§ 10.14 p.m.
§ Mr. James MacColl (Widnes)
I beg to move,That an humble Address be presented to Her Majesty, praying that the Rating (Charitable Institutions) Order 1963 (S.I., 1963, No. 1361), dated 1st August 1963, a copy of which was laid before this House on 9th August, in the last Session of Parliament, be annulled.One of the main disadvantages of the negative Resolution procedure as applied to Statutory Instruments is that it is not possible to get a clear explanation of what a Statutory Instrument is about before one starts discussing it. I confess that there is a good deal about this Statutory Instrument which I find uncertain and rather obscure and on which I should like to have information. I can only try to give what seems to me to be the broad effect of it.
In the 1961 Act there is a provision that all charities should have a mandatory rating relief of 50 per cent. In the First Schedule of the Act there is a provision that certain institutions, mainly universities, should be exempt from that exemption. In other words, they have to pay the full amount of rates.
I understand that this Statutory Instrument does two things. First, it adds certain institutions to the Schedule and makes them liable to pay full rates, whatever they may be. It also takes certain colleges out of the Schedule. Most of the bodies which are to be brought into the Schedule are new universities, all in varying degrees of development, except Keele, which appears under another name, namely, the University College of North Staffordshire, in the third paragraph of the Schedule. Just to make things easy for the layman, it has had its name changed in the Order, but that does not make any difference to the position. The other universities concerned are East Anglia, Essex, Kent at Canterbury, Lancaster, Newcastle-upon-Tyne, Sussex, Warwick and York.
This is an extremely interesting Order because it marks the beginning of what I suppose will be a very considerable rating or derating operation. As more and more universities come into existence as the Robbins Report is 1582 carried out, more universities will be coming into rating, and, therefore, we will have more Orders adding them to the Schedule.
I think that it should be made clear what the discussion is about. It is not about whether places of higher education should pay rates, but about who should pay the rates. In other words, the question is whether these places should be derated so that the burden falls on the local authority—because, broadly, that is the effect of derating—or whether they should be rated and the rates paid, not by the institution, but by somebody else who will find the money for the institution. That is the first point about which I want to ask the Minister.
During the Second Reading of the Rating and Valuation Bill, the Home Secretary, in talking about the Schedule, said:Let me hasten to make it clear that the universities will in no way suffer thereby. My right hon. Friend the Chancellor of the Exchequer is ready to give assurance that any additional rates failing on them as a result will be taken into account in determining the amount of recurrent grants to be paid to them from the Exchequer. It is simply a question whether the money will come from the taxpayers or from the other ratepayers."—[OFFICIAL REPORT, 30th November, 1960; Vol. 631, c. 402.]That is fairly clear, and I suppose that it has been carried out. However, it does not deal with one serious aspect of this, namely, upon what basis of assessment universities are rated. It may be that, although on paper the full value is being paid, if the method of assessment produces a low result, the other ratepayers suffer.
What is happening in the case of new universities? It is one thing to say that if there is a difference in the valuation on the University of Leeds or of Sheffield, the difference that will be paid by the Exchequer is a fairly clear sum. In almost every case mentioned in the Statutory Instrument, however, these universities ire green fields and at some stage came, or will come, into development.
Could we be told at what stage these Orders will be made? At what stage does a university ripen sufficiently for it to be brought into rating and into the Schedule? Can we be sure from the 1583 Minister that the difference between the rateable value of a green field—which has normally, I suppose, in many cases been rated as agricultural and may well be zero—and the full rateable value as it is developed into a flourishing university will be met by the Exchequer? Will it be met immediately, or will there be a time lag before these payments are made? What is the machinery for beginning to pay the rates on the universities?
That is all I have to ask in the case of the universities which are being brought into rating. The only other thing which I want to ask comes later concerning those which are being taken out of rating. We have been given a cryptic statement, which, again, is one of those triple negatives, because things are put back into the Schedule and then taken out again.
I understand that the university of London will not now cover Goldsmiths' College. In other words, full mandatory derating will occur in the case of that College.
§ The Minister of Housing and Local Government and Minister for Welsh Affairs (Sir Keith Joseph)
The hon. Member is being so correct in his analysis that I should like to put right the one mistake which he is making. It is not full mandatory derating, but 50 per cent. mandatory derating. I should ask him to read that back throughout his speech where he has referred to full derating.
§ Mr. MacColl
I meant the full amount as provided for in the principal Act.
It will be interesting to know why, particularly, Goldsmiths' College has been singled out for this treatment. Is it something that has changed about the constitution of the college since 1961, or is it something that has always existed in the college but has only just been discovered? It should be regarded with a good deal of care, because the effect of taking Goldsmiths' College out of the Schedule and making it subject to derating for the 50 per cent. is bound to have an effect on the rateable value of the area in which the college is situated.
I must declare an interest. At one remote time in my career, I was a member of the delegacy of Goldsmiths' College and I think I am right in saying that it is in the County of London, although I am not certain which borough it is in.
§ Mr. MacColl
I thought that it was south of the river. What will be the effect on the rateable value in the County of London in general, and of Deptford in particular, of allowing Goldsmiths' College to be derated.
When the original Bill was being passed, there was a good deal of discussion about the effects of the derating of these colleges. One of the arguments that was used was that there was no need to worry very much about this, because most of the places which had educational institutions got rate deficiency grants. Therefore, if one takes a college and reduces the rates to be paid on it, the only main effect of it is that it is picked up by the rate deficiency grant and there is virtually no trouble as a result.
I should like to know in the case of each of these institutions—Goldsmiths' College is one, and then there is a series of theological departments or colleges and also the Lister Institute of Preventive Medicine—whether they are in rating areas in which rate deficiency grant is paid or whether they are not.
There is a good deal of distress among local authorities about the effect and impact on their areas where colleges are subject to a very substantial amount of derating so that the product of a 1d. rate is very substantially reduced and they do not get any rate deficiency grant and so the whole burden must fall on the authority. There is no precept by which they can spread the effect. In the case of Goldsmiths' College there is a precept and an equalisation grant within the county, and, therefore, it may well be that the effects of derating in this case will be spread over a comparatively large area.
What is the position with the other institutions? Are they in areas where there is no means of spreading the burden and it must fall on one authority, or are they in areas where there is a reasonable chance of spreading it?
Also, what is the method—this is a technical question—of assessing the rateable value of these colleges? Is the principle followed that which was laid down by the Lands Tribunal, or, more correctly, by the Court of Appeal which to some extent followed the Lands 1585 Tribunal in the case of Magdalen College, Oxford, and the other colleges which were subject to appeal on their method of assessment?
I believe that that is the leading case in this field. Here I walk on very treacherous ground, and I may have got it all wrong. I think that, put simply, the position is that in the case of those colleges it was decided to follow what is called the contractor's method of assessment. There are two steps in that method. First, one determines a capital value for the whole educational plant, if I may use an Americanism—the network of buildings; residences, laboratories and the rest—and then one finds a rate of interest from which one calculates the notional or hypothetical rent. On the rate of interest depends one's ultimate rateable value.
I could refresh the memory of the House about the Magdalen College case by reading an extract from the judgment of the Master of the Rolls, but perhaps I need not waste time. What was said was that the normal commercial interest rate which is used for calculating the value of a commercial undertaking which is being assessed by the contractor's method is 5 per cent. Because the buildings in Oxford were financed partly by charitable, benevolent and endowment gifts, the rate of interest was halved—to 2½ per cent.
One of the things which brings startling light to the layman is that in the Shrewsbury School case, decided just previously, the rate of interest was calculated at 3½ per cent. Far be it from any layman to understand why the wise, good and just men who decide these matters assessed the rate of interest for Shrewsbury School as greater than that for Magdalen College. I would not know. But I should like to know whether the rate of interest is 2½ per cent., or whether it will be something greater. If this doctrine is being accepted that the commercial rate of interest is to be reduced by half or by some other reduction factor because the institution concerned is a charity and financed largely by a benevolency, by endowments and so on, then it seems to me that these educational institutions are getting double relief.
They are getting relief, first, because it is said, "If this were a commercial 1586 concern we would capitalise the rate of interest at 5 per cent. Because it is an endowment we are making it 2½" Therefore, the gross value is being cut by half as compared with a full commercial building. One is, therefore, bringing into one's calculations at that early stage a factor of reduction for purposes of a charity and for the purpose of recognising the source of the fund.
If that applies to Goldsmiths' College, it seems to me that there is a strong case for saying that there should not be a double relief by taking it out of the Schedule and by giving it the 50 per cent. mandatory relief. I am not saying that Goldsmiths' College should pay the full amount of these rates, but I am saying that it is wrong for this burden to kill doubly in this way on the rating authority. The college should not be subject to derating virtually by the fact that its character is taken into account in calculating the assessments and also by being given this mandatory relief of 50 per cent. That is unfair, a kind of double scissors movement.
If what I say about Goldsmiths' College and the other theological colleges is correct, why does the Minister want to take them out of the Schedule? The fairest thing would be to leave them in the Schedule instead of letting them be a burden on the rating authority.
I should like to see these matters cleared up because we are at the beginning of what I believe will be a very long series of these Orders, some putting things in and others taking things out. Therefore, my hon. Friends and I thought that it only right that the implications of this Order should be fully appreciated and discussed.
§ 10.35 p.m.
§ Mr. G. W. Reynolds (Islington, North)
My hon. Friend the Member for Widnes (Mr. MacColl) has drawn attention to the institutions which are being newly added to the Schedule by this Order, and, as my hon. Friend has suggested, there are others which will be coming along no doubt in the future, and they are in the same position, as many at present in the Schedule, namely, to charitable trusts, which, if they were not included in the Schedule, would get mandatory relief. No doubt they will also have the nerve to apply for discretionary 1587 relief, although I think that they might get short shrift from local authorities if they did. Still, no doubt, they will try to get it.
The main reason for their being in the Schedule is that they are financed through public funds. They will in due course provide a large chunk of rateable value in the areas in which they are, and as a large part of their costs are provided for by public funds, and as they are not real charities in the normally accepted sense of the word, they should, therefore, bear their full share of rates. I think that this is right and proper. Having at last got a proper standard valuation for all hereditaments right over the country, we are now in the position, by the 1961 Act and by a Bill which is now before the House, of mucking the whole lot about again. Tonight, we are dealing with those being put in the Schedule here.
What I should like to know is why these properties are being put into the Schedule and some others which receive grants from public funds are being left out. These colleges are being put into the Schedule, but it is a prerequisite of being accepted by the University Grants Committee that they are scheduled as universities. They manage to obtain from local sources, industrial or commercial or otherwise, a certain amount of endowment to bear part of their costs, but, nevertheless, the major part of their costs is met from public funds. There are other institutions whose entire costs are met from public funds, where there is virtually no private money involved at all, and yet they, because they happen to be registered charities, are entitled to 50 per cent. reduction in their rates.
I refer particularly to12—I believe that it is still 12—colleges of advanced technology, in their present form created since the 1961 Bill went through the House and became an Act. In 1961, those institutions had recently been recognised, though they were at that time entirely under the control of local education authorities, with boards of governors appointed by the local education authorities and they were registered for rating purposes in exactly the same way as any technical school or any other school which came under the local education authorities. Therefore, they 1588 were not put into the Schedule to the Act at that time; it was not necessary at all; but since the Act was passed the status of these colleges has completely changed.
They are now taken right outside the local government field. They are now governed by charitable trusts. They receive 100 per cent. of their income direct from the Ministry of Education. In due course, if the recommendations of the Robbins Report are accepted, as, we are told, in general they are, by the Government, these colleges will become universities, and then presumably they will come—
§ Mr. Deputy-Speaker (Sir Robert Grimston)
I am sorry to interrupt the hon. Member, but I think that he is getting a little far from this Order. He may, if he wants, give a little background explanation, but I cannot relate to the Order what he is now saying. Perhaps he will help me.
§ Mr. Reynolds
I will do my utmost, Mr. Deputy-Speaker, to keep within your Ruling.
The point I am trying to make is that these colleges which are being added to the Schedule are partly, not entirely, financed by public funds. I am in favour of adding them to the Schedule. I understand the Minister is looking at certain other establishments, colleges of advanced technology and others, and what I am attacking is his dilatoriness in the matter, because I am disappointed because the Order is not designed to cover all the matters which I think it ought to cover.
In my view, various educational institutions, particular colleges of advanced technology, ought to be included in it. We have 12 authorities losing at present, because of the present position, several thousands of pounds each by way of rate income. The beneficiary is the Minister of Education. The losers are the local ratepayers. I ask the right hon. Gentleman for an undertaking that the wider aspects of this are being looked into and that the C.A.T.s will be included in the near future.
§ 10.40 p.m.
§ The Minister of Housing and Local Government and Minister for Welsh Affairs (Sir Keith Joseph)
I congratulate 1589 the hon. Member for Widnes (Mr. MacColl) on his largely accurate homework. He has correctly described the contents of the Order and has related it correctly to the 1961 Act. To put it neatly again, charities were, under that Act, entitled to 50 per cent. mandatory relief, plus any additional discretionary relief at the discretion of the local rating authority. Institutions listed in the First Schedule were excluded from that mandatory relief because they were supported by the University Grants Committee—that is, by public funds channelled from the Treasury through the Committee.
It was then explained by my right hon. Friend the present Home Secretary that the Schedule would need alteration from time to time as new institutions supported by the U.G.C. came into existence and he warned that it would need reviewing also in case any of the institutions included at first did not, on closer inspection, qualify in the way I have described.
The Order adds a number of new university institutions to those that are, by the Schedule, excluded from the 50 per cent. mandatory relief and, at the same time, correots two or three anomalies that had crept in. To get into detail at this stage, let me try to answer the questions of the hon. Member.
It was necessary after the Act was passed to go into closer examination of the relationship between several colleges and institutions of London University. As a result, Goldsmiths' College, which was, at that time, thought to be just a part of the University, supported by the U.G.C, has been found to receive no direct grant from the U.G.C. and consequently has been removed from the Schedule. It will, therefore, under this Order, remain entitled to 50 per cent. mandatory relief. The college happens to be in Deptford, which receives a rate deficiency grant, so to that extent there will be no extra hardship on the local ratepayers.
The three theological colleges referred to in paragraph 2,c of the Order were similarly found not to be in direct receipt of U.G.C. money and are, therefore, removed from exclusion and return to eligibility for 50 per cent. mandatory relief. I cannot, I regret, give the hon. Member a full answer about the rate deficiency grant status of those areas in which these colleges are situated. All 1590 I can say now is that they do not receive direct U.G.C. support and will get rate relief. They will thus be like a number of other charities whose mandatory rate relief does impose, to some extent, an extra burden on the local ratepayers, though limited to some extent by the rate deficiency grant. This is something that the House expected at the time when mandatory rate relief was put into the Act.
The hon. Member for Islington, North (Mr. Reynolds) asked about the colleges of advanced technology. They have not been included because they did not have the same financial relationship to the Exchequer us did the universities when the Order was drafted. Nor do they today. But, as he said, the Government have accepted the Robbins Committee recommendation that these institutions should have university status, and action to give effect to that decision is in hand, together with a full review of the finances of higher education.
I am in a position to assure the House that as the colleges of advanced technology achieve university status they will be put on the same financial basis as all other university institutions, although, of course, the financial framework itself may be changed as the result of the review now going forward. Orders will be laid before the House as necessary when their position is clear.
The hon. Member for Widnes raised the interesting question of the timing of rateable obligations falling on a green field as it was developed into a university. This is very much the business of my right hon. Friend the Chancellor of the Exchequer, advised by the U.G.C., but I understand that, as buildings are put up, so my right hon. Friend ensures that the recurrent grants include the necessary provision in the case of new universities to cover the rating obligation which falls upon them.
The hon. Member also asked me about the valuation of university buildings. He quite rightly explained to the House that these institutions are dealt with by the contractor's test and that the Lands Tribunal had validated a 2½ per cent. interest rate in the case of Magdalen College. He was also right to say that a recent case had shown that a 3½ per cent. interest rate was used. I can tell the House that 1591 in the recent valuation the Inland Revenue used the 3½ per cent. basis for university buildings.
The only quarrel I had with the hon. Member's presentation of his series of questions was when he spoke of the double relief which universities got by being given a 2½ per cent. interest rate, as he thought they were. The whole object of the contractor's test, the contractor's method, is to arrive at an acceptable basis of valuation. We have to assume that what the Inland Revenue uses and what is validated by the courts is the way of arriving at the correct valuation.
I do not think that it is open to us to say that because the Inland Revenue uses a lower rate of interest for university buildings than it may for commercial buildings, this is, as it were, therefore a method of relieving universities. It is a method of arriving at what is thought to be the correct valuation of universities. However, as the hon. Member has asked me, I am glad to be able to assure him that in the recent valuation the 3½ per cent. basis was used.
I think that I have answered all the questions. If more are asked, I shall try my best to answer them, but I hope that hon. Members will be satisfied that this Order is sensible and should not be invalidated.
§ Mr. M. Stewart
The right hon. Gentleman said that we must regard the valuation on the contractor's basis as the correct way of valuing universities. Even if that is so, does it not create a considerable difficulty for a local authority which has a great deal of this property in its area when it finds that there is this lower method of valuation and that the institutions are entitled to full mandatory relief, if it is also an authority, as is the City of Oxford, which does not qualify for rate deficiency grant? That creates a peculiar situation.
When one adds all those things together, one must regard that as an anomalous situation. Each effect which has caused that can be justified by itself, but when they are all added up there is an anomaly which hits the local authority very hard. Since the right hon. Gentleman is the Minister whose job it is to look after local authorities, when he is introducing an 1592 instrument of this sort is there no way in which he can cure an anomaly of that kind to the benefit of, Oxford in this instance, but also of any other authority which may find itself in that position?
§ Sir K. Joseph
I fear not. The situation in Oxford flows from a series of ingredients each of which is individually justified. Although the hon. Member is right in his description of the ingredients, I question whether he is correct in saying that the effect is so serious—I forget his words, but he used some strong adjectives about the effect.
I think the hon. Gentleman would like to know that the effect is the equivalent of a 2¼d. rate. No one in my position could possibly be indifferent even to a ½d. rate, or a ¼d. rate, because I know what strong feelings can be aroused, but the fact is that at Oxford the combined effect of these ingredients amounts to the equivalent of a 2¼d. rate. That combination, which is considerably less than in many other cities, has been caused by revaluation, whereas in Oxford, as it happens, the effect of revaluation has in itself left the domestic ratepayers unscathed. The rise in the rates of the domestic ratepayers in Oxford has been brought about entirely by the increased rate call from the local authority.
§ Mr. MacColl
I understand that the share of rateable expenditure borne by the Oxford colleges has fallen from 6½ per cent. to 2½ per cent. What I wanted to draw to the attention of the right hon. Gentleman was the passage in Lord Ever-shed's judgment where he quoted from the Lands Tribunal. He said:The money for the erection and improvement of university buildings and colleges is generally provided by benefaction, and for these reasons we consider that a commercial rate of interest is not appropriate. We would apply 2½ per cent. as being half of what we were told in evidence was the normal percentage used for commercial properties…Without probing too deeply into what went on in the Tribunal's mind, I should have thought that that was a rough and ready way of saying that these bodies are not commercial, that they are not getting a profit from private sources, that they are living on benefactions, and therefore the method of assessment will be reduced. That is why I said that there was a double measurement of charitable objects, and why it was reduced from 5 per cent. to 2½ per cent. Secondly, it was the reason 1593 for giving them 50 per cent. under the Act.
Will the 3½ per cent. measure be applied retrospectively to the Oxford colleges, or will it be applied only to other institutions which come into the valuation later?
§ Sir K. Joseph
I understand that this is retrospective, and that it was used as the valuation basis this time, but if I am wrong I shall write to the hon. Gentleman about it.
I may have given a wrong impression when answering the hon. Member for Fulham. The 2¼d. in Oxford is the amount attributable only to the 50 per cent. obligatory derating.
§ Mr. MacColl
I appreciate the help which the right hon. Gentleman has given the House on this very difficult subject, and I beg to ask leave to withdraw the Motion.
§ Motion, by leave, withdrawn,