§ 6.12 p.m.
§ THE PARLIAMENTARY UNDERSECRETARY OF STATE, DEPARTMENT OF THE ENVIRONMENT (LORD SANDFORD)My Lords, I beg to move, That the Mines and Quarries (Valuation) Order 1971 be approved. The purpose of this Order is to give effect, in relation to valuation for rating, to the changed view which is now taken of what a mineral royalty represents. Until recently, these royalties were regarded as being wholly in the nature of a rent. Thus for taxation purposes they were regarded wholly as an income receipt of the mineral owner. For rating purposes, noble Lords will know that the rateable value of a property is based on the rent at which it may be expected to be let. For mineral hereditaments, this hypothetical rent has been equated with the full amount of the hypothetical royalty which might be expected to be obtained—a practice which has been upheld in the courts.
Those concerned with mineral extraction have for some time contended that it is unfair to regard the royalty as wholly a rent. They have Pointed out that when someone lets a building for a rent, he gets the building back at the end of the lease in more or less its 724 original state, and can re-let it. But when a piece of mineral-bearing land is let for the extraction of the mineral, the position is different: at the end of the lease the lessee will have extracted the mineral and sold it, and the owner will be left with a hole in the ground. In some cases, a profitable use may be found for the hole; but, be that as it may, the owner can never re-let the land for mineral extraction because the mineral has gone. It was therefore argued that a mineral royalty should be regarded, in part, as a capital payment by the tenant for the material extracted.
Our predecessors accepted this argument, and they introduced provisions in the Finance Act 1970 whereby, for the purpose of income tax, surtax and corporation tax, mineral royalties were to be treated as being half a rent and half a capital payment. They also announced that it was their intention to make similar provision in relation to rating valuation by means of an Order under Section 35 of the General Rate Act 1967. When the present Government came into office the matter was looked at again, and the view was taken that it would be right to continue with the proposed rating Order. Last autumn my right honourable friend the Secretary of State for the Environment began consultations on this basis with all those concerned on both the local authority and mining sides.
Our proposals were, naturally enough, welcomed by the mine operators whose rate bills were going to be reduced, but were received with less enthusiasm by the local authorities because of the potential loss of rateable value. My right honourable friend re-examined the matter very carefully in the light of the local authorities' views, but he concluded that there could be no going back on the principle. He was satisfied that it is right to regard mineral royalties as being partly a capital payment, and it would obviously have been quite illogical to take one view of a payment when levying income tax and quite another view of the same payment when making an assessment for rates.
The Government were, however, impressed by the fact that some local authorities will lose quite a lot of rateable value as a result of the proposals, and that although most of these authorities will be compensated for their losses 725 by the resources element of the rate support grant, a few of them will not. In order to give these authorities time to adjust to the new situation, we therefore decided not to give effect to the full 50 per cent. reduction in royalty-based assessments straightaway, but instead to provide for a 25 per cent. reduction only in the first year—1971–72—bringing in the full 50 per cent. reduction for 1972–73 and later years. One cannot expect this decision to be popular with the mining industry, but we clearly must take into account the effect of the changes to be made by the Order on the local authority side as much as on the side of the ratepayers. Transitional arrangements where significant changes are made in rating are not unusual, and in fact the next Order which I shall be bringing before your Lordships in a moment, has a transitional period up to five years.
I do not think I need say very much about how the Order achieves the desired effect. For the generality of mines and quarries it is, in fact, achieved very simply and briefly in Article 4. The bulk of the Order deals with special cases; namely, the National Coal Board and tin, lead and copper mines. The National Coal Board is now rated by formula in an Order of 1963, and the Order before your Lordships' House provides for appropriate adjustments to the assessments under the formula and for consequential amendments to ensure that the adjustment at the general revaluation in 1973 produces the right answer. Tin, lead and copper mines are rated by special provisions in Section 36 of the General Rate Act, and because this section provides for its own demise when an Order affecting these mines is made under Section 35, this Order, in Article 7, has to restate Section 36, but with the appropriate amendments to give the mines the benefit of the reduced assessments.
My Lords, I think the only other thing I should say which may be helpful to your Lordships is that the Order affects only the rateable value of land at mines and quarries. The rateable value of buildings, plant and other works is not affected. I beg to move.
§ Moved, That the Mines and Quarries (Valuation) Order 1971 be approved.—(Lord Sandford.)
726§ 6.18 p.m.
§ LORD GARNSWORTHYMy Lords, I am sure that we all appreciate the exposition of the Order given by the noble Lord, Lord Sandford. As he stated, the previous Government gave an undertaking in May last year that rate relief would be afforded to mineral hereditaments, including colliery spoilheaps. In July of this year the present Secretary of State for the Environment indicated, as the noble Lord has already said, that he had in mind the making of an Order along these lines. I believe in fact that the Paper which was sent out from the Department of the Environment on October 15 clearly confirmed that the new Administration had endorsed the policy of their predecessors. There is little reason then for surprise that there is concern on the part of a number of the operators or undertakings that the matter is now being dealt with by way of having at least two bites at the cherry.
The continuity of policy, in principle at any rate, is welcomed from this side, and we shall not oppose the Order. But it would seem proper to raise one or two points to get some further clarification. As the noble Lord has said, the industrial interests concerned welcome the Order, so far as it goes. But their welcome would have been much warmer if the rate relief at 50 per cent. had been fixed to start from April 1 this year, instead of starting at 25 per cent. Those whose welcome is less warm than it might have been feel that this matter was raised, and an undertaking was given, sufficiently long ago for the 50 per cent. to have come into operation as from April 1 this year.
My Lords, it is right and proper that in the matter of rating the same principle should apply as in regard to national taxation. May I say that the local authorities are concerned, not only about the effect on their incomes, but also about the procedure adopted by the Government for dealing with this matter. The Order is being made under Section 35(2) of the General Rate Act 1967, which reenacted Section 3 of the Rating and Valuation Act 1961. It is not the view of the A.M.C., at any rate, that this is appropriate, in the light of assurances given by the Minister of Housing and Local Government at that time as 727 reported in Hansard for May 10, 1961. If I may, I will quote one of the relevant passages:
Here let me emphasise, what I said repeatedly in Standing Committee, that this clause is not designed either to increase or diminish the overall liability to rates. That overall liability will be left substantially unchanged. The only question is whether a valuation can better be done by a formula than on the basis of the profits method. That applies throughout."—[OFFICIAL REPORT, Commons, 10/5/61, col. 442.]The Minister of Housing and Local Government at that time—I have no doubt that he meant what he then said—was Mr. Henry Brooke, now the noble Lord, Lord Brooke of Cumnor, and a Member of your Lordships' House. What he said would appear not to be quite in line with the claim which he so often makes in your Lordships' House, that he was never wrong.My Lords, as has already been indicated by the noble Lord, Lord Sandford, this relief for mineral hereditaments must have some impact on the rate income of the local authorities in whose areas the undertakings are located. I think their position merits some consideration. It is no secret that the Local Authorities' Association, and certainly the County Councils' Association, would have preferred the matter to be deferred until after the expected Green Paper on local government finance had been discussed. But one accepts that this is not to be. So far as the operators are concerned, and for good reasons, the matter has been expedited, but there will be some local authorities who will be badly hit by this Order.
So far as I can see, the only way in which they may be helped will be by way of the resources element of the rate support grant. Since the national total for that grant is fixed, it would seem that any additional aid that these badly hit authorities may receive will be at the expense of other local authorities. I should like to ask the Minister whether the Government have in mind to increase the national total available to local authorities under this heading to cover this and to avoid other authorities suffering a loss. Perhaps some attention may be given to this matter; if not now, at least when the future of local government finance is under consideration. I would ask the Minister that at least we 728 may have some assurance that the Green Paper on the future of local government finance will pay some attention to it.
I should like now, my Lords, to come to the question of spoil heaps. On March 10 I addressed a Question to the noble Lord; I asked whether he could give an assurance that the Order would apply to all spoil heaps. I was delighted when he indicated that it would. I confess that I should have been disappointed if all the spoil heaps had not been covered by this Order. The Minister indicated that this debate would provide an appropriate occasion to discuss the matter further, and I must say that I am disappointed that, as from April 1 this year, only a 25 per cent, reduction may be anticipated; and for next year and the following years only 50 per cent. I believe that there is a strong case to be made for the complete derating of these spoil heaps, and I regret that the derating is not 100 per cent.
I am disappointed that the Order does not indicate that there will be any relief given for past years. It seems to me that it would be such a sensible thing to derate these workings; for if we can put this waste material to constructive use we could save local authority expenditure, and the Exchequer the cost of grants, for recontouring or relandscaping, of up to 85 per cent. If we used this material constructively, we could restore good agricultural land. Charging the rates even 50 per cent. makes that much more expensive material which could be used for road filling and civil engineering. The best possible way to use it would be to bury it. To use the material in that way would be infinitely better than recontouring or relandscaping. Perhaps the Minister will indicate that further thought may be given to this matter.
§ 6.28 p.m.
§ LORD SANDFORDMy Lords, I am most grateful to the noble Lord, Lord Garnsworthy, for his acceptance of, and welcome for, the Order, and I shall be glad to deal with the questions which he has raised. Perhaps I may start with the one with which he began and concluded; namely, the effect on the workings of those operators who extract shale from spoil heaps. I would confirm that it is not, of course, the wish or intention 729 of the Government to do anything that would seriously inhibit the removal of these unsightly tips, and the putting of a substantial part of the material into effective use, such as utilising it for road-filling for the motorway programme.
The fact is that the impact of rates on these operations is only of the order of 1p to 2p out of a total delivered cost of between 30p and 35p per ton. Although one can understand the reluctance of the operators to incur any additional expenditure that they might, by negotiation, be able to avoid, I cannot agree that a figure of 1p or even 2p in 30p to 35p would seriously slow down a programme which we are all very glad to see in operation.
The noble Lord also asked me whether I could give some reassurances about the impact of losses felt by local authorities. It is because these would have been serious and would have involved considerable increases in the resources element of the rate support grant paid by the central Government to nearly 200 local authorities that it was decided to stage the increases and have only a 25 per cent. figure this year. By doing that, only eight authorities are put into an embarrassing situation this year and it will be possible to make special arrangements to help them to get over their difficulties.
The noble Lord also went back to May 10, 1961. He is perfectly right in drawing the attention of the House to what was said by my noble friend Lord Brooke of Cumnor (when, as Mr. Henry Brooke, he was Minister) in introducing the Rating and Valuation Act 1961. It was his intention then, and it is our understanding now, that Section 35 should be used only for changing the method and not the level of rates. I think everybody is agreed—our predecessors in Government certainly agreed—that it was necessary to make a change in this case, the change already having been made in the field of assessment of tax. We were faced with the alternative of introducing a special Bill in order to do this or to use this section. I think your Lordships will agree that we have chosen the simpler and more appropriate method. I hope that these remarks have answered the questions put to me.
§ LORD GARNSWORTHYMy Lords, the noble Lord stated that by making it 25 per cent. this year only eight authorities are going to be placed in a difficult position. But what about next year when, on the figures he has just given us, most people would conclude that 200 authorities are going to feel the effect of this?
§ LORD SANDFORDMy Lords, by next year we shall have some experience of the way this operates and shall have time to make our calculations of the resources element of rates for grant and we shall be in a much better position to make adjustments
§ LORD GARNSWORTHYMy Lords, certainly it would be reassuring to local authority associations if this is an indication that the Government, if necessary, will rethink the position of the resources element in rates for grant.
§ LORD SANDFORDMy Lords, as the noble Lord knows, the whole question of the resources element is renegotiated every year and this is a new factor which we shall now have time to take into account.
§ On Question, Motion agreed to.