§ 9.5 p.m.
§ The Under-Secretary of State for Development, Scottish Office (Mr. George Younger)
I beg to move,That the Rating of Industry (Scotland) Order 1973, a copy of which was laid before this House on 13th April, be approved.The purpose of the order is to continue for a further two years the derating of industrial and freight transport subjects at the level of 50 per cent. It may be helpful to the House if I begin by giving a brief outline of the rather lengthy history of industrial derating.
Industrial properties in Scotland and England and Wales were 75 per cent. derated from 1929 until 1959, when derating was modified to 50 per cent. Derating was terminated altogether in England and Wales in 1963, which was a revaluation year, but the Government of the day decided that full rating of industry in Scotland should be postponed until the 1966 revaluation.
Full rating from 1966–67 was provided for in Section 10 of the Local Government (Financial Provisions) (Scotland) Act 1963 but, as a precaution, power was included in the section enabling the Secretary of State to continue a measure of derating by order. It was in exercise of this power that the Rating of Industry (Scotland) Order 1965 was made, continuing 50 903 per cent. derating for the valuation quinquennium 1966–71. If that order had not been made, industry's share of the rate burden would have risen to nearly 21 per cent. in 1966, when the share borne by industry in England and Wales was still of the order of 14 per cent.
The question of the continuation of industrial derating was again considered at the 1971 revaluation but although the revaluation slightly reduced industry's share of the rate burden it was clear that if derating had been allowed to terminate the rating position of industry in Scotland would have been almost as seriously out of line with that of industry in England and Wales as it would have been in 1966 if no derating order had been made. The Rating of Industry (Scotland) Order 1971 was therefore made continuing 50 per cent. derating for two years so that the position could be reviewed in the light of the effect of the 1973 revaluation in England and Wales. That order lapses on 15th May 1973.
Full rating in 1971 would have increased industry's share of the rate burden from about 11 per cent. to nearly 20 per cent. as against 14.7 per cent. for industry in England and Wales, and Scottish industry's rate bill would have gone up from approximately £26 million to £45 million.
While industry's share of the rate burden is a convenient basis for comparing Scotland with England and Wales, what concerns industrialists is, of course, the rates they actually pay. The periodic censuses of industrial production give us some information about this. The 1968 census showed that the rates paid per £1,000 of sales by industry in Scotland were on average almost the same as those paid in the rest of the United Kingdom— £5.9lp against £5.97p; not very much of a difference. The revaluation of 1971 in Scotland, which reduced industry's share of the rate burden from 11.9 per cent. to 10.9 per cent., must have given Scottish industry a slight temporary advantage, but the revaluation which has now taken effect in England and Wales has produced a similar reduction from 14.5 per cent. to 12.9 per cent., the effect of which should be to bring rate payments by industry on both sides of the border back into line. Therefore the case for continuation of 50 per cent. 904 derating remains unchanged. At present, it is still entirely justified on the grounds of equity with England and Wales.
Derating is not a subsidy to industry but is simply a means of ensuring fair sharing between different classes of ratepayer. There is no absolute standard, of course, by which one can judge the proportion or the payments which should be borne by each class, but parity with England and Wales is a good practical test and a clear guideline at which we can aim.
The continuation order is to apply for the next two years of the current quinquennium. We are proposing to review the rating of plant and machinery in Scotland and this may lead to the replacement of the present order-making powers by new provisions. Moreover the Local Government (Scotland) Bill includes provision for the extension of the present valuation quinquennium, which if enacted will make a further order necessary before the next revaluation. A two-year continuation of derating now will therefore allow the position to be reviewed again in the light of these and any other developments. The local authority associations and industrial interests have been informed of the intention to continue derating and no objections have been received.
The order continues a measure approved on all sides: to keep the burden of rates on Scottish industry broadly in line with that in England and Wales and thus ensure that there is no deterrent to new industry coming to Scotland or to the expansion of existing industry. In those terms, I recommend the order to the House.
§ 9.12 p.m.
§ Mr. Gavin Strang (Edinburgh, East)
The Minister has reminded us that the justification for the 50 per cent. industrial derating in Scotland lies in the objective of having an equal proportionate contribution from industry to the rates in Scotland as in England and Wales. His precise arguments were almost identical with those he used two years ago. The figures he has given are those that I read in HANSARD only a couple of hours ago.
While I do not necessarily challenge the desirability of having a similar contribution in Scotland as in England and Wales, may I ask the Minister to give 905 us an up-to-date indication of how this disparity occurs? The Anderson Committee suggested that it was because domestic valuation in Scotland was relatively low compared with that in England and Wales. I had wondered whether this was either because we had a greater preponderance of industrial premises and plant or because the nature of our plant was different. An up-to-date explanation would be helpful.
When we discussed the similar measure two years ago, the Government's Selsdon policies were in full gear. Investment grants had been ended and the pressure was building up from some Government supporters and from the whole Labour movement to bring them back. There was increasing unemployment, which was already intolerable. It was not surprising, therefore, that everyone agreed that the derating should be continued. However, although the Government have now brought back investment grants for industry, their lame duck philosophy has has been thrown overboard, and they have taken extensive powers under the Industry Act to encourage industrial development, there is a serious industrial problem in Scotland today.
It is worth drawing the parallel that, although we have investment grants back, we are scheduled to lose the regional employment premium. I hope that, if we discuss this matter again two years from now, we shall find that the regional employment premium has been replaced by some labour subsidy under a different name, just as investment grants have been replaced by a similar subsidy under a different name.
The rate of industrial expansion in Scotland still gives cause for serious concern. Only this weekend, there was considerable discussion in well-informed newspapers, such as the business section of the Sunday Times, about the overheating which is, apparently, taking place in some sectors of the economy in England, with a shortage of labour in the engineering industry. At the same time there is massive spare capacity in Scotland, and we have serious unemployment.
In these circumstances, no one could justify opposing any measure to help industry, whether new industry to come to Scotland or existing industry to expand, 906 and the Opposition certainly support the continuation of derating. However, we ought not to accept without question that this is a desirable way of supporting industry. If there were not 50 per cent. derating, the money would go to the local authorities. The support for industry is coming from the localities instead of from the central Government, and to that extent we are robbing Peter to pay Paul. The money taken from the other ratepayers and given to existing industry reduces purchasing power in the area.
Therefore, although we support this measure, as, so to speak, an ad hoc way of helping industry in the present situation, it cannot be defended on grounds of general principle, and one can only hope that, in two years, we shall have collectively decided to adopt a different approach. In the meantime, however, anything that can be done to help industry in Scotland will have the Opposition's strong support.
§ 9.18 p.m.
§ Mr. Harry Ewing (Stirling and Falkirk Burghs)
In every rating debate since I came to the House I have said something about Scotland's derating problems. It is appropriate that the debate on this order should follow a debate concerned primarily with North Sea oil. I have never accepted that industrial derating in Scotland serves as an attraction to industry. Almost conversely, however, it is true that, once industry is established in Scotland, industrial derating is an incentive to keep it there.
I make that distinction in view of the position of British Petrôleum at Grange-mouth in my constituency. British Petrôleum is probably the biggest industrial ratepayer in Scotland, yet there can be no doubt that it is at present dragging its feet on the question of expanding its refining capacity at Grangemouth.
The order is scheduled to run until 1975. I doubt the wisdom of this. I believe that the order should run till 1976, because in 1975 the new local authorities will be coming into full swing and I hope that in the interim period serious discussion will take place on new methods of raising local government finance. I know that serious discussion has taken place over the last few weeks, but so far no viable proposals have been made. I hope that proposals will be 907 brought forward prior to the coming into force in 1975 of the new regional and district authorities. As the regional authorities are to be the rating authorities and as they will have much wider areas and probably much greater priorities to consider, I hope that the Undersecretary will agree that the order should run for another year.
I, like my hon. Friend the Member for Edinburgh, East (Mr. Strang), welcome the order.
§ 9.23 p.m.
§ Mr. Younger
With the leave of the House, I will reply to the points which have been raised.
I am grateful to the hon. Member for Edinburgh, East (Mr. Strang) and to the Opposition generally for supporting the order. I note what has been said. I agree with the hon. Gentleman about this not being regarded as a logical or permanent solution. This is why once again the order is scheduled to run for two years.
I agree with the hon. Member for Stirling and Falkirk Burghs (Mr. Ewing) that it is arguable that it would be better if the order were to run to 1976. However, I would rather consider the matter again in two years' time, because I think that within two years there will have been certain changes. I hope that we shall have had a new look at the rating of plant and machinery which will enable us to look at the system again in the light of whatever conclusion is reached. I also hope that in two years' time we shall have a little more clarity as to the future form of local government finance.
We could easily extend the order for another year, as the hon. Gentleman desires, if that were desired in two years' time.
The hon. Member for Edinburgh, East asked about the disparity between Scotland and England and Wales which makes it necessary to have 50 per cent. industrial derating. I cannot give a very satisfactory answer. It is difficult to put one's finger on the reasons why this has happened.
Rating is made up of many variable factors. There is the variable factor of 908 what valuations are in various parts of the country. There is the variable factor of what rate poundages are required in various parts of the country. Lying behind it, there is the variable factor of different levels of rate support grant and different balances of the communities. Scotland has a much higher number of rural and highland areas than most parts of England and Wales. If one comes back to the basic aim of trying to ensure that there is no deterrent to industries to set up in Scotland, one is tying oneself to trying to ensure that the ultimate amount paid by industry is broadly comparable between England and Wales on the one hand and Scotland on the other. The best answer to the question is that if one is tied to a parity of what industries pay on both sides of the border and one has behind it all these infinitely variable points making up this fixed figure, it is difficult to say which factor makes it necessary to have this adjustment of the 50 per cent. derating.
The recent revaluation in England and Wales has left valuations in Scotland, not only of houses but of commercial and miscellaneous properties, at about 40 per cent. of the English level. It is clear, therefore, that our industrial valuations must, relatively speaking at any rate, be higher, but I am afraid I cannot explain in any more concrete fashion why this should be so. It is really a historical picture of an accumulation of many variable factors which partly go back to the differences of character between Scotland on the one hand and England and Wales on the other.
I am afraid, therefore, that I cannot give a concrete answer to what I agree is a slightly perplexing situation. We all agree, I think, that the aim must be to make sure that there is no deterrent to industries to set up in Scotland. The way to achieve this aim simply is to carry on industrial derating for a further two years. I am grateful for the support of the Opposition, and I hope that the House will now agree to this order.
§ Question put and agreed to.
That the Rating of Industry (Scotland) Order 1973, a copy of which was laid before this House on 13th April, be approved.