§ 3.14 p.m.
§ Lord Rooker rose to move, That the draft regulations laid before the House on 2 December be approved [2nd Report from the Joint Committee; First Report from the Merits Committee].
§ The noble Lord said: My Lords, as regards delivery, my English is not very good. Having used the English language while dealing with the previous order, I shall now go into local government-speak on these regulations. I warn the House that it is not a pleasant experience. I commend to the House the Non-Domestic Rating (Chargeable Amounts) (England) (Amendment) Regulations under Section 57 of the Local Government Finance Act 1988 and Section 65 of the Local Government Act 2003. They provide the mechanism to introduce the transitional arrangements for the business rates revaluation that takes effect in April 2005.
§ These regulations establish whether ratepayers should have transition applied to their bills. They provide the calculations to determine the transitional bill. They deal with the various circumstances on how to calculate the 1046 bill where a property changes through a split, merger, extension, or renovation of a non-domestic property. In all cases they establish the correct transitional path. Noble Lords will recall that during the course of the Local Government Bill, we discussed at considerable length the issue of transitional arrangements. It would be quite wrong to revisit those decisions today, but the key principles are worth stating.
§ The Local Government Act defines that there must be a transitional scheme. It must be paid for by other ratepayers without being a burden on the generality of taxpayers. The scheme must work through within the five-year life of the rating list. The Act also provided the power to adjust the business rate multiplier to make good the shortfall if the scheme proved not to be self-financing.
§ Following a revaluation, some ratepayers face significant rises in their rates bills and others stand to benefit from significant reductions in their rates bills. We only ever hear from one of the groups—wait until we come to domestic re-rating. I should not have said that. I withdraw it.
§ The purpose of the transitional scheme is to soften the impact of sudden rises in rates bills as a result of revaluation. It provides protection to those ratepayers that might, in the absence of transition arrangements, face significant rises. However, the protection needs to be funded by other ratepayers.
§ That scheme will cap increases to some rates bills over a four-year period and will be funded by capping reductions in some rates bills. The caps will be structured as follows. Increases on large businesses will be capped by 12.5 per cent in 2005–06, by 17.5 per cent in 2006–07, by 20 per cent in 2007–08 and by 25 per cent in 2008–09. All ratepayers will pay their full liability in 2009–10. Small properties have a more generous arrangement as rates are often a greater proportion of the costs to small businesses. Small properties are defined as properties with a rateable value of under £15,000 outside London and under £21,500 inside London. For those properties, bills are to be capped at 5 per cent in year one and 7.5 per cent, 10 per cent and 15 per cent for subsequent years.
§ The protection is paid by phasing in the decreases of those who might otherwise have seen significant reductions in their rates bills. That is done by capping their decreases. Large properties will have their reductions capped at 12.5 per cent in the first two years, 14 per cent in the third year, 2007–08, and 25 per cent in 2008–09. Small properties will have the reductions phased in at a much faster rate; namely, 30 per cent, 30 per cent, 35 per cent and 60 per cent for the four years of the scheme. The scheme will apply in England only.
§ Late in 2003 we commissioned a research project to model the likely effect of revaluation prior to actual data becoming available from the valuation office and established a small stakeholder group to consider options as they emerged. It was soon apparent that any scheme that lasted one or two years would result in significant rises in rates bills when the scheme ended. In consultation with stakeholders, those were ruled 1047 out as a suitable option at an early stage, although some stakeholders favoured a short scheme or no scheme at all. Some ratepayer groups anticipated significant rises in their rates bills and, of course, pressed for a five-year scheme. However, a five-year scheme costs more than a shorter scheme.
§ Moreover, in a five-year scheme, some ratepayers will not pay their true liability if they are subsequently affected by the next transition scheme. That is the point of achieving it within the five-year period. The aim of the scheme is to cushion the impact of revaluation, not to defer payment of the true liability indefinitely. A system where every ratepayer pays the true liability in the fifth year is logical and understandable.
§ I am quite happy to finish there as I believe that I have summarised what is happening. If there is a great desire for me to continue, which I do not see, I shall. Therefore, I beg to move.
§ Moved, That the draft regulations laid before the House on 2 December be approved [2nd Report from the Joint Committee; First Report from the Merits Committee].—(Lord Rooker.)
§ Baroness Hanham
My Lords, on that basis I am inclined not to ask too many questions and we can all quit while we are winning. Perhaps I should draw attention to the extremely short time gap between this order being laid on 2 December and it being considered today. It is so short that the Select Committee on the Merits of Statutory Instruments was forced to meet so that it could give at least some views on the merits of these instruments.
The committee drew helpful attention to the fact that not only has the order been laid with very short notice, but that the research behind it, which the Minister promised would be available before consideration of the provision, was not available when the statutory instruments merits committee met. I found it on the website only this morning and was advised by the Library of the House of Lords that it was only made available there yesterday and that the House of Commons Library is still searching.
The research is very important. It was carried out by Foreign Economics—a company of which I have never heard, but which I am sure will rattle in our future—and was about the transparency of the various systems for phasing in these transitional arrangements and for being self-financing, which is what the Local Government Act 2003 said they must be. That is why we end up with this complicated system whereby there will be downward phasing, so that businesses that have a reduction will not receive it in the first instance but only over a spell of time, so that the money they would have got can go to support the businesses in areas which will be having an increase.
Is the Minister aware that the provision is not universally accepted as being the ideal solution? There have been a number of comments. The Foreign Economics research attracted only 67 responses. That seems to be absolutely extraordinary. So my first question is: how many consultees were there? I am not 1048 clear whether the 30 per cent of the respondents—about 21 responses—were totally against this downward phasing and whether they would have preferred the multiplier system where a small multiplier is put on the rate in order to phase it, or no transition at all. However, I think that is a paltry response to a very serious matter which affects businesses very badly.
There were two main methods investigated by Foreign Economics. The first was the downward phasing. Your Lordships will recall that we had a considerable discussion on downward phasing during the passage of the Local Government Bill, when both this side of the House and the Liberal Democrats were anxious about that being included. The second matter is the multiplier on the base rate. Why does the Minister think that the downward phasing is more equitable than having a multiplier on the base?
A sine qua non with transitional arrangements is that nobody can ever understand them and that they are not at all transparent. Does the Minister think that with these transitional arrangements—albeit he only read a quarter of his speech and maybe was lost in the complexity of it all, and quite rightly did not bother us with it—there is any hope that at any time we might have a system that people might understand?
§ Lord Dykes
My Lords, I do not think that I can better the fairness of the comments of the noble Baroness, Lady Hanham, on the major anxieties felt on this side of the House, both by her party and the Liberal Democrat party and, I think other Members of the House. A number of representations were made from outside sources of which I think the Minister was aware, notably the very excellent work done by the Royal Institute of Chartered Surveyors on making representations to Members of this House about some of the unfair effects of the Government's proposals.
Therefore, I very much agree with what the noble Baroness said about the apparently very firm undertaking given by the Minister on 17 September 2003. If one reads again the record of what was said on that occasion, he seemed to be quite categorical that a substantial amount of research would be done in the appropriate amount of time and made known to this House and to all interested parties concerned, both on the accidental and sometimes half deliberate, I suppose, unfair effects of the way in which the business rate system operates since the major change that was made more than a decade ago.
I also share the sense of surprise that despite the apparently rock-hard undertaking given by the noble Lord, Lord Rooker, on behalf of the Government, that has not actually turned out to be so, and the research mentioned has not really given us enough time in this House and the public outside to absorb these complicated matters.
The Minister will recall the example set out by the Royal Institute of Chartered Surveyors in its representations that when the successful amendment was proposed by the Conservatives and Liberal Democrats to the Local Government Act 2003, the 1049 Government had the opportunity to bring in a system that would have had a fairer effect on upward phasing and would have dealt with the enormously onerous problems of downwards phasing as well, perhaps at a later stage.
I do not feel—and I agree again with the noble Baroness—that there has been sufficient time because of the very short period. The regulations were laid on 2 December, as the Select Committee on the Merits of Statutory Instruments' report says, and now we are debating it only a few days later on 9 December. If the Government and the Minister can therefore give more assurances on these matters, apart from what he said at the beginning—which was really a very complicated explanation of a very complicated subject, which he did with great aplomb and I share the sense of gratitude that he left out the second half because it was getting more and more complicated—I think that perhaps the House might be reassured, but we do need that further elucidation before we can proceed to the approval of this order.
§ Lord Ampthill
My Lords, before the noble Lord replies, I ask him one question. The previous Motion, which he moved successfully, was laid approximately six months ago. This Motion was laid only seven days ago. Could he give us an explanation for the difference between those two?
§ Lord Rooker
My Lords, there is a good reason. The Motion laid six months ago was then petitioned against. Your Lordships Hybrid Instruments Committee accepted that the petitioners had a case to make. Therefore, the Summer Recess intervened. The original plan was to have the urban development corporation order approved by both Houses before the Summer Recess, but of course it did not occur that way. Once the committee had rightly said that the petitioners had a case to be heard, procedures had to be followed. That is the reason for the quite extensive change. The reason for the shortness of time as regards this Motion I shall come to in a moment because it is buried in one of these paragraphs here.
There were 63 responses to the consultation paper. It was sent out to all local authorities and some 300 organisations. So the idea of it being transparent and understandable is clearly not the case because a lot of them either thought, "This is really great: we don't need to say anything about this", or, "This is terrible; we don't understand a word. We'd better not say anything in case we get ourselves in trouble".
I want to make plain that the matter is complicated. There are people for whom local government finance brings a glaze to the eyes and whose reason for living is to get to the minutiae. That is fine. But for the vast majority of us, it is not like that; we just end up paying the bills. The call is always to make it simple. I can recall a government deciding that the system was so complicated and that we should have a simple system. What did we get? The poll tax. Nobody can argue that the poll tax was not simple, but I warn the House that simple things are usually very unfair. That is why you have to build in what looks like extra complexities. I regret that like everybody 1050 else. Therefore, perhaps I could just deal with the note that I did not have, which deals with the Merits Committee report, which covers some of those issues. I hope that if I put that on the record, it will satisfy noble Lords.
The Select Committee on the Merits of Statutory Instruments has drawn the regulations to the especial attention of the House. The committee expressed concern that the fixing of the debate so soon after laying the regulations and the failure to make the relevant research available earlier means that the debate may not be as fully informed as was expected at the time of the Lords' consideration of Commons amendments to the Local Government Bill in 2003. My own words have rightly been cited back at me.
As I said, we have consulted widely with stakeholders throughout the process. All the options have been considered and evaluated and we are as confident as we can be that the relevant information has been made available and that interested people have had sufficient information to form a considered judgment. I shall say a few things about the process.
The research project went ahead as planned. Key stakeholders were involved in the process and the final decisions were based on the outcome of the research. The research considered various models, with permutations within each model. Those were narrowed down in consultation with the stakeholder group and the preferred models were worked up in greater detail. The regulatory impact assessment reported the relevant data from the preferred models. The consultation document and the regulatory impact assessment contained all the key information from the research project.
The research reports contained sensitive in formation about the impact of revaluation and the likely rateable value of specific hereditaments. It was of course not appropriate to make that information available. The Valuation Office Agency published the draft rating list on 1 October 2004. All ratepayers could find out their new rateable values and the information on rateable values in the report was made public. The consultation process was already well under way and ratepayers could work out the impact of the scheme on their rates bill.
On the basis of the consultation and the more up-to-date data from the Valuation Office Agency, the final models were developed. The regulatory impact assessment was updated to reflect that and, in that sense, the regulatory impact assessment has now overtaken the research report. It contains the relevant information and the most up-to-date information. The research report was a technical document and I will be happy to consider making the whole technical report available, although it was not originally designed as a public document. That is why we produced the summary of the research findings.
I have already mentioned that many options were considered. Supplement-based schemes were considered, but we did not feel inclined towards a supplement-based scheme. That position was supported by the research project and by the consultation with the stakeholders.
1051 With respect to timing, the data on all valuations were available from the Valuation Office Agency in June 2004. We were only then able to consider the impact on the private schemes, and announced the proposed scheme in July. The consultation closed at the end of October. The response has had to be considered, final schemes modelled and the regulations laid before the House. Under Section 65(9) of the Local Government Act 2003, the regulations must come into force before 1 January 2005 if there is to be any transitional scheme for 2005–10. We cannot see how the process can be managed under any other time-scale, given those dates. I am not responsible for business management, but I suppose but we could have done this next week, although I suspect that there are excellent reasons why we could not.
I shall deal with one other issue dealt with by the memorandum from the Select Committee. It refers to the fact that the consultation identified a number of respondents who disagreed with the proposal. Some of those respondents argued against the principle of transitional arrangements and revenue neutrality. However, that issue was fully debated and decided in the Local Government Act and this is not really the moment to reopen it. We had a big debate about whether it should be revenue-neutral or whether the general taxpayer should fund some of it.
So we have considered the options, including supplement-based approaches, both revenue-neutral in each year and over the life of the list. We also considered a two-year and five-year period, but five years was always difficult and has been ruled out. The researchers considered the options; stakeholders expressed their views; and officials and Ministers weighed them up and then conducted a three-month consultation on the preferred option, fully explaining the other options and the reasons for the final position. On balance, the feedback favoured downward phasing as the method of funding the relief.
Obviously, I treat the Merits Committee seriously, because it makes fair points about the timing and research but, given what I have said, I hope that the House will accept that we have operated in good faith throughout, trying to have the maximum contact possible with those outside who will actually pay the rates, which is essentially the business community. It is important that we carry them along with us.
I am not saying that their views are unanimous; that would be ridiculous; of course there are bound to be people out there who would prefer to pay less and those who will gain would like the gain quicker. I understand that, but Parliament decided that the measure would be revenue-neutral and we must therefore have a system that is fair to those who gain and to those who will pay a bit more. After all, they are only paying a hit more because the value of their property has risen a bit higher than the average. I suspect that, in due course, I will be introducing an order to the House for domestic rating and we will have an even higher attendance than we have today.
§ On Question, Motion agreed to.