HOUSE OF COMMONS
Third Standing Committee on Delegated Legislation
DRAFT NON-DOMESTIC RATING (CHARGEABLE AMOUNTS) (AMENDMENT No. 3) REGULATIONS 1995
Wednesday 13 December 1995
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The Committee consisted of the following Members:
Chairman: Mr. Norman Hogg
Armstrong, Ms Hilary (North-West Durham)
Barnes, Mr. Harry (North-East Derbyshire)
Beresford, Sir Paul (Parliamentary Under-Secretary of State for the Environment)
Brandreth, Mr. Gyles (City of Chester)
Evans, Mr. David (Welwyn Hatfield)
Gorst, Sir John (Hendon, North)
Hughes, Mr. Kevin (Doncaster, North)
Jackson, Mrs. Helen (Sheffield, Hillsborough)
Keen, Mr. Alan (Feltham and Heston)
McNair-Wilson, Sir Patrick (New Forest)
Martin, Mr. David (Portsmouth, South)
Mates, Mr. Michael (East Hampshire)
Miller, Mr. Andrew (Ellesmere Port and Neston)
Oakes, Mr. Gordon (Halton)
Rendel, Mr. David (Newbury)
Spicer, Mr. Michael (South Worcestershire)
Temple-Morris, Mr. Peter (Leominster)
Whitney, Mr. Ray (Wycombe)
Mr. M. Hennessy, Committee Clerk2 3 Third Standing Committee on Delegated Legislation Wednesday 13 December 1995
[MR. NORMAN HOGG in the Chair]
The Parliamentary Under-Secretary of State for the Environment (Sir Paul Beresford): I beg to move, That the Committee has considered the draft Non-Domestic Rating (Chargeable Amounts) (Amendment No. 3) Regulations 1995. Welcome, Mr. Hogg, to this brief but rather technical Committee. I note that it is so technical that some of us are signing various items of correspondence—an eminently sensible approach. The regulations amend the principal regulations that we introduced last December to phase in the effects of the 1995 revaluation of non-domestic property. As my right hon. Friend the Chancellor of the Exchequer announced on 28 November, the effect of those regulations will be further to limit the real rates increases in 1996–97 of businesses whose rateable values increased substantially as a result of the revaluation. For property with a rateable value of £10,000 or more—£15,000 or more if the property is situated in Greater London—increases in 1996–97 will be limited to 7.5 per cent. after allowing for inflation. For small businesses, increases will be limited to 5 per cent. and for small properties that consist of both business and living accommodation, the limit will be just 2.5 per cent. That is a reduction in the limits that were promulgated in last year's principal regulations, and it will be widely welcomed by the business community. As we explained when we introduced the transitional arrangements, it is right for the effects of the 1995 revaluation to be phased in over time. In April 1993—the base date for the 1995 revaluation—there was considerable turmoil in the property market. The recession affected different parts of the country at different times. Property values in central London had hit rock bottom while in other areas, they were barely past their peak. Moreover, some businesses were still having their rate bills capped under the old transitional arrangements, which was necessary because of the large changes in rateable values that were produced by the 1990 revaluation—the first for 17 years. Taken together, those two factors meant that the changes in rateable values brought about by the 1995 revaluation would have substantially increased the 4 rate bills of some businesses. The transitional arrangements will ensure that any increases will be phased in, and businesses will be given time to adjust to their new rateable values. The reduction in the limits contained in the regulations is necessary to keep the actual increases in bills in 1996–97 to about the same level as in 1995–96. Without the changes that were announced by the Chancellor, the increase in the poundage to 44.9p in 1996–97 would have meant that businesses faced higher increases, in cash terms, than in 1995–96. The new limits mean that the maximum rates increases this year and next will be broadly similar. The regulations that govern transition are complex, but they contain what are known as appropriate fractions for each year—[Interruption.]
The Chairman Order. I am having difficulty in hearing the Minister, even at this close proximity.
Sir Paul Beresford The regulations are used to calculate the maximum annual increases in rate bills for properties in transition. Effectively, the maximum bill for a property in a given year equates to the relevant appropriate fraction multiplied by the property's so-called base liability—that is, the actual bill due in respect of that property in the previous year, taking account of any transitional relief. The regulations will alter the appropriate fractions that apply in 1996–97. Further limits on rates increases will benefit more than 1 million businesses nationally by reducing their bills. They will not reduce contributions to the non-domestic rating pool and will not, therefore, affect the amount of money that is distributed to local authorities to help finance their spending. Instead, the Exchequer will contribute an additional £268 million over the next three years to cover the cost of the revised limits. The principal regulations provide that the cost of limiting rates increases is shared between the Exchequer and those businesses that stood to gain from the revaluation. They therefore limited the year-on-year reduction in rate bills to which such businesses were entitled. The regulations before the Committee make no changes to the limits on rate reductions. The limits that will apply in 1996–97 are 5 per cent. in real terms, for businesses with a rateable value of £10,000 or more—or £15,000 if the property is situated in Greater London—and 10 per cent. for smaller businesses. That means that the Exchequer will meet the full cost of providing the extra protection to businesses adversely affected by the revaluation. I am aware that the fact that we have not altered those limits and allowed larger reductions in bills will have come as a disappointment to some. We received a number of representations on that issue in advance of the Budget. I understand the arguments that have been put to us. Naturally, businesses would like to see the sharp reductions in rental values reflected fully and immediately in their rates bills. I recognise that the rates bills of some businesses in central London are 5 currently higher than their rents. I also appreciate that there is a feeling that the current arrangements risk distorting the market in favour of new properties, to which the transitional arrangements do not apply. I also understand the concern that businesses in inner London are subsidising ratepayers in the rest of the country. However, there are powerful arguments in the other direction. First, the boot was very much on the other foot following the previous revaluation in 1990. [HON. MEMBERS: Hear, hear—]—I hear agreement from behind me. Then, many London businesses would have faced very serious rate increases but for the transitional measures and further special relief that we put in place in successive Budgets from 1992 onwards. For the first two years, that protection was paid for by limiting the rates reductions that businesses elsewhere in the country would otherwise have received. Strangely, I do not recall any complaints from London at that time that our measures were unfair or distorting the market. Moreover, it is wrong to portray the matter as a simple one of central London versus the rest of the country. While it is true that, over all, central London businesses are making a significant net contribution to the transitional arrangements, the fact remains that some 60,000 businesses in inner London will have increases in their rates bills capped in 1996–97; that is considerably more than will contribute to the cost of the scheme. The transitional arrangements have to balance the interests of the national ratepayer, businesses that would otherwise have gained from the revaluation and those who would have faced large increases in bills. Moreover, we have struck that balance fairly. The transitional arrangements phase in the effects of the 1995 revaluation and give businesses time to adjust to changes in their rates bills. The additional measures contained in the regulations will be welcomed by more than 1 million ratepayers who will see even smaller rate rises in 1996–97.
Ms Hilary Armstrong (North-West Durham): As the Minister said, the measure is technical and I prefer to deal with the principles rather than the details. We are having to resolve the matter now because of the problems that developments in the economy have caused over the years. The Government established the nationalised business rate because they were concerned about the disparity in the amounts paid in different parts of the country. As the Minister acknowledged, the change greatly benefited London and the south east and disadvantaged other areas. When revaluation took place last year, there were cries of anguish from business in many areas. The revaluation added enormous problems to what was already an over-complicated scheme that will, it now seems, provide permanent transitional relief. That poses problems because such relief is obviously meant to be transitional—in other words, to fade away. The Government also originally intended that the relief would be self-financing. Because of the revaluation changes, we are now presented with a 6 compromise whereby the transitional help for businesses for 1995 to 2000 will be partly financed by making firms who stand to gain from the 1995 revaluation receive their rates reduction more slowly. In addition, the Treasury originally planned to contribute £505 million to the cost of the scheme in England. A more recent estimate suggested that the Government would have to contribute only £230 million, so we may need to wait to the end of the year to know what will be the contribution from the central Exchequer. There are problems when transitional relief has to be extended another five years. The Federation of Small Businesses makes the same complaint and is worried that the revaluation winners must contribute to the payment relief of the losers. Given the current regime, that will be almost inevitable if parts of the country are not to be heavily disadvantaged. Certain problems have arisen over the past year as a result of a uniform business rate that uses a national multiplier. In April 1995, there were large increases in rateable value after the revaluation in most regions in England. The increase in the northern region was 25 per cent., in the north west region it was 33 per cent., in Yorkshire and Humberside it was 29 per cent. and in the west midlands it was 38 per cent. In contrast, the increase in the south west was 14 per cent., and in the south east it was only 3 per cent. In Greater London, the increase was minus 27 per cent. Those figures suggest that economic development in this country is somewhat uneven. I have pressed the Government continually to ensure that there is much more development in parts of the country outside the south east and London. That would enable us to sort out problems such as we are considering this afternoon and help to tackle the real problems of deprivation that affect other parts of the country. While that argument may not be too pertinent to the Committee's debate, it illustrates the overall problems that are inherent in the uniform business rate. Annual increases in the uniform business rate are restricted to the level of inflation. That is understandable, and businesses appreciate it. However, under the current settlement, the Government expect local council tax payers to pay rises well above the average level of inflation. That is another problem inherent in local government funding. With the uniform business rate limited to the rate of inflation, the Government's local government settlement means that next year, councils must raise council taxes by substantially more than the inflation rate if they are to get near to meeting their levels of service delivery in the current year. I regret that. The additional tax imposed on ordinary people is not fair. Yet again, the Government are reneging on their pre-election commitments. I do not propose to push the matter to a vote. I am pleased that the Government recognise the unevenness across the country and the problems caused—especially to small businesses—following last year's revaluation. There are real problems inherent in the national non-domestic rate, which is why we are consulting on how to liberate this 7 nationalisation measure and return it to local determination.
Mrs. Helen Jackson (Sheffield, Hillsborough): I want to add one point to those made by my hon. Friend, and I would be grateful if the Minister could reply. The issue is the administrative cost of yet another alteration to the non-domestic rate system and transitional relief systems. In my constituency and others in Sheffield, businessses and traders have faced great inconvenience as a result of the length of time before they receive compensation for the substantial work associated with the city's light rail supertram system. The backlog of work in the valuation office caused by queries has been extensive. Yet another extension of the complicated structure of transitional relief will put even more pressure on district valuation offices that administer compensation and valuations on domestic rated properties as they do on council tax properties. That will mean even greater backlogs, which will harm small businesses already struggling in present economic circumstances.
Mr. Andrew Miller (Ellesmere Port and Neston): I will not detain the Committee for more than a few minutes, but I will raise a couple of points that should interest the Government Whip, who I presume is silenced and unable to ask questions himself.
Mr. Gyles Brandreth (City of Chester): Do not count on it.
Mr. Miller: I think that restriction is a great advantage. My constituency is in the north west, where many important industrial operations make local authorities incur considerable expenditure for environmental protection, fire safety and so on. It is widely believed in the area that, as a result of the unified business rate, the local community has been significantly disadvantaged. It appears to the average council tax payer that he is being asked to share a greater burden in respect of matters pertaining to large industrial concerns than would otherwise be the case, because of redistribution to the south and south west. The huge expenditure incurred by dealing with the Associated Octal fire about 18 months ago is one example. It placed enormous burdens on the local community and engendered serious anxiety about related environmental issues. Many constituents wonder why they do not receive a fair share from redistribution when they have to bear environmental disadvantages and local risks associated with petrochemical companies. Will the Minister address that serious and fair point, which is often put to me by a good many of my constituents?
Sir Paul Beresford: The hon. Member for Sheffield, Hillsborough (Mrs. Jackson) may not 8 understand that we are debating a method of setting the business rate, which does not involve the valuation office. Sheffield presumably has computers that can be fed with information and which produce figures in the normal way. The results will not suggest quite the increased costs that the hon. Lady expects. There is concern about speed of valuations, and we have applied considerable pressure to improve it. I would be happy to correspond with the hon. Lady on that issue, although it is dealt with by an agency on the Government's behalf.
Mrs. Helen Jackson: Any query about any change to any small business's transitional relief may lead to a telephone call to the same local office that is responsible for compensation. That is where the pressure might build up.
Sir Paul Beresford: Local businesses will be most likely to go to the billing source, which is Sheffield council. I am sure that the hon. Lady will tell me that the council is superbly efficient and will answer queries instantly—unlike some other local authorities, which I shall not mention. The hon. Member for Ellesmere Port and Neston (Mr. Miller) made an interesting proposition. All judgments and assessments are linked to the property's rental value. That is a fairer way of proceeding. The hon. Member for North-West Durham (Ms Armstrong) raised several points. When we talk about the reasons for the business rate and for having to introduce a transitional buffer, we should remember that we have gone through two unusual—
Ms Armstrong: Recessions.
Sir Paul Beresford: Yes, but they were unusual—particularly under a Conservative Government. Some 17 years passed before the first revaluation, and property shifts then took place throughout the country, which is extremely unusual. We therefore need the transitional shifts. That partly answers the question of the hon. Member for Ellesmere Port and Neston. The reason for introducing the transitional buffer was the unusual shifts between local authorities when they set the rates. I remember listening in central London to the complaints of business men who were on one side or the other of the Westminster-Camden border. Differences there could be in the region of 34 per cent. The business men on the other side felt soaked, to put it mildly.
Ms Armstrong: I could come back to that.
Sir Paul Beresford: The hon. Lady will not come back to that because it could be embarrassing. The Government are introducing eminently acceptable changes in the regulations, which will be welcomed by the majority of businesses.
Question accordingly agreed to.
Resolved, That the Committee has considered the draft Non-Domestic Rating (Chargeable Amounts) (Amendment No. 3) Regulations 1995
Committee rose at seven minutes to Five o'clock.9
THE FOLLOWING MEMBERS ATTENDED THE COMMITTEE:
Hogg, Mr. Norman (Chairman)
Beresford, Sir Paul
Jackson, Mrs. Helen
McNair-Wilson, Sir Patrick
Martin, Mr. David
Spicer, Mr. Michael