LORDS AMENDMENT (Hansard, 17 September 2003)

§ Lord Rooker
My Lords, I beg to move that this House do not insist on their Amendment No. 19 to which the Commons have disagreed for their reason numbered 19A.
Amendment No. 19 effectively rules out the possibility of transitional schemes which have an element of downwards phasing. The Government cannot accept that we rule out the possibility of downwards transition as a method of funding any transitional scheme. However, I understand the concerns that inspired the amendment and I want to address them in the points that I shall make, which also apply to the amendments grouped with Amendment No. 19.
Amendment No. 20 allows any transitional scheme to be revenue neutral over the five-year life of the rating list rather than confining it to revenue neutrality 933 in each year. The amendment was introduced in this House at Third Reading. The Government have accepted the principle, as I hope is understood, but in Amendments Nos. 20A, 20B and the consequential amendments we have improved the drafting while accepting the principle. The new drafting provides a power for the general taxpayer to be recompensed for, in effect, loaning ratepayers money in the first few years of a five-yearly self-financing transitional scheme.
Clause 66 fulfils the White Paper commitment to ensure that there will always be a transitional scheme as a result of revaluation of non-domestic properties every five years. Transitional schemes were used at previous revaluations to allow ratepayers time to adjust to changes in their bills, with both significant increases and decreases resulting from changes in rateable values being phased in by annual stages. However, there is currently no legal obligation on the Government to have such schemes. The White Paper commitment was that, in future, a transitional scheme must always be established at a revaluation. That guarantee requires that future schemes be entirely self-financing.
Two methods are likely to be used to achieve revenue neutrality. First, a transitional scheme could phase in both increases and decreases in rates over time, balancing the rates lost against the rates gained. Secondly, the rates lost could be made good through a supplement on rate bills generally. That is achieved by increasing the multiplier, which ensures that the total revenue remains the same.
The rating professional bodies—the Royal Institution of Chartered Surveyors, the Institute of Revenues Rating and Valuation and the Rating Surveyors Association—have consistently argued that the Government have tied our hands by limiting any scheme to be revenue neutral in each year. They suggest that we should keep open the option of devising a scheme that is revenue neutral over the full five years of the life of the rating list.
A scheme which aims for revenue neutrality over five years allows more options to be considered for the way in which any transitional arrangements might be structured. However, it introduces greater complications in calculating how any shortfall in revenue might he covered in any single year. If we used the flexibility of five-year revenue neutrality to devise a scheme that benefited those in downward transition, that would require, in effect, a loan from the Exchequer in the early years to be made up in the later years of the scheme. Government Amendment No. 20A makes it clear that the Secretary of State has a power to recoup that cost to the public purse in latter years.
By introducing the amendment, we leave open the possibility of devising a scheme that benefits those properties that have reduced in value. Everyone recognises that we cannot decide on any scheme until we have the data on the new valuations. We now accept that we should consider the mechanism of 934 spreading the revenue neutrality over the five years when we draw up the options for any transitional scheme for 2005 and subsequent revaluation years.
Revenue neutrality in each year has the advantage that we could announce any scheme early in the process, therefore giving assurance to ratepayers. Revenue neutrality over five years requires the agreement of the Exchequer, so it will be more difficult to provide guarantees to ratepayers early in the process. However, we are prepared to keep all those options open.
I shall turn to the second issue raised in the amendments approved in this House and overturned in the other place. The Royal Institution of Chartered Surveyors and the other rating organisations have argued that downward transition is unfair to ratepayers. It is often in areas in economic decline, where property and rental values have dropped relative to those in the rest of the country. Let me reassure the House that the Government well understand the arguments here.
However, if we are to ease the tax burden on those whose property values have risen sharply as result of revaluation, as we all agree that we should, we have to seek the best way of funding that relief. We are not prepared to rule out any downward transition, for the same reasons that the amendment we have tabled does not rule out revenue neutrality over five years, or in fact year by year. I can provide reassurance, however, that the issue will not be forgotten as we devise the transitional schemes for 2005 to 2010.
The Office of the Deputy Prime Minister is in the process of commissioning a research project to model different options for the 2005 transitional arrangements. The project is in three phases. In the first phase, we will consider a wide number of options and the likely beneficiaries and costs of each option based on assumed new valuations. The findings for that should be available in January 2004. In the second phase, we will narrow down the options in consultation with the stakeholders—businesses, in particular the CBI, the British Retail Consortium and other relevant bodies, and the rating professionals. We will then model the agreed options using new valuations that we have at that stage. The results of that phase should be available by late March 2004. In the third phase, we will finalise our preferred option and model it using final valuations produced by the Valuation Office Agency. That report is due in June 2004.
That project will be monitored by a project group including representatives from the professional bodies and business interests. I assure the House that the issue of downward phasing will be very much on the agenda. We will consider models which include options for immediate or quicker downward phasing. We will not rule out any possibilities at this stage. We need to conduct the research based on the actual data available from the Valuation Office Agency next year. We will make decisions based on the data and the discussions that emerge from that project. We will develop the scheme with key stakeholders including representatives from the rating professional bodies.
935 Finally, let me make it clear that the regulations which will set the form of the transitional scheme will be based on the report from the research project and will be subject to affirmative resolution of both Houses of Parliament. Therefore, Parliament will have the opportunity to debate the matter further when we have the relevant information. I beg to move.

§ The Earl of Caithness
My Lords, I thank the Minister for what he has said. As your Lordships will know, the matter was not debated by the democratic other place when it was due to consider our amendments. It was simply voted on and that was the end of the matter, so his statement is very helpful and good to have on record.
I am disappointed that the Government have seen fit not to accept Amendment No. 19. I was grateful for what the Minister said about the new research project. Will that project take into account the work already done by the RICS in preparation for the Bill and for which I argued at all the previous stages, particularly at Third Reading?
I was pleased that the Minister seems to have shifted his position considerably on downward transition. He now seems to have a greater understanding of the detrimental effect that downward transition has had on businesses and of the persecution they feel by not receiving the full relief to which they are entitled. That in itself is a major step forward, but I should like to press the Minister more on his views on how quickly the Government think that they will be able to end downward transition. Having completed the review for 2005–10, does he think that downward transition will be needed again in 2010–15?
Perhaps I may remind your Lordships that downward transition is a method by which businesses that are entitled to relief from rates do not receive it. The money is withheld from them. They are the small and medium-sized enterprises that are in most need of that relief.
On Amendments Nos. 20 and 20A to 20F, I am grateful to the Minister for the movement in his position and the influence that he has had. He has often stood up before your Lordships and said, -Well, I am just speaking on behalf of the Government. I have to report back". We all know that lie has a great deal more clout than that and I am grateful that he has listened to the arguments and used his undoubted influence to persuade his fellow Ministers to change their mind. That is one of the jobs of a Lords Minister and I am grateful to him.
936 I am not at all surprised that the drafting has been changed. That is also one of the jobs of the Government. It is our job to agree on the principle and leave the government draftsman to get the amendment right. So a big thank you to the Minister for accepting Amendment No. 20.

§ Baroness Maddock
My Lords. I have supported the noble Earl. Lord Caithness, on this issue throughout the passage of the Bill. Like him. I welcome what the Minister has said to us today. It will be helpful particularly to small businesses. As the noble Earl said. the Minister clearly has some influence in his department and has managed to persuade colleagues that perhaps there was a better way, although without securing any more money. He was obviously unable to persuade the Treasury to allocate any more money. It will be beneficial particularly for small businesses. We must always remember that all our big businesses were once small businesses. They are the seed corn of our economy. It is right that the Minister changed his mind and was able to persuade others to change theirs on the way the Bill is enacted. We look forward to seeing what emerges.
Noble Lords may like to know that the relevant section of the Bill contained incredibly complicated formulas. I do not pretend to understand them. Fortunately, the principles were explained and the Minister has accepted our arguments. We are content with the current position and look forward to what follows.

§ Lord Rooker
My Lords, I seek no personal credit for the change in position. It is due to my right honourable friend Nick Raynsford and the Deputy Prime Minister. They are the listening Ministers. We are the listening Government. However. when I go hack to my colleagues later today, I shall tell them not to listen to your Lordships' House regarding the first vote that we had. I make that absolutely clear. If I do return with any amendments tomorrow, it will be because I have not been listened to.
With all due respect to the noble Earl—and I appreciate the positive contributions that he has made throughout our debates on this part of the Bill—I did utter one sentence: We will not rule out any possibilities at this stage".
I cannot say anything. I have explained the research project, which will soon start. It is September now and it will start in January. It will happen very quickly next year and we will no doubt report back as appropriate. The research will not take place behind closed doors. Business and the professions will be involved and we will try to take a positive view of what conclusions are reached and table a package of amendments. Therefore, I hope that we can dispense with our discussion in a spirit of co-operation. which has been sadly lacking in the first part of our deliberations.