HL Deb 01 August 1978 vol 395 cc1259-71

5.46 p.m.

Lord STRABOLGI

My Lords, on behalf of my noble friend Lord Kirkhill, I beg to move that the Post Office Telecommunications Services (Rateable Values) (Scotland) Order 1978 be considered. I should also, with the permission of the House, like to speak to the other four orders standing in the name of my noble friend. My noble friend Lord Kirkhill regrets that he is not here today to move these orders himself, but he is indisposed.

These orders have much in common since they all relate to the formula valuation of undertakings in Scotland; and together they cover most of the undertakings which at present either make payments in lieu of rates or are valued, according to formula. The orders prescribe aggregate rateable values for the current year for the operational undertakings of the Gas Corporation in Scotland, of the British Railways Board in Scotland, of the Post Office Telecommunications Services in Scotland and of the Scottish Electricity Boards. The orders also prescribe formulae for the determination, by the Assessor of Public Undertakings (Scotland), of aggregate rateable values for subsequent years and for the apportionment of the aggregate values for any year among local authorities. Rates will then be levied in the normal way on the apportioned values. The remaining order provides a formula for the valuation of the British Aluminium Company's hydro-electric installation in Lochaber.

The undertakings concerned are among those which, because of their size and complexity, are not considered suitable for conventional valuation for rating (the orders do not apply to showrooms and offices not situated on operational land, such premises being subject to normal valuation by the local assessors). The Electricity and Railways Boards do not pay rates at present, but make payments in lieu of rates under a statutory formula: the other undertakings are already subject to a statutory formula valuation but these are replaced, under the relative orders by revised formulae.

The five draft orders are prepared and presented under the provisions of Section 6 of the Local Government (Scotland) Act 1975 (as substituted by Section 1 of the Local Government (Scotland) Act 1978) which empowers the Secretary of State to prescribe, or make provision for determining, the rateable values or aggregate rateable values of a number of public utility and other undertakings, and to specify how these total values are to be apportioned among local authorities. In terms of the section, the orders will have effect from the beginning of the current rating year, that is, 1st April 1978.

The orders prescribe the following aggregate values for the current year:

South of Scotland Electricity Board £21.6 million
North of Scotland Hydro-Electric Board £5.3 million
Gas Corporation £5.6 million
Railways Board £1.97 million
Post Office £2.44 million
British Aluminium £0.461 million
These amounts have been fixed after taking into account a number of considerations, including the level of rating on the corresponding undertakings in England and Wales, and they are considered to be fair and reasonable to both the undertakings and the local authorities. Rates payable for the current year on the prescribed values, after apportionment, will in total be more than 14 per cent. above the payments made by the undertakings for 1977–78. While this increase will not of itself give rise to an early increase in the charges made by the undertakings, the level of rates will of course, be a factor, along with other costs, in future reviews of charges.

The aggregate rateable value of each undertaking for years subsequent to 1978–79 will be determined by the Assessor of Public Undertakings (or, of course, for the Lochaber hydro-electric scheme by the local assessor), by increasing or reducing the previous year's aggregate by, in most cases, 25 per cent. of any change in the activity of the undertaking, in terms of the amount of electricity or gas supplied or generated, or of railway passengers and freight carried. In the case of the Post Office the actual increase in value will be directly proportionate to the increase in the number of exchange connections.

Apportionment of the aggregate values of the electricity and gas undertakings among local authorities is in two parts. In each case part of the aggregate will be allocated to areas in which there are major assets, such as generating stations or elements of the national gas transmission system; the remainder will be distributed, in the case of electricity and of the Post Office, in proportion to the rateable value of other property in each area and, in the case of gas, in proportion to the gas consumption in the area. The railways aggregate will be apportioned among areas in which receipts accrue to British Rail from passengers and freight traffic. Under the new arrangements some areas will derive relatively more income and others relatively less from the undertakings: however, these changes will be reflected in the distribution of the resources element of rate support grant. For the British Aluminium Company, situated in two districts, apportionment of course offers no problems.

These orders follow a review of the rating of the undertakings, carried out in cooperation with representatives of the undertakings and of the Convention of Scottish Local Authorities, who have been advised of the proposals in the orders. I commend the orders to the House and I beg to move the first.

Moved, That the draft Post Office Telecommunications Services (Rateable Values) (Scotland) Order 1978, laid before the House on 24th July, be approved.—(Lord Strabolgi.)

5.54 p.m.

Lord CAMPBELL of CROY

My Lords, we are grateful to the noble Lord, Lord Strabolgi, for introducing and explaining these orders. We are sorry to learn that the noble Lord, Lord Kirkhill, who I knew was unwell yesterday, is still not well enough to be here today, and I send him a message hoping for his quick recovery and that he will be able to relax during the coming Recess. I also extend sympathy to the noble Lord, Lord Strabolgi, for having to take on these five orders at short notice, as they are somewhat specialised matters concerning Scotland.

As the noble Lord indicated, four of the orders deal with public corporations and the fifth order with the British Aluminium Company Limited, which still operates at least one hydro-electric scheme and, therefore, ought to be considered on the same basis as the Hydro-Electric Board.

The orders provide for the Assessor of Public Undertakings for Scotland as a whole to be involved, but, where the British Aluminium Company is concerned, it is of course, the Assessor for the Highlands Region. Today and tomorrow are the last two days on which these orders could have come to your Lordships' House because we are about to go into Recess, and the first date by which action is required under the orders is only one month away, 1st September. So the Government could hardly withdraw an order in which some serious defect might have been discovered today and reintroduce it overnight. I think that that stage has already passed. Therefore, all I can do is to make some comments and ask some questions. But I would say that I have not detected any serious fault, so the Government can relax about that.

I was able to give the Government notice of the main points yesterday. I am afraid that there may be some others to which the noble Lord, Lord Kirkhill, would have known the answers from his experience as a Minister at the Scottish Office and as a former Lord Provost and from his experience of many other offices, and to which I quite realise that the noble Lord, Lord Strabolgi, may not be able to reply today. The orders proceed from the 1978 Act, an Act which substituted a new clause in the 1975 Act and which we considered in your Lordships' House earlier this year. But what I find particularly interesting is the concept that besides rateable values of what in Scotland are called lands and heritages—that is to say, property—there is also to be an element based upon any increase in turnover or business which the public undertaking has had over a particular year; that is to say, the last year for which figures are available.

There is a formula for each case which covers this. My own reading of the formula is that if there is no increase in business between the two years, or if there is a natural reduction, then the rateable value is simply the lump sum which has been decided upon and there is no reduction to it; there is an increase of the amounts of rates to be paid only if there has been an increase in the business. That is how I interpret the simple formula, but mathematicians looking at that formula could interpret it differently.

I should like to ask whether there is a similar system operating for England and Wales, or whether one is to be brought in so that public utilities there will not only be rated upon their property assets, but will also have an element added if they have had an increase in turnover or business in a previous recent year. First, I should like to deal with the question of the lump sum, lands and heritages. The noble Lord was good enough to read the figures for the main public undertakings. They are comparatively large considering rates in Scotland as a whole. This is a system which is well-known in Scotland. For some years sums have been determined by the Scottish Office. It has always been difficult, although there are formulae and understandings, to explain why a particular sum has been determined. But this has been accepted and the noble Lord told us today that it has been done in discussions with the undertakings concerned and also with the local authorities through the Convention of Scottish Local Authorities.

But I should like to ask him whether the amounts have been agreed or whether there has been some argument, and whether in any particular cases these determinations are being imposed against the wishes of the undertakings. In considering what these amounts should be, the Secretary of State has to take into account a balance of interest between the taxpayers—because they are involved in deficits which the public undertakings may incur—the ratepayers—because if the undertakings pay lower rates than they should, then they have to be made up by domestic, commercial or industrial ratepayers of another kind—and other industries, so that there is fairness between these industries with which we are dealing today and comparable industries operating in Scotland.

I now come to the second part, and that is the formula for additional rateable value where there has been an increase in turnover or business. I understand how this can operate in quite a straightforward way where the gas and electricity boards are concerned, and that disposes of three of the orders before us. They are in competition with each other, and this additional element of rate will be paid if they have sold an additional amount of energy in gas or electricity during the year in question.

I should like to turn my attention to the other two orders; first of all, to the Post Office Telecommunications Services. Here, this increase is to be covered by not only an increase in the telephone exchange connections—that was mentioned by the noble Lord—but also one-third of the increase in television relay connections. Therefore, it is the number of existing telephone subscribers which is in question, because that is how I interpret the telephone exchange connections—if I am wrong I hope that the noble Lord will tell me—and if there has been an increase in the number of telephone subscribers, then an additional amount of rates will have to be paid. I am not sure what one-third of the increase in television relay connections means. If the noble Lord can enlighten us I should be grateful.

However, that formula does not include postal services, or general services of the Post Office. I am not suggesting that it should, because I think it would create an inordinate amount of additional and unnecessary trouble to find out whether letters had crossed the Border or not, and whether they had originated in Scotland or South of the Border. But, fortuitously, I received today through the post, as other noble Lords may have done, the Post Office summary of results for 1977–78. I see that they are able to give a figure for the correspondence handled. Therefore, they have records which show the number of letters which have been handled over a year within the United Kingdom. I think it would be far too difficult to try to connect that with rating and confine it to Scotland.

Furthermore, let me say here, because I shall be coming to the same point later with British Rail, that anything which discouraged the Post Office from handling additional letters would be something to be deplored. If it meant they were going to pay more rates I do not think that any of us would wish to encourage that. It is the order affecting British Rail which has attracted most of my attention. Here, the element of increase in rateable value arises from the number of passenger journeys and the freight tonnage carried during the relevant year.

The first question which arises is whether the passenger journeys and freight tonnage are limited to Scotland or not. That is not stated in this order. In the other orders concerning electricity and gas it is; they are limited to Scotland. I cannot see anything to indicate that these passenger journeys, or the freight carried, are to be so limited. Again I can see a reason because it may be difficult and cause a lot of extra work and bureaucracy to have to record destinations and origins for a whole lot of journeys. However, it apparently means that the rateable value of British Rail's undertakings in Scotland may well depend upon an increase in journeys South of the Border and not North of the Border.

I come to another point, which is that British Rail's revenue may be less even though there may be more passenger journeys because it depends on the length of the journey. If there were a lot of shorter commuter journeys during the relevant year but less of the long distance journeys, which cost a great deal more—and as I travel almost 600 miles home I am very much aware of the cost, and the increasing cost, of travel by rail—a situation could arise under this order whereby British Rail received less income in one year than in the previous year, but were none the less asked to pay more in rates because the number of passenger journeys was greater. The same applies to freight tonnage; it must depend on the length of the journey unless flat rates are being charged.

Here, I raise a point of principle: should the rates for British Rail be increased if more passengers or more freight are carried? Surely nothing should be done to penalise British Rail if they are more successful in attracting passengers and freight and business in general. If anything—and I do not suggest this with too much levity—it should be the other way round: that is to say, if they are successful in attracting more passengers and freight to the railways, they ought to be relieved of some of their rate burden. I should have thought that that would have been a much better way round. But the principal element in the rateable value remains the lands and heritages—the valuation of the assets of British Rail. What I am worried about is the effect on the British Railways Board order of the additional element tied to these journeys and freight tonnages.

British Rail are not comparable to the other public undertakings that we are considering today. Gas and electricity are competing with each other, and they are being subjected to the same system depending on how much gas and electricity they sell between the beginning and end of a year, but British Rail have no competition in running the railways in this country and, for that reason, they have little inducement as it is to attract more custom. I know that successive chairmen of British Rail have made great efforts with their Boards and senior management, but the fact remains that it makes little difference to British Rail as a whole if the trains are running nearly full, half full, or nearly empty; their job is simply to make the trains run, if possible on time: the bill for the deficit, if there is one, and whether it be large or small, is picked up by the taxpayer.

I have had occasion to point out to British Rail, mostly in Scotland, instances where the unimaginative timing of trains means that people are not going to get connections, or lack of baggage facilities or other things of this kind which have had the effect of positively diverting potential passengers to other kinds of transport. They have decided, even though it is a long distance, to use their own car, or to go by some other means of transport which they had not originally intended to use. Therefore, it is important not to add any further discouragement to British Rail in trying to attract people as passengers, or business on the freight side.

When I have raised these points I have detected little real interest because no incentive to encourage more passengers to travel by rail exists at present, and the effect of this order would be to add a definite disincentive to British Rail to carry more because they would have to pay more in rates. If one considers the alternative transport, the rating of bus and coach companies, I do not think it is operating on the same principle. The Scottish Transport Group owns a large section of the buses and coaches in Scotland in the public sector, but we do not have an order affecting them. Air transport is dealt with in a different way. So far as I know, airport buildings and facilities are rated as assets and the airport authorities are responsible. British Airways, and other air companies, so far as I know, are not going to be rated according to the number of passenger journeys that take place as between one year and another. If the noble Lord can tell us anything more about these alternative methods of transport and the way they are to be rated, that may help us.

I have some further short questions. First, can the noble Lord say what the relationship now is between the National Freight Corporation and British Rail, and what it is likely to be in the future because they are both dealt with together in the British Rail order? Secondly, on the method of apportionment among local authorities, are both regional and district councils—the two tiers of authorities—involved here and, although it has been negotiated through the Convention, have the local authorities accepted by direct negotiation the method of apportionment, or are there some dissatisfied with the formula for dividing up these rateable values between the different local authority areas in Scotland?

6.11 p.m.

Lord STRABOLGI

My Lords, I wish to say at the outset how much I appreciate what the noble Lord, Lord Campbell of Croy, said about my noble friend Lord Kirkhill, and I will certainly send his kind messages to my noble friend in Scotland. I am sure the House will wish to know that my noble friend is not seriously ill, and I hope it will not be long before he is with us again. I also very much appreciate the notice that Lord Campbell gave me on these very complicated questions, of which I was given notice only this morning; in fact I was thrown in at the deep end and I am grateful to him for throwing me this lifebelt.

The noble Lord, Lord Campbell, asked a number of questions which I will do my best to answer. I might point out that in regard to the Electricity Boards and the Gas Corporation, of course the figures I gave in my original speech are 3 per cent. of turnover, which is the same as in England and Wales. Lord Campbell asked how the formula had been arrived at and whether the resulting rateable values had the agreement of the undertakings. The initial rateable value for each undertaking has indeed been the subject of a very thorough review. Regarding the main orders—those for electricity, gas and British Rail—the formula has been the subject of an extended study by working groups in which officials of the undertakings and of the Convention of Scottish Local Authorities took part. The orders now before the House have been drafted in the light of the reports of those working groups. For the other two orders, separate consultations have taken place with representatives of the Convention and of the undertakings.

The noble Lord asked whether the Convention had agreed the proposals. The answer is, yes, and the method of apportionment was as recommended by the local authority officials. Indeed, the Convention were consulted on all the proposals at official level and their views taken into account in the Secretary of State's consideration. They were also advised of the Secretary of State's proposals about three weeks ago, but I understand that the Convention's policy and resources committee has still to consider them.

The noble Lord, Lord Campbell, also raised the question of British Rail. He asked why British Rail should be penalised, if they are going to be, by carrying more passengers, since of course rating depends on activity. Under the formula, the aggregate rateable value of the railways in Scotland will be increased, or reduced, by 25 per cent. of the increase or reduction in the number of passenger journeys made and freight tonnes carried; that is, taken over the entire British Rail network. This activity adjustment is intended to reflect in valuation terms the extent to which a change in activity gives rise to growth or contraction of physical assets equivalent in normal valuation terms to a material change of circumstances. Apart from this, if railway activity increases, then of course more revenue will accrue to British Rail; and the rating level established by the order is based on parity with the level of railway rates to turnover in England and Wales. The activity adjustment at a rate of 20 per cent. of the change in activity is long standing, being established by a joint order made by the Minister for Local Government in England and Wales and the Secretary of State; and, with the contraction of the railway network over the years, has generally served as a reducing factor.

The noble Lord also asked about freight. It is correct that the actual increase factor depends upon activity in Great Britain and not in Scotland only. The working groups considered whether activity in Scotland might be used, but it was clear that taking Scotland in isolation would not be meaningful because of the amount of cross-border traffic. I may say that the rates are only a very small percentage—that is, 1.24 per cent.—of railway revenue and the rate of increase is unlikely to inhibit any expansion of railway activity.

The noble Lord, Lord Campbell, also very properly raised the question of the relationship between the British Railways Board and the National Freight Corporation. Section 162 of the Transport Act 1968 provided, effectively, that premises used by a subsidiary of the Railways Board, by the National Freight Corporation or a subsidiary of the Corporation, used for operational railway purposes were to be covered by the payments in lieu of rates made by the Board. The section also required the Freight Corporation to pay over to the Board an agreed share of the payments in lieu. Following this approach, Article 8(5) of the Railways Order amends the Transport Act to include premises used for railway purposes by a subsidiary of the Board or by the Corporation or a subsidiary in the formula valuation and to provide that the Corporation will pay to the Board an agreed share of the rates.

The noble Lord also raised the question of the Post Office and asked—

Lord HARMAR-NICHOLLS

My Lords, before the noble Lord leaves that point, may I ask whether he has any comment to make on the complaint that has been put in certain quarters in the past that this way of compiling the rise or fall of rateable value is rather expensive in terms of keeping the records? Having to keep the records in order to justify a reduction or to try to withstand an increase is quite onerous. Is there any way by which we can arrive at the same result without such expense being put on the administrative side of British Railways?

Lord STRABOLGI

All I can say is that it has been agreed, my Lords. The noble Lord raises an interesting point and, while I do not know the answer, I will go into it and let him know. I am sure it is something worth considering.

It is the practice in England and Wales to take one-third of the TV relay connection as being equivalent in income or rent terms to one exchange connection. There are very few TV relay connections in Scotland.

Lord Campbell asked me a question which had crossed my mind when I was reading my brief: why the airlines and bus companies are also not valued by formula. The answer is that these undertakings are much more localised than public utility undertakings, which extend over many different rating areas. Therefore conventional valuation methods can readily be applied by the regional assessors.

The noble Lord, Lord Campbell, asked whether the amounts of aggregate value had been agreed. The amounts have been accepted. There was no agreement by undertakings and the Convention on the amounts, but they have been accepted. He also asked whether this was an innovation. I may say that the same system is adopted in England and Wales; but it is an innovation so far as Scotland is concerned, and I hope it will be equally successful.

Lord CAMPBELL of CROY

My Lords, before the noble Lord resumes his seat, I wish to thank him very much for replying to so many of my questions, particularly considering the very short notice he had of this debate.

Lord HUGHES

My Lords, I should like to congratulate my noble friend upon the way he has handled these complicated orders at such very short notice. During my years at the Scottish Office I must have presented similar orders, but I do not remember ever presenting them with the clarity and the detail which my noble friend has displayed today. It is also interesting to note that the noble Lord, Lord Campbell of Croy, gave notice of the points which he wanted to raise so as to enable my noble friend to give answers to them. This was a clear indication that the noble Lord, Lord Campbell of Croy, was seeking information—and was not trying to make difficulties—which is not always the reason behind questions, either in this House or in another place. The result is that we are all better informed about the content of the orders.

The nearest approach to my noble friend becoming bold occurred during the intervention by the noble Lord, Lord Harmar-Nicholls, who has almost become a Scot by adoption due to his frequent interventions in the Scotland Bill. His question this evening may have been a spin-off from that. I advise my noble friend not to give the noble Lord too encouraging an answer for fear it brings him back more often in the future.

On Question, Motion agreed to.