§ 11.46 a.m.
§ Viscount Ullswater rose to move, That the draft regulations laid before the House on 12th December be approved [2nd Report from the Joint Committee].
§ The noble Viscount said: My Lords, in moving the above regulations, I shall speak also to the other orders and regulations standing in my name on the Order Paper.
§ The orders and regulations are necessary for the implementation of the revaluation of non-domestic property which takes effect from 1st April next year. There are seven sets altogether. Five of the orders prescribe new rateable values for the railways, electricity and water industries, British Gas and certain docks and harbours. The sixth revokes the existing order which prescribes rateable values for the telecommunications industry and British Waterways. From 1st April, those industries will no longer have their rateable values prescribed: instead, they will be determined in the same way as for most other businesses. I will say more about the six orders later.
§ Perhaps the most wide-ranging instrument, however, is the Non-Domestic Rating (Chargeable Amounts) Regulations. They contain provisions for phasing in the effects of the 1995 revaluation where changes in liability would otherwise he significant. Rate rises for small properties—those with a new rateable value of less than £15,000 in London or less than £10,000 elsewhere—will be limited to no more than 7.5 per cent. next year, after allowing for inflation. For larger properties, rates will rise by no more than 10 per cent., after allowing for inflation. For small business properties with living 1484 accommodation, increases will be limited to 5 per cent. in real terms. The regulations provide for the same limits to apply up to the date of the next revaluation.
§ Revaluations do not affect the overall yield from business rates. Their purpose is to ensure that the burden of rates remains equitable. If the national total of rateable value changes, the law requires the poundage—that is, the amount per pound of rateable value which ratepayers have to pay—to be adjusted accordingly. In fact, however, the 1995 revaluation will make very little difference to total rateable value in England, and the poundage is likely only to increase in line with inflation. In Wales, total rateable value is set to increase, so the poundage will come down.
§ For individual properties, however, the picture could well be different. The revaluation will reflect changes in the rental values of property since the 1990 revaluation, and some businesses will therefore find themselves facing rate increases, while others might expect reductions or else see little change.
§ Without phasing provisions, changes in bills could be significant, for two reasons. First, the economic cycle has affected businesses quite differently in different parts of the country. In 1988, which was the base year for setting rateable values for the 1990 revaluation, rental values were still rising in many parts of the country. In some regions, particularly the North and Midlands, values continued rising for a while and then levelled off. But in others—notably central London—they soon began to fall as the recession took hold. The 1995 rateable values for these properties will therefore be based on their rental values at the very bottom of the market. Many losers from the 1990 revaluation are therefore likely to be gainers from the next one, and vice-versa.
§ Rate bills might also be expected to change significantly because some ratepayers are still receiving relief under the 1990 transitional scheme. In some cases, their current rate bills are well below what they would have been had the effects of the 1990 revaluation been allowed to work their way through in full. Even without a revaluation, these ratepayers might have expected another large increase in bills next year: the revaluation could make the increase even greater.
§ The Government accept that businesses need time to adjust to changes in their rates burden. That is why we have introduced the phasing provisions in these regulations to reduce the impact of the changes. The limit on increases will benefit nearly I million small properties and nearly 350,000 larger properties in England and Wales. A quarter of beneficiaries will be small shops. Almost half a million offices, warehouses and factories will also benefit.
§ Some 170,000 properties will see reductions in their hills as a result of the revaluation. Since many of these will have benefited from relief under the 1990 transitional arrangements, we think it right that owners or occupiers of these properties should take their turn to help fund the new arrangements. The regulations therefore include provision to set the rate reductions to a maximum of 10 per cent. for small businesses and 5 per cent. for larger ones next year, after taking account of inflation. Similar limits are likely to be needed in the 1485 following year. However, as ratepayers who are being phased upwards reach their full new bills, so the cost of supporting the scheme will fall. This means that, in 1997–98, reductions should come through much faster, with reductions of up to 20 per cent. for small businesses and 15 per cent. for large ones looking possible. For the last two years before the next revaluation, further reductions of up to 35 per cent. for small businesses and 30 per cent. for large ones should be feasible on current predictions. These estimates are inevitably provisional, and the Government will need to review them before the start of each year, but it is likely that the great majority of gainers will see their full gains before the next revaluation in the year 2000.
§ Even with this level of support for the cost of the scheme from gainers, there would be a shortfall in rates yield next year. That is why, as announced in the Budget, the Government are putting over half a billion pounds towards the cost in England and Wales. This sum will be used to top up the non-domestic rating pool so that billing authorities are no worse off as a result of the scheme.
§ Noble Lords may have seen stories and comments in the media suggesting that these measures will be particularly unfair to London. But to say that London will be "robbed of millions" is a travesty of the facts. As I hope I have made clear, gainers in London will see some pretty large reductions in their rate bills over the coming years. Those who complain about our plans for 1995 conveniently forget that the boot was on the other foot in 1990. Then, many central London ratepayers received generous help, financed by deferring other ratepayers' gains. Those parts of the country facing steep increases in rates would find it incomprehensible if London did not return the favour.
§ In any event, it would be wrong to think of this as a case of London versus the rest. About half the ratepayers in inner London will actually receive help from the scheme. And London authorities will not suffer from the scheme—as I have said, we will top up the national rate pool, and every London authority will continue to get the same amount per head of population as every other authority.
§ Noble Lords may find it helpful if I said a little more about the content of these regulations. They are inevitably complex because of the variety of different cases which can arise. However, the arrangements are broadly similar for all cases. The new rates bill (known in the regulations as the notional chargeable amount) will he compared with a notional bill—the base liability—for the current year. Any existing transitional relief will be taken into account. If the year on year change is more than the limit (known as the "appropriate fraction") allows, ratepayers will pay the limited amount, subject to any other reliefs which may be available.
§ As under the 1990 scheme, properties newly constructed after 1st April 1995 will not be subject to phasing. But properties created by the division or 1486 merger of existing properties will do so. In addition, the regulations include rules which will apply the downward phasing provisions to properties wholly or mainly reconstructed from existing properties. This is to prevent ratepayers who are helping to meet the cost of the phasing arrangements from escaping their obligations by undertaking refurbishment or other reconstruction works.
§ The regulations also apply phasing to the large network industries, which are the subject of the other six orders to which I now wish to turn. Prescription of rateable values for these industries is necessary because of the difficulties of conventional assessment. This may be because of the highly specialised nature of the property or because its sheer size and complexity has meant that the resources needed to value it conventionally have simply not been available.
§ Since rateable values for conventionally assessed property have changed little as a result of the revaluation taking Great Britain as a whole, we have based the new values for most of the centrally assessed industries on their 1994–95 values, adjusted only for changes in the property they occupy. In other cases, such as the railway networks, the extent of changes since the last revaluation has been so great that we have valued the industry afresh.
§ The orders also contain formulae to allow for the annual adjustment of rateable values to take account of any further changes in the amount of property these industries occupy. The changes which the formulae measure are a proxy for those which would trigger an alteration in the rateable value of properties occupied by other ratepayers. The water undertakers order also contains a method for determining rateable values when water companies merge.
§ The prescription of rateable values is not an ideal way to determine the burden of rates on industries, especially now that many of the former public utilities are having to compete against private sector companies whose properties are assessed conventionally. For that reason, timetables for gathering the information necessary to assess properties have already been drawn up for some industries and discussions are to start early in the New Year for others. For British Waterways, British Telecommunications and Mercury Communications, prescription will end from next April and one of the orders before your Lordships therefore repeals the existing orders setting rateable values for those industries. The Tyne and Wear Metro and the Docklands Light Railway will also be conventionally assessed from next year and so no longer appear in the Railways Order. Likewise, the 1989 docks and harbours order has been amended to reflect the fact that ports with relevant incomes of between £50,000 and £1 million will he conventionally assessed in 1995. I beg to move.
§ Moved, That the draft regulations laid before the House on 12th December be approved [2nd Report from the Joint Committee].—(Viscount Ullswater.)
§ On Question, Motion agreed to.