HC Deb 26 April 1995 vol 258 cc819-26 1.30 pm
Mr. Archy Kirkwood (Roxburgh and Berwickshire)

Thank you, Madam Deputy Speaker, for affording me the opportunity in this Adjournment debate to address some of the difficulties being faced in Scotland as a result of the non-domestic rates that have been announced for the current financial year.

At first blush, it might appear to be passing strange for me to be registering vigorous protests with Ministers such a relatively short time after many of the anomalies of the differing systems of business rates north and south of the border have been resolved and a uniform business rate achieved for the first time. I want to say early on, and without qualification, that that is welcome as far as it goes. Some of the anomalies with which we have had to live in the past were quite untoward. The Government were right to recognise that, and the parity that has been established is extremely welcome.

But the uniform business rate is a uniform business rate poundage. It is nothing more or less than that. It does not mean that we pay the same rates; it means that we pay rates bills which are based on rateable values multiplied by a common uniform rate poundage.

The one factor that is not uniform is, alas, as I shall seek to argue, particularly in relation to south-east Scotland, the rateable value, and that in turn is dependent on factors which are highly variable region by region. Scotland is now in some respects at the disadvantage of playing the business rates game on a level playing field with England.

I am not aware—I am sure that the Minister will put me right if I am wrong—of any area in Scotland where commercial rentals have significantly dropped during the past five years. Contrariwise, at the same time, London rentals have decreased by up to 60 per cent. in some specific cases during that same period.

The national average valuation increases have been significantly depressed by the changes that have occurred in London and in other parts of the south-east of England, where property rentals have fallen due to the recent depression. However, virtually all Scotland is now left with increases above that average. Apply the uniform business rate poundage to the above-average valuation increases, and we have a problem of above-average rate bill increases in Scotland, certainly in some areas such as the Borders region.

I should like to know how the figure of a rate poundage for Scotland was arrived at. If the Minister cannot deal with the point today, he might take the trouble to try to explain it to me in writing. We have been in correspondence about a couple of constituency cases, for which I thank him.

For example, I should like to know what power the Secretary of State had at his disposal to set the uniform business rate at a lower level in Scotland. If he did have the power to set it at a lower level than 43.2p, why did he not choose to exercise that power?

Will the Minister confirm, as I am sure he can, that that power was used in Wales to set a uniform business rate different from England at a level of 39.8p? There is certainly a body of opinion within the business community in Scotland that believes that the rate could easily have been set at a lower level, perhaps 2p or 3p in the pound lower, during the five-year revaluation period. There are some who believe that a rate as low as 35p could have been set. But what is the Government's response to the charge that the overall tax take from business in Scotland is too high during this revaluation period?

Further to the inquiry about the process by which the figure was arrived at for this year, on 29 November 1994 the Secretary of State issued a press statement publishing figures of forecast average movements in rateable values for broad categories of business property by local authority region. There was a written answer from the Secretary of State for Scotland to a question tabled by the Minister, who was then at a lower level of life as a Back Bencher, no doubt assiduously doing his constituency work, asking questions that would never otherwise have occurred to him. That was a helpful answer as far as it went, one sentence of which said: Taking together the effects of the forthcoming revaluation with this decision on the level of the rate poundage, I estimate that there will be significant local and sectoral shifts in rate burdens. I repeat:

significant local and sectoral shifts in rate burdens."—[Official Report, 29 November 1994; Vol. 250, c. 687.] I should like to know exactly what evidence the Minister had of the extent of those changes and differences. I have real fears that the survey system that he used was inadequate for the task. I should like to know what level of information was provided by local assessors, who, of course, are responsible for the process of revaluation in relation to a sample of property throughout the country.

But the decision that was taken to set the uniform business rate at 43.2p in the pound must have been taken only after careful assessment of those estimated average figures by the assessors for regions throughout the length and breadth of Scotland. The figures that were produced by the Government in the process of setting the uniform business rate included an average forecast figure of an increase for the Borders of 23.2 per cent. That was the figure on which the Government's decision to set the uniform business rate at 43.2p in the pound was based.

I was puzzled at the time that that increase was as low as it appeared to be, but I received confirmation of that concern when a report published by the director of finance in Borders regional council in January stated that the provisional estimates provided by the regional assessor to him showed that, on average, rateable values—admittedly, excluding formula-valued public undertakings—would increase not by 23.2 per cent. but by 32 per cent. That is a significant difference.

The director of finance went on to confirm what was said to the Minister in the written answer of 29 November, when he said that the result of the changes would be very significant shifts in the rate burden both between different sectors of non-domestic ratepayers and different areas of the country". I am well aware of the transitional protection scheme. The Minister will make much of that, because he has done so properly in the correspondence that we have had on the various individual cases that I have raised with him.

I have a strong sense of deja vu in all this, because in 1985, when the Minister was otherwise engaged in business, earning perhaps a more honest living than he is as a Minister at the Scottish Office, when the present Lord Younger was the Secretary of State for Scotland, I, through the various opportunities available to Back-Bench Members of Parliament—I think, from memory, that it was a ten-minute Bill—tried to get the Government to see the difficulties experienced by businesses faced with swingeing revaluations.

I brought forward a scheme on the information available to me on the increases that were being imposed on businesses, particularly small businesses in the Borders. I openly admit to doing a calculation on the back of a cigarette packet, which suggested that at least £5 million was necessary in order to remedy the problems of the day at that stage.

I remember the ignominy of being taken to task by Ministers, who subsequently recognised the error of their ways and introduced a scheme that eventually cost nearly £15 million. I was then attacked for asking for only £5 million, which was pretty rough justice. I have felt badly about that ever since. I hope that the Minister bears that in mind when he contemplates the result of this afternoon's debate.

I am aware that the transitional protection scheme is in place. It is fine so far as it goes, but it is extremely inadequate in a number of different respects. First, I am sure that the Minister will confirm that transitional protection does not apply to water and sewerage rates. Certainly, in south-east Scotland, water and sewerage rates are a significant factor in businesses' total rate bill. To exclude any transitional protection from that element of bills will be a penal impost on some businesses, especially those that use a lot of water.

Secondly, the transitional protection scheme is to be phased out over a five-year period. The Minister may know that I tabled a prayer to the order that introduced the scheme. I was hoping to have a debate in a Statutory Instruments Committee, so that I could argue that the scheme was inadequate. I was happy and lucky enough to secure this Adjournment debate, which serves the same purpose, so I shall not pursue the prayer and seek a debate.

In considering the detail of the scheme, I was anxious to try to get the Government to be as forthcoming as possible—I understand that constraints exist—about what will happen in the subsequent four years if the protection level that has been announced and is clear for this year is not maintained throughout the five-year period. It would be helpful if the Minister could say a word about that.

The Minister must understand that, even with the benefit of transitional protection, many of my constituents will face an annual increase of 12.4 per cent. for the next five years—the full period of this revaluation. They will not catch up. They will always be in the transitional protection scheme. Those valuation increases will be further compounded by the next revaluation in the year 2000. Those businesses face increases far beyond what we all hope and anticipate the increases in the inflation level will be over that period.

In addition, industrial derating is to be summarily withdrawn. I understand the reason for that—it is part of ensuring parity with the position in England—but it places businesses in the Borders and throughout the rest of Scotland in a serious position.

Derating of caravan parks is being abolished. I have already been in correspondence with the Minister about that. As I have said at least twice, he has responded in writing, but that does not take the situation forward very much for Greenlaw caravan park, for example. Last year, it had a rateable value of £7,000; this year, it is £17,700. Of course, the 10 per cent. transitional process will protect it to a certain extent, but it will take years, if ever, to get around the withdrawal of the derating of caravan parks. Such an increase is unconscionable.

As if all that were not enough, a 50 per cent. charge is about to be imposed on persons entitled to possession of properties that have been unoccupied for three months. I understand why that has been introduced—again, it is part of ensuring parity with the position in England—but 500 properties that have been left empty in the Borders will suddenly and summarily be hit with a bill. Some of them will be hit on 1 April if they have been left empty for the previous three months and are not in any of the exempt categories. That will come as a shock, and a considerable financial impost, to the 500 property owners in the Borders in that position.

Many of my constituents and the constituents of my right hon. Friend the Member for Tweeddale, Ettrick and Lauderdale (Sir D. Steel) will face considerable increases in rate bills in 1995–96 and in later years, even with the proposed transitional arrangement.

I do not know for sure, because I do not have the same direct experience of other parts of Scotland, but serious and legitimate concerns exist about how the revaluation in relation to the uniform business rate, transitional protection and the other factors will affect the viability of businesses in future.

From a regional point of view, a serious consequence exists. One of the few competitive advantages available to Borders businesses has been in the form of rate poundages, which have consistently been among the lowest in Scotland. Significantly, following the introduction of this year's uniform business rate, that advantage will be lost.

1.44 pm
The Parliamentary Under-Secretary of State for Scotland (Mr. George Kynoch)

I welcome the opportunity given by the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood) to deal with the subject of non-domestic rates in Scotland. The advent of the uniform business rate, coupled with revaluation, has introduced some misunderstandings and concerns throughout the country. It gives me the opportunity to go through once again some of the announcements which have been made in past months, but which perhaps have not all been brought together so that people can understand the position.

Obviously I welcome the fact that the hon. Gentleman appreciates the advent of the uniform business rate. Clearly, for many years, businesses in Scotland had been looking for a level playing field north and south of the border. In the past five years, the Government have been progressively reducing the rates burden on Scottish businesses. By last year, Scottish businesses were paying some £500 million less than they would have been if the poundages previously set when under local authority control had continued to rise in line with inflation.

Instead, the Secretary of State for Scotland provided the resources to reduce the burden, and all businesses share the lasting benefit of the progressive reduction, with the introduction this year of the uniform business rate at the same level as south of the border.

The hon. Gentleman asked whether the Secretary of State could have introduced the uniform business rate at a lower level. To an extent, he could have, but he has already said that the maximum difference that he could have set was between 1p and 2p less. Clearly, he rightly chose to pursue the linkage with business rates south of the border, which was the long-term objective of business in Scotland. It has asked for a level playing field.

If the equation went the other way, the hon. Gentleman would not wish the uniform business rate to be set higher in Scotland, with rates back to being higher than south of the border. My right hon. Friend has taken the long-term view, to try to give business the stability and security it seeks.

The hon. Gentleman has talked about assessment in relation to revaluation. The revaluation draws on recent rental evidence to update the relativities in the rates burden between different properties. As he appreciates, that means that, for some properties, values will go up, whereas for others they will go down. Not surprisingly, at the level of rateable value, more rise than drop.

Rates bills take account of those new rateable values, together with the new rate poundage. On that basis, increases in rates bills are not as great as they might have appeared when people received their rateable value assessments. I know that the hon. Gentleman appreciates that, but I state it so that the complete story is on the record.

It was important to the Secretary of State to ensure adequate transition to prevent any significant rise. On the method of revaluation, as the hon. Gentleman will appreciate, to set the uniform business rate level, my right hon. Friend had to have an assessment of what would happen after the revaluation. The assessors had until 15 March to prepare the valuation rolls, which was obviously not in time to determine the rate poundage which would take effect from the beginning of April.

As the assessors were preparing for the revaluation, the Scottish Office sought estimates of the emerging picture from them and from our colleagues in the Department of the Environment who were obtaining similar estimates from the Valuation Office Agency south of the border. On the basis of those estimates—I emphasise that they were estimates of the emerging picture—we determined the appropriate poundage and the transition arrangements. From the figures, which were published in November, it was clear that there would be a wide divergence in the movement of rateable values and rate bills between different regions and between business sectors, as the hon. Gentleman has said.

It is too early to get carried away and to say that the estimates were anything other than good estimates. As the hon. Gentleman will be aware, all of us as constituency Members of Parliament have had a significant number of businesses complaining to us about the high level of percentage increases. However, to get an average, one has to have people who are above the average and people who are below it. Inevitably, those who are below the average and who have calculated the amounts are less likely to come to us than are those who have big increases.

I may be able to give the hon. Gentleman some comfort. I have ensured that my officials have embarked on a detailed analysis of the actual valuation rolls, to assess how close the actual has been to the approximation.

Mr. Kirkwood

That is at least half an answer to my question; half a loaf is better than no bread. I understand that we are in a hiatus, because we shall not know the exact position until the full published revaluation rolls are available in May. Will the Minister undertake in the intervening period to let us know what the sample size was? I do not expect him to give an answer this afternoon. Will he, in the fulness of time, make it absolutely clear what the sample surveys were which informed the decision taken in November to set the UBR at 43.2p?

Mr. Kynoch

I will indeed ensure that a letter is sent to the hon. Gentleman. I am glad that he appreciates that one could operate only on a sample at that stage, to have the estimate on which one could base the calculation for the level of business rate. It is important to ensure that local authorities have adequate funding to provide the services that they have to provide.

I now move on to the transitional period which the hon. Gentleman has rightly welcomed—

Mr. Kirkwood

Grudgingly.

Mr. Kynoch

The hon. Gentleman says that he welcomes it grudgingly. One has to use judgment in the adjustment in the revaluation process which takes place once every five years. In every revaluation process, there can be winners and losers. Some people have seen the prospect of significant gains in their rateable values. Those gains are, as I am about to describe, restricted in the transitional scheme, partially to fund the transitional arrangements for those who will lose.

The extremely important point for the Government in the whole exercise was to try to avoid sudden changes in outgoings which could fall on businesses, especially small businesses. I know that there is a significant number of small businesses in the Borders, and to that extent, the transitional scheme may have a greater effect there than in areas where there is a higher proportion of larger businesses. It is important that we try to ensure that small businesses do not have enormous outgoings.

On that basis, my right hon. Friend the Secretary of State introduced the transitional scheme, which will restrict the amount of business rate increase paid by anyone who has to suffer an increase. The increase for properties with rateable values in excess of £10,000 is restricted to 10 per cent. in real terms. For smaller businesses with rateable values of less than £10,000, the figure is restricted to an increase in real terms of 7.5 per cent.

The good news for the hon. Gentleman is that that protection will continue for the full five years at the level of 7.5 per cent. and 10 per cent. in real terms. It will continue until the next revaluation in 2000. There is no reason for anyone to fear an undue increase in rating bills in the next five years. The scheme is being funded this year, partly through the restrictions on gains for those who have benefited, and partly through the £72 million which the Exchequer has granted to my right hon. Friend the Secretary of State.

The hon. Gentleman talked about the impact on small businesses. I want to get across the point that small businesses have received their revaluation notices. In some cases, the figure is significantly up from previous valuations. Clearly, those businesses have time to appeal against the valuations if they believe that they are not right.

For the sake of the record, I tell the House that businesses have from now until September, or six months from the date of their notice, to appeal. The appeal will, of course, be considered by the local assessor, and, if agreement cannot be reached with him, by a totally independent valuation appeal committee.

The hon. Gentleman referred to the Borders region in particular. Although I do not want to invite a surge of appeals—

Mr. Kirkwood

The Minister will get them anyway.

Mr. Kynoch

From the information that I have gleaned so far—obviously, it is early days—the level of appeals submitted in the early days is not unexpectedly high; it is at the level anticipated. The appeals procedure is there to try to ensure that a fair valuation is achieved. In some cases, the figure may be brought down on appeal.

The hon. Gentleman talked about industrial derating being withdrawn. The whole point of industrial derating was to try to ensure that there was a level playing field between the methods of valuation north and south of the border. We are assured by both the Valuation Office Agency and by the assessors that we now have complete harmonisation in the valuation procedures north and south of the border, so there is now no longer a need for that derating.

The hon. Gentleman referred to caravan parks. I suspect that the reason why he wrote to me about a particular caravan park was that a circular was sent to caravan parks in England and Wales which alerted them to the significant increases they might face.

Derating for caravan parks in Scotland was reintroduced in 1990. We had believed that we had complete harmony between the two methods of valuation. When we discovered that we did not, the assessors agreed that we should have a derating policy for caravan parks. However, I am happy to look at the case of Greenlaw caravan park, to which the hon. Gentleman referred. If the caravan park owner believes that it is not a fair valuation, he should go through the appeals procedure.

Sir David Steel (Tweeddale, Ettrick and Lauderdale)

He is not the only one.

Mr. Kynoch

The right hon. Gentleman says that it is not the only case, and I understand that point. His hon. Friend gave the caravan park as an example. If any other caravan park believes that it has not been assessed fairly, it can go for appeal, and it will then have a valuation on which it can work. Caravan parks are protected thereafter by the transitional scheme. I hope that, as a result of all this, there can be a fair basis of valuation.

The hon. Gentleman mentioned water, which I shall refer to briefly in the final few seconds. Water, of course, is a different issue and it is open to any business to apply for metering of water supplies and be charged on that basis if it does not like being charged through the rating system.

In short, I believe that the advent of the UBR and, indeed, the harmonisation of the valuation procedures north and south of the border provide the level playing field which we have all sought for business in Scotland. Business has long sought the ability to compete on a level playing field and I believe that it now has it. It is interesting that the Opposition and the Labour party in particular advocate a clear return to the setting of business rates by local authorities. I say to all businesses in Scotland, God forbid the day that that should ever happen, because if it does, rates will soar, businesses in Scotland—

Madam Deputy Speaker (Dame Janet Fookes)

Order.