§ Order for Second Reading read.5.46 pm
§ The Minister for Local Government and Housing (Ms Hilary Armstrong)
I beg to move, That the Bill be now read a Second time.
I can assure you, Madam Speaker, that none of this has reached "Today" or anywhere else, but, none the less, hon. Members are leaving the Chamber. The Rating (Valuation) Bill is brief and aims to place the law on rating valuations of non-domestic property on a fair and equitable footing. It will ensure parity of treatment between ratepayers and make explicit the assumptions that underlie the valuations made for the 1990 and 1995 rating lists. It will also apply to future revaluations.
It might help hon. Members if I start by saying something about non-domestic rates. They are a tax on non-domestic property. Rates bills are calculated by multiplying the rateable value of a property by a poundage set annually by central Government. It is therefore essential that rateable values are assessed fairly. To ensure that rates bills are based on up-to-date values, a full revaluation exercise is carried out every five years. Revaluations are carried out on the basis of a common valuation date—for example, the revaluation in 1995 was based on rental values on 1 April 1993. They are also made on the basis of certain assumptions, one of which derives from long-standing case law dating from before the Local Government Finance Act 1988.
That case law required all valuations to be based on an assumed state of reasonable repair, and valuation officers have valued property on that basis since the introduction of national non-domestic rates following the 1988 Act. They have assumed that—other than in extreme cases, and whatever its actual condition at the valuation date—the property is, and remains, in a state of reasonable repair.
That is a fair and reasonable assumption to make. It has underpinned the rating valuations carried out by the Valuation Office for the 1990 and 1995 rating lists and informed the way in which thousands of appeals against those valuations have been decided. On 11 March 1998, however, in the case of Benjamin v. Anston Properties, the Lands Tribunal held that the valuer could not assume a state of reasonable repair, but that the valuation should instead reflect the actual condition of the property at the valuation date.
If left undisturbed, the tribunal's decision would lead to considerable unfairness in the way in which different businesses are assessed for rates. It would also cause severe practical difficulties with the administration of the system and risk significant loss of rate income.
§ Mr. Paul Burstow (Sutton and Cheam)
Can the Minister give us some idea of the number of appeals that have been lodged as a result of the decision made on 11 March, in an attempt to gain benefit from that decision?
§ Ms Armstrong
When an appeal is lodged, it is impossible to know whether the appellant is basing that 59 appeal on a particular decision. Only when the appeal is heard is it possible to be confident about the nature of the appeal. I shall return to that point when I explain how the Government intend to implement the Bill.
There is an exception for repairs that would be uneconomic. In such cases, a valuation would be made on the basis that such repairs would not be made. In making his valuation, the valuation officer will, as he always has, take into account the age, location and type of property being valued in deciding what is a state of reasonable repair.
If the Bill were not enacted, the rating system would be unfair as between individual ratepayers, and much more difficult to administer. Let me deal first with the question of fairness. As I have said, unless there is a material change of circumstances, the value of non-domestic property on which the annual rate liability is based is assessed only once every five years. Fairness dictates that, at that time, two identical properties in the same location should be given the same rateable value, and hence should have the same rates liability over the following five years. However, two buildings, identical in every other respect, may, on the day on which they are assessed for rates, be in different states of repair. Indeed, it is almost certain that they will be. Most commercial property is let on the basis that the occupier will maintain the property in a reasonable condition.
As hon. Members know from their own domestic properties, all buildings need repairing simply to maintain their condition; but, as they will also know, the timing of repairs and the speed with which the works are done will depend on the individual decisions of the person occupying the property. It is likely, therefore—indeed, almost certain—that two identical properties in good repair on the day on which they were let to different tenants will be in more or less different states of repair on any particular day of the year, including the common date every five years on which the properties have their rateable values assessed for rating purposes.
That being so, if rateable values were based on the actual repair condition of a property on a single, arbitrarily chosen date, the two properties would not have identical rates bills. They would have different rates bills over that five-year period unless the rateable value was adjusted, perhaps daily, to reflect changes in the repair condition of the property. That brings me to the severe practical difficulties caused by the tribunal's decision.
First, the decision means that any ratepayer, the rateable value of whose property was based on the assumption of a condition of reasonable repair for either the 1990 or the 1995 revaluation—or, indeed, both—and who believed that his property was not in that condition, could make a proposal to change the valuations concerned. Any ratepayer can do that within a year of a decision in an appeal which he believes affects the value of his own property.
The tribunal's decision sets out an interpretation of the law that can be used as the basis for changing the rateable values of other properties. Such proposals would present enormous difficulties: they would be almost impossible to determine accurately, because of the likely absence of reliable evidence about the state of repair of the property on the common valuation date.
60 Secondly, the Valuation Office would face great difficulties with the forthcoming 2000 revaluation, work on which has already begun. For the 2000 revaluation, the valuation date is I April 1998. Much of the work constitutes a desk exercise conducted on the basis of forms of return, the valuation officer's knowledge and the evidence that he collects about local property market conditions. The assumption of a common standard of repair enables him to carry out his work in that way.
Physical i6nspections of properties are the exception and not the rule; but if the valuation officer must assess the actual condition of a property, it will6 involve the agency—potentially, at least—in inspecting every single one of 1.7 million hereditaments on the rating list in order to make that assessment, which simply cannot be done.
§ Mr. Burstow
Will the Minister clarify another point? As I have found in reading up on it, the subject is extremely complicated, involving many formidable terms that are often impenetrable because of the lack of plain English. An issue of case law has, however, been drawn to my attention. The 1937 Robinson Brothers v. Houghton and Chester-le-Street assessment committee judgment placed a duty on valuation officers to assess the rateable value of commercial premises, taking into account matters that would intrinsically affect it, both upwards and downwards. I understand that that duty still applies. Is the Minister saying that the Bill will effectively extinguish the precedent that was set back in 1937?
§ Ms Armstrong
Case law from 1937 has been built on and incorporated in successive legislation. The Bill will return the law to what it was assumed to be following the passage of the 1988 Act, and will therefore not disturb case law that was incorporated into the manner of dealing with things in those early days. It is because we now have a new case law that places a different interpretation on legislation that people thought was settled that we felt the need to present the Bill.
I was talking about the practical difficulties of implementing the law, as we would understand it, following a tribunal decision. The position would be very difficult, because every property would have to be inspected on a particular day, which would be impossible. Indeed, the position could be even worse: to ensure fairness to ratepayers, theoretically it would be necessary for the valuation officer to make regular and frequent inspections of every single property. Liability for non-domestic rates arises day by day on the value of a property for that day; when valuations change, the tax liability changes with them. As 1 have said, if we cannot assume a common state of repair for the five-year-period, in fairness the repair condition of the property would need to be continually reassessed. We could reasonably expect the ratepayer to inform the valuation officer when he believed that the value of his property had fallen following changes in the state of repair of that property; he might not be so forthcoming in reporting repairs that might increase its rateable value. It would, of course, be impracticable to resource the valuation officer, or local authorities, to enable them to carry out frequent and regular inspections of 1.7 million properties; but, in extreme circumstances, that would be required if rating lists were to reflect every property's actual condition throughout the five years of a list.
61 Therefore, the Bill is necessary to ensure fairness between ratepayers and to avoid administrative chaos. Unless we are also to upset the valuations carried out for both the 1990 and 1995 rating lists, it must apply retrospectively as well as to future revaluations.
However, we do not wish to deprive the ratepayer company in the Lands Tribunal case of the benefits of its successful appeal. That would not be right. Therefore, we have provided that the Bill's retrospective provisions will not apply to that case, or to any other where a proposal for an alteration of the rateable value shown in the rating list was made and not withdrawn or finally disposed of before 12 March, the day after the Lands Tribunal made its decision.
That perhaps goes somewhat wider than hon. Members might expect. It would certainly be fair to exclude from the Bill's retrospective provisions only those ratepayers who had appealed on the same basis as that in the Anston Properties case, and had not already had their appeal settled. However, it is simply not possible to distinguish fairly between appeals made on that basis and those made on other grounds. Therefore, we have decided that the retrospection should not apply to a property where the ratepayer made a proposal to alter the value on or before the date on which the Lands Tribunal made its decision.
The Bill amends the Local Government Finance Act 1988 to ensure that property in England or Wales that is subject to non-domestic rating is valued consistently, on the assumption that it is in a state of reasonable repair. That assumption will apply whatever the actual condition of the property, except in relation to repairs that it would be uneconomic for the landlord to carry out.
The Bill relates only to the specific assumption as to a property's state of repair and does not interfere with any other legislation in relation to valuation of non-domestic properties; that point may assist the hon. Member for Sutton and Cheam (Mr. Burstow) following his intervention. It is a simple measure that ensures that rating valuations are made fairly and consistently for all ratepayers. I commend it to the House.
§ 6.2 pm
§ Mr. Simon Burns (West Chelmsford)
The Minister said that the Bill is a simple measure. That will possibly be the understatement of the debate. I am sure that she would agree that it may be simple in some ways because of its shortness, but it is a highly technical and complicated measure, which has, I suspect, exercised the minds of civil service lawyers and professionals in the valuation sector over several months.
There are in the Bill several issues that I trust that the Minister can address; perhaps the junior Minister will do so when winding up. In particular, it is clear that several professional bodies have made representations to her Department disputing the Government's interpretation of the existing body of case law. The explanatory notes to the Bill present that as an anomaly in an otherwise clear field. Several professionals have approached the Opposition to say that they do not concur with that interpretation.
For example, the official submission from the Institute of Revenues, Rating and Valuation suggests that the ratepayer's success in the Benjamin v. Anston Properties Ltd. case waswidely anticipated throughout the profession".62 Meanwhile, the Rating Surveyors Association states plainly that it doesnot agree with the suggestion…that the Bill is 'restoring' the law to a previous position".Clearly, there is a certain amount of confusion and doubt within the profession.
The argument centres around the status of the rebus sic stantibus rule—the idea that the rating value of a property should reflect its actual condition. That seems to be a clear enough guiding principle, but, needless to say, it is not as simple as that. The Bill seeks to ensure that, in future, rating valuations are arrived at on the basis that properties are in a "reasonable" condition. The Government claim that that reflects the method that was used for previous valuations, but, as I have said, there seems to be some dissent on that issue. We shall be looking hopefully for clarification from the Government on that point.
Naturally, the difference between a valuation on the basis of rebus sic stantibus and one that assumes a reasonable state of repair will, in some cases, lead to big variations in business rates. That has a particularly large impact on small businesses, especially in generally rundown areas. It is important that the Bill does not do lasting damage to small and medium enterprises, and imperative that it does not hinder attempts at economic regeneration in some of our most deprived areas.
It will not, I am sure, have entirely escaped the House's attention that the effect of assuming a "reasonable" state of repair, rather than an actual one, will almost certainly be to enhance the tax base available for the purpose of non-domestic rating. The question remains as to whether it provides a basis for fair business taxation. The drafting of the Bill leaves that open to doubt, but I should be more than grateful if the Minister wanted to intervene to clarify that point.
§ Ms Armstrong
As the hon. Gentleman says, there is some dispute among the professions. They are suggesting that the Bill goes further than we are suggesting; that is the area to which the hon. Gentleman alludes. I do not agree with that. Obviously, I am not qualified to say what valuers believed or did not believe the 1988 Act to mean, but the leading authority on rating, the book "Ryde on Rating and the Council Tax" clearly says that properties should be valued on a common repair assumption.
It may help the hon. Gentleman if I quote from the current edition, which says:The rule that the hereditament must be valued in its existing physical state does not apply to defects which are due to ordinary lack of repair. The cases in which this exception to the rebus sic stantibus rule has been established and applied arose largely in the context of the definition of 'gross value' under previous legislation, in which the burden of repair was placed by statute upon the hypothetical landlord. Nevertheless, it is submitted that the principles established are equally applicable when, as now, the obligation to repair falls upon the tenant.It was on that basis that we introduced the legislation. The case this time was that, because the basis had changed from the landlord to the tenant, that meant that the whole basis of assumptions had changed. We are saying that that was not the intention. Indeed, the major book and guide on the issue affirms that.
§ Mr. Burns
I thank the Minister for what was clearly a helpful intervention. I do not want to be churlish or to start quibbling, and I appreciate the time that she took to 63 seek to clear up the matter. Obviously, we shall have an opportunity at a later stage to come back to the matter if the situation and issue merit it, but there is a further concern among professionals, which it is important to put on the record—the question of the word "reasonable".
As the IRRV points out in its submission to the Department, although there are guidelines contained in the explanatory notes, those have no force in law. The Bill itself is silent on that issue. The concern is that the Bill will have the opposite effect to that intended. Clearly, it has been introduced to clear up what the Government see as a potential problem in the shape of the Benjamin v. Anston case. The Government are worried that that will lead to further litigation along those lines, and see the Bill, not unreasonably, as a way of preventing that. However, in addition to the professions' concerns about the rebus sic stantibus rule, both the IRRV and the RSA have expressed serious concern that the Bill's drafting will lead to more, not less, litigation, because of the uncertainties surrounding the introduction of the assumption of a reasonable state of repair, especially in relation to the use of the term "reasonable".
Ministers may want to return to that matter at a later stage, but I hope that they will appreciate the professional bodies' concerns.
§ Ms Armstrong
Clearly, we have to discuss the issue. It is the Government's intention to make it clearer, especially for the ratepayer, precisely on what basis rates are to be paid, and to produce a workable system. I appreciate the fact that hon. Members will want to discuss what we mean by "reasonable", and I would consider that a valid subject for discussion in Committee.
§ Mr. Burns
To continue our bipartisan approach, I thank the Minister for making that point. She is absolutely right, and we will certainly want to raise the issue in Committee and hear more about the Government's view and the way in which they intend to ensure that the legislation does not create problems that they have not so far anticipated.
Conservative Members want the Bill to provide a fair and clear basis for the levying of business rates, and I am sure that the Government would agree with us. We have some doubts whether the Bill as drafted will achieve that aim. We do not oppose the Bill and we understand why the Government felt that they had to act, but, as a responsible Opposition, we want to work with them to iron out any possible flaws that could render the operation of the legislation unfair or unworkable and could achieve the exact opposite of what was intended.
I shall certainly not ask my right hon. and hon. Friends to force a Division on a Bill that is needed in the light of certain events.
§ Mr. David Borrow (South Ribble)
I declare a non-pecuniary interest as a member of the Institute of Revenues, Rating and Valuation of more than 20 years' standing, and an honorary member of the Society of Clerks of Valuation Tribunals.
64 The legislation is necessary and sets down in law what was always assumed to be the situation. Under previous legislation, it was always assumed that the repair liability existed when a valuation took place. Valuation related directly to rateable value was made on the assumption that the tenant would keep the property in a good state of repair.
The Bill places responsibility for repair on the landlord before occupation of a property—that is sensible and straightforward, but it introduces a new concept to statute by making the assumption that, when it is uneconomic to return a dilapidated property to a good state of repair, the valuation will be based on the unrepaired property, rebus sic stantibus.
The origins of rating go back to the poor relief laws of 1601, and a whole series of case law has developed valuation for rating. In this century, we have for the first time arrived at a system whereby valuations are made on the assumption that the property is not in a good state of repair. Many of the initial cases involved something exceptional about the property—often structural repairs, subsidence or some other major defect affecting rental values—that meant that the cost of repair would be disproportionate to the additional rental value that it would create.
The Bill's wording may lead such cases to involve not only properties with major structural defects, but ones that have simply not been kept in good repair. The property in the Benjamin v. Anston Properties Ltd. case, which was in Brighton, became unoccupied in the late 1980s, largely for economic reasons, and fell into disrepair. It is my understanding that there were no major structural problems.
There are problems associated with properties in certain age groups or areas when they have fallen into disrepair. There was an interesting article by Tom Dixon in the IRRV journal, referring to the problems of the empty property rate and the fact that there was a disincentive to repair such properties. I am sure that the provisions will be used extensively to avoid paying rates.
There is a problem in that many properties have leases of 14 or 21 years, with upward-only rent reviews. When properties become less desirable or popular, tenants cannot bring about a rent reduction. That was never a problem when there was rapid inflation but, over the past 10 years, certain classes of properties have had minimal changes in cash rental values and, with upward-only rent reviews, tenants are trapped into paying more than the market rent.
That is an incentive for the tenants not to fulfil their obligation to keep the property in a good state of repair, and they may pass on the lease to sub-lessees to avoid their responsibilities. There is a danger that properties that could be put into a good state of repair and let at a realistic rent will be left in disrepair because of the effect of upward-only rent reviews and the fact that rates are based on rental values that are themselves tied to such reviews. The rates may be excessive, because there is no downward review for most commercial rents.
Should Government managers give me the opportunity, I look forward to exploring more extensively in Committee some of the points that have been made by professionals.
§ Mr. Paul Burstow (Sutton and Cheam)
The hon. Member for South Ribble (Mr. Borrow) has done an excellent job in the cause of seeking a place on the Committee. Other hon. Members have ably demonstrated how confusing and complicated the matter is; I say not that they have confused us, but that the subject matter is confusing.
We could be forgiven for thinking that the Bill is non-controversial and that it will simply ensure that the law is as everyone had understood it to be and as Parliament had intended it to be. The Bill should therefore be only a technical matter that should not long be delayed in its passage. However, I should say that, in trying to get to grips with the issues raised in the Bill, and the case law that has already been mentioned in the debate, I found the matter to be quite challenging. Some formidable terminology is used, and plain English is absent.
My understanding is that the impetus for the Bill's passage started with the March 1998 Lands Tribunal decision in the case known as Benjamin v. Anston Properties Ltd., which seems to have boiled down to an argument of administrative convenience versus some long-established principles underpinning the way in which the rateable value of business premises has been determined.
Under current law, all non-domestic properties must be assessed individually. However, as the Minister told us earlier, that is largely a desk-top exercise and, in practice, similar properties are considered to obtain an average level of rental value for those properties. I have been told by those in the profession that the tone of the rating list is determined in that manner—by reference to types of properties.
Properties of the same type—shops, for example—in a specific location will therefore have a similar value. Subsequently—at least until now—the rating list has been susceptible to further refinement through the appeal process and by reference to differences between properties materially affecting their value. The principle that a property should be valued as it is in fact was clearly stated in case law as long ago as 1937, in Robinson Brothers v. Houghton and Chester le Street assessment committee. Moreover, the precedent established in that case had been established in previous law.
In Robinson Brothers, it was made clear that, in weighing up the evidence bearing upon value, the valuer has a duty to take into consideration every intrinsic quality and intrinsic circumstance that tends to push the rental value either up or down. The proposition is known as rebus sic stantibus and goes to the heart of the valuation system. I think that the Bill, at the very least, weakens that basic proposition of the valuation system. Moreover, as drafted the Bill would make it possible for the proposition to be abandoned entirely.
It has been argued by the Minister, and in consultations between the various professional institutes and officials in the Department of the Environment, Transport and the Regions, that the rebus rule does not apply to repairs, and that is what the Anston case was all about. However, studies of the textbooks have shown that the law on the matter is somewhat vague because, until now, the proposition that rebus does not apply to repairs has been made in the context of valuations made on gross values. That is not the situation that we are debating today.
66 I have been informed by the various professional interests in the matter that the decision in the Anston case came as no surprise to them. In their view, the decision simply confirmed what was already generally understood to be established practice and precedent. The valuation officer in the Anston case argued that all economically feasible repairs had been performed prior to the hypothetical letting.
I should say that the issue in the Anston case was that the previous tenants had left the premises in a rather bad state of repair, and that the rateable value in the 1990 list was £272,000. However, it was agreed in the tribunal hearing that, on the material day, repairs would have cost at least £300,000.
The Lands Tribunal president, Judge Marder, described the proposition made by counsel for the Valuation Office—that a semi-derelict property should be valued on the basis that it might reasonably be expected to be let at full value—as extending the meaning of'reasonably' to an unreasonable degree".We shall undoubtedly return later to that issue, as the Bill will provide new opportunities to explore what is meant by "reasonable". We should be concerned about the definition, which certainly the profession believes could lead to more rather than fewer cases.
As the Local Government Finance Act 1988 placed the obligation of repair on the hypothetical tenant, surely it is unreasonable to assume that a tenant would take a property in substantial disrepair and expend large sums on it simply to increase his rent liability. Counsel for the Valuation Office made it clear that the effects of its success in the appeal would have been to make it easier to administer the valuation process. In other words, it was an argument as much about ease of administration as about equity and fairness in how the system was being applied to individual businesses.
The Valuation Office argued that the Anston decision would open the floodgates on appeals. Where are those appeals? I asked the Minister earlier whether statistics on such appeals were available, but was told that statistics are not gathered in that manner. My understanding is that a floodtide of appeals has not been unleashed because of the Anston decision.
The profession believes that the measures proposed in the Bill are an overreaction to an imagined problem. That was the view also of the judge in the case. Moreover, the consequences of passing the Bill unamended would be not only to reduce the legitimate grounds on which valuation appeals are heard, but to open up a can of worms of the definition of "repairs", "reasonable" and "uneconomic".
I should give an example of how the Bill would work in practice. The Government have said many times that they support traditional high streets and want to help the regeneration of our inner cities. However, if the Bill's provisions were to be applied strictly, retailers trading on the edge of profitability in less attractive or tired and run down locations could be driven out of business.
§ Ms Armstrong
I understand what the hon. Gentleman is saying, but I should not like hon. Members to go away with the impression that, currently or historically, properties have been assessed as he is implying. The Bill's main thrust is simply to enshrine what valuation officers have assumed in valuing properties. Valuers outside the Valuation Office may not see the matter in that light, but 67 I assure the hon. Gentleman that valuation officers have made those assumptions in their work. That is why the example that he is dealing with is painting an incorrect picture.
§ Mr. Burstow
I am grateful to the Minister for clarifying that point. It is probably an issue to which we shall wish to return, perhaps after tabling amendments to the Bill. The profession certainly feels that the principle and precedent are sufficiently unclear. The Lands Tribunal decision in the Anston case deals in some detail with how the judge in the case believed the system worked. Perhaps the Minister will say in his reply whether the Government and officials believe that the judge was misdirecting himself in that respect and was describing a system that did not match the actual system. I should certainly be interested to know whether it was felt that the judgment was defective in that sense. I have seen nothing in the Bill's explanatory notes or heard anything in the debate to show that there is such a belief.
If my contention holds—although I understand that the Minister does not accept it—it would have a significant impact on retail situations in more marginal retail locations. We therefore remain concerned about the Bill and its consequences. The logical conclusion of my argument is that the system, if it were made more uniform and easier to administer for the Valuation Office, could have the effect of hastening the run down of inner-city shopping parades.
Another consequence of the Bill as it is drafted is that the system would not be able to recognise the effect of natural disasters that result in temporary disrepair. Therefore, damage done by fire, flood, storm or some other natural disaster would not result in a lower rateable value. If the Bill had been law at the time of the floods in the constituency of my hon. Friend the Member for Hereford (Mr. Keetch), businesses in Ross-on-Wye would have received no relief through the rating system. I hope that the Minister will confirm when he winds up that the Government will give further consideration to that issue to give some comfort to those who fear the loss of such relief.
I understand that, since the announcement in a written answer in July 1998 that the Government intended to legislate, little consultation with the valuation profession or with business has been undertaken. Indeed, the first time that the Institute of Revenues, Rating and Valuation learned of the Government's intentions was when the Bill was published in November. On what is supposed to be a non-controversial, technical matter, it is surprising that the Government did not provide an opportunity for dialogue to avoid the concerns that are now being brought to the attention of hon. Members and aired in the House tonight.
The Bill contains flaws and it undermines important principles that underpin our rating system. As a consequence, it is not friendly to business. It will make the system less fair and less responsive. It allows for a significant dumbing down of the valuation system at the expense of business. The Bill will make the system simpler for valuation offices to administer by imposing an unreal uniformity on a system that is meant to reflect the operation of market forces. It may reduce the level of leakage resulting from valuation appeals and increase the level of certainty about business rate income. One can 68 understand that the Treasury might wish to have more certainty when forecasting the income from business rates, but that should not necessarily be the objective of a rating system that is meant to apply fairly to all businesses.
The Bill breaches the principle that the law is intended to deal with future acts and should not attempt retrospectively to change matters that have been concluded in good faith on the basis of existing law. We believe that the Bill should not receive a Second Reading. We accept that it probably will, and therefore, in Committee, we will probe the Government further and improve the legislation to achieve the best outcome for all concerned.
§ Mr. Adrian Sanders (Torbay)
Given the fact that hon. Members were outnumbered by the number of civil servants in the corner at the beginning of the debate, it is obvious that the Bill is anything but simple. It secures that the assumptions on which the 1990 and 1995 rating lists were compiled will continue to apply, and provides for subsequent rating lists to be compiled on the same basis. That seems reasonable enough and the Bill appears to be a minor, technical Bill, affecting the valuation of non-domestic properties for rating purposes only. It was published on 27 November, but was not in the Queen's Speech. It is only two pages long, it is non-contentious and it is unlikely to be opposed by the official Opposition. Indeed, one would not expect the official Opposition to oppose a Bill that merely corrects their legislation when in government.
The need for the Bill arose when a Lands Tribunal ruling, referred to earlier as the Benjamin v. Anston Properties case, apparently went against what was thought to be the rule that a property should be valued as though it were in reasonable repair. That is rightly to deter owners from constructive vandalism or neglect, which is a common phenomenon when an owner wants to redevelop a site and speed up the departure of existing tenants. Under that rule, a reduction in rateable value of a property and in rates payable on it is prevented, and the owner's neglect results in no reduced rate bill.
The Bill will be backdated to 1990, but not if a property's valuation list entry has been amended between then and l I March 1998. With a full revaluation for the uniform business rate in progress and due to take effect in 2000, the impact on rates payable thereafter will be considerable. The biggest effect will be on blighted urban areas where benign neglect is most common.
The problem with the UBR is that rating properties on an annual rental value taxes enterprise. It hits small local firms much harder than large ones, because small businesses have more of their assets tied up in stock, turnover and wages, whereas big firms can afford to trade at a loss for long periods. The rating system is just one part of a casino economic system that benefits investors and speculators at the expense of enterprise and labour. While traders on the high street pay rates, landowners pay nothing. The community's wealth comes from the efforts of enterprising businesses, not from the risk-free ownership of land. By leaving a site empty, the owner cuts the footfall in all nearby businesses.
69 Who pays? Not the landowner. The chances are that he or she lives hundreds of miles away. Meanwhile, local businesses carry on paying high rates based on pre-slump values, leading to more business failures, more dereliction, and less footfall. It happens in even the most prosperous towns in Britain. Everybody except the landowners and banks suffers. The Government lose revenue, communities lose jobs, the least mobile residents lose accessible town centre shops, councils find it difficult to revive towns and have to cope with dereliction. The most enterprising people who make our towns live—the local businesses and traders—pay a rate that is an unfair burden that gets more unfair every year.
None of us likes waste, so why not tax it? We want more local jobs, enterprise and trade, so why tax the people who provide them? Why encourage land speculation? Why penalise those who improve their property? We are pledged to shift the burden of tax away from jobs and enterprise on to pollution and resource consumption. One aspect of that is site value rating as an alternative to the uniform business rate. Or in other words—tax what we disapprove of, not what we approve.
The Bill has two problems. The first is the escape clause whereby any repairs that a reasonable landlord would consider uneconomic are excluded from the definition of reasonable repair. In other words, if the neglect is great enough, the owner can get away with it. If the staircase or roof were removed, making the property unusable, no rates would be payable. Merely getting behind with the decorations or clearing the gutters would mean that the owner had to pay the same rates as a model owner. That cannot be fair.
Secondly, why should the tenant pay for the owner's faults? If an owner fails to maintain a property, assuming that it is not let on a repairing lease, the tenant would pay the higher bills that would result from the new basis for valuation. Perversely, the Bill could result in faster dereliction of properties and areas as businesses pay more rates on the good repair assumption while the owners do not have to do the repairs that were the basis of the valuations. It is almost a charter for bad landlords. I shall be interested in the Minister's response—and I have noticed that he has been handed various pieces of paper, which will probably make his life more difficult.
§ Ms Armstrong
The hon. Gentleman's points are not legitimate in relation to the Bill. His objection that the tenant and not the landlord will have responsibility would have been made during the passage of the Local Government Finance Act 1988. We do not seek to change the basis of that Bill, so we cannot deal with that issue in this Bill.
§ Mr. Sanders
We shall test that point in Committee, as the Minister's remarks do not fit with my reading of the Bill. Clearly, the Bill says that if the owner fails to maintain a property, the tenant pays the higher bill under the new valuation. There is also an escape clause, which will cause a problem with the definition of "reasonable". We have had no true, concise definition that will make matters fair for those who must pay the uniform business rate.
§ The Parliamentary Under-Secretary of State for the Environment, Transport and the Regions (Mr. Alan Meale)
As my hon. Friend the Minister for Local Government and Housing said earlier, the Rating (Valuation) Bill is a short Bill to ensure that, in valuing a property for rating purposes, the property is assumed to be in a state of reasonable repair. That assumption will apply whatever the actual condition of the property, except in relation to repairs that would be uneconomic. The Bill puts the law on rating valuations on a fair and equitable footing while also making clear the assumptions that underlie the valuations made for both the 1990 and 1995 rating lists, and for future valuations.
Opposition Members have asked about the implications for ratepayers. In practice, most ratepayers will see no change as a result of the Bill. Valuations of non-domestic property carried out by the Valuation Office agency are already based on the assumption that a property is in a state of reasonable repair, unless the disrepair is such that it would be uneconomic to remedy it. In such cases, the repair is assumed not to have been made, and the rateable value is adjusted downwards appropriately. As my hon. Friend also said, the Bill simply codifies those principles, ensuring that they will be applied consistently in future.
The position of derelict property will remain the same as it was previously. If it is incapable of being let in that state, it will attract no value. In other circumstances, the valuer will assume a state of reasonable repair when valuing a property, taking account of its age and location. If the property is run down because it is near the end of its useful life, or if it is in a rundown area, those facts will be reflected in the assumption about its reasonable state of repair.
§ Mr. Sanders
Surely that is the whole failing of the uniform business rate system. Why have not the Government introduced a Bill that would address that point?
§ Mr. Meale
If the hon. Gentleman will bear with me, he may find out.
If a property is in need of repair to bring it up to a reasonable state, the cost of repairs will be taken into account. If the costs are such that a landlord cannot hope to recover them from the rent that he could reasonably expect to receive for a property given its age and location, he will be assumed not to make the repairs. The rateable value of the property in that case will be lower, reflecting its unrepaired state.
Retrospection has also been raised. I am obliged to advise the House that property has already been assessed on the basis of an assumed state of repair in both the 1990 and 1995 revaluations. If the Bill did not apply retrospectively, all previous rateable values would be brought into question. In such circumstances, it would be a physical impossibility for valuation officers to reassess in 1999 the repair condition of 1.7 million properties on each day since 1990.
My hon. Friend the Minister for Local Government and Housing has pointed out that the Bill contains safeguards for the ratepayer in the case of Benjamin v. Anston Properties Ltd, and for others who lodged proposals to change their rateable values before the date on which the tribunal decision was made. In recognition of the fact that 71 such ratepayers might have sought to argue on the same basis as the ratepayers in the Anston Properties case, the Bill ensures that retrospection will not apply to any ratepayer whose appeal had not been finally dealt with by that date. Those ratepayers, and the ratepayer in the Anston case, will effectively enjoy the fruits of their litigation in respect of the 1990 and 1995 lists.
I am not aware of any appeal having been levied since the date of our announcement in July. On whether retrospection should apply only to appeals lodged before the date of that ministerial announcement, I must say that that would be illogical. The Bill protects anyone who made a proposal before he or she knew the judgment in the Anston case and who had not settled his or her appeal by that date. It may be argued that such ratepayers might, quite independently, have interpreted the law in the same way as the Anston ratepayer, and, ultimately, the courts. As such, they should not be denied the fruits of their litigation.
Any ratepayers who had not made a proposal by the date of the Anston decision had presumably not done so because they were happy with their rateable value and the way in which it had been calculated. To allow such ratepayers to avoid the effects of retrospection if they managed to enter a proposal between the dates of the Anston decision and the Government's announcement of legislation would simply benefit those who were quickest off the mark, and that would be unsatisfactory and unfair.
Questions have been raised as to whether the Bill would conflict with certain European conventions. We are satisfied that it does not. We made an early announcement on 29 July of our intention to legislate. We have ensured that the Bill does not deprive the appellant property owner of the fruits of his litigation, and that the Bill is not unfair to other property owners who had already commenced proceedings. The retrospective effect of the Bill does not affect the ratepayer in the appeal, or any other ratepayer who, on or before the date of the decision on the appeal, had made a proposal for alteration of the rating list which was not disposed of before that date.
Hon. Members must realise the possible financial consequences if the Bill is not enacted, asking, for example, how many appeals might be made if it is not. As my hon. Friend has said, appeals could be lodged against any of the 1.7 million rateable values in each of the 1990 and 1995 rating lists on the back of the Anston case decision. It is impossible to say how many additional appeals might be generated if the decision was not reversed, but the figure could be 1.7 million.
We have conservatively estimated that there might be as many as 250,000 properties in a sufficient state of disrepair to encourage owners to appeal. Even using that estimate, it is impossible to gauge the degree of the financial implications, but we might be considering a loss of up to £7 billion over the nine years since 1990, or in the worst case scenario, up to £49 billion if all 1.7 million properties are taken into account. Hon. Members should treat the matter seriously, realising that a reduction of even just 1 per cent. in rateable values would lead to losses from the non-domestic rating pool of some £140 million in 1998–99 alone.
72 Hon. Members have inquired about how the Bill affects property maintained in a better-than-average state of repair, asking whether rateable values would be adjusted accordingly. The answer is straightforward: the rateable value of a property will depend on the facts of its case. In principle, however, where premises have been maintained to a higher standard of repair than in other similar properties of their age or in the same area, the higher standards should be disregarded when assessing the property's rateable value.
Similarly, if a fire, for example, were to leave a property incapable of beneficial occupation, the property would be removed from the rating lists, and no rates would be payable until it was repaired. If, however, the fire's effect left the property lettable, disrepair resulting from the fire would be disregarded. In cases in which damage is relatively minor and a property is not rendered incapable of beneficial occupation, the valuation officers should make a valuation on the basis of a state of reasonable repair, except where it would be uneconomic to carry out a particular repair. Where repairs are being carried out, and are clearly economic, they should, quite rightly, be reflected in any valuation.
Some Opposition Members asked whether the Bill would simply increase litigation. We do not believe so. There is considerable case law, in the context of both rating and of landlord and tenant law, on when works to a building comprise a repair, a renovation or an improvement. The precise nature of what is a reasonable state of repair will reflect the facts in each case, but I recognise that Opposition Members have signalled that they will revisit the issue in Committee. We look forward to that debate.
The Opposition suggested that the Bill radically changes the law. We do not believe so. We cannot answer for what valuers believed, but valuation officers have since 1990 valued property on the assumption that it is in a reasonable state of repair. That assumption underlies the values that appear in both the 1990 and 1995 rating lists. Moreover, it is the only practical means of ensuring that ratepayers are treated fairly as regards their rate bills over a five-year period.
The Bill is a worthwhile and necessary measure. It is consistent with good administration and, above all, it will ensure fair treatment and a fair tax assessment for all ratepayers. I commend it to the House.
§ Question put, That the Bill be now read a Second time:—
§ The House divided: Ayes 268, Noes 30.74
|Division No. 29]||[6.51 pm|
|Ainger, Nick||Bennett, Andrew F|
|Ainsworth, Robert (Cov'ty NE)||Benton, Joe|
|Allen, Graham||Bermingham, Gerald|
|Anderson, Janet (Rossendale)||Berry, Roger|
|Armstrong, Ms Hilary||Best, Harold|
|Atherton, Ms Candy||Betts, Clive|
|Austin, John||Blears, Ms Hazel|
|Banks, Tony||Borrow, David|
|Barnes, Harry||Bradley, Keith (Withington)|
|Barron, Kevin||Bradley, Peter (The Wrekin)|
|Battle, John||Brinton, Mrs Helen|
|Bayley, Hugh||Brown, Russell (Dumfries)|
|Beard, Nigel||Browne, Desmond|
|Beckett, Rt Hon Mrs Margaret||Buck, Ms Karen|
|Burden, Richard||Hamilton, Fabian (Leeds NE)|
|Burgon, Colin||Hanson, David|
|Butler, Mrs Christine||Heal, Mrs Sylvia|
|Cabom, Richard||Henderson, Ivan (Harwich)|
|Campbell, Alan (Tynemouth)||Hepburn, Stephen|
|Campbell, Mrs Anne (C'bridge)||Heppell, John|
|Campbell, Ronnie (Blyth V)||Hewitt, Ms Patricia|
|Campbell—Savours, Dale||Hill, Keith|
|Caplin, Ivor||Hinchliffe, David|
|Caton. Martin||Hodge, Ms Margaret|
|Chisholm, Malcolm||Home Robertson, John|
|Clapham, Michael||Hoon, Geoffrey|
|Clark, Dr Lynda (Edinburgh Pentlands)||Hope, Phil|
|Clark, Paul (Gillingham)||Hopkins, Kelvin|
|Clarke, Charles (Norwich S)||Howarth, George (Knowsley N)|
|Clarke, Eric (Midlothian)||Hoyle, Lindsay|
|Clarke, Rt Hon Tom (Coatbridge)||Hughes, Ms Beverley (Stretford)|
|Clarke, Tony (Northampton S)||Hughes, Kevin (Doncaster N)|
|Clelland, David||Humble, Mrs Joan|
|Clwyd, Ann||Hurst, Alan|
|Coaker, Vernon||Hutton, John|
|Coffey. Ms Ann||Iddon, Dr Brian|
|Cohen, Harry||Illsley, Eric|
|Coleman, Iain||Jackson, Ms Glenda (Hampstead)|
|Colman, Tony||Jamieson, David|
|Cooper, Yvette||Johnson, Alan (Hull W & Hessle)|
|Corbett, Robin||Jones, Barry (Alyn & Deeside)|
|Corston, Ms Jean||Jones, Helen (Warrington N)|
|Crausby, David||Jones, Ms Jenny (Wolverh'ton SW)|
|Cryer, Mrs Ann (Keighley)||Jones, Jon Owen (Cardiff C)|
|Cryer, John (Hornchurch)||Jones, Dr Lynne (Selly Oak)|
|Cummings, John||Jowell, Ms Tessa|
|Cunliffe, Lawrence||Keeble, Ms Sally|
|Cunningham, Jim (Cov'try S)||Keen, Ann (Brentford & Isleworth)|
|Curtis—Thomas, Mrs Claire||Kelly, Ms Ruth|
|Dalyell, Tam||Kemp, Fraser|
|Darling, Rt Hon Alistair||Kennedy, Jane (Wavertree)|
|Davey, Valerie (Bristol W)||Khabra, Piara S|
|Dawson, Hilton||Kidney, David|
|Dean, Mrs Janet||King, Andy (Rugby & Kenilworth)|
|Denham, John||King, Ms Oona (Bethnal Green)|
|Dismore, Andrew||Kingham, Ms Tess|
|Dobbin, Jim||Kumar, Dr Ashok|
|Dobson, Rt Hon Frank||Ladyman, Dr Stephen|
|Donohoe, Brian H||Lawrence, Ms Jackie|
|Doran, Frank||Laxton, Bob|
|Dowd, Jim||Lepper, David|
|Drown, Ms Julia||Leslie, Christopher|
|Dunwoody, Mrs Gwyneth||Levitt, Tom|
|Eagle, Angela (Wallasey)||Lewis, Terry (Worsley)|
|Eagle, Maria (L'pool Garston)||Lock, David|
|Edwards, Huw||Love, Andrew|
|Efford, Clive||McAllion, John|
|Ennis, Jeff||McAvoy, Thomas|
|Etherington, Bill||McCabe, Steve|
|Field, Rt Hon Frank||McCafferty, Ms Chris|
|Fisher, Mark||McGuire, Mrs Anne|
|Fitzpatrick, Jim||McIsaac, Shona|
|Flint, Caroline||Mackinlay, Andrew|
|Flynn, Paul||McNulty, Tony|
|Foster, Rt Hon Derek||Mactaggart, Fiona|
|Fyfe, Maria||McWalter, Tony|
|Galloway, George||Mallaber, Judy|
|Gardiner, Barry||Marsden, Gordon (Blackpool S)|
|George, Bruce (Walsall S)||Marsden, Paul (Shrewsbury)|
|Gibson, Dr Ian||Martlew, Eric|
|Gilroy, Mrs Linda||Meacher, Rt Hon Michael|
|Goggins, Paul||Meale, Alan|
|Gordon, Mrs Eileen||Merron, Gillian|
|Griffiths, Jane (Reading E)||Michie, Bill (Shef'id Heeley)|
|Griffiths, Nigel (Edinburgh S)||Milburn, Alan|
|Griffiths, Win (Bridgend)||Miller, Andrew|
|Grocott, Bruce||Moffatt, Laura|
|Grogan, John||Moonie, Dr Lewis|
|Hall, Patrick (Bedford)||Moran, Ms Margaret|
|Morris, Ms Estelle (B'ham Yardley)||Spellar, John|
|Mullin, Chris||Squire, Ms Rachel|
|Murphy, Denis (Wansbeck)||Starkey, Dr Phyllis|
|Naysmith, Dr Doug||Steinberg, Gerry|
|O'Brien, Bill (Normanton)||Stevenson, George|
|O'Hara, Eddie||Stewart, Ian (Eccles)|
|Olner, Bill||Stinchcombe, Paul|
|O'Neill, Martin||Stoate, Dr Howard|
|Palmer, Dr Nick||Strang, Rt Hon Dr Gavin|
|Pearson, Ian||Stringer, Graham|
|Perham, Ms Linda||Stuart, Ms Gisela|
|Pickthall, Colin Pike, Peter L||Sutcliffe, Gerry|
|Plaskitt, James||Taylor, Rt Hon Mrs Ann (Dewsbury)|
|Powell, Sir Raymond||Taylor, Ms Dart (Stockton S)|
|Prentice, Ms Bridget (Lewisham E)||Taylor, David (NW Leics)|
|Prentice, Gordon (Pendle)||Temple-Morris, Peter|
|Prescott, Rt Hon John||Thomas, Gareth (Clwyd W)|
|Primarolo, Dawn||Thomas, Gareth R (Harrow W)|
|Prosser, Gwyn||Timms, Stephen|
|Purchase, Ken||Tipping, Paddy|
|Quinn, Lawrie||Todd, Mark|
|Radice, Giles||Touhig, Don|
|Rammell, Bill||Trickett, Jon|
|Rapson, Syd||Turner, Dennis (Wolverh'ton SE)|
|Raynsford, Nick||Turner, Dr George (NW Norfolk)|
|Reed, Andrew (Loughborough)||Twigg, Derek (Halton)|
|Reid, Rt Hon Dr John (Hamilton N)||Twigg, Stephen (Enfield)|
|Roche, Mrs Barbara||Vaz, Keith|
|Rooker, Jeff||Watts, David|
|Rooney, Terry||White, Brian|
|Ross, Ernie (Dundee W)||Whitehead, Dr Alan|
|Rowlands, Ted||Williams, Alan W (E Carmarthen)|
|Ruane, Chris||Williams, Mrs Betty (Conwy)|
|Ruddock, Ms Joan||Wills, Michael|
|Russell, Ms Christine (Chester)||Winnick, David|
|Ryan, Ms Joan||Winterton, Ms Rosie (Doncaster C)|
|Salter, Martin||Wise, Audrey|
|Savidge, Malcolm||Wood, Mike|
|Sawford, Phil||Woolas, Phil|
|Sedgemore, Brian||Worthington, Tony|
|Shipley, Ms Debra||Wray, James|
|Skinner, Dennis||Wright, Dr Tony (Cannock)|
|Smith, Angela (Basildon)|
|Smith, Jacqui (Redditch)||Tellers for the Ayes:|
|Smith, John (Glamorgan)||Mr. Greg Pope and|
|Soley, Clive||Mr. Mike Hall.|
|Allan, Richard||Kirkwood, Archy|
|Ashdown, Rt Hon Paddy||Livsey, Richard|
|Baker, Norman||Llwyd, Effyn|
|Beith, Rt Hon A J||Öpik, Lembit|
|Brand, Dr Peter||Rendel, David|
|Bruce, Malcolm (Gordon)||Russell, Bob (Colchester)|
|Burnett, John||Sanders, Adrian|
|Chidgey, David||Smith, Sir Robert (W Ab'd'ns)|
|Cotter, Brian||Stunell, Andrew|
|Davey, Edward (Kingston)||Taylor, Matthew (Truro)|
|George, Andrew (St Ives)||Tonge, Dr Jenny|
|Gome, Donald||Webb, Steve|
|Heath, David (Somerton & Frome)||Willis, Phil|
|Hughes, Simon (Southwark N)|
|Jones, Nigel (Cheltenham)||Tellers for the Noes:|
|Keetch, Paul||Mr. Paul Tyler and|
|Kennedy, Charles (Ross Skye)||Mr. Paul Burstow.|
§ Question accordingly agreed to.
§ Bill read a Second time, and committed to a Standing Committee, pursuant to Standing Order No. 63 (Committal of Bills).