Fourth Standing Committee on Statutory Instruments, &c.


Tuesday 5 July 1988



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The Committee consisted of the following Members:

Chairman: Mr. Nicholas Winterton

Chope, Mr. Christopher (Parliamentary Under-Secretary of State for the Environment)

Fields, Mr. Terry (Liverpool, Broadgreen)

Griffiths, Sir Eldon (Bury St. Edmunds)

Hargreaves, Mr. Ken (Hyndburn)

Hawkins, Mr. Christopher (High Peak)

Heddle, Mr. John (Mid-Staffordshire)

Jessel, Mr. Toby (Twickenham)

Jones, Mr. Ieuan Wyn (Ynys Môn)

King, Mr. Roger (Birmingham, Northfield)

Leigh, Mr. Edward (Gainsborough and Horncastle)

Lloyd, Mr. Peter (Fareham)

Loyden, Mr. Eddie (Liverpool, Garston)

Moate, Mr. Roger (Faversham)

Morgan, Mr. Rhodri (Cardiff, West)

Mullin, Mr. Chris (Sunderland, South)

Neale, Mr. Gerrard (Cornwall, North)

O'Brien, Mr. William (Normanton)

Primarolo, Ms. Dawn (Bristol, South)

Helme, Miss P.A. Committee Clerk

3 Fourth Standing Committee on Statutory Instruments, &c. Tuesday 5 July 1988


Docks and Harbours (Rateable Values) (Amendment) Order 1988


The Parliamentary Under-Secretary of State for the Environment (Mr. Christopher Chope): I beg to move, That the Committee has considered the Docks and Harbours (Reateable Values) (Amendment) Order 1988. The reateable values of statutory docks and harbour undertakings are determined by a formula set out in the 1976 order which takes rateable value as a percentage of specified operating income for the previous year. To discount the effects of inflation, this percentage is then adjusted back to 1976 price levels by means of the retail price index. In 1987 the retail price index was re-referenced, that is set back to a new base of 100. As a result, the figures in the 1976 order no longer work to return valuations to their 1976 level. If nothing were done to correct the position, a fourfold rise in rateable values would result. The amending order seeks to rectify this by inserting a new term in the 1976 order which reflects the current retail price index. This will preserve existing levels of assessment. The proposed amendment has been the subject of full consultation with the industry and local authority associations, all of which are content with it. I commend the order to the Committee.


Mr. William O'Brien (Normanton): We do not intend to divide the Committee or to alter the order, but we have a few questions. The Minister referred to consultations with local authority associations and it would be helpful if he could say which associations were consulted. Were representations received from the industry? How did the process to introduce the order begin? My research shows that this is the first time that this subject has been considered since 1976. The change in the retail price index causes anxiety. Mortgage interest rates influence RPI, so are we on the right course if we change the numerator? If the change were not made the rates that the docks and harbours have to pay would increase. The formula is being changed from using the term "index" to "General Index". Is there something behind that change? Am I correct in assuming that this is the first attempt to change the formula since March 1976 and, if so, why it has taken so long to make such a change?

10.34 am

Mr. John Heddle (Mid-Staffordshire): I did not intend to intervene, but would my hon. Friend tell 4 the Committee—either now or in writing later—what the position will be after 1990, presuming that the Local Government Finance Bill completes its passage through both Houses? How will public and private operators of docks and harbours pay the national non-domestic rate?

10.35 am

Mr. Chope: First I shall answer the hon. Member for Normanton (Mr. O'Brien) We received no representations from the industry about amending the orders; the initiative to change the RPI came from the Valuation Office, which is responsible for sorting out rateable values. I think that the hon. Gentleman misunderstands the role of the RPI; the RPI rises every year in line with inflation, which means that it rises faster under Labour Governments than under Conservative Governments. Nevertheless, until we remove inflation altogether it continues to rise. In January 1987, when the RPI stood at 394.5, a detailed review was made of the content of the index, and it was decided to re-reference it to a base of 100. It was a purely statistical exercise, and had no effect on the measurement of inflation, but as a result the figures in the 1976 order had to be amended and that necessitated the proposals before us today. As required, we consulted the National Association of Local Councils, the Association of District Councils, the Association of Metropolitan Authorities, the Association of Councty Councils, the London Boroughs Association, the Association of London Authorities, Associated British Ports, the British Ports Federation and the British Waterways Board. I hope that that list allays the anxieties of the hon. Member for Normanton. My hon. Friend the Member for Mid-Staffordshire (Mr. Heddle) asked what will happen after 1990; nothing in the proposals before us will affect events after 1990. The Government are still examining ways of assessing the rateable values of all docks and harbours after 1990, and deciding whether changes have to be made to present arrangements.

10.38 am

Mr. O'Brien: The Minister says that the retail price index does not have a great deal of influence on the matter, but I do not accept that. When the matter was discussed in 1976 the then Conservative Member for Crosby said: "I entirely agree with the principle of calculating these rates in relation to inflation. The Minister was right to say that with a fixed percentage year after year the docks and harbours would be paying for inflation twice over. This is a valid way of taking inflation into account." The hon. Gentleman also said that it was easy for the rate of inflation to be changed, and said that if the calculations for the retail price index included caviar and not cabbages, the amount of rates paid would be quite different. The Minister said that the rate of inflation rose more steeply under Labour than under Conservative Governments, but mortgage rates rise more steeply under the Tories than under Labour. The hon. Member for Mid-Staffordshire (Mr. Heddle) asked what will happen when the rating 5 system is changed under the Local Government Finance Bill. I understand that that measure will not apply to docks and harbours, but that it has still to be decided how the rates will be paid. In March 1976 the present hon. Member for Reading, West (Mr. Durant) said: "We on this side of the House have been pressing for a long time for an amendment of the whole rating system. Many of us have said that ability to pay should be one of the principal reasons for rating, and that the whole formula of rating should be based on ability to pay. It is interesting that we have here perhaps a step in that direction. There is no doubt that the whole rating system is in a confused and muddled situation. This Order is a complicated piece of legislation, though it is useful."—[Official Report, 25 March 1976; Vol. 908, c. 749–50.]. At that time Members of the Conservative party, then in Opposition, said that rates should be fixed according to ability to pay. They welcomed the report suggesting that the docks and harbours rating system should be based on the ability to pay. The hon. Member for Mid-Staffordshire asked what would happen after 1990. Everyone knows that the rating system that the Government will introduce after that date is not based on the ability to pay. There will be two types of rating system. That for docks and harbours will be based on the ability to pay but the other, for domestic ratepayers, will not. How can the Minister say that the docks and habour arrangment will not affect the system? We shall have two systems of rateable values when the new system for domestic rates is introduced in 1990. The Minister should consider that important principle. Before the Committee rises he should tell us why the Government have arranged for ratepayers in one part of the system to be treated according to their ability to pay whereas others will not have their rates determined according to that principle. The change in the order is leading us in that direction, so the Minister should explain the position.

10.42 am

Mr. Chope: The hon. Member for Normanton (Mr. O'Brien) mentioned inflation. In today's issue of The Guardian there is a reminder that in 1976 base rates were 15 per cent. The order that we are amending refers to that date, and perhaps the hon. Gentleman will accept that a much higher rate of inflation prevailed then, under a Labour Government. The hon. Gentleman's more substantial question was what would happen after 1990. The rating system is based on rental values before and after 1990. As I said to my hon. Friend the Member for Mid-Staffordshire (Mr. Heddle), the future method of assessment for the industry is being considered by a working group on which the industry and local authorities are represented. The group is considering the nature of any future formula and the implications of assessing, on a common basis, the parts of the industry now formula-assessed and those now assessed by conventional methods. It would be wrong for me to anticipate the outcome of that review on either the method or the level of assessment. However, all methods of assessment are intended to produce the same result—the rent that a hypothetical tenant might be expected to pay for the property.

10.44 am


Mr. O'Brien: The Minister suggested that rents would be based on the same formula, so the RPI would be a factor in assessing rent values as well as rateable values. Does he agree that if that principle is to apply to the rent values of properties in port areas it should apply to the assessment of rent values for the domestic sector, too? There should not be two classes as with the assessment of rent values in the industrial sector, which are compared with the private sector. On two occasions I have noted different standards, so the Minister should consult the Secretary of State with a view to erasing anomalies that are totally unfair to the domestic sectior.

10.45 am

Mr. Chope: the hon. Gentleman must know that domestic rates will be abolished with effect from April 1990. The contribution towards the cost of local government expenditure will be raised from individuals through the community charge and the contribution from industry and commerce will be through the national non-domestic rate. As we said, the poundage under the national non-domestic rate will not increase each year by more than the rate of inflation and it could be less than that. For most businesses, that will be much better news than at present because non-domestic rates have been increasing by more than the rate of inflation each year. That is the case with the RPI and the figure that the hon. Gentleman mentioned. Rents will not be based on this formula rating system. The formula is intended to reproduce rental values and I believe that that is the fundamental misunderstanding made by the hon. Gentleman.

10.46 am

Mr. O'Brien: The assessment of rent values is based on the rateable values of empty properties and that is the system that is applied in many instances. The Minister introduced the subject of rent values and I said that the principle that applied in his comments should apply in the domestic sector. I suggested that he should consult the Secretary of State to ensure that we do not have two standards when assessing domestic rent values. In the domestic sector, those values are increasing by three or four times more than the increase in the RPI, so such consultations is necessary to ensure that those double standards are avoided.

10.47 am

Mr. Heddle: Mr. Winterton, from your political and geographical experience you will know that my constituency in Mid-Staffordshire is probably further from a port or harbour than any other in the United Kingdom. An esteemed, respected and highly reputable firm of chartered surveyors in my constituency bears your name, and it will confirm that I am a fellow of the Rating and Value Association and to that extent I declare an interest in the matter. First, I invite my hon. Friend the Minister to disagree with the hon. Member for Normanton (Mr. O'Brien) on his wrong assumption that rent are based upon rateable values. Surely, the position is the 7 reverse. Rateable values, or, more correctly, gross values, are based upon rental values. Secondly, does my hon. Friend agree that in the domestic sector, because of the lack of real market evidence as a result of the decline of the private rented sector, there is no market rental evidence? Therefore, gross rateable values are entirely hypothetical, whereas in the commercial and industrial sector—no doubt this also applies to harbours and docks—there is a direct correlation between market rents, and gross and net annual rateable values. It was on that basis that I originally invited my hon. Friend the Minister to advise the Committee and, no doubt, a wider professional public outside, about the position after 1990. I was delighted to learn that, as always, the Department has an open mind on this matter and is consulting a technical and specialist section of the renting and valuation profession and the dock and harbour operators to ensure that, after 1990, the Government will get this technical matter absolutely right.

Mr. Chope: I am grateful to my hon. Friend the Member for Mid-Staffordshire, and I am sure that the hon. Member for Normanton is also grateful to have received a free lesson on a technical matter. I hope that he will not make the same mistakes in understanding the issues again. I am sure that my hon. Friend, being of a generous character, would be happy to elucidate further on the matter outside the Committee if the hon. Member for Normanton feels that that is necessary.

Mr. O'Brien: The hon. Member for Mid-Staffordshire (Mr. Heddle) is not strictly correct. The valuation of properties at the ports is not based strictly on rateable values, but on the turnover, as outlined by the Minister. There are lessons to be learnt even from Opposition Members. There is a correlation between empty properties and the rates that those properties can attract—multipliers also apply to that. Mid-Staffordshire is miles away from 8 anywhere and if the hon. Gentleman visits the real world, he will find that the system being proposed by the Government is completely alien to democratic procedures and the ability to pay. In March 1976, when the order was introduced, the hon. Gentleman's colleagues argued in favour of ability to pay. Why have the Government's supporters changed their minds about that?

Mr. Heddle: I assure the hon. Member for Normanton that I do live in the real world. I not only represent Mid-Staffordshire, but I grew up within sight and sound of Sheerness dockyard, which is represented assiduously by my hon. Friend the Member for Faversham (Mr. Moate), who I am delighted to see on our Back Bench today. The hon. Member for Normanton has contradicted himself again. Rental value is based on turnover. It is only by assessing the level of turnover and profit that the operator, whether an owner-occupier or tenant, can assess the level of rent that he is prepared to pay. The correlation between rent creates the level of gross or rateable value rather than the rateable value dictating the level of rent.

10.53 am

Mr. O'Brien: I do not wish to prolong the discussion, but when we discussed the poll tax in Committee the Secretary of State for the Environment announced that he was changing the formula because of the wrath of industrialists in the south of England. They said that rents for commercial properties would rise so much because of the increase in their contributions under the poll tax that the Secretary of State had to amend the system. The hon. Member for Mid-Staffordshire would be advised to read the Official Report. He is labouring under a misapprehension about rates and rateable values.

Question put and agreed to.

Resolved, That the Committee has considered the Docks and Harbours (Rateable Values) (Amendments) Order 1988.

Committee rose at six minutes to Eleven o'clock.


Winterton, Mr Nicholas (Chairman)

Chope, Mr.

Field, Mr. Terry

Hargreaves, Mr. Ken

Heddle, Mr.

Jones, Mr. Ieuan Wyn

King, Mr. Roger

Lloyd, Mr. Peter

Moate, Mr.

Mullin, Mr.

O'Brien, Mr.