PARLIAMENTARY DEBATES

HOUSE OF COMMONS

OFFICIAL REPORT

Fourth Standing Committee on Statutory Instruments, &c.

DRAFT NON-DOMESTIC RATING (CHARGEABLE AMOUNTS) (AMENDMENT NO. 2) REGUALTIONS 1995

Wednesday 28 June 1995

LONDON: HMSO

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The Committee consisted of the following Members:

Chairman: MR. PATRICK THOMPSON

Betts, Mr. Clive (Sheffield, Attercliffe)

Bruce, Mr. Ian (South Dorset)

Carlisle, Sir Kenneth (Lincoln)

Clifton-Brown, Mr. Geoffrey (Cirencester and Tewkesbury)

Eagle, Ms Angela (Wallasey)

Evans, Mr. David (Welwyn Hatfield)

French, Mr. Douglas (Gloucester)

Gilbert, Dr. John (Dudley, East)

Griffiths, Mr. Peter (Portsmouth, North)

Hawksley, Mr. Warren (Halesowen and Stourbridge)

Howell, Sir Ralph (Norfolk, North)

Illsley, Mr. Eric (Barnsley, Central)

Jackson, Mrs. Helen (Sheffield, Hillsborough)

Jones, Mr. Robert B. (Parliamentary Under-Secretary of State for the Environment)

Mitchell, Mr. Andrew (Gedling)

Rendel, Mr. David (Newbury)

Simpson, Mr. Alan (Nottingham, South)

Timms, Mr. Stephen (Newham, North-East)

Mr. J. D. W. Rhys, Committee Clerk

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3 Fourth Standing Committee on Statutory Instruments, &c. Wednesday 28 June 1995

[MR. PATRICK THOMPSON in the Chair]

Draft Non-Domestic Rating (Chargeable Amounts) (Amendment No. 2) Regulations 1995

4.30 pm

The Parliamentary Under-Secretary of State for the Environment (Mr. Robert B. Jones): I beg to move, That the Committee has considered the draft Non-Domestic Rating (Chargeable Amounts) (Amendment No. 2) Regulations 1995. The regulations make three technical changes to the principal regulations governing the transitional arrangements that we introduced last December to phase in the effects of the 1995 revaluation of non-domestic property. One amendment paves the way for changes to the rating of police property. The second deals with the rating of certain long-distance pipelines, and the third with the calculation of the transitional bills where property has been split into two or more separate rating assessments or separate assessments have been merged into one. We are also taking the opportunity to correct an erroneous cross-reference in the principal regulations. The 1995 revaluation took effect from 1 April and would have produced significant swings in the rates bills for some ratepayers. The transitional arrangements, which we debated in December, mitigate those changes by limiting year-on-year rate increases to 7.5 per cent. in real terms for small businesses and 10 per cent. for large businesses, with a special concession for small, mixed-use property. The cost of the scheme is largely met by limiting rate reductions for those who gained from the revaluation. The intention was to apply the scheme to all non-domestic property subject to rates on 31 March 1995. The provision on police property is required to help deal with an anomaly that has arisen following the creation of the new police authorities with effect from 1 April. Under 19th-century case law, hereditaments provided or maintained for purposes connected with the administration of justice, police purposes or other Crown purposes are treated as Crown properties, and so are exempt from rates unless statute expressly provides otherwise. Section 64 of the Local Government Finance Act 1988 removed the Crown exemption which applied to hereditaments provided or maintained by the old police authorities for such purposes. However, the Police and Magistrates' Courts Act 1994 omitted to amend section 64 so as to apply similar rules to hereditaments provided or maintained by the new authorities. As a result, police hereditaments became subject to Crown exemption from rates from 1 April. 4 We intend to restore police hereditaments to conventional rating as soon as possible by making an order under section 64 of the 1988 Act to remove the Crown exemption. Before doing so, however we have brought forward these regulations to amend the transitional phasing rules so that police properties facing large increases or reductions in rate bills as a result of the 1995 revaluation will, once they come into rating, be subject to the same phasing arrangements as other properties. The amendment works by treating periods during which police hereditaments are Crown exempt as though they were periods during which they were subject to rating. In certain cases—for example, the disposal of a police authority hereditament to a non-police body—a police hereditament may have already been liable to rating since 1 April 1995. The amendment will allow phasing to apply prospectively to those properties also. It may be helpful if I say a few words about the financial consequences of the Crown exemption of police properties. Although rates are not payable on Crown property, voluntary contributions in lieu of rates are payable in certain cases. There are however, no express powers for police authorities to make such contributions, and there would, in any event, be considerable administrative costs in setting up collection arrangements for them. For that reason, we decided to bring police authority property back into rating. The new police authorities will have no liability for rates from 1 April until the day that the order comes into force. That will not affect the amount that local authorities receive as a result of the revenue support grant settlement but it could lead to a small cash-flow loss for some authorities. My Department has written to local authorities to remind them that they can reduce their contributions to the non-domestic rating pool if those losses are significant. The other two amendments are largely technical. I stand ready to answer questions about them but I do not want to make any further points at this stage.

4.34 pm

Mr. Eric Illsley (Barnsley, Central): The regulations are somewhat technical and amend the areas to which the Under-Secretary referred in relation to the Police and Magistrates' Courts Act 1994. I shall try to keep my comments brief and relate them to police authorities. I do not intend to dwell on pipelines, appeals or split or merged properties. We shall not divide the Committee on the regulations because, if we did so, we might deprive local authorities of rate income, and police authorities of transitional relief, in future. There are, however, questions that we must ask the Government, to ascertain whether they are being fair, whether local authorities will lose out as a result of having to borrow to make up the shortfall in their cash flow, and whether the Government should consider compensation for the interest charges that authorities might have to meet. Local authorities are in a lose-lose situation. If we defeat the regulations, the Crown exemption will continue and they will continue to lose income from the 5 uniform business rate, and if we pass the regulations, the Government's drafting error in the Police and Magistrates' Courts Act 1994 will mean that local authorities will have to meet a higher threshold, should they lose out. We shall agree to the regulations on the basis that the Government will remove Crown exemption from section 54 of the Local Government Finance Act 1988. When does the Under-Secretary expect the relevant regulations to come before the House of Commons? Although I foresee no difficulty in their passage through the House, we must minimise the period during which local authorities will face a cash-flow problem. In the debate on the 1994 regulations that are being amended, one of the matters discussed was the five-year valuations and the fluctuations between one five-year valuation and another. The transitional relief that had to be applied varied immensely, with some authorities losing 40 per cent. and others gaining 40 per cent. on revaluation. The yo-yo effect of transitional relief and revaluation must be remedied. Some authorities are subject to another revaluation before they have derived the full benefit of the transitional relief from the first revaluation. With reference to the uniform business rate, some authorities are becoming net losers—for example, my own authority, Barnsley, which was recently charge capped. It now gets back from the pool less than it collects from the local business and commercial community. It is in a difficult position with regard to the business rate because of the economic situation and the big closure programme that affected the authority. Perhaps we should reconsider the UBR to see whether we can resolve that problem and pass business rates back to local communities. I am not aware of any local authority that will be adversely affected to a significant extent by the cash-flow problem arising from the failure to include police hereditaments in the original regulations. The highest figure for such loss that I have seen is Bradford's, which for some reason has a substantial number of police buildings and a valuation figure of £568,000. A quarter of that would be subject to the regulations and the interest payable would be about £15,000. The Government should consider each authority on its merits. If, for some reason, an authority loses a substantial sum or has to borrow to ensure its cash flow, the Government should compensate it for the interest payments that it has to make. The threshold imposed by the regulations—£25,000 or 1 per cent. of a metropolitan authority's rateable income—would be, for a small authority such as Bury, about £1 million and, for Birmingham, about £9 million, so the loss of cash flow will not achieve the threshold. Will the Minister say whether some authorities are likely to lose income? Will the Government consider meeting any losses as a result of interest payments that might be incurred? The explanatory note to the regulations states that authorities could benefit from in-year buoyancy or an upward revaluation. I find it difficult to envisage that any authority has in-year buoyancy in present 6 circumstances. Will the Minister say what he has in mind? New Buildings that might come on stream between July and the end of the financial year are few and far between, and the intended balancing effect may not occur. Will the Minister say whether any authority is likely to lose money, what amounts they are likely to lose and whether the Government will make good the losses from interest payments on borrowings to meet any cash-flow problems?

4.41 pm

Mr. David Bendel (Newbury): It is nice to see you in the Chair, Mr. Thompson. I have attended many Standing Committees and it is the first time that I have not seen Mr. Hill in the Chair. Lovely man though he is, it is nice to have some variety—I had thought that he had been appointed eternal Chairman of all Committees. More seriously, I should like, quickly, to make the point that I made when we first discussed the transitional scheme for uniform business rate at the end of last year. I believe that it is a great pity that the Government have not taken the opportunity to allow transitional relief for those who are being uprated. There are good arguments for saying that large increases in rates may be unbearable and that it is only fair to allow people who are likely to suffer large increases to have some transitional relief. It is also a pity that the Government have not allowed full transitional relief to those whose rateable values have, for one reason or another, fallen and who may find it difficult to pay their rates. That is true of some of the new police authorities, which are suffering badly because of the level of grants this year. The Government had an opportunity to allow the full relief to those police authorities whose rateable values have fallen, and I am sorry that they have not taken that opportunity. They could have given the new authorities a little extra cash, which might have enabled them to put a few more policemen back on the beat this year.

4.42 pm

Mr. Robert B. Jones: The hon. Member for Barnsley, Central (Mr. Illsley) asked about the police rating order. It will be laid before the House as soon as the regulations come into force, probably at the beginning of next week. The regulations are narrow, so I shall deal with the specifics before I turn to the more general points raised by the hon. Members for Barnsley, Central and for Newbury (Mr. Rendel) about transitional relief. There will be a small loss in a few cases, but we are talking about only 40 authorities in total. As I said, they can recalculate when the threshold is reached. There must be a threshold, otherwise there would be many complicated amendments to the regulations, which would cause more uncertainty to the local authorities over what may be small sums. The compromise we have reached is reasonable. 7 The in-year buoyancy relates to new additions of buildings, redevelopments and so on. I am told by those who know such things that rating-list buoyancy typically runs at 1 to 2 per cent. of yield a year, for which authorities can keep the cash flow. That seems to have been true even during the recession. As to the general points on revaluation, my right hon. and learned Friend the Chancellor of the Exchequer is contributing the sizeable sum of £500 million pounds to the overall scheme. The transitional arrangements are a mirror image of those that applied during the previous revaluation. I know that that is so because, in my constituency, the boot was on the other foot. We faced steep increases then because of the rise in rents in the south-east, which was reflected in rateable values. The increases in my area were held back, partly contributed to by those who experienced large falls, mainly in the north and north-west and particularly in the manufacturing industry. This time it is the other way round. Although some areas may have lost out on both occasions, those who gained then will lose now and those who lost previously will now gain. It seems reasonable that part of the finance for the scheme should come from those who will benefit. Otherwise, the result would be an overall increase in taxation or borrowing. I know that my Friends would be 8 concerned about such an increase, and I have not heard the Opposition propose any other way of raising the finance. If Labour Members believe that the money should be raised elsewhere, perhaps they will tell us so that we can add it to the list of commitments that the Opposition have made without attaching any financial price to them.

Mr. Rendel: I would be interested to know if the Minister believes that the mirror imaging of the revaluation will happen again immediately before a general election, which may be rather sooner than he expects. Immediately before the previous general election the Government decided to find more money and then allowed the fall in rates to go ahead in one swoop while maintaining the transitory relief on rises. Will that happen again?

Mr. Jones: We have not committed ourselves beyond this year, but we expect the benefits to accelerate for those businesses that have lower rateable values as a result of the revaluation. That has nothing to do with any putative timing of a general election, because revaluations always occur between general elections—at least, I hope that they do, because, as the hon. Gentleman knows, they cause much disruption.

Question put and agreed to.

Resolved, That the Committee has considered the draft Non-Domestic Rating (Chargeable Amounts) (Amendment No. 2) Regulations 1995.

Committee rose at thirteen minutes to Five o'clock.

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THE FOLLOWING MEMBERS ATTENDED THE COMMITTEE:

Thompson, Mr. Patrick (Chairman)

Betts, Mr.

Carlisle, Sir Kenneth

Clifton-Brown, Mr.

Eagle, Ms

French, Mr.

Griffiths, Mr. Peter

Hawksley, Mr.

Howell, Sir Ralph

Illsey, Mr.

Jackson, Mrs. Helen

Jones, Mr. Robert B.

Mitchell, Mr. Andrew

Rendel, Mr.

Timms, Mr.

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