§ Amendment proposed [27th June], in page 8, line 14, to leave out subsection (8).—[Mr. Mitchison.]
§ Question again proposed, That the words proposed to be left out, to the end of line 23, stand part of the Clause.
§ 3.34 p.m.
§ Mr. G. Lindgren (Wellingborough)
When the Parliamentary Secretary to the Ministry of Housing and Local Government had finished his speech last night and I rose, both he and his right hon. Friend were no doubt disappointed that they did not secure a decision on this Amendment, but I am sure that, on reflection, both will agree that it was wise to have further time to discuss all the important points which were raised yesterday.
I think that the case was exceptionally well put by my hon. and learned Friend the Member for Kettering (Mr. Mitchison) and my hon. Friend the Member for All Saints (Mr. D. Howell), whose advent as a colleague we welcome and whose knowledge of local government will be of great advantage to the Committee. On the other side of the Committee, the hon. and learned Member for Hertfordshire, East (Mr. Walker-Smith) and the hon. Member for Oldham, East (Sir I. Horobin) put an equally effective case against the Government's proposals.
Earlier yesterday, the Minister said that he was impressed when, during discussions in Committee, both sides were agreed and there was not a voice in support of the proposals which he had before us. That was the case last night, and I seriously suggest that where there is full knowledge among hon. Members, if not of every detail then of the general principles, it is always desirable that when there is agreement among such knowledgeable persons—which happens more often on the subject which we are 204 discussing today than on almost any other—the Minister should be ready to make a concession.
I should like to start by discussing the bass upon which we can reach agreement before we discuss those points on which there is disagreement. First, in common with all other classes of properties, water undertakings have not been revalued since 1934. It may be, as the Parliamentary Secretary suggested, that in some cases those values which are now on the rate books of local authorities are not altogether in agreement with the facts of valuation, but that does not apply only to water undertakings. We are agreed at once that there ought to be a revaluaton of water undertakings in exactly the same way as of other properties to bring them into line with other property in relation to their value and the amounts which they contribute to the general provision of social services in the local authority area.
Equally, the result of revaluation of other people's property, which is now going on in the case of domestic businesses and shop premises, ought not to mean that the reduction in rate poundage is a benefit to water undertakings, that is to say, that those undertakings maintain their existing rateable value and pay less, with the local authorities losing revenue from that source. We agree on that point on both sides of the Committee.
I should like to be equally emphatic about the Government's proposals as an alternative to those now provided in Clause 4 (8). They are unsatisfactory and they ought to be withdrawn, because water and electricity undertakings are social services as well as industries. They fulfil similar functions in their respective areas and, therefore, ought to be similarly treated.
That is not the proposal in the Bill. In the Second Schedule there is virtually an instruction to the Inland Revenue Department to value water undertakings on the average of the cost of repairs and renewals over the past three years. I suggest to the Committee that this is an unreal basis on which to start. We are still in a period of considerable shortage of materials and of an even greater shortage of the type of labour used by water 205 undertakings on their civil engineering and building construction work.
So, although restrictions are fewer than they were, water undertakings, even with the best will in the world, have not been able to carry out the work they would have liked to do during the past three years. It is equally true that what work they have been doing has been the renewal of works constructed with the use of capital forty, fifty and sixty years ago. Those replacements are of an age which bears no relation to the present capital structure of the undertaking concerned, its provision for future capital, and the rest.
I do not claim to be an expert, but it seems to me that where an asset of an undertaking lasts forty, fifty or sixty years it is not unreasonable that one-fortieth, one-fiftieth, or one-sixtieth of its capital value should be written down each year so that, when replacement of the asset is needed within that period, the money will be available or the undertaking will have credit for the depreciation which has occurred.
It is true that capital development in water undertakings over the past twenty-five years has been considerable. This is commendable, because it has given the benefit of a public health service to hundreds of thousands, if not millions, of people who were previously deprived of it. Hon. and right hon. Gentlemen can take some credit, if they like, for the fact that there was considerable expansion of the industry in the 'thirties, with Government encouragement. In view of the encouragement given by pre-war Governments of all types, and by the Labour Government after the last war, is it unreasonable to say that some credit should be given for the capital then expended in arriving now at the question of valuation?
Many undertakings developed considerably after the last war with the encouragement of the Labour Government. There were amalgamations of water companies. There was the institution of area boards; indeed, some of my hon. Friends would have liked this to be extended to a national water supply. This proposal, however, makes no allowance for that change in the structure of the industry, or for the fact that its development has been for the service of the public. The Minister appreciates that, because in addition to 206 having given what is virtually an instruction to the Inland Revenue to take the last three years as a basis, he then gives two alternatives. The first is to take the average cost for the years from 1944 to 1954.
I could have made greater play than I did with the impracticability of taking the average of the last three years, but to take the ten years from 1944 to 1954, which were the last years of the war and the immediate post-war years—well, words almost fail me. We on this side of the Committee might perhaps be blamed for it, but there were then severe restrictions on water companies. I had the honour of serving in the Government with my right hon. Friend the Member for Bishop Auckland (Mr. Dalton) and I remember representations being made to us by a large water undertaking which was not getting all the help which it thought it should have for making renewals because of the restrictions on capital development.
That large water undertaking said, "We appreciate your position as a Government, but we are an important undertaking and we have responsibilities. We think it is our duty to call attention to the fact that all our technical officers think that these renewals are necessary and that if they do not take place something serious may happen and the supply may be interrupted." At that time, my right hon. Friend had to take into account whether the decision not to allow the undertaking to carry out the renewals was a wise one in view of those representations. Those renewals were not carried out.
Would it be fair that this large and responsible undertaking should be penalised because it did not undertake renewals which it urged on the Government should be undertaken? Right hon. Gentlemen opposite must take over some of our sins as well as all the blessings we conferred on them when they took office. Is it fair that this undertaking should be penalised because the Government of the day would not allow it to undertake those renewals?
Realising that this is an impossibility, the Government offer what I think is an even more impracticable solution. They say, "If you do not like the last three years and if you do not like the ten years 207 from 1944 to 1954, go back to the ten years from 1929 to 1939. We realise that costs have risen since those years so we will let you multiply the cost by three." The factor of three in the cost seems to recur. Where it came from originally, I do not know. We had it in the Girdwood Committee Report in regard to housing repairs. Hon. and right hon. Gentlemen opposite who have a knowledge of civil engineering will be the first to agree with me that a basis of three times the cost as between 1929 and now is certainly not realistic when applied to civil engineering costs.
What relation can the average cost of replacement works undertaken in 1929 have to the cost which these undertakings have to bear today? It is fantastic. At the same time as the general structure of the industry has changed over many years, certainly in the last twenty-five, the capital structure of the industry today—to which those ten years is supposed to have some relation—has nothing to do with the size of the undertaking, the extent of the development of its capital, the changes in pumping arrangements, and so on, which have taken place in the industry.
There is, perhaps, an even worse feature. In this respect, I do not think that the Parliamentary Secretary was at all forthcoming last night when replying to his hon. and learned Friend the Member for Hertfordshire, East. I agree, and all to whom I have spoken who are associated with water undertakings agree—I do not want to be too definite or use language which is too strong—that the trend will certainly be to imperil the development of rural water supplies. It will certainly make the cost to the consumer fantastic when one takes into account that this is a public service.
Ever since that monumental Measure the Public Health Act, 1875, the provision of a public water supply has been considered as the basis of public health administration, with which I agree. In 1945, the Labour Government gave a great deal of encouragement to water companies, even at the expense of their repairs and renewals, to make new provision in rural areas. The Water Act, 1945, added to the burdens of water companies and water boards the duty to provide water supplies for persons in 208 dispersed areas where the sinking of capital by the water undertaking was risky because it could not, as it used to be able to do, lay down the condition that there must be a likelihood of other hereditaments being joined to the supply line.
In a rating and valuation Bill we ought not to agree to impose a basis of valuation which cuts right across the policy of the present Government and the policy of the Labour Government, of making a greater and more varied supply of water available to people in rural areas, even in very scattered communities. I suggest to the Minister, and I do it without trying to score points, that we want as far as possible to do the right thing by everybody. The present basis of valuation has been in existence for a long time, and if there is a reason for changing it, it should be a good reason.
There are valuers who have been concerned with the valuing of water undertakings for thirty or forty years. They are men of repute in their profession who understand water undertakings. They know a great deal about the industry and its capital structure and about rating and valuation. Also, there are public-spirited men, who are not concerned about sectional interests, in such organisations as the Metropolitan Water Board, the Birmingham Corporation water undertaking or the Manchester Corporation water undertaking, men who have given their lifetime to the industry and know it from A to Z. Surely it is possible for the Minister to discuss the matter with those valuers and the other knowledgeable people in the industry and arrive at some agreement which is equitable to all sections of the community. If that could be done, surely the Minister could agree, as it has been agreed that there is to be a revision or rearrangement of the gas and electricity pool payments, and there is to be legislation——
§ Mr. Gerald Nabarro (Kidderminster)
This point has been raised four times from the other side of the Committee. As I understand, no undertaking whatever has been given about legislation. All that has been said is that there will be a review. That is the critical point about the whole argument.
§ Mr. Lindgren
The hon. Gentleman has less faith in his colleagues than I have. I have at least taken what they 209 have said at its face value. It is rare that Ministers intend deliberately to mislead the House of Commons, and I certainly would not suggest that the Minister and the Parliamentary Secretary, particularly the present occupants of those offices, would do that in this case. Therefore, I take it that there will be a review. The Minister gave me that undertaking in reply to the Second Reading debate on 6th April, and it has been repeated since by the Minister and the Parliamentary Secretary. They would not have done if they had not been serious about it.
Either the Minister or the Parliamentary Secretary yesterday—I do not want to attribute statements to one or other of them wrongly—said that there had been discussions with the local authorities, who were pressing for a revision, and it had been agreed with the local authority associations to bring forward the review. I am prepared to accept the Minister's word for it, and we will give the Government the assistance they require in passing the necessary Measure through the House, although we may be critical of it.
§ Mr. Victor Collins (Shoreditch and Finsbury)
The Parliamentary Secretary, replying yesterday to the point made from these benches about the costs of the Birmingham Corporation, which were quoted at 13.7 per cent. as against 1.8 per cent. for gas undertakings, specifically referred to the fact that gas undertaking rating would be reviewed, which would have the effect of reducing the gap.
§ Mr. Lindgren
I am grateful for that helpful interjection. It is further confirmation of the point which I made.
Meanwhile, cannot we treat the water undertakings in exactly the same way as we treat the ordinary ratepayer or groups of ratepayers, whether shopkeepers or business people, who are in dispute about their valuations? The Bill says, and I think this is fair, that when an objection is made to a valuation, the ratepayer or group of ratepayers shall, until it is settled, pay the same amount in rates as they paid the previous year. This would be likely to meet with the approval of local authorities, and I am sure that water undertakings would readily agree that while discussions were going with the Minister they should pay the same amount in rates as in the previous year, irrespective of the rate poundage.
210 If the Minister is not prepared to withdraw this provision and let us deal with gas, water and electricity together, perhaps he would agree to withdraw this provision now and bring it forward again on Report. Judging by what was said earlier today by the Lord Privy Seal, it may be that there will not be sufficient time before Report stage for the Minister to undertake discussions, and, therefore, perhaps my first suggestion is the better one.
I want also to deal with the question of the Birmingham undertaking. The Inland Revenue has sought to implement over a period the basis set out in Clause 4 (8). It was plain to the British Waterworks Association that that was so, and it was contesting it. As I said on 6th April, the Association said that the Inland Revenue was trying to apply a system of valuation which had no legal authority. In spite of what the Parliamentary Secretary said, the Inland Revenue then invited the Birmingham Corporation to undertake a test case through the British Waterworks Association.
This is common practice in Government circles. If a point is in dispute, a national organisation or a large undertaking may be invited to take a test case in order to get a decision. In those circumstances, it is not unusual for the Government to offer that each side should bear its own costs. I do not know whether that was done in this case, but the Birmingham Corporation was certainly invited to contest the case. The case took a very long time to be heard before an eminent person. It has now finished and the decision is to be announced on Friday.
Surely it is not unreasonable to say that the Government may have to change their view in the light of the decision on Friday, or that they may have reason to change their view. It may be that hon. Members who speak with knowledge of the subject will have to change their minds. We can lose nothing by delaying a decision on this matter and leaving it open until after the court decision is announced.
This is a very unsatisfactory proposal; it is quite as unsatisfactory as the original Clause 4 (8). We will give the Minister time to undertake the negotiations. We do not wish to evade our responsibility for making decisions, but nothing but good can come from consultation with the most 211 knowledgeable people and coming to the best possible decision. In that spirit I ask the Minister to withdraw the Clause for further consideration.
§ Mr. Graham Page (Crosby)
On a point of order. A number of hon. Members wish to discuss the affect of this Amendment on industries other than public undertakings. If you are calling the next Amendment, Sir Charles, it might be more convenient to deal with them then. If not, some of us would like to address the Committee on that subject.
§ The Chairman
The next Amendment, in the name of the hon. Member for Norfolk, Central (Sir F. Medlicott) will not be moved, but a later one in the name of the hon. Member for Harrow, Central (Mr. Bishop), Clause 24, page 8, line 27, will be called and that might be most suitable for that purpose.
§ Sir Robert Grimston (Westbury)
I do not want to detain the Committee for very long, because a great deal has been said on this subject, particularly in reference to water undertakings, and I do not want to add very much. I think that it is generally agreed that the water undertakings are very apprehensive about the affects of this Clause and that those apprehensions are not allayed by the Amendments to the Bill and the Schedule which the Minister now has on the Notice Paper.
I do not think that it will be disputed on any side of the Committee that some change in assessment is desirable, particularly when, as was pointed out yesterday by the Parliamentary Secretary, if things are left as they are, there will be considerable reductions in assessments. I do not think that anybody would be prepared to support that. I am concerned about the timing of what is being done, quite apart from the substance. First, we have the Birmingham case, to which reference has been made and in which we shall get a judgment on Friday.
I shall not suggest that the House of Commons should have to wait for a decision of that sort in order to legislate, nor, indeed, that the House should necessarily be influenced by such judgments. But when one is considering matters of this sort, and judgment in an important case 212 is imminent, it is just as well to see what that judgment does contain before making a final decision. I do not look upon it as more than a help to the House, and certainly not as a direction to the House.
The next matter is that an undertaking has been given that pool arrangements are to be reviewed in a year's time for gas and electricity and it has been suggested that that would be an appropriate time also to review assessments for water undertakings. Beyond that there is the general pledge, which was repeated by the Parliamentary Secretary last night, that when the results of revaluation are known the Government will review any case where injustice exists, or where it is thought that adjustments should be made, and the Parliamentary Secretary specifically brought water undertakings under the umbrella of that general pledge.
The position we will have is that for the sake of a year or more we will have this upset for water undertakings which may all be reassessed again in a year. I am concerned with the point made last night by my hon. and learned Friend the Member for Hertfordshire, East (Mr. Walker-Smith) about the deterrent effect, particularly on rural water supplies. We are all most anxious that there should be progress with those supplies and an upset of this sort for a short period may well have a deterrent effect, although the Parliamentary Secretary said he did not think that it would. Of course, that can only be a matter of opinion.
However, I suggest to my right hon. Friend that it would be worth considering—I put it no higher than that—letting things run on as they are until this other revaluation takes place and these other decisions are known. It would not make very much difference and it would be a prudent course to adopt. At any rate, we are today at only the Committee stage and between now and the Report stage the Minister might consider whether it would not be prudent to do that. He is a Parliamentarian of considerable experience and he will know that by deference to the wish which I believe is held on all sides of the Committee, he will, in the end, be losing nothing.
I ask my right hon. Friend to give consideration to this between now and the Report stage to see whether he cannot arrive at a more satisfactory solution. I suggest that it may be wise to let things 213 run on for another year, having regard to the things to be done in other directions and the pledges that have been given by the Government.
§ Mr. Ede (South Shields)
I should like to join my plea to that of the hon. Member for Westbury (Sir R. Grimston), who speaks with some knowledge of the problems of water supply that confront rural district councils. I hope that the Minister will feel that the plea he has put forward is one to which he ought to listen. So far as urban cases are concerned, I am informed by the water company that supplies my constituency and the important County Borough of Sunderland that this will mean such an increase in the charges on them that they will have to make an increase equal to 8 per cent. on the charge to people who pay water rates.
§ Mr. J. Enoch Powell (Wolverhampton, South-West)
When the right hon. Gentleman says "This will mean," does he mean the proposal in the Bill, or the proposal in a Schedule on the Notice Paper?
§ Mr. Ede
As I understand, it means the latest proposal of the Government. I can go only by what is said by a company technically fully qualified to speak on the matter. I understand that that refers to the latest proposal.
Whether the sum is great or small, I want to point out that as a rule water companies have contracts for a supply of water to premises other than domestic premises. Big industrial concerns which want water enter into long-term contracts with water companies. If these proposals result in substantial increases in the cost of supplying water, that will, in the main, be borne by the domestic consumers.
In my opinion, one of the difficulties which arises from the Government's proposals is that they may lead to a substantial variation of the rates in two successive years. As I understand, the proposal made last night by the Parliamentary Secretary was that we should proceed in this matter by trial and error; that if the Government find they have perpetrated an error, the matter can be put right after one year's infliction of the error upon the consumer. I imagine that most rating authorities, and people with the power to levy rates, such as water undertakings, prefer to apply where possible the doctrine of what is called the 214 "even keel," and that substantial variations up and down are things which people who have to levy rates, or to precept for rates, wish to avoid when they can.
Of course, where the rents of controlled properties become involved, there is the difficulty of giving notice when rates go up; and the fear experienced sometimes by tenants that when rates go down the appropriate notice may be forgotten. There have not been many instances in recent years where it has been possible to issue a notice of a rate reduction, but it may be that people who have the duty of issuing these notices sometimes feel that they ought only to be issued when rates go up.
I urge the Government to bear in mind the plea advanced by the hon. Member for Westbury and also what appeared to me to be the quite devastating case made yesterday by the hon. and learned Member for Hertfordshire, East (Mr. Walker-Smith). We understand that the whole question of this kind of service is to be reviewed next year, so this matter might very well stand over until then. Perhaps then we could get on to a basis which would be fair not only to the water undertakings, but also as between the different forms of public utilities. I hope that the plea voiced by my hon. Friend the Member for Wellingborough (Mr. Lindgren) and other hon. Members will not fall on deaf ears when the Government have to make a decision.
§ 4.15 p.m.
§ Mr. Nabarro
I wish shortly to refer to the numerous speeches from hon. Members on both sides of the Committee about the proposal that rearrangements of rating for water undertakings should be deferred until a date when they could be made to coincide with the gas and electricity undertakings. It seems to be very uncertain when the rearrangements will be made for gas and electricity. The point was first raised yesterday by the hon. and learned Member for Kettering (Mr. Mitchison) who said:We know that a Bill is to be introduced in the comparatively near future to deal with gas and electricity—we have been told so. That being so, I have a suggestion to make to the right hon. Gentlemen and to his hon. Friends opposite. I suggest that the legislation dealing with the valuation and rating of the 215 water industry should be postponed until it can be dealt with in conjunction with, and perhaps, in the same Bill …"—[OFFICIAL REPORT, 27th June, 1955; Vol. 543, c. 141.]as gas and electricity.
At that point I expressed a doubt about whether any promise had been given to introduce legislation for gas and electricity, and I was told by my hon. Friend the Parliamentary Secretary that he dealt with the matter in reply to my Second Reading speech on 17th June. I can find there no reference at all to legislation. All that my hon. Friend said on that occasion was:I would say to my hon. Friend the Member for Kidderminster (Mr. Nabarro), who made a long and very characteristic speech on the subject of the Central Electricity Authority in relation to this matter, that the point that he and the hon. Member for Wellingborough made is met by the assurance that I gave on the last occasion, that this will be the subject of a review in the year in which the revaluation takes place."—[OFFICIAL REPORT, 17th June, 1955; Vol. 542, c. 994.]I suggest to my hon. Friend the Parliamentary Secretary that that is not quite on all fours with his intervention yesterday when, referring to the same matter, he said:I specifically stated that in the year 1956—it was not an indeterminate date. …"—[OFFICIAL REPORT, 27th June, 1955; Vol. 543, c. 142.]I had used the expression "indeterminate date." What I am trying to get at is the date when this review and revaluation—which evidently will not then be the subject of legislation immediately—is, in fact, to take place, as my understanding of the position is that the arrangement with the central pool runs for ten years from the passing of the 1948 Act.
If the review on revaluation takes place in 1956, I think it follows, in the normal process of dealing with all these complicated matters with the Inland Revenue, and with a review of rating arrangements, that it will probably be two or three years before any change is made in the central pool arrangements after the date when the review is initiated. That brings me to the conclusion that were the suggestions made by so many hon. Members opposite during the last twenty-four hours followed out, and the revision of rating arrangements for water undertakings deferred until a date to coincide with the gas and electricity undertakings, it would 216 probably be 1958 or 1959 before it became effective.
I am in a good deal of sympathy with the suggestion—though I do not wish to be dogmatic about it—that water, gas and electricity should be treated on the same basis. In my view, they should be dealt with on the same date. But I am concerned also about the fact that there is at present gross inequity as between electricity hereditaments and ordinary industrial hereditaments. I made that point with, I think, reasonably good effect on the Second Reading of this Bill, and I was supported by a number of hon. Members opposite. I do not wish to see those inequities perpetrated for a further period of three years. If we put off the revision of these water undertaking arrangements for rating purposes until a date to coincide with gas and electricity, we shall perpetrate these inequities at least until 1958 which, I think, would be a wrong thing to do.
§ Mr. James MacColl (Widnes)
The hon. Member for Kidderminster (Mr. Nabarro) has been most helpful to us in our attempts to understand the Parliamentary Secretary. Some of us find that difficult. Would the hon. Gentleman add to his exposition an explanation of what the Parliamentary Secretary meant when he said yesterday:The most important is that we accept the fact that there is a need for revision. The local authorities are pressing for it, and one will take place immediately on revaluation in about a year from now."?—[OFFICIAL REPORT. 27th June, 1955; Vol. 543, c. 156.]Were we wrong in thinking that the Parliamentary Secretary meant a year when he said, "in about a year," or should we have understood, by a natural process, that he meant three years?
§ Mr. Nabarro
I have only cursorily read through the paragraph to which the hon. Gentleman has just referred——
§ Mr. Nabarro
The emphasis is on "cursorily."
I observe that on that occasion my hon. Friend the Parliamentary Secretary was referring only to the British Transport Commission. If the hon. Gentleman will read it, I think he will find that is the case. However, I am not arguing that, 217 because I think it is irrelevant and that my hon. Friend the Parliamentary Secretary must look after himself in this matter, as no doubt he is well able to do.
The point I wish to make is that though a good deal of sympathy has been expressed with the suggestion that there ought to be standard treatment for water, gas and electricity—as is manifestly clear from the speeches made on the subject from this side of the Committee, notably that of my hon. and learned Friend the Member for Hertfordshire, East (Mr. Walker-Smith)—I am not in agreement with the suggestion that, to create that standard treatment, the revisions should be put off for a period of about three years before they become effective.
Although my hon. Friend the Parliamentary Secretary may be right in saying that the review and the revaluation will take place in the same year, namely, 1956, what limited experience and knowledge I have of these rating and Inland Revenue matters suggests to me that even if the review and revaluation took place next year, the implementation of what is required would not actually come into effect until about 1958. That would mean perpetuating this very real grievance in regard to the enormously valuable electricity—I am speaking of power generation—hereditaments for a further period of three years.
§ Mr. MacColl
I welcome the fact that we have had this overnight break in our discussions. It has enabled us to try to epitomise the issues of this very complicated question, of which I do not pretend to have any detailed knowledge. However, I think that anybody who has taken the trouble—quite clearly, the hon. Member for Kidderminster (Mr. Nabarro) has not—to read through the previous proceedings, and particularly the speech of the Parliamentary Secretary, will be struck by the extraordinary lightness of that speech in contrast with the weight of opinion expressed on both sides of the Committee on this very important question.
I am sure that the Parliamentary Secretary did his best, but he failed to meet any of the constructive proposals put forward on both sides of the Committee for finding a way out of this difficulty, or the criticisms made about the suggestions which the Government put forward. In an earlier debate, we on this side were 218 challenged—I think a little unfairly—for having spent a lot of time criticising the Government's proposals and for not having suggested any alternative way of getting round the difficulty.
The main difficulty is, apparently, the fact that the sum is coming out wrong, and that under the present system of valuation the water undertakings are not paying as much as, in the Government view, they ought to be paying. That, of course, is typical of the obsession of the Government. Both in this and in the previous Bill they have not really tried to strike a valuation which is fair or objective. They have merely tried to decide who best can afford to pay the money. They think that the water undertakings ought to pay more, or at least as much as they are paying at present, regardless of how the sum works out.
That view is one with which I quarrel. It does not impress me, because water is a vital health service. It is also a vital industrial service. Why should water be put in this unique position, unique both vis-à-vis industrial hereditaments, which have the advantage of derating which does not apply to water undertakings, and unique in regard to the other utilities, gas and electricity undertakings, which do not pay the same share?
The Parliamentary Secretary has not really attempted to answer that dilemma. All he has said is, "I agree that water undertakings are in an unfair position, but at some time in the future, whether next year or in two or three years' time, or whatever the period, we shall make the other industries pay more," just as, I suppose, one may hope that some time in the future the Government will agree to the rerating of industrial hereditaments, when the water undertakings will not be in such an invidious position.
Why cannot the Government accept the suggestion put forward by my hon. and learned Friend the Member for Kettering (Mr. Mitchison) that the way out of the difficulty would be to have a standstill arrangement for existing valuations until such time as the hereditaments of the other utilities and the industrials can be brought into the picture in the same perspective? Why cannot we wait until that moment and have a standstill on valuations so that assessments do not go down? That meets the only major point made by the Parliamentary Secretary against the existing position.
219 The other question to which we have not had a fair answer is that put with great authority by the hon. and learned Member for Hertfordshire, East (Mr. Walker-Smith), whose name I hesitate to mention once again. The hon. and learned Gentleman asked a question which was the one that I wanted to ask. I hope that we shall get an answer to it. He asked the Government to state what would be the effect of this new procedure on the development policy of water undertakings and how far it would act as a deterrent to their sinking money in the future development of their undertakings.
That is a very important point not only in the case of rural water undertakings, which were mentioned by my right hon. Friend the Member for South Shields (Mr. Ede), but also an important matter in industrial areas. In my own constituency a very large development of the chemical industry is taking place. That industry is the one towards which the Conservative Party has recently been particularly solicitous. The chemical industry requires a tremendous amount of water, and, as a result of its development, we have been in danger of having almost a water famine in the constituency. Indeed, the industrial demand for water threatened to outstrip the supply.
A vigorous local authority has been desirous of developing its water undertaking. Is that to be affected by these proposals? That is a question which the hon. and learned Gentleman asked and upon which the Parliamentary Secretary did not touch at all. It is a matter which goes to the root of the difficulty, and, therefore. I ask the Government to think about the matter again. The Government have succeeded in an astonishing measure in uniting hon. Members on both sides of the Committee against the Bill. Never, in my short experience, have I ever seen the Committee so united against the Government. There has been a growing volume of speeches urging the Government in the same direction. Surely, in the face of that, even the Government might realise that there is a chance that they are wrong and that the matter ought to be looked at again.
The fact that the hon. Member for Kidderminster, the hon. Member for Westbury (Sir R. Grimston) and my hon. and learned Friend the Member for 220 Kettering and everybody else are united on the matter must surely prove that there is something in it. Will not the Government consider the withdrawal of these proposals?
§ 4.30 p.m.
§ Squadron Leader A. E. Cooper (Ilford, South)
I must say that the arguments adduced both last night and today are overwhelming. I am rather surprised that the Parliamentary Secretary did not seek, even earlier this afternoon, an opportunity of indicating the intention of the Government on the matter.
I wish to make a point very similar to that made by the right hon. Member for South Shields (Mr. Ede). The South Essex Water Company, which supplies the water for a large part of my constituency, has informed me that, as a result of these proposals, it will have to raise very considerably its costs and charges for water in order to meet the new rate demands made upon it. Knowing that that sort of thing is likely to happen all over the country, we cannot accept these proposals without a fight.
It seems to me that there are two main points. One is the fact that the other utilities are to be reviewed within a short period of time. Knowing that, I think it is wrong that we should sort out the water undertakings for decision at this precise time. Secondly, I think that to rate any undertaking on the basis of, what is in fact, its capital structure is to make nonsense of rating and valuation altogether. I hope that the Parliamentary Secretary and his right hon. Friend will not be unmindful of the almost united body of opinion in the Committee on this subject.
§ Mr. Donald Wade (Huddersfield, West)
My intervention will be very brief. The case against the Government's proposals has been put very forcibly, and, I think, very convincingly. I do not think that it is necessary to go over all the ground again. I was very impressed by the speech, among others, of the hon. Member for Oldham, East (Sir I. Horobin) last night. As many hon. and learned Members in the Committee will be aware, it is not unusual in a court of appeal, with more than one judge giving judgment, for one of the judges to content himself by saying, "I concur." After hearing the speech of the hon. Member for Oldham, East, I felt that it would 221 suffice if I said, "I concur," except for the last paragraph of his remarks, in which he referred to the action he would take in the Division Lobby.
I have always endeavoured to live up to the good resolution that the vote one records in the Division Lobby should bear some relation to the views expressed in the Committee. I shall continue to do so. But it may be that there will be no Division on this issue. I am hoping that the Minister is still considering the very weighty arguments which have been put forward. I am aware that this is a highly technical and complicated point, but I think that the arguments against the Government's proposals are overwhelming, and I hope that the arguments will be accepted.
§ Mr. Anthony Fell (Yarmouth)
I, in common with most other hon. Members who have spoken in this debate on the Amendment to delete subsection (8), have had notification from interested parties in my constituency, telling me that the burden which will be put on the waterworks will be almost insupportable, but, unlike many other hon. Members who have spoken, I do not profess to have a deep knowledge of this subject. I have, however, listened to the whole of the debate on this subsection with a very open mind.
As most hon. Members will know, I always sedulously support the Government where possible, and I came to this debate feeling that I would obviously be able to support the Government on this Amendment. However, having listened to my hon. and learned Friend the Member for Hertfordshire, East (Mr. Walker-Smith) and also to my hon. Friend the Member for Oldham, East (Sir I. Horobin) and to many other hon. Members, and then having listened to my hon. Friend the Parliamentary Secretary, I find myself in a very great difficulty. I think that this should be said.
The Parliamentary Secretary, if my calculation is correct, got up in the debate last night at 9.48. He had 12 minutes in which to speak. During those 12 minutes he had to face seven interruptions. Accordingly, I think that he was a little pressed for time in his answers. Certainly, I was not at all convinced by the answer which I got. As he was pressed for time last night, I hope that this afternoon he will be able to take more time. I hope that he will take as much time as he wants 222 to in telling us that he will, in fact, agree to what has been said by almost everyone who has taken part in the debate, because we really are worried.
There is the question which was raised by my hon. and learned Friend the Member for Hertfordshire, East. In the OFFICIAL REPORT, column 156, the Parliamentary Secretary, referring to the hon. and learned Member for Hertfordshire, East, who asked what assessment, if any, had been made of the deterrent effect on capital extension, said:On that, I can only say that such assessment as we have made does not lead us to adopt the apprehension felt by my hon. and learned Friend.This was in relation to rural water supplies. Obviously, that reply was not very convincing after the very powerful arguments adduced by other of my hon. Friends. I hope, therefore, that my hon. Friend will be able to give a more convincing argument, particularly on two points—one, on rural water supplies and, the other, why this cannot be left until the review, which, it has been said, will take place in about a year's time.
§ Mr. Collins
My remarks will be very brief, and I have intervened only because, in my constituency, in the Borough of Finsbury, there is the largest water undertaking in the country—the Metropolitan Water Board—and also the largest gin distilleries. The conjunction of the two may help to move the Minister in a way that water alone has not been able to do.
§ Mr. Collins
The gin distilleries, as industrial undertakings, are fully derated, but the Metropolitan Water Board, with a gross income of nearly £10 million, has, under the present system, to pay rates of more than £1¼ million—about 13 per cent. If the proposals in the Bill should become law, the Board will have to pay an additional £351,000 in rates, which will be a total of 16 per cent. of its income.
Yesterday, mention was made of the position of the Birmingham water undertaking. The Metropolitan Water Board, in respect of rates compared with income, will be in an even worse position. I submit that is intolerable, because it will lead to a never ending increase in 223 charges, since they will feed on themselves. If we support that kind of thing now there will be a constantly increasing spiral.
Another point is that these increases will bring the Metropolitan Water Board above the statutory 10 per cent. which it is permitted to charge without obtaining permission from the Minister. In other words, if the Bill goes through un-amended, it will mean that there will have to be application to the Minister for permission to charge over 10 per cent. Considering the relationship between the rate liability in respect of water and that in respect of gas and electricity, and the fact that this proposal will mean a quite phenomenal increase in that liability, has the Minister thought what the effect would be in the case of a small borough with a very big water undertaking in its midst if this increase were to take place in one year and, upon a reconsideration of the matter, it were found that there had been an overcharge? The whole rate structure of that undertaking would be utterly disrupted.
The actual figures for the biggest water undertaking in the country were supplied to me only this morning. They amount to the latest and most accurate computation of the effect of the Minister's proposals upon that undertaking. I hope that he will give way to the almost unanimous view of the Committee that the Government Amendment should be withdrawn and that he should make a better proposal in a week's time.
§ The Minister of Housing and Local Government (Mr. Duncan Sandys) rose——
§ Mr. Sandys
I am always glad to receive a welcome from the Committee. I hope it is a sign that the arguments advanced by my hon. Friend last night have at last sunk in. To quote an expression used about me by the right hon. Gentleman the Leader of the Opposition at Question Time, I certainly do not intend to be "obdurate." I have listened very attentively to the speeches which have been made and have re-read the remarks made during last night's debate. There is no doubt that hon. Members on both sides of the Committee are anxious about the possible effects of the proposal 224 contained in the Government Amendment.
As some of those very able and impressive speeches have got the picture a little out of perspective, however, I would remind hon. Members that this is not a case where the Committee is trying to get a concession from the Government. It is not a case of the Government trying to defend the Exchequer and prevent more money being extorted than the nation's finances can afford. Nothing of that sort is involved; the same amount of money is going to be raised from the ratepayers whatever is decided. The only question is how the rate burden is to be distributed among various ratepayers, and it is my task to do what I can to see that that burden is distributed as fairly as possible.
As my hon. Friend has explained very clearly already, the only reason for introducing this change in the law is that it is quite clear that the practice is growing up of using the notional sinking fund arrangement to an extent which was not envisaged when the legislation permitting it was introduced, and which really makes the position ridiculous. I have no doubt that if the decision on Friday is a favourable one to the City of Birmingham it will encourage a great extension of the practice. We are approaching the point where everybody else's assessments will be going up but those of water undertakings will be going down, or will even become zero, as a result of an excessive use of the notional sinking fund.
That would be nothing short of a scandal. It is my business, as the Minister responsible for introducing this legislation, to try to present to the Committee a formula which will provide a reasonably fair distribution of the burden between the various interests concerned.
§ Mr. Percy Daines (East Ham, North)
If that is so, how does the Minister justify the present derating of industrial premises?
§ 4.45 p.m.
§ Mr. Sandys
I should be entirely out of order if I attempted to answer that question. The Committee has shown a great interest in the problem we are discussing, and I should like to stick to that.
The only responsibility which I have is to try to see that this legislation strikes 225 a reasonably fair balance between all concerned. It would be unsatisfactory to leave matters as they are, even for only a year or two, before further legislation can be introduced. I have taken very serious note of the views expressed by Members on both sides of the Committee. It is clear that we cannot arrive at a better solution during the course of this afternoon's debate. Formulæ of this kind are not arrived at in discussions across the Floor of the House; they must be worked out, and many other people who are more directly concerned than we are have to be consulted.
I therefore want to make a proposal which might meet the general convenience of hon. Members and which would allow us more time to arrive at a better and more generally acceptable arrangement. I suggest that the Amendment in the name of hon. Members opposite should be withdrawn and that the Government Amendment should not be moved, leaving the Bill as it now stands. I would then give an undertaking that I would welcome and invite suggestions from the various interests concerned—water undertakings and others—which might help us to arrive at a formula which is more acceptable to them and which, at the same time, does justice to the general body of ratepayers whose interests I have to protect just as much as those of the water undertakings.
If this proposal were accepted, I could not hold out any serious hope that I should be able to present a revised formula on the Report stage, which is next week—although I should gladly do so if it were possible. I suggest that the matter should be left over until discussions have taken place and I have received any suggestions which hon. Members might care to send to me. The Government could then see that an Amendment embodying any new formula that might be arrived at would be introduced in another place, thereby ensuring that the House of Commons would have a further opportunity of considering it. We should not propose to leave the Bill in its present form; the House would, in any case, have a further opportunity of considering the matter.
I must give this reservation and warning: I can give no guarantee that we shall be able to find a better formula than 226 the one embodied in the Amendment standing in my name. I shall, however, try to find a formula more generally acceptable and one which will provide a solution to our difficulties. I hope that hon. Members will be willing to accede to my suggestion.
§ Mr. Lindgren
On behalf of my colleagues, and I am sure of all hon. Members, I thank the Minister for the manner in which he has met our representations. I agree with him that it is almost impossible to arrive at an agreement with the interested parties before the Report stage, which will take place next week. Obviously it would be preferable to have this agreement on the Report stage, but we appreciate that it is impossible to carry through in the time the negotiations which the Minister has so graciously offered to undertake.
We shall welcome the introduction of a new Amendment in the House of Lords, and we reserve our right of discussion on the Lords Amendment when the Bill comes back to this House. In the light of the discussion that we have had, and of the first reaction of the Minister to yesterday's discussion, I am glad that I jumped in and reserved the right of the Committee to discuss this matter today. I thank the Minister that he has found it possible to bow to the wishes of the Committee and agree to have a further look at this matter in consultation with the persons concerned, and in fairness to everybody.
§ Mr. Derek Walker-Smith (Hertfordshire, East)
May I add a word of appreciation to my right hon. Friend for the course he has proposed and express the hope that when we next consider this matter on Amendments from another place some improvement will have been achieved to reconcile the objects that my right hon. Friend has in mind—fairness to the ratepayers with a better deal for water undertakings.
§ Mr. Mitchison
May I express the hope that when the right hon. Gentleman next contemplates putting some iniquitous sinking fund down the sink he takes care not to put the baby down the sink with the bath water? Having said that, I beg to ask leave to withdraw the Amendment.
§ Amendment, by leave, withdrawn.227
§ Mr. F. P. Bishop (Harrow, Central)
I beg to move, in page 8, line 27, at the end, to add:Provided that this subsection shall not have effect in relation to any hereditament or part of a hereditament having an expected normal working life of less than twenty years from the date of construction or installation thereof.I am in some difficulty in moving the Amendment because I do not know how far the statement just made by my right hon. Friend covers the cases which my Amendment is desired to cover. The purpose of the Amendment is different from that of the last Amendment, in that it is designed to take the subsection out of the Bill——
§ Mr. Sandys
Perhaps I might help my hon. Friend by explaining that my undertaking was that I would look into the whole of subsection (8), which covers anybody who comes within the ambit of the Clause. It does not cover the point in the Amendment which my hon. Friend is moving, which is on another issue about the twenty years.
§ Mr. Bishop
I take the effect of that to be that I can move the Amendment, which is what I desire to do.
The debate on this Clause has been confined to the water companies, although it has been made clear that many other concerns are affected by this subsection whose case differs materially from that of the water companies. Racecourses were mentioned by my hon. and learned Friend the Member for Hertfordshire, East (Mr. Walker-Smith). I understand that football grounds, zoological societies, probably installations for trolleybus services, and other undertakings assessed on what is called a "profit" basis, are included.
Also included are radio-relay services, which are assessed on the same basis. In this connection I should declare an interest, because I happen to be on the board of one of these companies. I am not now, and have not been for a long time, actively concerned in this industry, but in years gone by I was, and I have some knowledge of the kind of problem it has to face.
The object of the Amendment is to exclude from the subsection hereditaments or parts of hereditaments which normally have an expected life of less than twenty 228 years. That would cover a number of the interests which I have mentioned, including relay services, for a large part of their assets. The effect of the subsection must obviously be very much more severe in the case of hereditaments with a short expected life than where there is a building or some other form of fixed asset which has a long life in prospect. The sinking fund in the case of a hereditament with a long life is comparatively small. I understand that it drops to as little as 2¼ per cent. for thirty years and propressively reduces until it becomes no more than about 1 per cent. or an expected life of fifty years.
On the other hand, with a short expectation of life the effect is very much greater. In the case of relay services, where the assets consist largely of an overhead wire network with a life that has been estimated at no more than ten years, the notional sinking fund amounts to as much as 9 per cent. I am informed that its withdrawal would result in the rates levied being almost doubled. That would be a very heavy addition indeed to the liabilities of these companies, and I hope that my right hon. Friend will consider it with very great care when he revises this matter.
We have heard that water companies are paying rates up to 13.7 per cent. on their receipts. I am told that in the case of some relay services the rates payable amount to as much as 18 per cent. on their trading profits before deducting tax and provision for depreciation. This compares with an average over industry as a whole of no more than 4 per cent., as set out in the latest statement on the national income and expenditure.
I am told also that the abolition of the sinking fund allowance would increase the rates of these companies to as much as 33 per cent. of their trading profit. That is an impossible figure, sufficient to drive many of the companies out of business. We have been told that water companies and other public utilities can and must pass on to the consumer any additional burden, but it is not possible for companies of the other kind to do so, because they are engaged in keen competition with the makers of radio sets and cannot pass on additional charges. Many of the small ones therefore face extinction if this enormous additional charge is levied on them.
229 5.0 p.m.
The Minister's Amendment, which has been withdrawn, would not have helped these companies which have to provide for a capital asset with a very short life. In the case of such installations as I have mentioned, a life of ten years is expected and there is no question of any such thing as an average annual replacement. Replacement begins, I understand, in a small way, when more than half of the life of the assets has already gone.
It is not only that the life comes almost entirely to an end with the very heavy expense of replacement to be incurred; it is also a fact that, normally, in a rapidly developing and expanding business like this, "replacement" is not the right word. It is more likely that the old installation will be torn out and replaced by something quite new and more up to date, so rapid is the development in this industry.
A wire network, put in to receive sound programmes, may be replaced in ten years' time by a completely different network to receive television programmes, and I do not know whether it could be regarded as a replacement entitling the company to any allowance under the proposed average system. As my right hon. Friend has withdrawn his Amendment and intends to look at the matter again, there is no need to pursue that point. I only ask that he will give it careful consideration.
An essential principle, whether in taxation or in rating, is, of course, that proper allowance should be made for the effective replacement of all those capital assets which are being used up in earning the income which is the subject of taxation or of rating. I admit that there is no other way in which the cost of these hereditaments with an expected very short life can effectively be dealt with except in the form of a sinking fund provision.
I hope my right hon. Friend will examine the matter again with care and will consider whether he cannot take out of the subsection these companies, which I am sure were never intended to be in it and which probably were never thought of when the subsection was drafted. The subsection is designed to deal with a different sort of public utility. I ask that the matter should be considered again and I hope that my right hon. Friend will give an assurance that he will sympathetically reconsider it.
§ Dr. Horace King (Southampton, Itchen)
The Amendment seeks to preserve the sinking fund principle at any rate for short life hereditaments. Although I was in favour of the earlier and wider Amendment, which I was happy to find received at last such sympathetic consideration from the Minister, I still want to press the point made in this narrower Amendment of the hon. Member for Harrow, Central (Mr. Bishop).
Yesterday the hon. and learned Member for Hertfordshire, East (Mr. Walker-Smith) said, rightly, that sectional or private interests could not expect Parliament to legislate in the most favourable way for them, but it seems to me that any sectional interest has a right, when a new principle is being introduced in legislation, to point out the discomfort and hardship to itself and the bad effects which it feels might happen to the community if the new principle is carried out. And it has a right to expect the Government, when they depart from some good sound principles which have lasted for a long time, to justify the new principles up to the hilt.
The Government propose that for short-life hereditaments, as well as long-life hereditaments, it will no longer be possible to offset against profits a sinking fund to replace the hereditaments in due course. Instead, companies can claim the average annual expenditure actually incurred in replacement or renewal. The whole Government case for this radical change in policy is, according to the Minister, that the use of a notional sinking fund has been carried to excess, has been used to cheat the rating revenue, and that therefore Government had decided that the whole sinking fund principle must go.
That seems to me almost as though a doctor were to say that because a finger was damaged the whole of the arm must go. In the preceding debate we have had the principle applied to hereditaments with a long life, where the sinking fund, whether notional or otherwise, must of necessity be quite small, but if all the arguments which we have heard in that long debate have any force for the industry or undertaking with a hereditament which has a long life, then they become even more powerful in the case of the industry or undertaking with a hereditament which has a very short life.
231 I want to try to illustrate the point by reference to radio rediffusion. I need hardly say that, unlike the hon. Member for Harrow, Central, I have no interest to declare in radio rediffusion, financial or otherwise. I am a radio enthusiast and I like twiddling the knobs, so I should never want the benefit which many people find in radio rediffusion. Radio rediffusion gives a programme, or programmes received by land line or radio, and then sent out over a wire network to the homes of those who undertake to pay for the service. The companies pay rates on the buildings which they use—there is no complaint about that—and also on the wire network which they use; and it is that network which is gravely affected by the provisions of the Bill.
As the hon. Member for Harrow, Central pointed out, such a network has a short life. It has been estimated at ten years, but in parts of the country it has a life of only three or four years because climatic conditions can affect it. Each year, therefore, a radio rediffusion company must set aside a certain sum of money for the replacement within ten years of the whole of its wire network. Whether rate relief is allowed to such a sinking fund, it will have to be in existence.
No company faced with a ten-year prospect of having completely to replace most of its most important asset, can run without preparing for that year by year through a sinking fund. That is true over twenty years or over fifty years, but it must be particularly true of any business faced every year with the prospect that something like half or even more of its capital will shortly be destroyed and have to be replaced.
Operators of radio rediffusion will have to carry the increased rate burden which is placed on them by the Bill and will still have to carry the sinking fund which they must have. This will increase the cost of their service and they say that they will have to increase their charges. As they increase their charges, their rating assessment will go up and a vicious spiral will occur which will, in this tiny industry, as in the great water industry which we have been discussing, seriously jeopardise its existence.
The second point that these companies make is this. When they replace their wire network, it is extremely unlikely in 232 radio, which is developing so fantastically swiftly, that the replacement will be identical with what they previously had. Radio rediffusion, like everything else in electricity, is developing a new technique and new ranges of service, and, when the wire network comes to be replaced, some new programmes may be provided on the service which they give, or they may add television or may be able to develop the number of programmes sent over one wire, as the telegraph has been able to do. The change in the pattern of a town's structure may cause a revolutionary reconstruction of the network, and companies will always be uncertain whether these new developments, these replacements or modified replacements, will be allowed to count under the new Bill for the replacement charge which the Bill permits to be offset when calculating the rateable value.
The whole benefit of a sinking fund, as against annual replacement, is that if a company sets aside money year by year in a sinking fund for replacements, when the time comes it may make a replacement which is technically superior to the one which it had originally, and it is not tied up with any taxation considerations at the end of the period from using the sinking fund in the best interests of the industry. Smashing the sound principle of building up a sinking fund for future replacements seems to me to jeopardise the existence of the firms whose capital assets fade away so rapidly as ten or twenty years, and for a young industry and new companies setting out in radio rediffusion the new proposals are exceptionally grievous. They start with a new network, they have no annual repairs in their first years, there is nothing which they can offset in reduction of their rates, and yet, year by year, they will be meeting the expense of setting aside a sinking fund and will be paying rates on the amounts which they so set aside. As there are about 400 of these radio rediffusion services, and as they serve about one million people, who, to my mystification as a radio enthusiast, prefer that kind of radio entertainment, it may be that as a result of the proposals in this Bill a million people will be faced with new charges for a service which they find very convenient and which they like very much.
I would urge the Minister, in his reconsideration of the whole of this 233 Clause, to look at the principle of the sinking fund, and not to throw it out of the window merely because some people abuse it, but to remember in particular the people for whom we are arguing in this Amendment—those people whose hereditaments have, by the nature of things, a very short life and who must set aside yearly quite a considerable sinking fund, and who stand to be penalised very heavily under the provisions of the Bill as at present drafted.
§ 5.15 p.m.
§ Sir Frank Medlicott (Norfolk, Central)
During the debate on Second Reading of this Bill, I ventured to draw the attention of the Parliamentary Secretary to the fact that not only water undertakings are affected by the proposal in Clause 4 (8), but other kinds of undertaking as well. As a good deal of time has rightly been given today to discussing the position of water undertakings, I think we should be very grateful to my hon. Friend the Member for Harrow, Central (Mr. Bishop) for giving us the opportunity of discussing the particular problems of certain other industries. Like my hon. Friend, I would say that, although I have no technical interest as a director or shareholder to declare, I ought to mention the fact that I have for many years been associated with this industry professionally as a legal adviser.
If the case for the water undertakings is strong, then the case for the radio relay industry is overwhelming, and I hope we are to have at least as helpful an indication from the Minister on this Amendment as he has given in regard to the portion of the Bill which we have just been discussing. Figures have already been given to the Committee concerning the great disparity in rating liability between various kinds of undertakings, and I do not need to enlarge upon them, except to give one more figure.
Some of the water undertakings are now concerned at having to pay rates amounting to 13.7 per cent. of their working profits, but, under the proposals of this Bill as it stands at present, the radio relay companies and certain other companies might have to pay rates up to as much as 31 or even 33 per cent. of their working profits, which no one can regard other than with great alarm.
234 However, I do not want to deal only with that particular industry, but to confine the rest of my remarks to the general question of sinking funds. It has been said that we National Liberals are only distinguishable from our Conservative colleagues by the enthusiasm with which we defend Conservative principles. Whether we may take that seriously or not I do not know, but certainly the principle of the sinking fund is a principle of conservation which certainly appeals to me, speaking for myself.
On this side especially we have always spoken critically of men or organisations which live a hand-to-mouth existence and fail to set aside year by year some appropriate sum to provide for the renewal of capital equipment. Indeed members of the Government and hon. Members on this side have frequently emphasised the importance of renewing that plant and equipment on which our production and employment so largely depend. This Bill, even as it is proposed to be amended, would appear to indicate that the Government are proposing to depart now from that well-established doctrine.
I support what was said by the hon. Member for lichen (Dr. King) about the effect of departing from the sinking fund principle and compelling those in charge of these undertakings to reach out for rating concessions by expending money at some time which is dictated by rating considerations, rather than by circumstances. The great advantage of the sinking fund is that the undertakings concerned are able to embark upon necessary expenditure at the time when the circumstances make it most desirable in the interests of the industry concerned, and not at some accidental time which may be necessary from the point of view of rating relief.
I would also commend what has been said by several speakers who have suggested that such anomalies and defects as may appear to have been found in the working of the sinking fund system are surely not sufficient to justify the entire system being scrapped, especially after it has been in operation in one industry after another for the greater part of a century.
There is ample opportunity for the Revenue and rating authorities to seek 235 out and correct any anomalies or irregularities which appear in the operation of sinking funds without doing away with the principle altogether. I would also suggest that it is really rather extraordinary that such a tremendous departure from principle should be slipped apparently almost accidentally into what is called a Miscellaneous Provisions Bill. Such a change would have great consequences, and I hope that it will not be made.
For all these reasons, I suggest that the case which can be made out, not only for the radio relay industry but for all those industries mentioned by my hon. Friend the Member for Harrow, Central is so overwhelmingly strong as compared even with that for the water undertakings that the whole of the proposals of the Government under this heading need to be looked at a second time.
§ Mr. Douglas Houghton (Sowerby)
I support the general case put forward by other hon. Members. I presume that the Minister's promise to reconsider the whole matter between now and the final stages of the Bill will apply to these hereditaments as well as to others. Yesterday we heard all about water, but nothing about radio relay services or other hereditaments covered by exactly the same principle in arriving at the rateable value.
Clause 4 as it stands covers relay services in exactly the same way as it covers waterworks. The Amendment and the long Schedule which the Minister proposed—and which he has now withdrawn—would have applied equally to those other undertakings. I hope, therefore, that the Parliamentary Secretary can give an assurance that his right hon. Friend will welcome opinions and representations from all interests which may be affected, and that the Relay Services Association, which has kindly sent hon. Members information about its grievances, will now take advantage of the opportunity given to send its views to the Minister.
One of the disadvantages we have all been under this afternoon is that most of the representations we received and studied related to the Bill in its original form, and we have not had the assistance of the considered views of these various 236 interests about the Amendment which the Minister put down at a comparatively recent date. I make no criticism, but after all the Bill was given its first Second Reading on 6th April. It lay fallow, so to speak, in its present form during the election, and it was not until very recently that the Minister's substantial Amendment could be considered by us as Members of the Committee and by the various interests concerned.
I hope that the Minister will bear in mind that his formula should be comprehensive and its application not restricted to water undertakings. It may be that different considerations will arise and that the formula will require considerable thought later. Already we have seen that the Minister had the three-year average, the ten-year average, and the pre-war ten-year average with suitable adjustment for the rise in costs since 1939. It may be that some account will have to be taken of these undertakings with short-lived fixed assets.
I do, however, remark that none of the papers that I have received on this very complex question of the sinking fund in relation to the profits basis of assessment has put forward any alternative to existing practice. That is a pity—unless, of course, it is felt that there is really no acceptable alternative to existing practice. As I see it, what it really amounts to is a difference of professional opinion as to how to apply the 1925 Act to the valuation of this type of hereditament with fairness to those occupying it and with general equity to other ratepayers.
Perhaps tradition or some kind of professional convention has held the day since 1925. It has probably held the day since the Parochial Assessments Act of 1836, but the professional advisers and others who have considered the matter under the old regime have never really considered whether or not it was a satisfactory and fair basis. Now, of course, the eagle eyes of the professional men in the Inland Revenue are looking at it again. They take nothing for granted—whether it has been in operation since 1836 or since the Battle of Hastings. I presume that they say "This is wrong, and has been all along and we want to put it right."
That is especially so as there are now signs that the sinking fund basis is being 237 used in a way which is producing some quite strange results. I will put it that way; I shall not repeat the Minister's words when he said that in certain circumstances it was a scandal. I am not in a position to know, but I quite understand that it may be reducing these assessments beyond anything that seems reasonable, having regard to the general position of rateable values.
I trust that all this will be taken into account. I have no interest in this matter whatsoever. I only offer this modest contribution because some of my constituents are in relay services. I can count probably none of them among my supporters; nevertheless, they are my constituents and I will support them even though they do not support me. In parenthesis, I may add that the next Election is quite a long way off.
May I offer a constructive suggestion? I am thinking aloud on this—I confess that I have not studied the matter closely—but questions of depreciation are surely being discussed and decided by the Inland Revenue in reference to the taxation of profits. There must be a clue there. I know that if depreciation is taken on a reducing value basis there is not written off at the end of the day the total historic cost of the asset, but at all events the depreciation allowances for taxation—especially on the type of undertaking which we are now discussing—might offer a possible basis for an agreeable compromise or settlement.
It might also apply to other undertakings, but I do not feel that the sinking fund basis, which we have had so long and which is so deeply entrenched traditionally, is necessarily the modern method. There may be an alternative, but I hope that that suggestion will be studied by the Minister, and the Inland Revenue consulted as to whether some method of applying depreciation used for taxation purposes might be adopted as a basis for adjustment of the deduction for replacement in the case of this type of hereditament. I throw it out for what it is worth.
§ The Parliamentary Secretary to the Ministry of Housing and Local Government (Mr. W. F. Deedes)
The hon. Member for Sowerby (Mr. Houghton) referred to some difference of professional opinion, but there is an extraordinary unanimity of Parliamentary opinion, and 238 I must meet the points raised by the hon. Member for Harrow, Central (Mr. Bishop) and others as to the special problem concerning this industry.
I should say at once that the assurance given by my right hon. Friend a few minutes ago—perhaps the hon. Gentleman was not here—does cover all the undertakings which fall within this group. I think he made that quite clear to my hon. Friend. We shall, of course, welcome views and ideas, such as have been asked for from the water undertakings, from this industry as well as from any other source. It is recognised, as my hon. Friend for Norfolk, Central (Sir F. Medlicott) and the hon. Member for Itchen (Dr. King) stressed, that there are special circumstances in this industry. There are special problems and anxieties. I think I am right in saying that the essential difference between this and other industries is the life of the installation, which must be short in terms of years. That is accepted.
Our discussion on this Amendment has, I think, been less on the Amendment than on the general subject of sinking funds and the proper treatment thereof. It would not be proper or wise of me to prejudge future discussions by any general observations now on sinking funds with respect to this or any other industry. The assurance which my right hon. Friend has given covers this industry as well as the general subject.
I ought to say one word specifically about the Amendment moved by my hon. Friend and to say why we should in any circumstances be in some difficulty about accepting it. I think I am right in suggesting that his purpose in moving this Amendment was to exclude the wireless relay undertaking from the provisions of the Section which has been under discussion, the reason being the life of the installation and the fact that the life of the parts is known to be less than twenty years.
The first point that I should make is that the effect of excluding such undertakings from the provision of the Section would be rather wider than my hon. Friend envisaged. It would also apply to parts of a public supply undertaking which have a life of twenty years or less, and even some plant and machinery of water undertakings which have a life of twenty years of less. The 239 effect, therefore, of this Amendment would be to seek to exclude short-term items in whatever industry was concerned, in the water industry as well as anywhere else. Any water undertaking would have to distinguish between the short-life asset and the long-life asset.
I need not stress to the Committee that in practice that would lead to certain obvious administrative difficulties. I do not like exaggerating administrative difficulties, but the difficulties which would arise may clearly be foreseen. There would obviously be great scope for contention on the probable working life of different types of equipment. That would be a fruitful source of discussion and contention—the different types of plant forming part of the same hereditament. For that reason—the difficulty of working this provision in practice—I have to say that we do not consider the Amendment workable and, therefore, we cannot accept it in this form.
I hope that the anxieties of my hon. Friend which caused him to move this Amendment have to some extent been allayed by our earlier proceedings, and that therefore he will not feel that the loss of this Amendment is fatal to the undertaking on whose behalf he spoke. I also suggest that, in the circumstances, this attempt to draw a line through undertakings or parts of undertakings and to place them on one side or the other of a certain length of life would be very difficult to work in practice.
§ Mr. Bishop
I am grateful to my hon. Friend for what he has said. May I say that I am not at all surprised to learn that my draftsmanship is not adequate to express the principle that I was trying to establish? I am sure that what I wish to do by this Amendment would be done better if the drafting were in better hands. It was the intention of the Amendment to cover short-life hereditaments not only in a particular industry but generally. If that is practically impossible in the way that the Amendment seeks to do it, I hope the Government will see whether there is another way in which it can be done. May I say how grateful I am to my hon. Friend for what he has said, and, in view of the assurance that the whole matter is being reconsidered, I beg to ask leave to withdraw the Amendment.
§ Amendment, by leave, withdrawn.240
§ Motion made, and Question proposed, That the Clause, as amended, stand part of the Bill.
§ Mr. F. H. Hayman (Falmouth and Camborne)
Before this Clause is disposed of, I should like to mention the concern which at least one local authority in my constituency, Falmouth, has expressed relating to a water undertaking. The Urban District of Camborne-Redruth in which I live has large water projects in hand and is very concerned about how it will find the money to finance them. I hope that the Minister will ensure that no water undertakings in counties like Cornwall will suffer financially. It is hard enough to be able to provide a sufficient water supply without having to face additional financial burdens under this Bill.
As a layman in these matters, I would say that there has been a conflict of opinion between the Treasury and some independent financial experts who from time to time appear before Select Committees of this House as to whether public water undertakings are not called upon to pay Income Tax heavier than private water undertakings. I am not satisfied with the reply which the Chancellor gave on that point. I also remember that not long ago this House gave approval to a Bill dealing with rural water supplies and sewerage, which added £30 million to the amount to be raised by taxation in this country.
§ Sir F. Medlicott
As one representing a rather different area—a part of East Anglia—may I express some anxiety over the possible effect of this Clause upon the provision of extensions of piped water supplies? We in East Anglia are greatly concerned about the drift of workers from the land, and we realise that the provision of piped water is one of the vital amenities. We are moving forward in that field, and we hope that nothing in this Bill will place any financial obstacles in the way of what we are endeavouring to achieve.
§ Question put, and agreed to.
§ Clause, as amended, ordered to stand part of the Bill.