§ Order for Second Reading read.
§ 4.11 p.m.
§ The Secretary of State for Scotland (Mr. T. Johnston)
I beg to move, "That the Bill be now read a Second time."
I approach this Measure with, I hope, due humility, and I ask for the forbearance of the technical experts in the House if I fail in the fullest explanation of what is the most technical and complicated issue I have ever set out to explain. The genesis of this Bill is to be found in the report of the Departmental Committee on Hydro-Electric Development in Scotland which was presided over by the Lord Justice Clerk. This report—and I may say there were no partisan politics in it at all, one of the signatories to the report was the chairman of the Scottish Co-operative Wholesale Society—was unanimous and was presented to the House in December, 1942. If hon. Members look at paragraphs 73 to 79 of that report, they will see in the main what recommendations were made. The report said:We wish to draw attention to the liability of hydro-electric public supply undertakings to local taxation; for the methods applied to such undertakings are so adjusted as to discriminate adversely against hydro-electric undertakings and to impose on them a much heavier burden than on equivalent steam undertakings. This adverse discrimination does not rest on any decision of policy but is the accidental result of the application of rules devised by the Courts half a century ago on the basis of Acts passed when electricity supply was in its infancy.Then they go on to say:Without detailing the intricacies of the revenue principle of valuation … a steam undertaking is allowed to deduct the very large sums expended annually on coal or other fuel: but a hydro-electric undertaking, in addition to having no fuel costs to deduct, is prohibited from deducting any part of the annual charges on its civil engineering works which are, of course, a counterpart of the fuel costs.Then they asked for authoritative comparisons which they obtained. They say that a steam station producing the same number of kilowatts would pay in rates £35,000, but if operated by water power about £106,900—just about three times the amount.
They go on to say that no justification in principle has ever been alleged for this anomaly, and that the Electricity Commissioners have consistently reported in 312 favour of rectifying this discrimination. As the great bulk of the hydro-electric resources are in Scotland the problem, they hold, is primarily a Scottish problem. They go further and say that these suggestions apply to the existing hydro-electric undertakings, but apply even more to new schemes to be carried out by the new Board. In paragraph 79 they say:We accordingly recommend that provision should be made in the case of the proposed new schemes for exemption from rates, either permanently or for a prolonged development period. No doubt it is a boon to Highland local authorities to be able to reduce (or to avoid raising) their poundage rates and so relieve some of their ratepayers of part of their burden by collecting large sums, exigible under obsolete valuation and rating law, from electricity supply undertakings, especially as the existence within their area of such undertakings entails little or no extra cost and the payments which are collected are, therefore, in the main clear profit.That was a definite and unanimous recommendation of the Lord Justice Clerk's Committee. They said that there was discrimination as between a steam station and a hydro station, that about three times the rates were collected from the hydro station from the same number of kilowatts produced as from the coal station. They collected evidence that this meant that in areas in the Highlands of Scotland, for example, where hydro-electric plants were in operation, people had to pay unduly high prices for their electricity supplies because of this rating anomaly. But they did not tell us more; they did not tell us by what means these anomalies could be averted. So what we did next was to set up a special Committee on the valuation and rating of hydro-electric undertakings in Scotland. I set up that Committee as impartially as possible. We got the Dean of Faculty to be chairman.
§ Mr. Johnston
Mr. McIntyre, who is now Lord Sorn. Then we got the Lord Provost of Glasgow to be a member, the Deputy-Convener of the county of Inverness, and we had two hon. Members of this House, the hon. Member for Linlithgow (Mr. Mathers) and the hon. Member for Cathcart (Mr. F. Beattie). We had the Secretary of the Association of Local Valuation Assessors, we had the town clerk of Paisley and the city chamberlain of Edinburgh, so that whatever else one may think about the conclusions of that 313 Committee, I think it will be agreed that it was not packed by any one interest or any one side. This Committee came forward, after taking most learned evidence and giving most careful consideration to this intricate problem, with three recommendations. They put forward three possible ways out of the difficulty. By the way, I forgot to say that the Electricity Commissioners for many years have been drawing attention to this extraordinary anomaly, although I do not know that they have ever condescended to recommend a particular way out.
At any rate, here are the recommendations which were made by the McIntyre Committee, as we will call it. First, they said that hydro-electric undertakings in Scotland should be permanently relieved of part of the heavy burden of local rates which are paid under the present rating and valuation system. That was a recommendation of the Cooper Committee. They said that to achieve this the existing law and practice should be modified in one of three ways. They said that it might be by deduction of an additional 25 per cent. from the gross annual value of the generating works of the undertaking when arriving at the net annual and rateable value. From rich and poor, costly and cheap stations alike, they said that 25 per cent. should be deducted. I will tell the House in a few moments why I did not choose to accept that recommendation. The next alternative was: By deduction from the gross revenue of the undertaking, in calculating its gross annual value, of a sum equal to 3½ per cent. upon the capital expended on its generating works in excess of £30 per kilowatt installed. In other words, they were going to relate the relief to the rate of interest that the concern happened to have paid. I will say in a moment why did not choose to accept that recommendation.
The third alternative was to adjust the valuation of the generating works in accordance with the proportion which £30 per kilowatt installed at the generating station bears to the actual constructional cost per kilowatt installed. In other words, they say you can achieve your end, and get equality and justice as between plant and plant, if you equate your relief, not according to the interest charged, but according to the capital cost at which the station was erected. The 314 advantage of this last recommendation was that the more costly and inaccessible the station is—say, in the further parts of the Highlands—the greater the necessity for a relief, if we are to get these stations developed at all. In these far-flung areas, it may be that the cost will be more than £30 per kilowatt. The more it is over that figure, the more the relief will be. After carefully considering these three recommendations, and taking counsel with everybody I could, I came to the conclusion that, in order to secure the utmost possible development, the largest number of stations in the Highlands, this third method—which we will call method C—was the most efficacious. That being so my next step was to consult the local authority associations, because, obviously, they, particularly in the Highland areas, may be very heavily prejudiced if their rating systems are completely upset. While no authorities like to have their rating systems upset, I am thankful to say that the local authorities think that of these three methods the third, method C, is the least objectionable—I will put it no higher than that. Indeed, the Counties of Cities' Association say they are not concerned, and the other two Associations say they have no objection to method C, if a concession is to be given.
If we were right in saying that it was inadvisable that we should give a uniform deduction where the costs of construction may be cheap or dear, if we were right in coming to the conclusion that we ought not to relate relief to interest charges, but came to the conclusion that it was advisable that we should relate relief to the capital costs of construction how, then, could we meet the local authorities on the matter? By and large, what we have done is this: We have said to the local authorities that no relief shall be applied unless and until equivalent new constructional works, hydro-electric installations, are created in their areas.
I am probably not putting it with the same technical accuracy as my hon. Friend the Member for South Croydon (Sir H. Williams) would put it, but I am trying to get the idea across to other Members who do not have his technical experience. If that be so, no local authority is prejudiced. It may be that in the case of future developments they will not gain increased rates until this 315 rating relief has been deducted, but no local authority is prejudiced by this method and what will be the case, I am perfectly sure, is that citizens will equally gain in cheaper electricity. They will gain because of the new developments and the Hydro Board—and I will say a word or two in a moment as to how that relief must be passed on in so far as the Grampian Company are concerned. Clause 5 of this Bill deals with the method by which undertakers other than the Hydro-Electric Board must return whatever relief they get either by development of their system of distribution or by reduced prices to their consumers. That is our intention. Either one thing or the other must be done. They must either develop their distribution system to the extent of the relief they get, or they must cheapen the cost to their consumers. This relief is not going as a relief to shareholders. Neither the Hydro-Electric Board nor the Grampian Company, which is an existing statutory undertaker and covers large tracts of land, is treated in the slightest way differently in so far as new works are concerned. The Hydro Board gets no relief until it puts down its stations and as far as the Grampian Company, who are already paying rates under the existing system, are concerned, they will only get relief after there are new works created, either by the Hydro-Electric Board or the Grampian Company in the area to the equivalent amount of that reduction, and even then whatever relief they get must be either passed on to the consumer or used to develop electricity in the area.
I know that these rating issues bristle with anomalies. The more one studies this subject the more one feels that the whole thing requires root-and-branch alteration, but I hope the House will agree with us that, at any rate, here is a serious anomaly and that, unless we do something to relieve it, we shall crab the development of hydro electricity and we shall maintain costly prices to the consumer in many of these sparsely populated areas. We are anxious to see better location of industry and more amenities for the people, and to see that they get cheaper electricity. The only way in which we can conceive of this being done is so to equalise matters as between steam station prices and hydro prices, that the ideas I have announced can be brought 316 to realisation. I am not saying that this Measure deals with anything like the total number of serious and grievous anomalies that abound. There are other concerns which come to us and say "Why are we not in this?" I am not sure whether all these people have exhausted their legal remedies, but whether that is so or not, here is a recommendation unanimously supplied to us by the Lord Justice Clerk's Committee, unanimously supported by the Dean of Faculty's Committee, and, as far as we can see, we provide in this Bill an equitable and reasonable method of meeting these difficulties without doing any injustice whatever to any existing local ratepayers, and after consultation with the local authorities I commend the Bill to the House.
§ Mr. Stephen (Glasgow, Camlachie)
On page iii of the Explanatory Memorandum, the rateable value in 1946–7 of new generating works is given as £7,500 and of old generating works as £30,000. Then it is stated that the total is £37,000. Should it not be £37,500?
§ 4.35 p.m.
§ Mr. Pethick-Lawrence (Edinburgh, East)
My right hon. Friend apologised for his lack of technical knowledge in expounding the terms of the Bill. I think I am only expressing the views of the House when I say that his exposition of a very difficult technical subject left little to be desired. It was clear and cogent and I am glad that those who have more expert knowledge than I, including the hon. Member for South Croydon (Sir H. Williams), agree with my less knowledgeable lay opinion, that it was also accurate. We are indebted to my right hon. Friend for the way in which he introduced the Measure. As to the substance of the Bill, I approached his proposals with a certain lack of enthusiasm. Being aware of the heavy responsibilities which have been already put upon the shoulders of the local authorities, and the increased burden which they are likely to have to bear in the future, I was not enamoured of anything which would still further deprive them of rates. This Bill, which prima facie reduces the resources of local authorities seemed to be regrettable even if it was a regrettable necessity. But, 317 when I came to look at the matter further and read the report of the Macintyre Committee, I came to the realisation that there was a good deal to be said on the other side.
The simple fact, as it seems to me, is that the rating system of the country is not only lull of anomalies as my right hon. Friend said but it has become to a very large extent national, particularly when it is a matter of the proper rateable value of public utility companies. In the days when the rating system was invented, the real local property that was rated was of a very much simpler kind than it is in the more complex civilisation with which we are faced at present. The principle that there are certain matters paid for by the nation as a whole, and certain other matters which are local interests and should be paid for by the local wealth, had in the first instance a great deal to recommend it, and still remains of considerable force.
But the rating system has been overlain with a very large number of patches, and changes, and modifications, which have made its complexities far greater than they were at the beginning, apart from the fact that there is the overspill of interests from one area to another, and a change in the character of the wealth which is proposed to be rated for the purpose of obtaining resources for local development. That was so, and it was quite bad enough, until some 15 years ago, when the present Prime Minister introduced a further considerable complication into our rating system, by relieving a large part of the rates of certain valuable undertakings in certain areas, thereby placing upon what was left of the wealth of the locality, a very much heavier burden, in proportion, of rates. In order to compensate local authorities for that, he instituted a form of block relief, which has caused rating authorities to be faced with problems of arithmetic as well as problems of rating proper. On the top of all that, we have this notional rating of public utilities and the method by which the hydro-electric industry has been rated, as compared with another form of electricity-producing concerns, which are based upon coal or some other means. We have, therefore, complication piled on complication, notion piled on notion, and patches and changes piled on the patches and changes that we had before.
318 Faced with all that difficulty and complication, what are the facts which this proposal endeavours to meet? I think they are that this industry, which is designed for the benefit of the community so that it may take advantage of the natural resources of the country, is faced with exceptionally heavy rating if the notional methods which have been applied in the past for reaching rateable values are to be applied unchanged in its case. Therefore the McIntyre Committee has recommended, and the Secretary of State has proposed in this Bill, one of the methods which is going to give them relief in those places where their burden of rates would be greatest and where, if no relief was given, the undertaking would be unable to develop its resources in the way most beneficial to the community. I am bound to say, although I did not approach the proposals with any enthusiasm in the first instance, that the arguments to which my right hon. Friend has given voice to-day have convinced me that it is necessary to take some such steps in order to meet the position.
What is the situation of the local authorities? First, with regard to new undertakings, it is true that they are not going to get all the money they might have hoped to get, if the hydro-electric undertakings had been able to pay all the rates that it was thought they might be able to do. But in fact the net result of doing nothing to give them relief would have been that those undertakings would not have expanded, the community would not have got the benefits and the matter would have remained as it was. In those circumstances, it seems to me that, even though the local authorities are not going to get all that they had expected, it is better that they should get something in the development of their resources than that they should be left where they were. Therefore, I think that the local authorities, rather reluctantly and with a certain feeling of disappointment, are realising that they cannot hold out against the proposals of the Bill.
With regard to the question of the undertakings already in existence, they are safeguarded in these proposals against immediate loss. It is true that up to a point they are safeguarded so far as the future is concerned, because the undertakings, as I understand, only get the reduction when they have created new works which have brought into rateable value new properties 319 for the benefit of the local authority. That seems to me only a partial explanation, because the local authority has presumably to a certain extent to incur new charges in consequence of the new rateable value. To that extent I do not think the local authorities will be quite as well off as some people suggest.
At the same time, we come back, even in that case, to the original proposition. If the resources of hydro-electric power are to be developed, they can only be developed provided they show a reasonable return. If the old basis of rating, unameliorated, were to stand, development would be very slow because it would be too expensive; or, if it were more rapid, the charges that electric authorities would have to impose would be so high as to be of little benefit to the community. Therefore, I am bound to say that I have come to the conclusion that the proposals embodied in this Bill ought to be supported. Although local authorities may feel disappointed, very naturally, and although their financial difficulties will not be cured, I think that we must wait for questions of local government reform and readjustment of the burdens between the local and national taxation, a subject, I understand, which will be discussed to-morrow, before they can get all they want in that particular. I feel, therefore, that, in view of the existing facts, we cannot oppose this Bill as it stands.
§ 4.48 p.m.
§ Commander Galbraith (Glasgow, Pollok)
I always think that it appears somewhat ungracious to look a gift horse in the mouth, but I must confess that I am somewhat disappointed with this Bill. When I recall the Debate on the Second Reading of the Hydro-Electric Development (Scotland) Bill what comes clearly to my mind is the complaint made by numerous hon. Members about the burdens which their constituents had to bear, owing to the high cost of electricity. They pointed out that one of the immediate ways by which that charge might be lessened, at least to a certain extent, would be by the removal of the unfair rating burdens which hydro-electric undertakings had to bear. It was on that point, if I remember rightly, that my right hon. Friend the Secretary of State informed the House that he had appointed a committee of inquiry. What we were really 320 asking for was a reduction in the cost of electricity to the people of the country. It seems to me that under this Bill we are not to get it. We are to get something which is very different. This Bill, so far as I can understand it, really provides a subsidy for the uneconomic areas of the country, at the expense of the ratepayers and the consumers of electricity in other parts of the country. That is a different thing altogether.
I have listened to my right hon. Friend's explanation, and I have read this Bill without understanding very much about it. I do not think there are many Members sufficiently versed in the technical matters concerned to understand the Bill, unless they went through a course of about a month with experts on the subject. Clause I seemed to me to be perfectly clear and straightforward. Having read it, I turned to the Explanatory Memorandum and said, "Thank goodness, I am right for once." Then I began to inquire into it, because it all seemed to be too simple. Why should the assessor be instructed in the Bill to value the undertaking? It seemed to me that that would be his duty in any case. What I have gathered is that this Clause sails straight through the Land Valuation Act of 1854 and applies a completely different principle. It really means that the undertaking, not having contiguous land and heritages, is to be valued as a whole, and not station by station, as other undertakings have to be.
I will try to explain what occurs under this scheme, and for that purpose I will give an example. Let us suppose that the Hydro-Electric Board sets up four new stations in remote parts of Scotland, where they will be unremunerative, and that each of them makes a loss of £10,000 a year. The Board then sets up another station in a populous area, which makes a profit of £100,000. Under the law as it exists, these four remote stations, having made a loss, will not provide any rateable value to the local authorities within whose area they are. But the station making a profit would produce £100,000 of rateable value in its area. Under this Bill, a deduction is made from the profit-making station of the losses that have occurred on the other stations. The rateable value is, therefore, reduced to £60,000. It. goes further than that, because that rateable value has to be spread 321 over the five stations in proportion to the capital which each of them bears to the whole. Suppose that each of these stations in the remote areas is one-tenth of the capital of the whole, you then have to deduct another £24,000 from the £60,000, so that, where there was a rateable value under the present law of £100,000, there will be a value of only £36,000 under this Bill.
Mr. Snaddon (Perth and Kinross, Western)
In Perthshire a major scheme is contemplated, and does my hon. and gallant Friend's point mean that if it makes a profit of £100,000 it will have to subsidise, in rates, unprofitable schemes in Argyllshire? If that is so, it seems rather unjust.
§ Commander Galbraith
If a profit-making concern which makes £100,000 is in Perthshire, the local authority will receive a rateable value of only £36,000 under this Bill. The four remote stations have no rateable value whatever as the law stands at present, but under this scheme they will have a rateable value of £6,000 each. It is obvious that the populous areas will have to subsidise the remote areas. That may be all right, and it may be the policy of my right hon. Friend, as I gather it is, but, if so, we should have it explained to us and the people who are supplying the money should know that they are doing it.
Another point about this is that it postpones the relief which is to be given to the existing undertakings. That is obvious from what I have already said. We cannot anticipate that any of these new works will be on the valuation roll before 1949. I am told that at the present time, and for years past, there has been a steady increase in valuations of hydro-electric undertakings. That increase will continue until 1949. In view of what has been said by the Cooper Committee and by the McIntyre Committee cannot we now say that no increase in valuations should be allowed to hydro-electric undertakings until such time as relief comes along? My right hon. Friend has told us that the McIntyre Committee placed three proposals before him. The first was absolutely straightforward, and everyone could understand what it meant. It was to make another deduction of so much per cent. from the net annual value. I cannot understand, even from my right hon. Friend's explanation, why that recom- 322 mendation was not accepted. It could have been applied without any difficulty or trouble, and it would, if the Committee had only put in 35 per cent. instead of 25, have brought the hydro-electric stations into line with the steam stations, which is what we are asking for.
Instead of that, my right hon. Friend has chosen the third alternative, which is one that none of us can understand. It is so complicated and difficult, and even technical electrical experts cannot understand why certain things which are introduced should be there. The first alternative would have given immediate relief to all consumers of electricity. In Committee some of us may feel inclined to ask for the substitution of the first alternative for the one which my right hon. Friend has chosen.
I would like to refer to Clause 5, to which my right hon. Friend paid considerable attention. I really do not think that that Clause is necessary, because, already, development and maximum prices are controlled by Statute and Order, and the rates which are charged have to be related to the economic conditions. It is a ridiculous provision, and this is how it works. The concern gets relief to the extent of £20,000. Immediately the Inland Revenue authorities assess the undertaking for tax on that additional £20,000. With Income Tax at 10s., the £20,000 is reduced to £10,000, yet, according to this Bill, £20,000 has to be spent by the concern on certain improvements. There is an even more laughable feature than that, because, if the £20,000 comes on top of the E.P.T. standard, the whole lot goes away in tax, so that the £20,000 will not exist for the undertaking to spend as the money has already been taken by the Government. That is a little bit sweeping. I have expressed certain views on the Bill. It is, far too complicated a Measure as it stands. The alternative that my right hon. Friend has chosen is unfortunate, because it does not give immediate relief, is difficult to understand and will create a great deal of work on the assessment.
§ 5.0 p.m.
§ Sir Herbert Williams (Croydon, South)
I beg to move, to leave out "now," and, at the end of the Question, to add "upon this day six months."
It is a little unusual for an English Member to take part in a Debate on a Bill 323 which apparently relates entirely to Scotland, but in this case the Bill contains principles which are very important in their general significance, and I think that those principles must be challenged the first time they are introduced. I must differ a little from my hon. and gallant Friend who has just spoken. I think the Bill ought to be called "The Glasgow and Edinburgh Endowment Bill." The proposals of the Caledonian Power Bill were twice rejected by this House. Both that Bill and the Grampians Power Bill were rejected, because they wanted to establish an electro-chemical industry in association with their hydro-electric plant. That scheme would have given those plants the ideal thing, a steady load in relation to the electrical demand. That would have been a situation in which all the machinery of this Bill would have been unnecessary. How rates fall upon a hydro-electric plant depends very much upon whether the plant is fully loaded or not. The House rejected those proposals. The House said that, in a glen which nobody ever went to see, works must not be put up unless under the auspices of the Secretary of State for Scotland, when the amenities ceased to be important. Under the Bill, the rates which will be paid out will reduce the price of current, and the bulk of it will be fed into the grid to be consumed by some of the gentlemen of Edinburgh and Glasgow. That is why the Bill is getting great support from hon. Members who represent those two great cities.
We can all agree about two things, one of which is that the Secretary of State made a very good, lucid speech, explaining the difficult and abstruse matter it contains, and the other is that the Bill is very difficult reading. I am not assuming that my Amendment will be carried and I am not very anxious that we should divide on it, but when we get into Committee we shall have to consider some of the matters in this Bill very carefully.
I do not know whether hon. Members realise how unsatisfactory is the whole system of rating of public utilities. When I was connected with the electrical supply industry—have not been connected with it now for some three years—I studied very carefully how it worked out. I considered water, gas and electricity, and I compared the burden of rates they had 324 to bear in relation to the value of their product with the similar circumstances of ordinary productive industry. I cannot, at the moment, lay my hands on the particular memorandum, but my memory of it is that, roughly speaking, in the case of a hydro undertaking, which had no electricity attached to it, in other words, purely a water undertaking, the rate burden was about 36 times as great in relation to output as it was in productive industry as a whole; by which I mean that part of industry which comes under the survey of the Census of Production. In the case of gas, I think it was about 25 times, and in the case of electricity about 20 times. The whole system of rating of public utilities has made the prices much higher. If we are to introduce this system that new works are to be better treated than existing works—because that is what the Bill means—
§ Sir H. Williams
Oh, yes. Let us be quite frank about it. There is not the slightest reason why the Metropolitan Water Board, which is promoting a Bill in this Session of Parliament to enable it to construct three reservoirs, should not come forward and say, having regard to the treatment given to this hydro-electric board, that they do not see why they should be treated any worse than this hydro-electric undertaking. Why is a hydro-electric system worse off, on the average, than a steam system? It is because the bulk of the wages of the undertaking are spent in connection with its construction. In the case of a steam station, the maintenance wages, which are much higher on running the plant, include coal miners' wages. Apparently there is a greater profit in relation to output because the revenue is calculated before meeting capital charges, which are so much higher with a hydro-electric undertaking than with a steam undertaking. As long as it is rated on a revenue basis they have to pay much more in rates. I am not clear whether the Bill does not go right away from the revenue basis. I think it does. When, in Clause 1, the assessor is told to fix the value, I presume he fixes the value on the basis of what a willing tenant would give to a willing landlord, but as he cannot find him, he does it by assuming a rate of interest on capital.
§ Sir H. Williams
How can there be a revenue principle before the undertaking has started? How assess the revenue when there has been no revenue? The first brick has not been laid—or whatever is laid when building hydro-electric undertakings in Scotland. Perhaps this matter will be explained to us, and perhaps I shall then see a great light. I quite understand why a hydro-electric undertaking is worse treated than a steam undertaking, if the hydro-electric undertaking is carrying the same sort of load as the steam undertaking. Give a hydro-electric undertaking a good, steady load all round the clock, perhaps by having an electro-chemical works, and then one will be able to get rid of the rating difficulties and this Bill will be unnecessary. It is the denial of the appropriate kind of load which, I think, has brought about a great deal of the trouble.
I think I know why the Secretary of State has chosen method C. What people have not had, they do not miss. He is not proposing to take away any existing revenue from the local authority, and as they have never had it and are not going to get as much as they expected, they do not miss anything. It is a very ingenious political proposal. If someone brings a great scheme forward to give something to people and Parliament throws it out the people do not lose anything and we do not cause a great deal of trouble, but if people have already had benefit and then an Act of Parliament is passed to take it away, of course, people get very cross. Therefore, the Secretary of State is going to say to all the existing undertakers—and this has nothing to do with the issue of private enterprise as against municipal enterprise, because if there are any municipally-owned hydro-electric undertakings, and I do not think there are, they will be placed in the same disadvantageous situation under the Bill as those which are privately owned—
§ Sir H. Williams
I was not aware that Inverness had one, but if so it will be prejudiced in the same way as the private undertakings. This is not an issue between private enterprise and municipal 326 enterprise. The issue is whether this child of the Secretary of State, the Hydro-Electric Board, is to have a privilege over all other similar works and to get this rating concession whereas the Grampians and, I think, the Galloway Power Company—I think those were the two main undertakings in Scotland—will only get it in connection with any new works. As those companies have harnessed a very large proportion of the possible water power in their areas they are not likely to get a great deal of advantage under the Bill. The advantage will go to the people who are developing water power which has not yet been developed, and the bulk of it is in the area of the Scottish Hydro-Electric Board.
Therefore, it is clear that this body will be in a privileged position. That has been thought necessary, because otherwise it might not make too good a showing when it gets going. Therefore it is desired to have this new form, which is neither Socialism nor private enterprise—I do not know what to call it. I could call it by a name which is in the English dictionary but which is not used in Parliament. I will not use it; it would offend the religious susceptibilities of my hon. Friend. Here is a discrimination in favour of one method of generating electricity—not one technical method but a political method, against other methods. I think this principle is so dangerous that it ought to be challenged, because if this Bill becomes law then in future any waterworks undertaking will have a perfectly valid reason for coming forward with similar demands. As I say, the Metropolitan Water Board are to spend some millions on constructing new works in Middlesex, and they will have as good a case for this concession as a hydro-electric board. It was because I thought this principle was so dangerous that it ought to be challenged at the earliest possible moment, that I decided to move this Amendment.
§ 5.12 p.m.
§ Mr. Stephen (Glasgow, Camlachie)
I listened attentively to the hon. Gentleman who moved this Amendment, and I listened with even more attention to his remark about beneficiaries, but I do not see that Glasgow and Edinburgh will be beneficiaries so far as the Measure is concerned. The Bill does not fill me with any great measure of enthusiasm, but as the hon. Gentleman proceeded with his 327 speech I began to think that possibly the Bill might be a little more helpful to the people of Scotland than I had previously surmised. Also, when I listened to the hon. and gallant Member for Pollok (Commander Galbraith) I thought it doubtful whether he was right in his reading of the Bill. He said that all installations were to be lumped together, but I do not read the Bill like that. I think all these cases will be taken by themselves, and that it will depend on the cost of the installation as to its position with regard to its rateable value in each place. That is how I read the Bill. Unless the hon. and gallant Member refers to the provision in Clause 1 I cannot see how he arrives at his interpretation of the Bill.
§ Commander Galbraith
I put the case so that we could have an authoritative reply from the Lord Advocate. That is my reading of the Bill. If I am wrong I hope that the Lord Advocate will correct me.
§ Mr. Stephen
I do not see how Clause 1 lays down what the rateable value would be in, say, one town in Scotland in relation to part of a concern. The Lord Advocate will be able to advise us on that point. The next part of the argument is that the old undertakings are, by this Measure, to be put in a worse position than the new undertakings, because they have had to put down their installations at a certain expenditure, which is given a certain rateable value, and they have had to pay rates on them. In the future they will be put on the same basis as new undertakings. They are to be in exactly the same position, because the reduction in rateable value is something which, in every case, I take it, is to be passed on in the form of cheaper current for the consumer. The hon. Member for South Croydon (Sir H. Williams), or the hon. Member for Pollok, said he did not see how the old undertaking would get any real advantage under Clause 5, because there would he Income Tax on this measure of relief. But that will not be so, because the amount of relief obtained would be spent in carrying on the business of the undertaking, so that it cannot come into the profits, and therefore cannot attract Income Tax. I was surprised that an expert on Income Tax such as my hon. Friend should have put forward such an argument.
328 A point has also been made that other undertakings, such as water undertakings, will be in the same position, and be just as much entitled to claim such a reduction in rates. I would meet that argument in this way. I would say that our present rating system is completely unsatisfactory. In Glasgow at the present time the rates are higher than in various other parts of the country. That is very largely because Glasgow has had a very much larger volume of unemployment, and consequently a greater expenditure in providing for the people concerned in the years gone by, because Glasgow has been the centre of the industrial system of Scotland, and when unemployment overtook the country too great a burden was put upon Glasgow. That only adds point to what has been said about the anomalies in our rating system.
One of the complaints I feel inclined to make in regard to this Bill is that instead of the Government bringing forward a real plan for the development of our country and its resources we get this miserable kind of Bill which was perhaps adequately described by the hon. Member for South Croydon when he said he did not want to use a bad word about it. The Bill is quite inadequate because the Government are not prepared to face up to the position in which we are to-day. The whole of our people have been called upon during these years to make the most tremendous sacrifices, and promises have been made that after the victory has been won we shall enter into a new period, that we shall carry the spirit of self-sacrifice and doing what is for the common good into the new period. Then we get these miserable abortions offered to us as the heralds of the new order.
I want to see hydro-electricity developed to a large extent in Scotland. If the Government feel that this Measure will help in the development of this industry in Scotland and bring electricity within the reach of people in the more remote parts, I shall be enthusiastic for it, but I do not believe that it will materially help the work of the Hydro-Electricity Board. I would have liked the Secretary of State for Scotland to go to the Cabinet and say that Scottish people, who had such a bad time, had made their contribution during the war, and that now they were entitled to some big measure of development, so that all 329 the water resources of Scotland should be used to the best advantage—a great scheme of housing and of industrial development in conjunction with hydro-electric power, based upon the control of government in Scotland by the people. That is the kind of policy that I should have thought the present Secretary of State would have brought forward. I do not think any injustice is done to those other undertakings. I read the Bill very carefully, and I was inclined to grumble at first, because I thought that there was to be more dividend provided for the profiteers, who have done so well in years gone by, but after reading Clause 5 I felt that this was a small attempt—possibly commensurate with what we may expect from the petty mind of the present Government—to help the development of Scotland.
§ 5.24 p.m.
§ Mr. Craik Henderson (Leeds, North-East)
This Bill is one which I think every Member will agree contains a principle which ought to be supported, the principle being to get rid of the discrimination between the two methods of producing electricity. The one point that one may make regarding that is that this relief comes rather belatedly. It is—I will not say suspicious, but illuminating—that, although this proposed reform has been pressed for for a very long time, nothing has been done by successive Governments until my right hon. Friend's fair-haired, blue-eyed child is born, and then we get the reform which has been urged for years. I hope that my tight hon. and learned Friend the Lord Advocate will be able to satisfy us that this child of the Secretary of State is not getting any benefit which is not being extended to other companies that have already been carrying on hydro-electric work in Scotland. On the face of it, it would seem that there has been some discrimination. I am sure that Members of all parties would agree that there should be fair play between existing companies and the new company which is the product of my right hon. Friend. It seems that, under Clauses 1 and 5, there is discrimination, and I hope that the Lord Advocate will deal with the point.
Under Clause 1, as my hon. and gallant Friend the Member for Pollok (Commander Galbraith) has said, and as I read it, the North of Scotland Hydro-Electric scheme has a preference over the 330 others. As my hon. and gallant Friend has explained, even though there are four or five different installations of the Board they are all treated as one, and there is a considerable saving of rates, as compared with private enterprise schemes, which would be assessed on the separate installations unless—which generally is not the case—they happened to be continuous lands or heritages, in more than one parish county or burgh. Only if that condition is fulfilled are they entitled to apply to the sheriff and to be assessed as a unum quid for rates. That is discrimination, because, supposing that, later on, one of those enterprises was to start a new installation not continuous with the existing installation, it would be separately assessed, and I believe some of the existing installation are not treated as a unum quid. I think it would be the wish of the House that all should be treated on an equality. The other discrimination is made under Clause 5, where it is provided that the benefit of any saving on the rates is to be passed on to the consumers or used for the development of distribution, except in the case of the North of Scotland Hydro-Electric Board. There may be some reason for this provision. If so, I should be very glad to learn that there was no real discrimination. But, on the face of it, it looks as if in the case of the existing companies, any saving must under the Bill be passed on to the consumers or expended on the undertaking, while in the case of the North of Scotland Hydro-Electric Board there is no such provision.
There is another point which my hon. and gallant Friend the Member for Pollok raised, which, on the face of it, seems rather remarkable. These private concerns, where they obtain a saving, are bound to pass it on, and it is the sum that they save which is passed on. But there may be Excess Profits Tax. If the amount is all taken by the State, are they to pass on what the State has already taken? One would think, too, that these concerns would be liable to taxation at 10s. in the £. Are they to pass on 20s. in the £, when the State has already taken 10s.? I am sure nobody in the House would want that to happen, but that is what would appear to happen. This Bill, on the face of it, discriminates unfairly between the new hydro-electric company and the older companies.
331 I hope that we have misread the Bill, but, if it does, then obviously it must be put right when we come to the Committee stage. I hope that my right hon. and learned Friend the Lord Advocate will be able to explain away these discrepancies. I would also ask him whether, in the McIntyre Report, there was any suggestion in favour of the provisions now contained in Clauses 1 to 5. So far as I remember, there was not. If so, why were they inserted in this Bill?
I hope this Bill will help to develop hydro-electric schemes in Scotland. I am very anxious to see electricity produced for Scotland cheaply and efficiently. We want to see it extended, because I believe it would do much for Scotland, but we do not want to see it done by discriminating between the child of the Government and the ordinary hydro-electric company.
§ 5.31 p.m.
§ Sir Arnold Gridley (Stockport)
I disagree with the hon. Member for South Croydon (Sir H. Williams), who moved that the Bill be read a Second time on this day six months. I think there is a case for this Bill, because anyone of us who knows anything about hydro-electric schemes, knows full well that they invariably start under the one great disadvantage, that, considering the generating area of the scheme, the capital outlay involved is usually twice or three times, and sometimes three-and-a-half times, as much as would be the case with a corresponding thermal station. Therefore, it is right that there should be, at long last, some relief to rates in order to counteract that disadvantage.
What, however, one does object to in this Bill is the discrimination between the treatment to be meted out to this new enterprise and that of the existing enterprises, be they municipally owned or conducted under the auspices of private enterprise. I see no reason why they should not be treated the same, because, if relief is to be given to an existing undertaking, shareholders, directors and others cannot benefit by one penny piece. The savings effected have to be passed on, either to the customers by reduced prices, or by extending the distribution system, which, presumably, will mean extensions into areas not already served, Therefore, whatever our political views may be, no political issue seems to arise there. But there 332 are Clauses to which, on principle, one is entitled to take serious objection. All I want to do is to ask my right hon. Friends the Secretary of State and the Lord Advocate this question. They will possibly remember that, when we were considering the Bill which established this Hydro-Electric Board, we got together in consultation with the Ministers, at no disadvantage to them, to us or to the Bill. Would they be good enough to undertake, between now and the Committee stage, to confer, as before, with some of us who, I think, may rightly claim to know something about these enterprises, having been in them for most of our lives, and see if, together, we cannot hammer out improvements that will make the Bill more acceptable?
§ 5.34 p.m.
§ Mr. Malcolm MacMillan (Western Isles)
I beg to subscribe to the formula that I do not understand the Bill. It seems to me that those hon. Members who have not said that, have said that they hope they have misread it, in the hope of finding something that was suitable to their own angle or interest. May I also suggest that, in addition to referring to hon. Members as "hon. and learned," we might also introduce the phrase "hon. and technical Member" as well for those who do understand Bills like this? The Secretary of State made a very persuasive and lucid case for the Bill. But I cannot say that all of us on this side are in complete agreement with him. The situation seems to be something like that described in the epitaph which a negro soldier chose for himself:Here lies a black man who died fighting a yellow man to save a white man.Here you have a local authority being automatically deprived of newly-created rating values by the central Government in order, ultimately, to subsidise private interests. For even if you only give your relief of rating to improve a distributing system, you still increase the capital assets of the private company concerned. There is no doubt that, in essence, setting aside all the questions of "technical difficulty," the effect of this Bill in these areas is going to be that a subsidy is provided in the form of rate relief at the expense of the local ratepayers, and I am surprised that the right hon. Gentleman has not had more difficulty with the county councils involved 333 in the Northern areas in respect of this. Taking the long view, it can be said in favour of the Bill that it may, ultimately, help to create new wealth by making local raw resources into economic assets in these areas, and it may also induce an undertaking to use the rate relief to improve their works and distributing service, even if it is mainly for their own profit, and not the public's. We are assured, though it is not specifically stated in the Bill, that the undertakings which benefit under this Bill will pass a part, at least, of that benefit to the consumers in the way of cheaper supplies. But there is nothing very specific in the Bill on that point. When you pass on a derating benefit in that way, it does not necessarily mean that you are giving a cheaper public supply; and experience in the past has been that where you have had this rating relief, the consumers have benefited only up to a point, though not by very much in some areas.
I think the way to subsidise the better working of what ought to be a national service, if you are going to do it at all, is by way of a national subsidy and not at the expense of an already heavily derated local authority. It is time we made provision for the small communities, the farms and out-of-the-way places which are now served most inadequately, if they are really served at all, and which, apparently, are not all to be covered by the Hydro-Electric Board's enterprises. I agree that existing undertakings will only be relieved of rates in direct proportion to new rateable construction in those areas, or in proportion as they extend these, or their old, undertakings. Surely, we ought not to have to give a bribe at the local people's expense in order to attract these undertakings and equate their treatment for private benefit. I do not see why the Treasury, if it is going to help at all here, should not be more direct with its subvention to private enterprise, which is what, quite frankly, this proposal has to be acknowledged as meaning. It is an ugly method to subsidise at the expense of the local rates.
There is no compensation provided in the Bill for local authorities, for new services and extensions of services which must be provided by them from local rates when new works come into their areas. You have police protection, fire service, and, possibly, an extension of the 334 water and other services, which will inevitably have to be extended when a new generating plant and ancillary works come into the area or an old one is extended. What benefits are necessarily to come from the Bill? An improved distribution system at the expense of a relief in rates, that is at the expense of all new potential rateable values as far as electrical undertakings or an extension of existing undertakings are concerned. Not necessarily a much cheaper supply. It may be that the main benefits under the Bill will accrue not to the area in which these works exist, or into which the new works come, but to the other counties and areas round about. This can easily happen in various districts in the North of Scotland, so that no public benefit necessarily comes to the local people at all, and even that new capital wealth which is created may be used to export by improved methods and subsidies the consumer product—the power and electricity—from that locality almost altogether. It may have no important local rateable value and actually no amenity value at all to the people in the locality.
The only consolation offered by the Secretary of State and those who speak for the Bill is that we do not actually start to penalise the local authority until then new values have been created. At best, that means that, in relation to hydro-electrical supply, the area of rateable value is not going to be extended for several years, at least. That is not an unfair interpretation to put upon it. This Bill introduces, or aggravates, a very unfortunate state of affairs in areas which are already de-rated. In places like Inverness-shire, Argyllshire, and Ross-shire, you have tremendous areas agriculturally de-rated. It is time that we spoke up for the small places. I have a constituency consisting entirely of small places. When we talk about getting a public water supply, a new road, a pier or harbour, they immediately relate it to the local rateable value and say that the local rateable value would not justify spending money on it. They say that a rate of a penny or a shilling or even a pound would only produce a few pence, shillings, or pounds, respectively; and, therefore, it would not be worth while undertaking such expenditure in the form of grants from national funds.
The reason, to a large extent, for the de-population of these areas is the fact 335 that almost all necessary proposed improvements are related to the local rateable value. The smaller the place, the less the rateable value and the less finance you can raise locally; and, therefore, the less you receive from the National Government by way of grants. The vicious circle is thus completed. Larger places elsewhere with higher rateable values are able to offer attractions and amenities, and the people leave the small places, and that is largely the reason for the continuing, rapid de-population of the small places. They are always hunting in these counties for new rateable value; they expect to benefit from new industries. The establishment of an electrical supply industry or any other industry should increase not only the economic wealth, but the rateable value of the county and would enable improvements to take place in the life of the people in the small communities. When they realise what the Bill means they will feel very sore about it. I am surprised that some of our county councils are not making a bigger row about it. It is time that we spoke our minds clearly on this issue.
I am not at one with the Secretary of State on this issue of subsidising, directly or indirectly, wholly or in part, these interests. It is not the real way of dealing with electrical supply in this country. If you want to subsidise an industry which is inefficient, or which has some other reason for requiring a subsidy, if you are going to do it by Statute, you should do it from the central funds and not at the expense of actual rateable values or potential future rateable values of these small areas, which cannot finance themselves and are inadequately financed by the Treasury. I am not arguing for people who vote against paying a ½d. or a 1d. on the rates for locally financed benefits. It is the principle of compelling local authorities by central government statutes to accept losses in their potential rateable values or present values and at the same time asking them to undertake the many tremendous new tasks of reconstruction at heavy local cost, at the same time. I hope that, during the Committee stage, it will be possible to modify the Bill; though I rather doubt it. I hope that some sort of modification will take place, to ensure that the local people, and the smaller communities especially, get some benefit 336 in cheaper electric power at least out of this handout of their newly created rateable values to private firms; and out of the reliefs given to the existing plants and generating stations in their own areas.
§ 5.47 p.m.
§ Major McCallum (Argyll)
I rise with some trepidation to intervene in this Debate because we have listened to a number of great technical experts on hydro-electricity, on rating, and all the problems connected with this Bill, and I have come here not as the poor lone wolf, but as the poor lone lamb, to represent the man in the street, or rather the man in the glen, who hopes one day to benefit from the Bill and be able to turn on a switch and have some electric light in his cottage or farm or house. I am sorry that my hon. Friend the Member for the Western Isles (Mr. M. MacMillan) has said that his local authority had not welcomed this Bill as wholeheartedly as I would like. I know from conversation with my own local authority that they are fully supporting the right hon. Gentleman, and hope that the Bill will go through and that everything will be done to facilitate the development of hydro-electricity in the North of Scotland area.
I represent an area which is slightly different from that represented by my hon. Friend in that we have already in some parts of Argyllshire the principal existing undertaking—the Grampian Company—while the Northern part of the county comes under this North of Scotland Board. Whatever the arguments may be against giving favours to existing undertakings and to newcomers, all I can say is that, whether it is the threat of the arrival of a newcomer or not, the existing undertakers' rates charged to the consumer have already gone down. I think that that is a very good move. We sincerely trust that the development of hydro-electricity will be facilitated by this Bill, and that the time will be very near when the remote areas—the people in the glens, on the West coast, and in the Islands—will be able to benefit from this great scheme which was promoted by the right hon. Gentleman.
We had one of these schemes very much before public opinion the other day when a public inquiry was held into the Loch Sloy scheme. I am sorry that the hon. Member for Dumbartonshire (Mr. McKinlay) is not here at the moment, because I must confess that 337 the evidence put forward by Dumbartonshire at that inquiry caused tremendous astonishment to people in the neighbouring areas. That the local authority of Dumbartonshire should be willing to prevent the development of amenities for the Highlanders to-day, in case in 50 years' time they might require more water for the people of Dumbartonshire, really struck us as being a little extraordinary. Although the constituency I represent may be one of those which, for a long time, will not be benefiting from any access of rating value, still we do hope that in years to come the introduction of hydro-electricity to the Highlands and Islands of Scotland will bring that influx of new wealth and new industries of which my hon. Friend was speaking just now, and a revival of agriculture and so increase in many ways the rateable value of the county, apart from the hydro-electric schemes.
It is for that reason that I feel opposition has not been expressed to-day, for every hon. Member who has spoken so far has expressed a desire that the development of hydro-electricity for Scotland should go ahead, but it is not so with the general public. I am sure my hon. Friends from north of the Border will have read in our own Scottish Press a large number of letters about throwing away the Highlanders birthright, throwing away the life of the country. There have been all kinds of letters condemning the original scheme as being something that ought never to have been brought forth. I can only say that it is a most extraordinary thing, and I have studied all that correspondence for some time, that in connection with the original scheme and in connection with this Bill practically every letter—
§ Mr. J. J. Davidson (Glasgow, Maryhill)
What does the hon. and gallant Gentleman mean by "the original scheme"? Does he mean the original scheme placed in this House by private organisations?
§ Major McCallum
No, I am referring to the actual North of Scotland Hydro-Electric Act. This is another Bill to help it along. The opposition North of the Border to the whole scheme has been such that it has caused a great deal of wonder throughout the Highlands, for the letters were mostly written by people, I am sorry to say, in Glasgow, Edinburgh or Perth. I would like to draw the attention of hon. 338 Members to the fact that each of those people, when they have sat down to write their letters during the winter months, have probably switched on their electric light. All we ask for in the Highlands is the right and the facility to be able to walk into a room and also turn on an electric light, which is what we cannot do now. Therefore, I hope that people outside this House will pay some little attention to the enthusiasm and the backing that the scheme is getting from all Members of this House, and not try to retard the progress of the Highlands and Islands of Scotland by their unwarranted and entirely selfish opposition to the whole scheme.
§ Mr. M. MacMillan
Perhaps I may take up that point. I do not think that any Member has expressed unqualified approval of the Bill.
§ 5.55 p.m.
§ Mr. Douglas (Battersea, North)
I hope my Scottish colleagues will forgive my intrusion in this Debate, but it raises principles which might easily receive a very large extension to other subjects of rating, because what we are dealing with here is a specimen of a very large class of undertakings which are valued on what is called the revenue or profits basis, including not only electricity undertakings but gas, water, railways and others. This Bill is described as a Measure for the purpose of amending the law of valuation in Scotland, but I think it is clear that it ought more properly to be described as a Measure for subsidising future hydro-electric undertakings in Scotland, and the present ones as they are extended by new works. There may be an argument in favour of that. All I say about it is that if a subsidy is to be granted, it ought to be granted in an open and overt fashion and subject to the control of Parliament, so that it can be voted annually, and not become, as this is, a fixed and perpetual charge which, in fact, is levied at the expense of other ratepayers.
The argument upon which this proposal has been founded is a fallacy, The Cooper Committee was originally responsible for it in its suggestion that hydro-electric undertakings were treated less favourably for rating purposes than other electricity undertakings, and the basis for that argument was that in computing the net revenues of other undertakings the cost of coal was deducted. Naturally it 339 is, as the cost of wages and all other working expenses are deducted before ascertaining from the gross revenues what are the net revenues, but that comparison is not the point. The law of rating as it exists at present in England and in Scotland is that rates are based upon land together with all the buildings and constructions and improvements which are fixed to the land, and all these undertakings, valued on the profits or revenue principle, are valued according to the net profits or net receipts after deducting working expenses.
If this argument is pushed to its extreme, some day the railway companies will come down to this House and, because they have embarked a very large amount of fixed capital in the permanent way, rails, and so on, and the road transport or air transport undertakings have not embarked a corresponding amount of fixed capital attached to land in their undertakings, will claim that they should be treated in this fashion and their valuations reduced. If that principle goes on, we shall have an enormous amount of differential rating taking place. The local authorities have for a long time been disillusioned as to the effects of the de-rating which was introduced in 1929. It has caused further discriminations and inequalities in the way in which the rate burden falls, and the same thing will happen if the principle introduced here receives any further extension.
It is not true that electricity undertakings, whether hydro-electric or steam, are treated unfairly or harshly in the matter of rating. The McIntyre Committee have, unfortunately, not given us details of the calculations which were put before them, but I suggest that if they were examined it would probably be found that whereas other properties which are rated in the normal fashion may be rated on 5 per cent. of the capital value of the heritage, in the case of these undertakings they are rated on only about half of that amount, owing to the deductions which are made in calculating the rateable value. First, there is a deduction of 15 per cent. from the tenant's capital—a very generous return. Then there is a deduction of 20 per cent. of the total of the net revenue. That is also a generous return. In addition, there is a further reduction of 30 per cent. under the Rating (Scotland) Act, 340 1926. It is, therefore, not true that electricity undertakings of either kind are badly treated under the rating laws that exist at present. Neither is it true that hydro-electric undertakings are unfairly dealt with as compared with steam undertakings, because these undertakings are not competitive with one another. They have defined areas in which they are the sole suppliers, in which they are monopolists. The element of competition is entirely absent, and thus there can be no ground for the suggestion that one is being unfairly treated as against the other. That would be quite a good argument in the case of undertakings which are competitive in their nature, but these undertakings are monopolist.
On those grounds I sincerely hope that an extension of this principle will not be countenanced. It is true that the whole law of rating, both in Scotland and England, now requires examination. It is not only in the case of electricity undertakings that rates are imposed on capital expenditure; they are imposed on the building of houses, shops, warehouses and upon all kinds of activities which, on their merits are as deserving of consideration as electricity undertakings. If it is desirable to encourage production and industry by the relief of rates on capital expenditure which attaches to a heritage it ought to be done all round, and not in this piecemeal fashion, which emphasises the inequality between one heritage and another.
§ 6.5 p.m.
§ Captain W. T. Shaw (Forfar)
The Lord Advocate described the last Bill we were discussing as "unlovable". I am not of a sufficiently amorous disposition to describe this Bill in that way; if I were asked to describe it, I should say that it was repugnant. The only good thing about it, compared with the other Bill, is that it is so much shorter. It is not often we have in this House, when discussing Scottish Bills, the attendance and help of English Members. I imagine that the draftsman intended to pay a compliment to the intelligence of Scottish Members when he prepared this Bill, because it is one of the most difficult Measures ever introduced into this House. The Secretary of State has been congratulated on his exposition of it, but I did not hear much about it while I was listening to him He spoke mostly about 341 the Cooper and McIntyre Reports. I can only think that the draftsman of this Bill must have been a Scot who, after attending a Burns dinner, tossed it off, feeling that his fellow countrymen could grasp, swallow and digest anything. But by faculties have been overrated in this matter, because I, for one, find this Bill difficult to understand. The calculations are difficult to understand.
But the easiest way to deal with this matter is to deal with concrete cases. Within the last week the Secretary of State for Scotland has published reports dealing with two schemes—one dealing with the Gairloch, the other with the Tommel-Garry project. I invite the Lord Advocate to tell us exactly how this Bill will affect rating values in the Pitlochrie area scheme. I ask him to say how much less the rateable value will be on this Perthshire scheme as compared with what it would be if this Bill did not reach the Statute Book. We have been told that, in certain areas, there will be schemes that will be unremunerative, and that the losses of those schemes will be borne by other schemes. How much is it anticipated will be deducted on account of other schemes, so as to reduce the rateable value of the County of Perth scheme? A great deal of electricity is to be taken out of the county; where it is to be developed? It may go to West Stirling, Kirkintilloch, Glasgow or Edinburgh. There will be great development there, a lot of increased wealth and rateable value. Are they to contribute anything to the relief of ratepayers in the county of Argyll?
We want answers to these questions. This Bill would never have been introduced if it had not been for the hydro-electric scheme. This scheme is for the benefit of the Board so that they can say, "Look how cheaply we can give you electricity as compared with other people," without mentioning that the cheap rates are due to the Board getting relief from rates. These schemes are not going to be financed under any guarantee of the Government. People in Pitlochrie district will subsidise people in Argyllshire. It is a new form of rating. I agree with the hon. Member for the Western Isles (Mr. MacMillan) that these subsidies should come out of national funds. I can see that there is room for very great 342 amendment when the Bill is considered in Committee.
§ 6.10 p.m.
§ The Lord Advocate (Mr. J. S. C. Reid)
Until a few moments ago I think all speakers had agreed that there was in equity an overwhelming case for relief to hydro-electric undertakings as compared with steam stations. Even the two hon. Members who moved and seconded the rejection did so on other grounds altogether—that there was discrimination and that kind of thing—but the last one or two speakers have suggested that there is no ground in justice for any relief at all. I do not think one should argue that matter at this hour. At least three Committees, two of which were set up for the purpose, have reported unanimously that relief was justified in equity, and all those who have spoken to-day who have a close connection with the electrical industry have taken the same view, and against that almost unanimous testimony I would suggest that those who take a different view may perhaps not prevail. Let me approach the matter from the point of view that there is in justice a case for relief. The last Committee put the disparity at two to one. Others have put it higher than that. This relief is less than sufficient to meet a disparity of two to one. Therefore, it is well within the acknowledged equities of the situation.
But it is the method of giving the relief rather than the relief itself which is questioned. Therefore, I think it would be well if I tried, by means of some concrete example, to show how the system in the Bill will work out. I am not sure whether I am doing an injustice to my hon. Friend the Member for South Croydon (Sir H. Williams), but I thought he did not appreciate that ultimately, and sooner rather than later, all existing works will share in the concession. I thought he was rather under the impression that the old works never get the concession at all. If that had been the case there would indeed have been discrimination and his attack would have been justified. But that is not so.
What happens is this. I take Perthshire as an example to illustrate how this Bill is going to work. I am told that at the moment there is in that county a rateable value of something in the neighbourhood of £85,000 per annum from hydro-electric undertakings. New works 343 will get the reduction under the Bill from the very beginning. If they cost more than £30 per kilowatt to put up, the rating burden is reduced, and that irrespective of what the position elsewhere in the county may be. But old works do not come in until there are some new works on to the shoulders of which you can transfer the amount of the rebate. The rebate on the existing old works in Perthshire, as far as we can estimate it, will be something short of £25,000 per annum rateable value. Therefore, the existing undertakers in Perthshire will not get their full measure of relief until there is some £25,000 of new hydro-electric works in the county. Of course, every bit of new valuation that it brought in gives to that extent relief, but the full relief requires £25,000 of new works. That is not a great deal for one single scheme. There have been in the past many schemes which have produced more than that amount of rateable value by themselves. Looking to the speed with which the hydro boards are progressing, it does not seem likely that it will be very many years before there is that £25,000 of new rateable value in the county, and there therefore is the foundation for complete relief for existing stations to the full extent provided by the Bill. Therefore, the only discrimination is that, whereas new works get their relief immediately, old works may have to wait for four, five or six years, or whatever it may be.
That, it seems to us, is not such gross discrimination as to justify the kind of attack that has been launched by one or two speakers to-day. Of course we should not have introduced even that amount of discrimination if there had not been very good reasons for it. If we were to allow immediate derating of existing hydro-electric works before there were new works which would pay the amount of the loss, existing ratepayers would have to bear the burden of rates and would have to pay to make up for the loss. Therefore it is a question whether this amount of rates—not a large sum; in the region of £7,000 or £8,000 per annum—pending the arrival of new works to pay it is to be borne by the other ratepayers or by the existing undertakings which have been bearing it for the last few years, and we think it right to let the loss lie where it is until means can be found to take it 344 up without imposing a burden on the other ratepayers. That is all the discrimination that there is, a postponement for a few years of complete equality between existing and new works.
Those who have moved the rejection on the ground of discrimination have rather overstated their case. It is not really anything like so bad as they seem to think it is. I do not want to overstate my case in the least. I agree that there is a little discrimination, a postponement for a year or two of full relief, but it is so small, and the reasons for it so overwhelming, that I suggest that it should be neglected.
I come next to the speech of my hon. and gallant Friend the Member for Pollok (Commander Galbraith), which was on different points altogether. His speech raised a number of issues, some of which we had appreciated before and some of which perhaps we had not fully appreciated—at least I had not—and I do not think it will be doing justice to his speech to try to give him a full and complete answer to it until I have studied it in HANSARD to-morrow. Therefore, anything I say now is preliminary to a further study rather than a final answer to his questions. The first point was why, under Clause 1, we put this new body under the Assessor of Public Undertakings. There are two reasons. The first reason is that under the existing law the new Board could probably claim it in any event, but I agree that that is an arguable legal point. The second reason appears when we look to see who are already being dealt with by that Assessor in this precise way. I find that in Perthshire, in the Valuation Roll, the following appear: Dumfermline Water Works, Glasgow Corporation Water Works, Central Electricity Board and Grampian Electricity Company, all of which are being valued on this global principle. Therefore, no discrimination as between the Board and private enterprise in the electrical industry is introduced by Clause 1, because the other hydro-electric undertakers in the North of Scotland are already under the equivalent of Clause 1.
§ Commander Galbraith
That is because they come within the terms of the 1854 Act, but there is some doubt whether the new Board comes within its terms.
The Lard Advocate
It is not that Act; if any, it is the 1894 Act, which extends 345 the 1854 Act. I agree that the law is a little doubtful. I am looking at it from the wider point of view of whether there is fair play between the Board, and, say, the Grampian Company. If the Grampian Company is already under this system, it does not seem to be unfair that we should resolve the legal doubt about the Board's position, if there is one, by bringing it also under this form of valuation.
§ Sir H. Williams
I take it that the purpose of Clause 1 is not to do anything new, but merely to clear up a doubt?
§ The Lord Advocate
I did not know this was to be put as a point of major importance, and I have not really applied my mind to trying to see whether, if I had to decide the matter, I should say that the Board was or was not entitled in law to valuation by the Assessor of Public Undertakings. All I can say is that the matter is doubtful and it has been resolved in this Bill in the sense indicated in Clause 1.
§ Sir H. Williams
When a Clause is put into a Bill for the purpose of clearing up a doubt, is it not the custom to indicate that? Otherwise the courts will say that it must be new law.
§ The Lord Advocate
It is new law in one respect, because to operate the old law one would have to go through a complicated form of legal procedure. What we do here, without going through any procedure, is to say in so many words that this is the method for valuing this undertaking. That is new, I agree. It is, from one point of view, only short-circuiting procedure, but from another point of view, it reverses the existing law. It is not only removing doubts, but simplifying procedure.
The second point raised by my hon. and gallant Friend was the effect of this global valuation. I do not think the matter is quite so simple as might appear from his remarks, because one has to bear in mind that this Board is a non-profit earning body, and the revenue from one station will vary according to whether another station is or is not paying its way. I am not sure, therefore, that the calculation of my hon. and gallant Friend is entirely accurate. I agree, however, that the point is a substantial and important one, and I should prefer to have a further opportunity of studying it before I say more. He next asked why we adopt 346 method C. We adopt it because, apparently, the experts, who, after all, will have to handle this matter, seem to think that that is the best way. I do not think it matters very much which plan is adopted; what matters at the end of the day is the amount of relief in money. Whether it is done by the simple straightforward method of method A rather than by the more complicated method C, does not matter. The point is, we give this Board and all other undertakers relief of a certain amount, and how that is achieved is a pure matter of machinery once it is agreed that the relief is due.
A further point was made with regard to Income Tax. Again, I would like to study the matter, but my first impression is that there is no discrimination between the position of the two bodies. Take a private undertaker; suppose he uses his rebate by reducing the prices of current to his consumers, he has no larger income than he had the year before. Therefore, there is no more to tax than there was the year before. I think, therefore, that in that case, at least, the rebate does not suffer tax.
§ Mr. Craik Henderson
Surely the two things are not going to happen in the same year. They cannot pass the rebate on until they know what the relief is to be?
§ The Lord Advocate
I am not sure about that, because, as my hon. Friend will have noticed, the communication of the relief to the company for technical reasons comes in a year late, and I think that the company will be able probably to communicate the relief to their customers the same year as they get it. These are technical and small points which I will look at again. I agree that it would be unfortunate if there were a discrimination between one body and another on this matter of Income Tax, but I do not think there is. I welcome the suggestion of my hon. Friend the Member for Stockport (Sir A. Gridley) that we should discuss this matter with anyone who wished to have his difficulties discussed and examined. I will certainly get into touch with him with a view to pursuing that matter.
Our discussions were extremely valuable in the course of the original Hydro-Electric Bill. I trust that we shall be able to remove mutual misunderstandings in 347 a discussion now. I cannot help feeling that practically all the criticisms this afternoon have been based on misunderstanding. It is certainly not the intention of the Government that there should be any discrimination in any respect apart from the small discriminations which have been pointed out. It had been our impression that no such discrimination still existed, and if it does exist we must examine the matter still further most carefully. Therefore any further consultations to clear up the misunderstanding will be most welcome.
§ Mr. M. MacMillan
Can the Lord Advocate possibly give us an example to show that our fears in regard to loss falling upon local authorities were not well-founded? Let me take his own example regarding new firms, and the taxation, for rateable value purposes, on the basis of £30 per kilowatt; is not that new value lost to the local authority immediately it arises? Is it not deducted for the purpose of subsidising and relieving from rates existing undertakings in the area? In the first place, as I understand it, it is merely to be deducted from the rates which otherwise would be payable, of the new firms coming in with new construction.
§ The Lord Advocate
There is a long passage in the Report on this matter, which I will not read at the moment, but, broadly speaking, the local authorities' position may be looked at in this way: if we do not give any concession or reduction, the local authority will levy their full rates on such undertakings as are built under those adverse financial conditions. If we put too high a tax on these undertakings a number of them will never be built at all because they would be too uneconomic, even for the North of Scotland Board. The Board must undertake a certain amount of uneconomic work if they are to pioneer in the Highlands, but they cannot go too far. If we overload with a burden of rates a particular scheme, that scheme will never come to fruition. The local authority will never get any rates for it, although it would otherwise get a very large proportion. The ratepayers will lose the amenities and developments which they would otherwise get from the scheme. On the one hand, therefore, the local authority will sometimes gain money, and on the 348 other hand, they will sometimes lose money, and, in addition, their ratepayers will lose amenities and developments. On balance, it is in the local as well as in the national interest that this concession should be given.
§ Mr. MacMillan
While thanking the Lord Advocate for that explanation, may I point out to him that I was really asking whether he agrees that the immediate point in regard to this Hydro-Electric Rating Bill is that we are fixing rigidly the rateable value of hydro-electric undertakings and that there can be no possible other rateable value created and collected locally in regard to those hydro-electric undertakings?
§ The Lord Advocate
Until the benefit under the Bill has been given to existing undertakers. Of course, as soon as existing undertakers get their full benefit under the Bill, and that may be after a few years only, all additional works will swell the rateable value.
§ The Lord Advocate
It is impossible to work that out now. One cannot possibly tell. It will be worked out later, but one does not know what the cost of these works per kilowatt is and until we know that we do not know what the amount of the relief will be.
§ The Lord Advocate
I do not think there will be any serious loss. I do not think that the total value of the Perthshire schemes will be diminished. It has been pointed out that a certain part of the Perthshire valuation will probably be communicated to poorer areas. It will not amount to a very large proportion.
§ Sir H. Williams
As there is such a vast number of questions that the Lord Advocate is not in a position to answer to-night, and as I think he ought to answer them in Committee, I beg to ask leave to withdraw the Amendment.
§ Amendment, by leave, withdrawn.
§ Main Question put, and agreed to.
§ Bill accordingly read a Second time, and committed to a Standing Committee.