HL Deb 14 June 1988 vol 498 cc193-227

5.42 p.m.

House again in Committee.

Clause 118 [Functions of responsible officer as regards reports]:

Lord Hesketh moved Amendment No. 175B: Page 64, line 41, leave out from ("authority") to end of line 45 and insert ("incurring expenditure which is unlawful, (b) has taken or is about to take a course of action which, if pursued to its conclusion, would be unlawful and likely to cause a loss or deficiency on the part of the authority, or (c) is about to enter an item of account the entry of which is unlawful.").

The noble Lord said: For the convenience of the Committee I should like to speak also to Amendment No. 176. Government Amendment No. 175B concerns the circumstances in which the local authority's chief finance officer is required to make a report to his authority. Members of the Committee may recall the debate, during the Report stage of the Local Government Bill, on the new powers which we were proposing to give to the local authority's auditor. They may also recall the undertaking my noble friend Lord Caithness then gave to bring forward amendments to the present Bill when it reached this place so as to ensure consistency between the circumstances in which the chief finance officer is required to make a report and those in which the auditor may issue a prohibition order. Amendment No. 175B fulfils that commitment.

I should, first, say a little about the relationship between the proposed new duties of chief finance officers under this part of the Bill, and the new powers given to auditors by Section 30 and Schedule 4 of what is now the Local Government Act 1988. Both measures stem from the Government's concern over the activities of a small minority of local authorities which continue to strive to find ways of evading the financial controls placed on them by Parliament, and which in doing so all too frequently find themselves involved in transactions which are not only highly imprudent but which are also of doubtful legality. The two measures are closely related and have been developed in parallel. They differ, however, in their nature and effect.

The auditor's power to issue a prohibition order, under the new sections inserted into the Local Government Finance Act 1982 by the Local Government Act 1988, can be seen as a strengthening of the legal and regulatory framework within which authorities operate. The auditor has discretion as to whether or not he issues an order, but once he has done so the prohibition is permanent unless the order is revoked by the auditor or the authority appeals successfully to the High Court against it. The chief finance officer's report, however, should be viewed rather as a strengthening of authorities' own financial administration and systems of self-regulation. The effect of such a report is temporarily to prevent the authority from proceeding with the course of action with which the report is concerned, or (if it concerns a potential deficit) from continuing to enter into new commitments; but that moratorium lasts only until the report has been considered by the full council. It is then open to the authority to decide whether, in the light of the advice provided by the chief finance officer, to proceed as it originally intended, or to modify or abandon its proposals.

The two measures are thus of differing severity. I should be more than happy if it were, in the event, never necessary for either to be invoked; but if the question of their use did arise, we envisage that it is most likely that the chief finance officer would first make a formal report on a questionable course of action proposed by the authority, and that would be considered by the authority. If the authority then decided to proceed, the auditor, if he agreed that the proposed actions were unlawful, might issue a prohibition order. It is not, however, to be a requirement in the legislation that he should act only in a case in which the chief finance officer has made a report. It is possible, though perhaps unlikely, that information will come to him in the course of a audit which is not known to the chief finance officer, and on which he judges rapid action is necessary. It is also possible that the auditor and the chief finance officer will be of differing opinions on the lawfulness of what is proposed, and thus on whether the issuing of a report or order is called for.

It is evident, therefore, that depending on circumstances the two measures may be brought into play at different times in relation to the same proposed course of an action, or alternatively one or other may be exercised in isolation. We wish, however, to avoid any mischief or confusion that may arise from unnecessary differences in wording that might cast doubt on the power of either the chief finance officer or the auditor to act in any particular case. It is for that reason that we have brought forward the amendment to ensure consistency between the two sets of powers. I should point out to the Committee that government Amendments Nos, 181A and 193B also deal with the harmonisation of those powers. We shall, I trust, have an opportunity to debate the principle behind those amendments shortly, so I will say no more about them for the time being.

Turning now to the detail of Amendment No. 175B, the Committee will have noted that it makes three distinct changes to the grounds for action set out in Clause 118(2). First, in subsection 2(a) it deletes the notion of an authority making a payment it has no powers to make and substitutes the phrase: incurring expenditure which is unlawful". The distinction between those two phrases is a fine one. Surely, it might be argued, if a payment or an item of expenditure is beyond the powers of an authority, then it is unlawful for the authority to make that payment or to incur that expenditure.

Nevertheless, I have little doubt that, were that inconsistency in wording between this clause and new Section 25A of the 1982 Act to remain, some litigious authority might well in future attempt to exploit the fact, to establish a difference of substance where none is intended, and to demonstrate that in some particular circumstance action by the auditor was appropriate but not action by the chief finance officer, or vice versa. I do not believe that such an argument would impress the courts. But I am sure it would be preferable, if only for the sake of avoiding long hours of fruitless legal wrangling at some future date, if the Committee were to take this opportunity to bring the two measures fully into line with each other.

Secondly, in subsection 2(b) the amendment deletes the phrase: an act of wilful misconduct which is or would be likely to cause a loss or deficiency on the part of the authority". It substitutes the phrase: a course of action which, if pursued to its conclusion, would he unlawful and likely to cause a loss or deficiency on the part of the authority". Again, the new wording which we propose to adopt follows that of Section 25A of the 1982 Act. But it also has the particular advantage that it does away with the term "wilful misconduct".

As my honourable friend the Minister for Local Government said in Committee in another place, the present wording echoes the terminology of Section 20 of the Local Government Finance Act 1982, which requires the local authority auditor to judge whether a loss or deficiency is the result of wilful misconduct. On further consideration, however, we accept that it would not be entirely appropriate to impose on the chief finance officer the burden of determining whether in his view members or other officers of the authority of which he is an employee are guilty of wilful misconduct. Nor is it easy for any person to determine in advance whether the actions of another are likely to constitute wilful misconduct. The amended wording, which I commend to the Committee, requires the chief finance officer only to concern himself with the lawfulness of a course of action and the likelihood that it will cause the authority to incur a loss, and not with the intentions or state of mind of those responsible.

Thirdly, the amendment adds a new criterion in subsection 2(c): the chief finance officer is to be required to make a report if it appears to him that the authority (or a committee or officer of the authority, or joint committee on which it is represented) is about to enter an item of account the entry of which is unlawful. This is an important addition to these provisions. The financial malpractices which some local authorities have indulged in over the past few years have not merely included actions resulting in expenditure or losses of doubtful legality. They have also included the deliberate manipulation of the authority's accounts, often in such a way as to maximise block grant gains.

These manipulations may involve the treatment of receipts in the accounts in ways that may prove to be improper, and thus (under the Local Government Finance Act 1987) unlawful for a local authority to indulge in. Such devices will be caught by the definition, in Section 25A of the 1982 Act, of the matters in relation to which the auditor may issue a prohibition order.

We believe it is important that they should also fall within the conditions set out in Clause 118, so that the chief finance officer will be required to bring them formally to the attention of the full council. Of course, in one sense only the chief finance officer, as the person responsible for the administration of an authority's financial affairs, can be responsible for the entering of an item of account, so this provision may appear to require him to report on his own actions. More to the point, however, is the fact that it will require him to make such a report if the financial strategy being pursued by his authority is likely to cause him to make such an entry.

Finally, it may be helpful if I were to make clear that this amendment does not affect the requirement in Clause 118(3) for the chief finance officer to make a report if it appears to him that the authority's expenditure in a financial year is likely to exceed the resources available to it to meet that expenditure. There is no precise parallel to this in the new Section 25A, which the Local Government Act inserted into the 1982 Act, as this is not a problem which is amenable to being dealt with by means of a prohibition order. It would not be clear in these circumstances to what particular item of the authority's proposed expenditure the order should be applied. If, however, the auditor believed that a chief finance officer had not made a report under this subsection in circumstances in which one was required, it would then be open to him to apply, if he thought it appropriate, for judicial review of the authority's failure to take action to rectify its financial position, under the power conferred on him by the new Section 25D.

I hope that my remarks will have been of assistance to Members of the Committee in their consideration of this government amendment, which I commend to noble Lords. I should like also to say a few words about the amendment to subsection (2) of Clause 118 which has been tabled by the noble Baroness, Lady Stedman, and the noble Lord, Lord McIntosh. Amendment 176 is intended, I believe, to do away with the phrase "wilful misconduct". I cannot conceive of any grounds for arguing that, while it is proper for a chief finance officer to report formally to his authority on an unlawful item of expenditure, he should not be required also to report on actions which are likely to lead to a loss on the part of the authority. The mischief is equally great in either case. In the amendment which we have put forward we have, however, dealt with the problem of wilful misconduct while preserving the requirement to report in relation to a likely loss. We have proposed a new condition founded on the notion of unlawful actions likely to cause a loss or deficiency. I beg to move.

The Deputy Chairman of Committees

Before 1 put the amendment, I should explain that if Amendment No. 175B is agreed to Amendment No. 176 cannot be called.

Lord McIntosh of Haringey

I think I can detect in this amendment and in the speech of the noble Lord a nugget of good will. It is a long way down and it has suffered a lot of accretion since it started off, but I take it that the original intention of all this was to take away from the chief financial officer of the local authority responsibilities which, by the nature of his training, abilities and responsibilities, he is unable to assume. If that is the intention, so be it. We are in agreement about what we are trying to do.

However, when we look at the amendment which the noble Lord has proposed, it seems to me that we are out of the frying pan into the raging fiery furnace. The amendment is riddled with inconsistencies and with—I must say this—nonsenses. First of all, it mentions "a course of action". What is a course of action? A course of action is presumably something different from an act, because an act of a local authority and a decision taken by a local authority or one of its officers is the concept which was in before and which is no longer in the subsection. A course of action is presumably something vaguer, less definite. It is very difficult to know what it means. I have never heard of the words "course of action" being used in legislation before.

Secondly, there is the word "unlawful". There are two objections to that. First, we are talking about the chief financial officer, not the chief legal officer of the council. The chief financial officer is not employed by the council to make decisions about what is lawful or unlawful. He is employed to make decisions about financial matters, which is why the noble Baroness, Lady Stedman, and I have put down an amendment which restricts his responsibility specifically to those points.

However, it is worse than that. Even if the chief financial officer were that remarkable person who is not only a financial expert but a legal expert, who is to say what is unlawful? It could be argued that one cannot say what is unlawful until that has been determined in the courts. One could put in a phrase such as "It appears to him to be unlawful"; one could qualify it in various ways. But the amendment proposed does not do anything of that sort. It says: a course of action which, if pursued to its conclusion, would be unlawful", or an item of account the entry of which is unlawful". I ask the Minister very seriously whether he thinks that is a proper responsibility for a chief financial officer to have, to interpret the law about matters which are not his professional responsibility and about which he cannot be expected to know.

I must confess that the end of this I think we have a very much worse amendment, however good the intentions may be, and a very much worse subsection that that with which we started. I beg the Government to think again about this matter.

Baroness Stedman

I support the noble Lord, Lord McIntosh, and share some of his concern about this point. I am delighted that the "wilful misconduct" part has gone, but, as he says, I think we are in for all sorts of trouble with the rather wide and loose wording of subsections (b) and (c). I ask the Minister whether he will take the matter back and have another look at it. It is very wrong that officers should be given policing duties of any sort. It is the responsibility of the members, the council and ultimately the courts if something goes wrong.

It will do an awful lot of harm to the trust that has been built up between officers and their members if the treasurer or the auditor is now seen as a policeman who can decide what is lawful and what is unlawful as regards what the elected members are doing. I hope that the Minister will look at this amendment again and perhaps come back with it on Report.

6 p.m.

Lord Hesketh

always understood that a course of action is exactly what it says it is—a course of action. But more to the kernel of what the noble Lord, Lord McIntosh of Haringey, and the noble Baroness, Lady Stedman, were saying, as regards what is unlawful I am sure that many Members of the Committee do not automatically retire to the High Court when they want to make a decision about whether or not they think something is within the law.

Local government in this country has very professional people who should be able to make decisions of that nature. I will say that I am pleased at last to have found a golden nugget, be it a very small one and be it very deep down, which the noble Lord, Lord McIntosh, and the noble Baroness, Lady Stedman, can to an extent be moderately happy about. The chief finance officer's normal duties require him to take judgments about the legality of an authority's conduct. We are talking about professionals. I think that one cannot have both sides of the pudding. One either accepts that chief finance officers are professionals and capable of making professional judgments or one does not.

Baroness Stedman

Whether the authority accepts the judgment on a particular issue is a matter for the authority. The elected members, and ultimately the council, must decide whether or not they accept the advice of their treasurer.

Lord McIntosh of Haringey

Perhaps I may also say that I fail to see the cogency of the noble Lord's reply as regards professional responsibilities. If we were talking about the chief legal officer whose job is to advise the council about the legality or otherwise of the actions that it proposes, I could understand the position that is being put forward. The chief legal officer has responsibilities relating not only to his own activities but to the activities of all other functions and chief officers of the council, including the chief finance officer.

However, we are here talking about the chief finance officer who is not responsible to the council in that way. I appreciate what is being proposed here, and I am not going to argue the political point that an officer of the council shall have the responsibility to report to the district auditor, whether or not the council likes it. I know that that is the intention of this provision and I am not raising that major political point, on which we have many reservations, but I am saying that the wording of this amendment is ill-conceived.

It is ill-conceived to require a chief finance officer to make judgments about what is lawful. I am totally dissatisfied with the distinction which the noble Lord seeks to draw between a course of action and an act, which is what we would understand in plain English to be what a local authority is doing. I still plead with him that it would be wiser to take this away and think about it. If he can come back with something better, or a better series of arguments defending it, we shall remain silent about it on Report.

Baroness Carnegy of Lour

I may be misunderstanding the noble Lord, Lord McIntosh, but as regards the use of the word "unlawful" the following is stated in the Bill under Clause 118(2): The chief finance officer of a relevant authority shall make a report under this section if it appears to him that the authority and so on. With the amendment this subsection would state: if it appears to him that the authority…has taken or is about to take a course of action which, if pursued to its conclusion, would be unlawful". The crucial words are, if it appears to him that a certain action was unlawful. That does not seem to me to justify the noble Lord's criticisms. That reads perfectly sensibly to me in the context of the Bill.

Lord McIntosh of Haringey

But he is the wrong person to whom it should so appear. He is the chief finance officer, not the chief legal officer. That is the reason we object to it.

Lord Hesketh

I am very grateful to my noble friend Lady Carnegy of Lour. She was absolutely correct to state what she did. I point out to the noble Lord, Lord McIntosh, that the chief finance officer will have access to whatever legal advice he requires to fulfil his duty.

On Question, amendment agreed to.

Lord Underhill moved Amendment No. 177: Page 65, line 25, leave out ("his") and insert ("its").

The noble Lord said: I am certain that the Committee will appreciate it if in moving Amendment No. 177 I speak also to Amendment No. 178, standing in the name of the noble Baroness, Lady Stedman. When she comes to speak on her amendment, as undoubtedly she will, I feel sure that she will agree that both amendments have the same intentions.

We have in the previous amendment been dealing with the position of the chief finance officer. The amendment which I am now moving, Amendment No. 177, raises the question of who will decide what are the sufficient resources to enable the chief finance officer to perform the statutory duties laid down under Clause 118. What the amendment seeks to do is to replace the chief finance officer's judgment as regards the sufficiency of resources with that of the authority.

This goes beyond the judgment of the chief finance officer. It really goes to the chief finance officer's decisions. Subsection (7) of Clause 118 states: A relevant authority shall provide its chief finance officer with such staff, accommodation and other resources as are in his opinion sufficient to allow his duties under this section to be performed".

I am not in any way criticising the responsibility or the qualifications of chief finance officers. The qualifications are laid down quite clearly under Clause 117. But it is the local authorities—the charging authorities—which have to make the decisions as to the priorities in carrying out statutory and non-statutory functions. I am sure that all Members of the Committee will agree that these, at the end of the day, are political decisions to be arrived at by a local authority. Yet the provisions of this clause, and the subsection to which I have referred, give the chief finance officer first call on an authority's scarce resources. In many cases their resources are scarce.

The noble Lord, Lord Hesketh, in dealing with the previous government amendment, referred to the chief finance officer as being a person who is an employee of the authority. Yet here we are faced with a situation where a chief finance officer can demand whatever he may consider necessary to carry out the responsibilities placed upon him under Clause 118. For instance, he could decide that he required quite expensive computer systems in order to carry through a lot of checking and rechecking. We have just been referring to the question of legal interpretation. It may well be that the chief finance officer is not a legal expert. Many of them are not.

I have a son who is a company financial director. He would not be expected to take legal decisions. He would employ somebody to advise him. It may well be that a local council may want a second opinion. The advice that the chief finance officer may demand—he has the right to demand it—may be costly to a local authority. He may also require further highly paid accountants in addition to those in his own department in order to make decisions. He will be able to decide all these things and make these demands with the knowledge that the law states that whatever resouces are necessary to carry out his obligations must be provided by the local authority concerned. That is what Clause 118(7) rules. In the amendment we are not seeking in any way to decry the ability and the integrity of the chief finance officer, but at the end of the day the decision on the allocation of resources must surely be that of the local authority. That is the purpose of this amendment.

Baroness Stedman

The noble Lord is quite right to say that our amendments run in parallel. The same results would be obtained by accepting either amendment. We wish to see the responsibility for the level of resources and costs made a matter for the elected members of a council as a whole. It should be their job to decide such matters as part of their overall duties. I shall be happy to support the amendment moved by the noble Lord, Lord Underhill, and to withdraw my amendment in due course.

Lord Hughes

I hesitate to enter a discussion on this English item. However, there appears to be a repercussion for Scotland. I have looked at the Scottish Act and I cannot see any equivalent section. That is probably so because we have had chief finance officers in Scotland from the time that local government started there.

In 25 years in local government in Scotland, I cannot think of any authority which delegated to its chief finance officer—or, as we used to call him in the cities, the city chamberlain—the decision-making power on staff up to deputes, offices and equipment. One of the most important committees in Scottish local government is the establishment committee. The establishment of each department has to be approved by that committee. Obviously, heads of departments make submissions. In many cases, they get exactly what they want because they temper their demands to what the authority is likely to agree.

The nearest approach to that provision in the Scottish Act is the section relating to the community charges registration officer. That is at the nub of the Scottish Act, as in the present Bill. The relevant subsection says: A regional or islands council may appoint such additional number of depute registration officers as they consider necesary to enable the registration officer to perform his functions under this Act, and any depute registration officer so appointed shall have all the functions of a registration officer". Subsection (5) of Section 12 says: A regional or islands council shall secure the provision of sufficient staff, accommodation and other resources to enable the registration officer to perform his functions under this Act". That seems to be the proper way of going about it. I think that subsection (5) of Section 12 of the Scottish Act probably gives the Secretary of State for Scotland the means to call a council to account for its actions if he does not believe that it is doing what subsection (5) requires in securing the provision of sufficent staff, accommodation and other resources to enable the officer to do his job.

As regards the chief finance officer, to make a decision about what staff, accommodation and equipment are necessary must be the responsibility of a local authority. It would not be unreasonable if that were accompanied by a similar provision to place an obligation on the authority to provide resources on a sufficient scale to enable the chief finance officer to do his job. If that were done, the Secretary of State would have the means to call an authority to account if it was deliberately frustrating the finance officer by not providing him with the necessary means for doing his job.

Having said that, and noticing that the noble Earl, Lord Caithness, has returned to the Chamber, I should like to receive an assurance that there is no similar provision in the Scottish Act which would compel a local authority to do exactly as one of its officials demanded.

6.15 p.m.

Lord Hesketh

I hope that I may peruade the Committee that Amendments Nos. 177 and 178 are not well founded. Subsection (8) of this clause is required in the form in which it appears in order to make it absolutely clear that the authority cannot deny the chief finance officer access to secretarial or clerical support, legal advice, photo-copying facilities or anything else he needs to send out a report. I recognise that this provision takes away control of one small aspect of an authority's resources from elected members and gives it instead to an appointed officer. The need for this move is to be regretted; but let there be no doubt that it is necessary.

It is likely that, if circumstance arise in which a chief finance officer considers that he has a duty to make a report under this clause, certain elements among the members will already have set their hearts on pursuing some illegal or imprudent course of action. We know only to well the lengths to which, in such cases, some members will go to avoid facing up to the consequences of their own irresponsibility. It is therefore vital that the chief finance officer should at all times retain the ability to draw these consequences to the attention of the authority as a whole. Obstruction of the chief finance officer would no doubt be unreasonable conduct on the part of the authority. But it would defeat the purpose of these provisions if action by the chief finance officer were delayed while this point was disputed.

The important point to remember is that we all hope that chief finance officers will very rarely even consider that they have to produce a report. Much has been made of the expense involved. However, I should like to feel that there will be very little expenditure involved because that will not be the norm. The noble Lord, Lord Underhill, drew the employee relationship to our attention. That already exists in the private sector with the recent Financial Services Act and the situation of the compliance officer.

The noble Lord, Lord Underhill, also made a point concerning his son who is a financial director. As I pointed out in relation to an earlier amendment, the chief finance officer will have as much access as he requires to legal advice. The noble Baroness, Lady Stedman, said she believed that the local authority should decide whether or not the chief finance officer required further legal advice. However, that is a decision which he will make on his own. I therefore hope that the Committee will find it possible to reject the amendments.

Before we depart from the point, perhaps I may digress to Scotland for a brief moment. We were taken there by the noble Lord, Lord Hughes, who referred to the community charges registration officer. In Scotland, the duties are of a different kind than the duties of a chief finance officer in this Bill. Therefore the powers are different. There is no comparable provision in the Scottish Act.

Lord Hughes

Before the Minister sits down, may I have an assurance that there is no power given to any officer of a local authority in Scotland to compel his authority to make such appointments as he demands? That is an important point. I had not noticed this extraordinary power which is proposed in an English form. I should have felt that we had made an awful mess in dealing with the earlier Act if we had allowed something like that to creep into it.

Lord Hesketh: In this Bill, certainly not.

Lord Hughes

With the best will in the world, that is not an answer. I am asking about the position in the Scottish Act.

Lord Morton of Shuna

I believe that the position in Scotland is that if the relevant officer feels that he is not receiving adequate staff to enable him to carry out his duties, he makes a report to the Secretary of State under Section—

Lord Hughes: Section something!

Lord Morton of Shuna

Section something of the Local Government (Scotland) Act 1973. No doubt the Minister will be able to confirm that.

Lord Ross of Newport

What position does that put the chief executive of the local authority in? He is the chief officer. He is the man who reports to the chairman, the leader of the council and all the councillors. Here the Government are giving this extra power to the chief financial officer. Any council worth its salt has a representative from the treasurer's department—if not the county treasurer or the borough treasurer himself-who would tell it what any decision is likely to cost and what extra rate if any may be required.

It seems to me that in these clauses the Government are giving county and borough treasurers superior standing to the chief executive. If I were a chief executive I would not think very highly of that.

Lord Hesketh

The reason the powers are given to the chief financial officer are very straightforward. The problems, if they arise—and it is an "if"—will arise out of his normal functions and his area of competence. Therefore he is the man best qualified to do the job.

Lord Ross of Newport

The chief officer's team is supposed to be the executive of the officers who report to the council. That is the team which was set up by the Baines Report. Those are the people who meet together, make their own recommendations and bring forward new ideas to the council. What on earth is the use of the chief officer's team if one does this kind of thing in local government?

Lord Hesketh

The Government believe that this is the most suitable and satisfactory answer to the problem.

Lord Underhill

The interchange of views indicates the foolishness of the provision in the Bill. As has been mentioned by the noble Lord, Lord Ross of Newport, if the chief executive officer did not report to his council that something was wrong—which the chief financial officer now has to do—somebody would ask what the hell the chief executive officer was doing. Surely it is his duty to see that the council functions correctly.

Once again, listening very carefully to what was said from the Government Front Bench one senses a fear of putting any reliance on local government in general. That comes out time and time again. The noble Lord, Lord Hesketh, said that this was only a little function, indicating that it involved only small funds. Let me repeat what subsection (7) says: A relevant authority shall provide its chief finance officer with such staff, accommodation and other resources as are in his opinion sufficient to allow his duties under this section to be performed". The chief finance officer will wish to carry out his responsibilities under the terms of Clause 118 faithfully and properly. Therefore he may consider it desirable to obtain the maximum possible advice. Many of us have been faced with circumstances where one is expected to cast opinions on people who are one's senior officers. It may well be that, whatever the status of the legal officer in the local authority, he may prefer not to support or to advise the chief finance officer on a particular legal point and may say that he ought to obtain counsels' opinion outside the authority because he is not prepared to do it. Therefore I believe that it is not as simple as the noble Lord suggests. I believe that a satisfactory solution to the problem would be that proposed by my noble friend Lord Hughes. The Government should have a look at it.

We are not saying that if a local authority refuses to give the kind of information that is required there should not be some way that that information could be obtained. However, that does not require the kind of draconian provision in this clause. I think that the Government could well, without any commitment, agree to take a look at the wording and see whether they could do something on the lines suggested by the noble Lord, Lord Hughes.

Lord Sandford

I hope that my noble friends on the Front Bench will do no such thing. The noble Lord, Lord Ross, a moment ago spoke as though what we were discussing was the normal administration of a local authority. Everything that he said was perfectly correct in that context. But we are not talking about that; we are talking about a situation where it appears to the chief finance officer that his authority is about to embark on an unlawful course of action.

One reason why we do not have such a provision in the Scottish legislation, I suggest, is that the Scottish local authorities have not gone off the rails to the extent that they have been led off the rails elsewhere by Militant Tendency.

Lord Hughes

As far as I can see, the noble Lord is now talking to the previous amendment. This has nothing to do with unlawful action. He has missed the boat.

Lord Sandford

I do not think that I have. It is quite true that Clause 118 dealt more specifically with that point than this amendment, but we are still in the same area. This whole part of the Bill deals with the situation which has been created by a minority of authorities which have in a variety of ways distorted and abused the financial administration and powers that were in their hands. It is entirely necessary to give the finance officer those extra powers.

Lord Hughes

I do not disagree with the Government's idea that if a local authority frustrates the intentions of Parliament by understaffing or under-equipping its departments, there should be a method of dealing with it. In recent legislation there has been more than one case in which English law has been adapted to follow the pattern in Scotland. This is a case where the Government can achieve their objectives in England in exactly the same way as they can achieve them in Scotland. The local authority is given the responsibility of appointing the necessary staff. If the finance officer—who is the official concerned in this case—feels that he cannot carry out his functions for the reasons which I quoted from the Scottish Act, he can report to the Secretary of State that the authority is depriving him of the necessary powers. The Secretary of State can then require the authority to provide the necessary staff, and the Secretary of State himself may determine what is required.

That conforms to ordinary democratic procedure in local government. It also makes certain that, where an authority acts unreasonably seeking to frustrate the operation of the finance department in the proper execution of its functions, there is a remedy. I suggest that the Government would be well advised to take this matter back and produce the alternative type of action which has been found so effective in Scotland. It has proved so effective that the Government have never sought to alter it from the time referred to by my noble friend Lord Morton of Shuna. I think that it was an Act of 1972 or 1973. That would do exactly what the Government want without impinging on the normal rights of local government.

Lord Stewart of Fulham

I am by no means as well-versed in the complexities of this Bill as most noble Lords, but I have been listening to this debate with increasing disquiet and amazement. If I have got it right, it seems to me that the chief finance officer will be able to say to the local authority which employs him, "I consider that in order to do my job properly I require an office of a certain size, a certain number of staff with such and such qualifications and a certain amount of equipment". When he has said that the local authority is legally obliged to provide it.

Is there any parallel to that anywhere at all? What would happen if the chief officers of government departments could say that to their political chiefs and to Parliament? What indeed would happen if Ministers could say to Parliament what they thought they required and Parliament had to give it? There is no parallel at all to that.

I quite understand that what the Government are worried about is a local authority trying to starve out a chief finance officer by not providing him with things that any reasonable person would consider necessary for his job. As has been pointed out, if that is what is wanted the remedy ought to lie in the hands of the Government through the Secretary of State. To place the whole matter in the hands of the finance officer himself and make him the sole judge of his needs is very imprudent financially. Local authorities might find themselves let in for more expenditure than anyone could have imagined if that were to become the general rule. So far as I know it is something quite unparalleled in any other sphere of administration. Surely the Government must think again about this matter.

6.30 p.m.

Lord Hesketh

The opening remarks of the noble Lord, Lord Stewart, are seductive, but of course the chief finance officer will not go around demanding offices, resources, photocopies, secretaries, or whatever. He is being put in the position not being denied his office, his resources, his photocopier or the use of it, and his secretary. Therein lies a subtle but most important difference. We are speaking of a highly qualified professional person who is carrying out an objective and making a decision on a professional basis.

Lord Morton of Shuna

Surely that is absolutely untrue. If the relevant authority believes that the chief finance officer has gone off his head and is asking for more than one hundred times the staff that he needs, what remedy is available to the authority? Under this section the duty is to provide what in his opinion the chief finance officer wants, and whether it is reasonable or unreasonable does not matter. There is no remedy there.

Lord Hesketh

I do not think that is entirely true. There is a 21-day period—and it can be much shorter if the council wish—to call a meeting concerning the report that has been produced by the chief finance officer. The proof of the pudding will be in the eating and resides in the fact that the audit officer will immediately throw out the report if the finance officer has gone completely off his head, as the noble Lord, Lord Morton, insinuated that he might.

Lord Underhill

Should this debate on these two amendments go much further, it will not be long before the Government recognise that there must be a change. A sufficiency of arguments has been put forward. The noble Lord, Lord Hesketh, used the argument that the chief finance officer must not be denied his resources. Where is that stated in subsection (7)? The noble Lord is using his powers of invention. Subsection (7) states that the local authority must provide resources if the chief finance officer thinks he needs them, and that is something totally different.

The Government are being totally unreasonable about this matter. I see that the Minister is reading a further note. I hope that it is a note to say that they will have another look at this point. If he is prepared to promise that, I shall sit down immediately, but I do not think that that is the case. This is an important matter and the question of principle has been raised. We shall look carefully at what the noble Lord has said. I believe that his words belie the authority of the Bill. We shall have to consider coming forward with another amendment at Report stage on the lines suggested by the noble Lord, Lord Hughes. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Hughes

Before the noble Baroness, Lady Stedman, says that she does not intend to move her amendment, perhaps I may ask the Minister, the noble Earl, Lord Caithness, to look at the Scottish position and give me information about it in writing.

Lord Hesketh: Yes, my Lords.

[Amendment No. 178 not moved.]

On Question, Clause 118, as amended, agreed to.

Clause 119 [Authority's duties as regards reports]:

Baroness Stedman moved Amendment No. 179: Page 65. line 42, after ("118(2)") insert ("or (3").

The noble Baroness said: This amendment and Amendments Nos. 180 and 181 are dependent upon the two amendments that we have just been discussing. Since the Committee has not accepted that it is the council which should decide the level of resources and cost as part of its overall duty, it is no good proceeding with these amendments and therefore I shall not press them. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 180 and 181 not moved.]

Lord Hesketh moved Amendment No. 181A: Page 66, line 12, leave out paragraph (b) and insert— ("(b) ending with the first business day to fall after the day (if any) on which the authority's consideration of the report under subsection (2) above is concluded. (10) If subsection (3) above is not complied with, it is immaterial for the purposes of subsection (9)(b) above. (11) The nature of the decisions made at the meeting is immaterial for the purposes of subsection (9)(b) above. (12) In subsection (9)(b) above "business day" means any day other than a Saturday, a Sunday, Christmas Day, Good Friday or a day which is a bank holiday in England and Wales.").

The noble Lord said: In moving Amendment No. 181A, for the convenience of the Committee I propose to speak also to Amendments Nos. 193A, 193B and 193C. Government Amendment No. 181A is concerned with the definition of the prohibition period during which the local authority may not proceed with the course of conduct which has led to a report being made by the chief finance officer or, in the case of a report made under Clause 118(3), enter into any new financial commitment. It has two effects. First, the definition of the prohibition period as it appears at present in Clause 119(9) may give rise to some ambiguity. It refers to the day on which the report is considered but it does not acknowledge that major debates at council meetings may well last beyond midnight. There may also be an adjournment. In those circumstances, on which day would the prohibition period end?

Obviously that point needs to be made clear and the new subsection (9)(b) inserted by this amendment does that. It takes as its reference point the day on which the consideration of the report is concluded. However, the amendment goes a little further than that. We wish to take this opportunity also to extend the prohibition period by a further working day beyond the day on which the discussion of the report is concluded. Thus, if a debate were to finish at 11 p.m. on a Tuesday evening, the prohibition period would continue until midnight on Wednesday. However, if the meeting lasted until, say, I a.m. on Wednesday morning, the prohibition period would extend until midnight on Thursday.

The purpose of this aspect of the amendment like the amendments to Clause 118 that we have already considered, is to ensure that the new duties for the chief finance officer work harmoniously with the new powers of the local authority's auditor provided in Section 25A of the Local Government Finance Act 1982.

To explain that more fully, at this point I must turn to the Government's Amendment No. 193B, which is an amendment to Schedule 15. In part, it will have the effect of amending further the 1982 Act so as to restrict the auditor's power to issue a prohibition order under Section 25A of the Act. The Committee may recall that the new Sections 25A to 25D were inserted in the 1982 Act by Schedule 4 to the Local Government Act 1988.

We do not think it desirable that the auditor should be able to issue a prohibition order concerning a matter on which the chief finance officer has reported while that report awaits consideration by the authority. It would not only be superfluous for those powers to be able to be exercised concurrently; it would also lead to confusion and uncertainty. The auditor would have to determine whether in his view the authority was likely to breach the prohibition under Clause 119 and thus whether he was justified in issuing an order. That would be invidious. If he did not issue an order when he was free to do so, that might be taken to cast doubt on the validity of the opinion expressed in the chief finance officer's report.

For the sake of clarity and simplicity, we believe it best if the auditor's power to issue a prohibition order were in abeyance pending the authority's consideration of the chief finance officer's report. In any case, the authority would be prohibited by Clause 119 from proceeding with the matter reported on during that period. The Government's Amendment No. 193B would therefore add a new sub-paragraph 6(1B) to Schedule 15, the effect of which is to insert a new Section 25AA into the Local Government Finance Act 1982. This new section provides that the auditor may not issue a prohibition order in respect of a matter on which the chief finance officer has made a report under Clause 118 of this Bill during the period between the issuing of that report and the authority's consideration of it. More precisely, the restriction on the auditor runs from the day on which copies of the report are sent by the chief finance officer to the end of the day on which the authority's consideration of the report begins.

As the Committee will perceive, that formulation, taken together with the extension of the prohibition period provided in Amendment No., 181A, means that there will be an overlap of at least one and possibly two working days on which the auditor is free to issue an order, but the authority is still bound by the prohibition arising from the chief finance officer's report. If, for example, a debate began at 8 p.m. on Tuesday and finished at 1 a.m. on Wednesday, the period of restriction on the auditor would end at midnight on Tuesday. However, the prohibition period imposed on the authority would not end until midnight on Thursday.

The reason for this overlap is simple. Having restricted the auditor's exercise of his powers in this way, it would not be sensible to create a situation in which the authority, properly advised by its chief finance officer that a proposed course of action—for example, a financing agreement—was unlawful, could commit itself to the arrangement immediately after its meeting and before the auditor could issue an order. It does not follow either that a responsible authority would decide to ignore the professional advice of its chief finance officer, after due consideration by the full council, nor, if it does, that the auditor would take the same view of the situation as the chief finance officer and wish to issue an order. But, should those circumstances arise, it is sensible to ensure that there is no loophole through which an authority bent on unlawful conduct can slip.

Government Amendment No. 193B also inserts a new sub-paragraph (1C) into paragraph 6 of Schedule 15. This is straightforward and consequential upon Amendments Nos. 117G, 117H and 117J, which we discussed last Thursday, providing for the Audit Commission to make arrangements for the certifying of authorities' contributions to the national non-domestic rate pool

Government Amendments Nos. 193A and 193C are mere restructuring of the numbering of paragraph 6 of Schedule 15 in consequence of the insertion of new sub-paragraphs (1B) and (1C). I beg to move.

Lord McIntosh of Haringey

If the Government had issued this prospectus in their election manifesto I wonder whether it would have been greeted with the wild enthusiasm which the community charge originally received, according to Government sources. This is reductio ad absurdum the policy towards which the Government's introduction of the community charge and their controls on local authorities has been leading them. We now have reached the stage where one has to lay down to the nearest midnight the time period for the last bit of central government interference in the legitimate activities of local authorities. I despair. I do not know why the Government mess around on the margin in this way. Why not abolish local government? Have done with it! Alternatively, as a moderate compromise proposal, why do they not ensure that local authority councillors are locked up for 24 hours after the end of their council meeting, preferably in handcuffs? That might achieve the objective.

On Question, amendment agreed to.

Clause 119, as amended, agreed to.

Clause 120 agreed to.

Clause 121 [Rates and precepts: abolition]:

The Earl of Caithness moved Amendments Nos. 181B and 181C: Page 67, line 3, leave out (", district council or London borough council") and insert ("or charging authority"). Page 67, line 5, at end insert (", combined police authority, combined fire authority, magistrates' courts committee or probation committee.").

The noble Earl said: I beg to move Amendments Nos. 181B and 181C en bloc.

On Question, amendments agreed to.

On Question, Whether Clause 121, as amended, shall stand part of the Bill?

Lord Ross of Newport

I am very grateful that the noble Earl has returned to the Bench. I do not wish to throw a fast ball at him. I received a letter only today. I have not had a chance to give him notice of the point I wish to raise.

Clause 121 of the Local Government Finance Bill provides that, The General Rate Act 1967 shall not have effect…after 31 March 1990". After that date no dwellinghouse will have any annual rateable value, let alone a rateable value of £35 and upwards. The £35 and upwards, I can now reveal, relates to the commoners of Wimbledon and Putney. I wish to place on record that the Government have to consider the problems of people such as the commoners of Wimbledon and Putney. The estate goes back to 1860 and the Earl Spencer. If it is not possible to answer now, I understand. Perhaps the noble Earl can write to me. Perhaps we can have some indication whether this is taxing the Government's mind. We hope to have a definite indication before the Bill is on the statute book.

The Earl of Caithness

The noble Lord, Lord Ross of Newport, raises an important point about the commoners at Wimbledon. I can assure the Committee that it was fresh in my mind yesterday because I thought that was when the noble Lord would raise the matter. Since then I have been concentrating on today's amendments. The matter is not quite so fresh. Perhaps I can write to the noble Lord.

Clause 121, as amended, agreed to.

Clause 122 [Statutory references to rating]:

[Amendments Nos. 182 and 183 not moved.]

[Amendment No. 184 had been withdrawn from the Marshalled List.]

[Amendment No. 184ZA not moved.]

Clause 122 agreed to.

6.45 p.m.

The Earl of Caithness moved Amendment No. 184A: After Clause 122 insert the following new clause:

("Rating of statutory wafer undertakings.

.—(1) The following section shall be substituted for section 31 of the 1967 Act—

"Statutory water undertakings.

31.—(1) The rateable values of the hereditaments in any rating district which are occupied, otherwise than as dwellings, for the water purposes of a statutory water undertaking (hereafter in this section and in Schedule 4 to this Act referred to as "water hereditaments" of the undertaking) shall be ascertained in accordance with the provisions of the said Schedule 4.

(2) For the purposes of subsection (1) of this section, a hereditament is occupied for the water purposes of a statutory water undertaking if it is occupied for the purposes of any of the undertakers' functions with respect to the supply of water.

(3) In this section and the said Schedule 4, references to statutory water undertakers shall be construed in accordance with section 11(6) of the Water Act 1973 (and references to statutory water undertakings shall be construed accordingly)".

(2) This section shall have effect in relation to any proposal made on or after 10th March 1988 which is outstanding on the passing of this Act but shall not have effect in relation to any proposal made before 10th March 1988.").

The noble Earl said: In moving Amendment No. 184A, I shall touch upon Amendment No. 184AA, which is an amendment to Amendment No. 184A, Amendment No. 184B, and again touch upon Amendment No. 184BA, which is an amendment to Amendment No. 184B, and my third amendment, which is Amendment No. 184C. I am afraid that I shall detain the Committee a little time on this. These are technical and highly complicated matters and it is right that I should spell them out in some detail and explain them to the Committee.

These three new clauses with which Amendments Nos. 184A, 184B and 184C deal are all concerned with maintaining long-held understandings about the way in which the rating system operates under the General Rate Act 1967.

Perhaps I may deal with Amendment No. 184A first. This deals with the rating of some of the hereditaments occupied by water authorities. As things stood, some of these were rated by statutory formula whereas others were separately entered in the valuation list. On 4th December 1987 the Court of Appeal ruled in the case of the Severn Trent Water Authority v. Cakebread that the Water Act 1973 had changed the definition of a statutory water undertaking's functions so as to treat all hereditaments occupied by a water authority as being rated under the statutory formula for the water industry.

This has had the effect of requiring a substantial number of hereditaments, chiefly sewage treatment works, to be deleted as separate entries in the valuation list. Thus these properties, which we had always thought should be separately rated, were effectively by the court decision excluded from rating. However, there has been no corresponding increase in the cumulo value under the formula, although the court held that in principle this was now meant to include the value of sewage works, so that a substantial amount of rateable value—about £18 million—has been lost to local authorities.

A loss of this magnitude is not something that we could contemplate continuing indefinitely. The provisions for the rating of water authority hereditaments from 1990 contained in Part III of the Bill will enable us to apply the formula rateable value only to the hereditaments it was meant to cover and provide for continued separate assessment of sewage treatment works. Amendment No. 184A thus makes provision for the intervening period up to 1990 by putting the law back to what we and almost everyone else thought it was.

Amendment No 184B deals with another recent decision, that of Clement v. Addis. Your Lordships' House considered the different but important question of what changes are to be taken into account when a property is revalued between general revaluations. Previously it had long been accepted that any valuations made between general revaluations should take account of the physical condition and state of locality at the time of valuation, but the general market conditions were to be assumed to be those ruling at the time of the last general revaluation.

It was generally accepted that the expression "state of the locality" in Section 20 of the General Rate Act related to physical state and amenities of a property and that in order to make a case for a change in rateable value, appellants had to show that there had been some physical changes to the property or to its locality. This view was recently tested in the Addis case which turned on whether a factory on the borders of the lower Swansea valley enterprise zone could rely on the introduction of the enterprize zone to seek a reduction in rateable values on the grounds that the "rate holiday" in the enterprise zone reduced demand for premises just outside it. The Court of Appeal upheld the traditional view by holding that the establishment of an enterprise zone was not a change affecting the state of the locality. Your Lordships' House took the opposite view.

Following that judgment, it appears that ratepayers generally, and not just those near enterprise zones, may obtain changes in rateable value to reflect changes in market conditions since 1973. Although the losses in rate income from cases directly linked to Addis have so far been limited, that could in time lead to many thousands of cases being determined in this way and could lead to a continuing—and I might say almost "rolling"—revaluation as economic circumstances change.

In the Government's view that is not appropriate. Changes in economic circumstances are properly dealt with at the time of revaluation. Under the Bill, there will be a general revaluation in 1990 and every five years thereafter; therefore, there will be no risk of ratepayers having to wait as long as they have in the past for new assessments which take account of changed market circumstances and their effect on rentals.

Amendment No. 184B, which applies to the valuations made under Section 20 of the General Rate Act 1967, sets the law back to what it was previously held to be for the remaining life of that Act. On Report, we shall be tabling a further amendment to Schedule 6 of the Bill to ensure that this principle of valuation is carried through into the new legislation.

As the Committee will be aware, once the courts have made a decision in a particular case, all other cases turning on the same point of law fall to be judged in the same way. Cakebread and Addis decisions therefore left the way open for a continuing erosion in rateable values across the country. On 9th March 1988 my right honourable friend the Secretary of State therefore announced in another place that he would be making these amendments with effect from midnight on that day. That means that all proposals for deleting water authority hereditaments from the valuation list or the values of industrial premises that had been subject to changes in economic circumstances which were made before that date would fall to be determined in accordance with the court's judgments. However, any proposals made after that date would be subject to the revised principles contained in these new clauses. The final subsection in each of the two clauses provides for that. I am sure that the Committee will agree that it is only right and proper that, although urgent changes in the law were needed in these cases, a proposal should be judged on the basis of the law as it stood at the time the proposals were made.

That leaves us with the question of how proposals to restore hereditaments to the list or to restore their old values should be dealt with. The new clause contained in Amendment No. 184C addresses this. We felt that it was only right that if proposals aimed at taking advantage of those decisions were barred as from 10th March, then proposals which had already succeeded in doing so should be capable of reversal from that date by way of a new proposal from the valuation officer.

That is what Amendment No. 184C does. Moreover, because a valid proposal to reverse the position cannot be made until after this Bill is on the statute book, it provides that notwithstanding the usual procedures in the General Rate Act, proposals to alter a valuation in these cases can go back to 10th March, before the start of the rate year.

In tabling this amendment we seek to limit the effect of these decisions on local authority revenue. I agree that these effects are not trivial, although I should point out that in general local authorities benefit far more than they lose by year on year changes in the aggregate level of rateable value; in general the rateable value base increases by between 1 and 2 per cent. per year.

However, there are swings and roundabouts. As a result of the two court decisions we are discussing, the authorities will experience some loss. In aggregate, the amounts due to be refunded in respect of proposals made before 10th March this year are only of the order of one half of 1 per cent. of local authority rates revenue for 1988/89.

These effects are not of course evenly spread between local authorities. Some may lose more than others. As my right honourable friend pointed out in his announcement on 9th March, there are provisions in Section 67 of the Local Government Planning and Land Act 1980 for authorities to be compensated if they suffer a reduction of more than a prescribed proportion—currently 22½ per cent.—in their rateable value in any year. This proportion indicates the level of losses that Parliament has taken the view would be excessive; if losses above this amount are incurred, the additional amount will be the subject of compensation payments. My right honourable friend will of course consider any representations from the local authority associations about these issues.

I am aware that some water authorities have lodged applications for further repayments by local authorities under the provisions of Section 9 of the General Rate Act 1967. In lodging these applications, they may have had in mind the implications of your Lordships' decision in the case of Tower Hamlets v. Chetnik Developments, the implication of which is to limit the discretion of authorities as to whether or not to make repayments. In our view, it is unlikely that this decision would have the effect of requiring local authorities to use their powers under Section 9 to make any further repayments; the cases are different in character. Nevertheless, recognising that the sums involved could be very substantial, and that the uncertainty is likely to create problems for local authorities' budgets, we propose to table a further amendment at Report stage to clarify the position on Section 9 by confirming that it will not apply in those cases.

I recognise the concern that has been expressed over the effects of these decisions on local authority revenues. That is a point on which doubtless the noble Lord, Lord McIntosh of Haringey, will dwell when moving his amendment. I think that they are much exaggerated. The losses are not unsustainable, and as I have said, there is provision for compensation in the worst cases. I repeat that when my right honourable friend made his Statement on 9th March he confirmed that he would listen to representations from local authorities.

The alternative, which Amendments Nos. 184AA and 184BA propose, is simply not acceptable. The noble Lord, Lord McIntosh, is seeking to make Amendments Nos. 184A and 184B fully retrospective, such that the rateable values affected by the Cakebread and Addis cases were deemed never to have changed. Retrospective powers are not to be used lightly, particularly where they seek to extinguish the rights that an individual has fought for and gained in the courts. In this case, it would remove from individuals substantial sums of money which, particularly following my right honourable friend's Statement on 9th March, they were legitimately entitled to expect. The amendments proposed also highlight the difficulties that would be faced with any sort of truly retrospective legislation. They fail to acknowledge that people have been acting on the basis of the new construction of the law given by the courts. Dealing with this would be problematic, as I am sure the Committee will understand.

The courts did establish what the law actually is, and there is no getting away from that fact, even though this differed from what we and others had previously understood it to be. The Government have moved expeditiously to limit the effects of that change in law, and to make available compensation in the most serious cases. This surely should deal with the problem. I beg to move.

Lord McIntosh of Haringey moved, as an amendment to Amendment No. 184A, Amendment No. 184AA: Subsection (2), line 2, leave out from ("after") to end of line 4 and insert ("1 April 1974").

The noble Lord said: I believe that the procedure is that I am speaking to Amendment No. 184AA in responding to the noble Earl on Amendment No. 184A.

The Committee is grateful to the noble Earl for his patient exposition of what is a most complicated piece of law and legislation. We were aware of its implications from at least 9th March of this year when the Secretary of State made his Statement in another place. The Minister will be aware that my honourable friends in another place did not oppose the announcement of the Secretary of State that as from midnight he would impose retrospective legislation to deal with the matters which arose from the Cakebread and Addiscases.

On a matter of timing, I must say that it is now more than three months since 9th March. When the Secretary of State was challenged by my honourable friends in another place as to when he would be producing the amendments, he said that he could not produce them in time for the Committee stage in another place because the Standing Committee was still sitting but he hoped he would be able to produce them on Report.

In the event we land up with amendments which not only come to us at our Committee stage rather than going to the Commons Report stage, but do not even come at the beginning of our proceedings. I do not deny that we have had adequate time to consider them. I am not making that point. However, it has taken almost three months for the Government to produce amendments.

The third consequential amendment to deal with the Chetnik case has still not been produced and will not be available until our Report stage. That is not good enough. A period of three months to consider this matter is more than adequate. It ought to have gone before the Commons at its Report stage if the Secretary of State's hopes had been achieved, and they ought to have been achieved.

The issue with which we are concerned, and which the Minister rightly identified, is the cost to local authorities of the refunds that they will have to make on those issues which were decided by the courts before the prohibition imposed by the Secretary of State at midnight on 9th March. The noble Earl said airily that the refunds amounted to less than one-half of 1 per cent. of the rate revenue. if he would be good enough, I should like him to turn that into millions of pounds because I suspect that it is a large figure. My understanding is that the Department of the Environment and the Valuation Office of the Inland Revenue estimate that the refunds could amount to £90 million in respect of theCakebread n case alone, and the local authority associations regard that estimate as being conservative. If the Section 9 refunds are not dealt with, then the amount could come to something like £250 million.

These are not small figures. They are certainly not small figures in relation to the allegations of abuse of expenditure by local authorities which are constantly made from the Government Benches. It is incumbent on the Minister to say more than just cheerfully "less than one-half of 1 per cent.," even if those figures were to be agreed as being correct.

It is worse than the gross amount because the amounts that local authorities will suffer are not spread evenly over all local authorities. They occur specifically in the case where local authorities have sewage and water treatment plants which have now been taken out of the rolls, and there are a number of local authorities which will suffer losses of well over million, and in some cases over £2 million. They occur in those local authorities—admittedly I think it is only19—which have enterprise zones, but those too will suffer quite severely. The Minister must give a better reason for resisting our amendments on the refunds which are designed to protect local authorities from this serious loss of revenue.

I am not saying that I am in favour of retrospective legislation, and I certainly do not treat these amendments as being other than probing amendments to bring before the Committee the seriousness of the financial loss that will be faced by a selected number—perhaps not a large number—of local authorities. I hope that the Minister will not accept these amendments; to do so would be a quite unjustified extension of retrospective legislation. I hope he will recognise that the case has been made for more generous treatment of the refunds that local authorities will undoubtedly have to make, and the revenue that they will have lost, for the period between when the law was established and the law was found to be other than what the department and we thought it was. I hope that the Minister will be able to say enough about that to enable me to withdraw the amendments that I have put down to his amendment.

Lord Ross of Newport

I feel that I would be letting down my profession if I did not make some comment on Amendment No. 184B. The Government are not being very generous to industrialists and others who have found, through economic changes, a diminution in their rentals and capital values and in their resource income. I happen to think that the Law Lords probably had it right in that decision, and to say that to have to wait five years for a revaluation is not very long does not seem to me to be playing the game.

Of course when the Government set up enterprise zones there was bound to be a deleterious effect on the rental values of properties on the fringes of those zones. That is presumably what happened in the Addis case in Swansea. Certainly the retail consortium and professional colleagues think that it is not playing the game on the part of the Government to say that any future changes in market conditions will have to wait until revaluation in five years.

A planning decision can have a disastrous effect quite quickly on a town's shopping areas, and things of that sort. I have not put down any amendment; but I put down a marker that we might have to consider this aspect again at Report stage. I do not think that the Government are being just in what they are putting forward in this amendment. That does not mean that I do not totally support what has been said, that local authorities should be properly rated. I water authorities should be properly rated. I congratulate the Government on doing that when they are going to privatise the water companies, because it might have been an asset that they could have used. I fully support the fact that they are going to bring them back into rating.

The Earl of Caithness

The noble Lord, Lord McIntosh, said that 1 had, in a somewhat airy fashion, indicated that the amount to be refunded in respect of these proposals would be half of 1 per cent. of local authority rate revenue. I agree that that is a substantial sum. If the noble Lord will recall, I was of course comparing it to the fact that the rateable base value increases between 1 per cent. and 2 per cent. a year. In that context it is not such a frightening figure as may at first appear. Of course the figures that the noble Lord mentioned are substantial ones. What I would say to him is that we are still considering the implications, and considering some of the representations that have been made to us by the local authority associations.

I have quite a lot to say to the noble Lord about the full retrospection that the noble Lord suggests by his amendment is appropriate. Perhaps I could condense this down to one point, which I am sure his noble friend Lord Morton of Shuna would confirm. If a private individual rather than a public authority is to be deprived of vested financial rights, this would be a breach of Article 1 of the First Protocol to the European Convention on Human Rights. Therefore, I fear that we might have been in a little difficulty if the noble Lord's amendments were accepted.

The noble Lord, Lord Ross of Newport, considered our decision on Addis to be unfair. By implication, from that he must consider that the compulsory five-year revaluation that we are now bringing in is not satisfactory and does not provide the necessary safeguards; and he would doubtless prefer a shorter period of time. I would think that the noble Lord might even prefer a rolling revaluation, which I can advise the Committee would lead to enormous complications and be extremely time-consuming for the valuation officers.

Of course the problem has been highlighted by the fact that we have not had revaluations in England since 1973. I think since 1948 we are supposed to have had eight revaluations and we have had only three, which is grossly unfair—as the noble Lord said, and speaking with my own surveyor's hat on—to some areas where there has been a material change in the surrounding areas. Of course the noble Lord, Lord Morton of Shuna, benefits from the fact that in Scotland there has been a regular revaluation on a five-year basis.

Lord Morton of Shuna

I wonder whether the noble Earl would give way? If he would wait while his noble friend Lord Sanderson of Bowden deals with the next amendments he will hear that the Scots do not feel that their revaluations, which have gone on every five years, in fact benefit them. Perhaps I may suggest that he reads the documents provided by the Scottish CBI and the Scottish Council for Development and Industry, which would give him a great deal of news about revaluation.

The Earl of Caithness

I am most grateful for that intervention and I am sure my noble friend Lord Sanderson of Bowden will have a ready reply to the noble Lord. I think that, on reflection, the Scots may consider that they are overall better off having a five-yearly revaluation rather than being the possessors of properties and hereditaments in England where we have not had a revaluation for 18 years. However, although I take the point which has been raised by the noble Lord, Lord Ross, it is one that I cannot recommend to the Committee. I do not think that a revaluation is the right answer, particularly at the present time when we have not had one for so long.

Lord McIntosh of Haringey

As I said at the beginning, my amendments were probing amendments, to see whether I could draw the Government out a little more as to the amounts of money concerned. The noble Earl has not been drawn out; he still has not confirmed or denied the figures I gave: nor has he said whether the Government are considering compensation for those local authorities which are particularly badly affected. Before begging leave to withdraw the amendment, I wonder if I might try once more to see whether we can make any further progress.

The Earl of Caithness

if 1 recall rightly, I believe I said that the figures quoted by the noble Lord were indeed large sums of money. That means I did not contradict the noble Lord. As I understand it—and I shall need to check these figures—the loss to the authorities for Cakebread is something like £90 million in total, which is precisely the figure quoted by the noble Lord; and for the Addis decision, it is between £30 million and £40 million in total.

Lord McIntosh of Haringey

I am grateful to the noble Earl. Can he help the Committee about the compensation aspect and what help is to be given, bearing in mind that it is a limited number of local authorities which suffer heavily and that the comparison which the noble Earl made with the overall general increase in rate revenue is really not appropriate for those authorities?

The Earl of Caithness

I thought I had covered that point more fully than the earlier one. I admitted that it was unevenly distributed throughout the country.I said that compensation would be paid in the worst circumstances and that of course we were listening to local authority representations at the moment.

Lord McIntosh of Haringey

I am most grateful. I acknowledge, as I ought to have done right from the beginning, that the department has been in continuous consulation with the local authority associations. That must be the right way to do it and that was recognised from the outset by my honourable friends in another place. I am particularly grateful to the Minister for condensing his speech on retrospection since it became clear that I was not going to pursue the issue of retrospection back to 1974. I am sure the Committee will be as grateful as I am for that. In view of the statements made by the Minister, I beg leave to withdraw Amendment No. 184AA.

Amendment, to Amendment No. 184A, by leave, withdrawn.

On Question, Amendment No. 184A agreed to.

The Earl of Caithness moved Amendment No. 184B: After Clause 122 insert the following new clause:

("Valuation according to tone of list.

.—(1) Where for the purposes of section 20 of the 1967 Act a hereditament is valued on the basis of the assumptions specified in subsection (1) of that section (basis of valuation for the purposes of proposal to alter a valuation list to be consistent with the tone of the list), no account shall be taken of a change to which this subsection applies unless it is one which—

  1. (a) affects the physical state of the hereditament or otherwise affects it physical enjoyment; or
  2. (b) affects the physical state of the locality in which the hereditament is situated or is otherwise physically manifest in that locality.

(2) Subsection (1) above applies to any change in the state of the hereditament or the state of the locality in which the hereditament is situated which has occured since the time by reference to which the value of the hereditament is to be ascertained, other than one relating to a factor which is a relevant factor within the meaning of that section.

(3) This section shall have effect in relation to any proposal made on or after 10 March 1988 which is outstanding on the passing of this Act but shall not have effect in relation to any proposal made before 10 March 1988.").

[Amendment No. 184BA not moved.]

On Question, Amendment No. 184B agreed to.

7.15 p.m.

The Earl of Caithness moved Amendment No. 184C: Insert the following new clause:

("Rating amendments: supplementary.

.—(1) This subsection applies to a proposal for an alteration of a valuation list which, if made, would have the effect of rating as a non-water hereditament of a statutory water undertaking a hereditament whichm—

  1. (a) was previously so rated but ceased to be so rated by virtue of an alteration made on or after 4 December 1987;
  2. (b) was occupied for the purposes of the undertaking at the time of the proposal in pursuance of which the earlier alteration was made; and
  3. (c) was not at that time occupied for the purposes of the undertakers' functions with respect to the supply of water.

(2) This subsection applies to a proposal for an alteration of a valuation list which—

  1. (a) would, if made, have the effect of reversing an alteration of the list made on or after II February 1988; and
  2. (b) would not fall to be made but for section [Valuation according to tone of list] above.

(3) Where in the case of a proposal to which subsection (1) or (2) above applies there has been, since the making of the proposal in pursuance of which the earlier alteration was made, such a change of circumstances in relation to the hereditament to which the proposal relates as is mentioned in any of paragraphs (a) to (h) of section 68(4) of the 1967 Act, the change of circumstances shall be disregarded for the purposes of dealing with the proposal.

(4) This subsection applies to an alteration of a valuation list which—

  1. (a) is made in pursuance of a proposal to which subsection (1) above applies; or
  2. (b) has the effect of reversing an alteration of the list made on or after 11 February 1988 and would not have fallen to be made but for section [Valuation according to tone of list] above.

(5) An alteration to which subsection (4) above applies shall be deemed to have had effect—

  1. (a) if the earlier alteration was made in pursuance of a proposal made before 10 March 1988, from that date; and
  2. (b) if the earlier alteration was made in pursuance of a proposal made on or after 10 March 1988, from the date that the earlier alteration had effect;
notwithstanding in either case that the date from which the alteration is deemed to have had effect differs from the date provided by section 79(1) of the 1967 Act.

(6) For the purposes of subection (1) above, a hereditament is rated as a non-water hereditament of a statutory water undertaking if its value is ascertained otherwise than in accordance with the provisions of Schedule 4 to the 1967 Act.

(7) In this section, the reference in subsection (1)(c) to statutory water undertakers is a reference to a water authority or statutory water company within the meaning of the Water Act 1973 and "statutory water undertaking" shall be construed accordingly.

(8) In this section and sections [Rating of statutory water undertakings] and [Valuation according to tone of list] above—

  1. (a) "the 1967 Act" means the General Rate Act 1967;
  2. (b) "valuation list" has the meaning assigned by section 115(1) of that Act; and
  3. (c) references to the date on which a proposal is made are references to the date on which the proposal is served on the valuation officer or, where the proposal is made by the valuation officer, is served on the occupier of the hereditament to which the proposal relates.").

On Question, amendment agreed to. Clauses 123 to 126 agreed to.

Clause 127 [Rates levied for certain years]:

Lord Carmichael of Kelvingrove moved Amendment No. 184CA: Page 69, line II, leave out subsections (2) to (4) and insert— ("(2) Where a revaluation of rateable values of non-domestic properties produces a substantial change in the total rate payment, the Secretary of State may, following consultation with relevant local authority associations and other interested parties, introduce a Rating Revaluation Rebate Scheme.").

The noble Lord said: Perhaps it would be for the convenience of the Committee if we also dealt with Amendment No. 184CD. These amendments are very important. They deal with the rates payable on commercial and non-domestic properties. I should suggest to the noble Earl, Lord Caithness, who is not now in his place, that if he thinks that everything in Scotland is easy he should have a word with his noble friend Lord Sanderson and invite him to visit the Perth conference in 1991—the Conservative Party Conference of course—to see what the reactions are there.

The purpose of Amendment No. 184CA is to provide an opportunity to compare what happened as a result of the last revaluation in Scotland with what is proposed for 1990. It is also to draw attention to the fact that the Scottish arrangements differ from those for England and Wales. Although transitional protection for revaluation is allowed for in terms of Clause 49 for England and Wales, authorities there will have, with the approval of the Secretary of State, an ability to set a rate poundage slightly in excess of the retail prices index increase in order to compensate for any loss of income arising from the phasing-in of increases in rate bills. That is dealt with in paragraph 7 of Schedule 7. Also, unless local authorities in Scotland are allowed to charge this loss to other non-domestic ratepayers or compensation is provided by the Government, the shortfall can only be made good by poll tax, by domestic ratepayers or by quite considerable reductions in expenditure.

Rating valuation is based on property values and consequently the 1990 revaluation will give effect to property value levels at the appropriate date. Shifts of value (both up and down) since the previous revaluation will therefore be taken into account in the values that are arrived at. Artificial phasing-in factors such as those proposed in this clause undermine this process of revaluation. It is difficult to see how they can be applied even-handedly in Scotland and also in England and Wales.

Anomalies can also occur, for instance, where property is modernised or extended at the same time as it is revalued or where subjects such as licensed premises or mines and quarries have greatly improved their drawings or output from one revaluation to another. A mere comparison of the before and after revaluation position is not enough. I could give examples of cases. Indeed, over a five-year period there could be quite a large number of cases. It is not automatically easy to get any sense out of a before and after revaluation. The Minister may remember that following the 1985 revaluation, the Secretary of State, alarmed at what had happened, at the conference, allowed a£50 million package for one year to provide 100 per cent. rebates for all properties, domestic and non-domestic, where the pre-revaluation levels had increased by a factor greater than three. A limit of£10,000 was set for any individual property. Subject to that constraint, any excess rateable value above the factor of three was fully rebated.

The percentage rebate and individual claim limit has been progressively reduced from 100 per cent. to 75 per cent., 50 per cent. and 25 per cent. Over the four-year period the rebate claims that have been met outwith the RSG system have cost about£57 million. The main advantage of such a rebate scheme approach is that the reduction in income and compensation arrangements can be clearly identified and rests with central government whereas a phasing-in arrangement will tend to fudge the real costs. The main thrust of the amendment is to expose the different financing treatments proposed for Scotland and England and Wales and to have on record how the Government see the transitional protection for non-domestic ratepayers in Scotland being paid for.

I deal now with Amendment No. 184CA. The Minister will surely accept that there is growing concern and unrest that Scotland may well lose out under the Government's plans for non-domestic rating. While the uniform business rate will operate in England and Wales from the beginning of April 1990, present indications—unless the Minister can clear this up—are that Scotland will not feature in that arrangement until well into the 1990s. I know that the Minister is well in touch with Scottish business interests and very concerned at the costs of rating to Scottish business. This arrangement could mean a further financial burden or barrier for business and commercial interests in Scotland, as I shall explain. The amendment offers a short-term solution provided that the Government are prepared to finance a change until arrangements are in place for the operation of the uniform business rate throughout Scotland, England and Wales.

The Scottish Council for Development and Industry is very concerned about this. It has had a number of meetings and has done some basic work on the subject. It is concerned that while a 1990 revaluation appears feasible on the existing systems, implementation of a harmonised system will have to follow at a later date. Our estimate and that of the Scottish Council for Development and Industry is that this will probably not be before 1995. Legislation will be required thereafter to extend the uniform business rate to Scotland. For a substantial interim period therefore it is likely that the uniform business rate will be in operation for England and Wales but not for Scotland. This could be very damaging to industrial development prospects in Scotland and to the successful operation of existing businesses.

I mentioned earlier the question of a barrier. The revaluation in England and Wales and the introduction of a uniform business rate there would have the effect of reducing rates paid in the North of England. We shall work on that assumption. There will be a positive stimulus to location of industry and commerce in the North rather than in the South of England. This could be a barrier to development in Scotland unless some kind of compensation is made to allow Scotland to compete on equal terms.

The committee of the Scottish Council for Development and Industry proposed an extension of the de-rating system to non-manufacturing subjects as the preferred solution. Manufacturing subjects already have a 40 per cent. allowance on rates. If something similar could operate for non-manufacturing subjects until Scotland and England are working on the same basis, the Scottish Council for Development and Industry believes that this would go a long way to giving some parity until a uniform business rate is in operation nationally. I beg to move.

Lord Taylor of Gryfe

The amendments provide the opportunity for the Minister to say a word on how the glaring anomalies drawn to his attention by representative organisations and Members of the Committee might be dealt with. I know from conversations with the Minister that he shares the concerns expressed about the anomalies.

I have drawn attention to one particular case on a number of occasions. I do this not because I am concerned about the company in question but because it is a symbol of the anomalies. I referred earlier to the Exxon Corporation in Mossmoran, Fife, which was induced and encouraged by the Scottish Office, Locate and other agencies to come to Scotland and invest in a large chemical plant. It is connected with the American company of Standard Oil, New Jersey. It came to Scotland and invested£400 million. For its pains, because of the contractor principle of rating, it is charged£9 million per annum in rates by Fife County Council, the local authority. Had it gone south of the Border to Carlisle or Newcastle, the rates bill would have been less than£1-5 million. It is charged an annual burden of£7 million to£8 million by locating in Scotland. This cannot be good for the Scottish economy. If ever there was a disincentive to investing in Scotland, that is it.

The Bill, in particular the Scottish aspect of it now under discussion, provides an opportunity for the Government to make some encouraging comments about alleviating the many anomalies. I could quote from the Hoffman La Roche factory in Ayrshire, which is suffering similar discrimination. I know that the Minister shares our concern. The noble Lord, Lord Carmichael of Kelvingrove, has referred to the concern of the Scottish Council for Development and Industry, of which I have the honour to be vice-chairman. If these anomalies are to be removed, it must not involve any reducton in local authority revenue. How should this be met if the companies concerned and the non-domestic ratepayers are to pay less in rates and the burden on the local authority is greater? This can be done in two ways. It can be done by putting the burden onto the non-domestic ratepayer or it can be done by cutting back local authority services—neither of which is desirable or acceptable.

As the noble Lord, Lord Carmichael of Kelvingrove, said, there is the precedent of a rebate scheme. Members of the Committee may recall the panic stations that emerged at the Perth conference of the Conservative Party following the last revaluation in which they saw these values and rate commitments increased. In a gesture of benevolence, but also in a moment of panic, the Government allocated£50 million to Scottish business and domestic ratepayers in order to alleviate that burden. Therefore, what is suggested here is either a similar rebate scheme or that the Scottish council proposal of industrial derating should be applied to non-industrial subjects.

As I said, I do not expect the Government to tell us tonight exactly what they propose to do; but there is a transition period and it is now extended by the fact that the uniform business rate in England is now being postponed or phased for another five years, so the anomalous condition of comparison between Scottish and English values will be continued right into the 1990s. I suggest to the Government that they should grasp the nettle because the Minister knows very well that there is a strong depth of feeling in Scotland that Scotland is being neglected. This has caused an unfortunate and undesirable increase in the voting and political power of the Scottish Nationalists, which I deplore. So long as there is to be an anomaly, a disadvantage, continued over a long period that will be the inevitable reaction.

We have in Scotland the community charge for individuals before you have it in England and all this feeling builds up. Perhaps the Government will say something reassuring on how they see the prospects for avoiding the continuation of the anomalous situation that I have mentioned. Perhaps the Government can indicate the time-scale and phasing that will be involved so that at one stage, at least, we can look forward to uniform business rates covering the whole of the country without disadvantage to Scotland.

Lord Sanderson of Bowden

Both Amendments Nos. 184CA and 184CD address the impact of business rates in Scotland. I make it clear at the outset that the Government's commitment to the reform of business rates remains firm. We accept that business rates in Scotland are too high and that particular sectors of Scottish business can face quite disproportionate burdens compared with their competitors south of the Border.

From the time of the Green Paper Paying for Local Governmentin 1986 we have made clear that in Scotland reform would take place in a series of stages. I shall refer to these in the course of my remarks on these amendments, but in the meantime I assure the Committee that there are no grounds for suggesting that the Government are dragging their feet or that the timetable is slipping. The first stage of the reform, freezing and indexing of business rates, is already in place in statute and, as I shall explain, work on harmonisation is well under way. These are important steps forward and must not be ignored.

Amendment No. 184CA, in the names of the noble Lords, Lord Carmichael and Lord Morton, is concerned with cushioning non-domestic ratepayers from increases in their rates bills brought about by the revaluation to be held in 1990. I fully accept the need to protect businesses from sudden increases in their rates bills; and, indeed, this is the purpose of Clause 127 as it stands. This amendment is therefore unnecessary.

Clause 127 allows the Secretary of State to place a ceiling on the year-on-year increase in rates bills which any business will be asked to face in each of the five years following revaluation. My right honourable friend the Secretary of State for Scotland has recently announced that he intends to extend these arrangements beyond 1995 and that he will take powers to introduce lower ceilings in the case of small businesses faced with increases. We are, therefore, firmly committed not only to protecting all business ratepayers from any sudden increases in their rates bills following revaluation, but we recognise the special difficulties such increases can pose for small businesses and will take steps to cushion them further where necessary.

The noble Lord, Lord Carmichael, refered to the phasing-in arrangements which could impose some burden on community charge payers. This will not happen. The formula in Section 3 of the 1987 Act for adjusting rate poundages at revaluation is made subject to phasing arrangements by virtue of Clause 127(3). This is intended to ensure that poundages after 1990 recover the full amount due from the business sector without adding to the amount to be met from community charges.

The Committee will recall that Section 3 of the Abolition of Domestic Rates Etc. (Scotland) Act 1987 includes provisions to index annual increases in rate poundages to the retail prices index. This means that, as from April next year, the aggregate non-domestic rate burden in Scotland will increase no faster than inflation. The revaluation in 1990 will have no effect on that, other than to redistribute the rate burden with some ratepayers paying more and others less. The transitional arrangements we propose will moderate these redistributive effects. As I said, it is right that we should protect those who are particularly badly hit by the revaluation from the full and immediate impact of the increases in their rates bills. This is best done by phasing-in the redistribution effects of the revaluation in the way we have proposed, rather than by asking the taxpayer to bear an even greater share of local authority expenditure.

I do not resist this amendment because of any hostility to the sentiment behind it, but because it is not necessary. With the assurance that I shall table an amendment with the effects 1 have outlined of extending the existing provision of Clause 127, I ask the Committee to reject this amendment.

Amendment No. 184CD, proposed by the noble Lord, Lord Carmichael, would provide a non-domestic rating relief scheme for Scotland from April next year; and I recall the events of 1985 to which the noble Lord referred. I take it that the purpose of such a scheme would be to extend the present industrial derating scheme to other classes of property; or to increase the level of derating; or possibly some combination of these measures.

I remind the Committee that at present manufacturing industry in Scotland enjoys 40 per cent. derating. This level was set to ensure that Scottish manufacturers are not put at a disadvantage compared to their lower-rated competitors south of the Border. Industrial derating, therefore, is recognition of the fact that business rates damage business efficiency and distort competition. We are in no doubt that the business rating system needs radical reform and our commitment to such reform remains firm. Derating would not be a satisfactory way to tackle the fundamental problems.

The starting point to removing the differences in valuation practice between Scotland and England and Wales has been technical harmonisation discussions between the Scottish Assessors Association and the Inland Revenue Valuation Office. Their discussions have made significant progress. The major areas of cross-Border differences have been identified and the underlying causes analysed. It is not surprising that there should be such differences given the two distinct bodies of statute law, expanded by case law. The differences, however, have been magnified by the more recent revaluations in Scotland and the simultaneous revaluations north and south of the Border in 1990 will be a major step in clarifying the position.

The emphasis in the harmonisation discussions has been on identifying areas where progress can be made quickly with a view to the 1990 revaluation. As the Committee will be aware, most properties are valued by reference to comparative rental evidence. A major benefit of the discussions so far has been agreement to ensure, so far as possible, that the handling and interpretation of the evidence of rents north and south of the Border is consistent.

I now turn to what the noble Lord, Lord Taylor of Gryfe, is most concerned about. I accept that in these classes of property for which there is little or no rental market, the differences in valuation practice north and south of the Border are more fundamental. These properties, which include refineries and chemical works, to which he referred, are valued under the contractor's principle in Scotland and the contractor's test in England and Wales. Since 1973 the decapitalisation rates applied in determining the rateable value have diverged significantly north and south of the Border. We are, however, taking power in this Bill to prescribe the decapitalisation rate on a GB basis, and the Government have indicated their willingness to consider using these powers for the 1990 revaluation. This would have the effect of bringing valuations made on the contractor's basis north and south of the Border more into line. We will be able to discuss this particular point in more detail when we come to amendments to paragraph 9 of Schedule 15.

In summary, we expect to see considerable progress towards harmonisation in 1990. It has always been clear, however, that the 1990 revaluation is only one step on the road and not the end of the process. Further work will be necessary, of course, particularly in such complex areas as the rating of plant machinery.

The Committee will also be aware of other steps we are taking to protect businesses in Scotland from high rates bills. The freezing and index-linking of non-domestic rates has been given legislative effect in Section 3 of the Abolition of Domestic Rates Etc. (Scotland) Act 1987, and comes into operation on 1st April next year. The real practical benefits of that reform should not be underestimated. Between 1983-84 and 1988-89, the average non-domestic rate poundage in Scotland will have increased by 52 per cent. but in that time the total increase in RPI has been only 25-1 per cent. In practical terms that would mean a present average rate poundage of 66p and not 80p. This equates to a reduction in the total business rates' burden in Scotland of£200 million a year. Our policy is to work towards a fairer basis of valuation, with control on rate poundages. Such an approach is infinitely preferable to arbitrary cuts in bills for particular sectors by widening the scope of derating. Our measures benefit all non-domestic ratepayers in Scotland and not just particular sections of them. Increasing the scope or level of derating would not be acceptable and I ask the Committee not to accept this amendment.

7.45 p.m.

Lord Carmichael of Kelvingrove

The Minister has made some very important points in relation to Amendment No. 184CA. He has promised that there will be a government amendment, for which we are very grateful. I hope that what has been said from this side of the Committee will influence what the Government decide to put in that amendment. The Minister said that there would be no slippage of the timetable and we hope that that will be the case.

Dealing with the question of harmonisation between England, Scotland and Wales, I wonder whether it is going as well as the Minister believes. I have heard that there are quite serious professional and technical difficulties which, even with goodwill, will take some time to straighten out.

As regards the matter of industrial derating, I do not know whether the Minister really appreciated that I was not suggesting that industrial derating should be a permanent fixture. It was suggested as a transitional arrangement to try to overcome what we believe to be a very serious hump. However, taking into account the fact that the Minister said that the Government will put down an amendment and because of the sheer meat of his speech which will need to be looked at with considerable care, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn

Clause 127 agreed to.

The Earl of Dundee

I think that we have reached a suitable moment at which to adjourn this Committee stage. I suggest that we do not return to further consideration of this Bill until 8.45 p.m. I beg to move that the House do now resume.

Moved accordingly, and, on Question, Motion agreed to.

House resumed.