorical that a substantial amount of research would be done in the appropriate amount of time and made known to this House and to all interested parties concerned, both on the accidental and sometimes half deliberate, I suppose, unfair effects of the way in which the business rate system operates since the major change that was made more than a decade ago.

I also share the sense of surprise that despite the apparently rock-hard undertaking given by the noble Lord, Lord Rooker, on behalf of the Government, that has not actually turned out to be so, and the research mentioned has not really given us enough time in this House and the public outside to absorb these complicated matters.

The Minister will recall the example set out by the Royal Institute of Chartered Surveyors in its representations that when the successful amendment was proposed by the Conservatives and Liberal Democrats to the Local Government Act 2003, the
 
9 Dec 2004 : Column 1049
 
Government had the opportunity to bring in a system that would have had a fairer effect on upward phasing and would have dealt with the enormously onerous problems of downwards phasing as well, perhaps at a later stage.

I do not feel—and I agree again with the noble Baroness—that there has been sufficient time because of the very short period. The regulations were laid on 2 December, as the Select Committee on the Merits of Statutory Instruments' report says, and now we are debating it only a few days later on 9 December. If the Government and the Minister can therefore give more assurances on these matters, apart from what he said at the beginning—which was really a very complicated explanation of a very complicated subject, which he did with great aplomb and I share the sense of gratitude that he left out the second half because it was getting more and more complicated—I think that perhaps the House might be reassured, but we do need that further elucidation before we can proceed to the approval of this order.

---