Local Government Bill
Lord Bassam of Brighton (Government Whip (technically a Lord in Waiting, HM Household); Labour)
My Lords, Clause 64 assures ratepayers that there will be a transition scheme to accompany future revaluations. The existing provision in the Local Government Finance Act 1988 simply confers a power to establish a scheme, but does not impose a duty to do so. Business, including the CBI, has stressed the necessity of transition schemes.
The details of a future scheme—the annual increases and decreases in bills—will be decided in the run-up to the revaluation concerned, when the impact on individual rateable values will be known and more certain. But, as we stated in the White Paper Strong Local Leadership—Quality Public Services, any future transition scheme will need to be self-financing. There is no reason why the general taxpayer, as opposed to the ratepayer, should meet the cost of transitional relief. Accordingly, Clause 64 requires that the total rate yield for any year is not to be affected by a transition scheme.
The clause allows for flexibility in how schemes may be structured so as to be self-financing. The methods likely to be used include having a transition scheme which balances the rates lost through phasing in increases in bills against the rates gained by phasing in decreases. Such phasing of decreases in bills as well as increases has been a feature—as I am sure all noble Lords will acknowledge—of past schemes.
In addition to providing for a scheme which balances rate income lost through phasing in increases and rate income gained through phasing in decreases, this clause allows for an addition to rate bills generally as a means of making good the loss of rates resulting from phasing in increases in bills.
This clause also allows for a scheme which is funded by a combination of phasing in decreases and an addition to rate bills generally. This will allow us to put in place a fair and workable scheme.
The effect of these amendments is to make transition revenue neutral over a five-year period—instead of year by year as set out in the Bill—with the Treasury making a contribution to the cost of the scheme in the first years. The Treasury would need a way to recover in later years what it had paid in the early years. The Exchequer would also need to recover interest on what it had paid out in the early years of the scheme, and would need to recover a sum to offset the effects of inflation between paying out the sums concerned and recovering them. All this would make for a complicated calculation—the noble Baroness, Lady Hanham, said that it would be simple—which would also introduce an element of uncertainty for ratepayers.
A five-year revenue neutral scheme would be much more complicated to operate and far less intelligible to the ratepayer than a scheme which was revenue neutral year by year. Furthermore, it is our view that it is difficult to see any reason for such a scheme. Why should the general taxpayer in effect give a loan to ratepayers at the start of each transition scheme?
Transitional relief means that we are easing the burden on ratepayers. We do not believe that the general taxpayer should cover the cost of this. It seems fair to us that ratepayers in general should pick up that bill.
An attempt to make a scheme revenue neutral over the five-year life of a list would mean that at each revaluation complex estimates would need to be made in advance of announcing any transition scheme. If at the end of the fourth year it was discovered that the Treasury had not recouped the money it had contributed in the early years, rate bills would have to be increased to balance the scheme. That would create uncertainty for the ratepayer.
The noble Earl, Lord Caithness, asked why the general taxpayer should not pay for the transitional relief. As I have made clear, this scheme could cost billions of pounds. That would be a heavy burden on general taxpayers. He cited the previous amendment in aid of his case. The cost of relief to sports clubs will of course be far less; more importantly, it will be of tremendous benefit to non-profit-making bodies. Businesses, by their very nature, do not fall into that category. The cost of the relief granted is significant but minuscule by comparison to the potential costs of the general taxpayer funding the transitional relief proposition contained within the amendments.
I hope that, having listened carefully to what I have said—although we may still disagree on this issue—that the noble Earl and the noble Baronesses who have spoken in favour of the amendment will think again and withdraw it today.