Clause 64 - Calculation of non-domestic rating multiplier
Local Government Bill
4:30 pm
Mr Geoffrey Clifton-Brown (Cotswold, Conservative)
If clause 63 was complicated, clause 64 is even more complicated.
I shall start with the evidence that the CBI gave to us. It says that the clause gives power
''to claw back revenue lost on appeal''.
The CBI says that this
''would effectively break the RPI cap on Rates increases, and would remove the incentive for the Government to estimate losses on appeal accurately. Business places a high value on the current RPI-cap on UBR increases between revaluations. Breaking with this principle would add uncertainty to business planning. It might also lead to a less robust exercise on estimating the losses.''
The point is simple, although it sounds complicated. Some businesses will appeal against a new valuation list. However, there is only one pot of money under the clause, so the success of some businesses in reducing their rateable values on appeal means a small increase for the rest. The CBI makes the point that this could break the RPI cap.
The UBRs are some of the highest property taxes in Europe, and the Government see a new valuation list as a convenient way of raising revenue without raising too much of a squeal from the public. Although the Minister made it clear that 1.64 million businesses are involved, they would suffer a much greater political backlash if they raised personal taxes than they ever do when they raise business rates. All Governments are therefore greatly tempted simply to raise business rates. Will the Minister say whether the Government intend to stick to the RPI cap? A reply would be useful.
I draw the Minister's attention to a technical point on line 30, page 29. I am not sure whether the drafting is correct. Subsection (7) states:
''For sub-paragraphs (6) and (7) of that paragraph''—
Mr Derek Conway (Old Bexley and Sidcup, Conservative)
Order. I am sorry to interrupt the hon. Gentleman, but although the Bell is not working in the Room, the House is dividing. The Committee will therefore be suspended for 15 minutes.
Sitting suspended for a Division in the House.
On resuming—
Mr Geoffrey Clifton-Brown (Cotswold, Conservative)
Before the Division, I was drawing attention to clause 64(7), which refers to
''sub-paragraphs (6) and (7) of that paragraph''.
Which paragraph is that? The subsection is pretty confusing, and I am not sure that the drafting is correct. I suspect that it is now too late to make my other point, but using the same letters with different meanings in the legislation causes huge confusion. It would have been much better to go through the alphabet and use different letters, so that each letter had a distinct meaning.
Mr Christopher Leslie (Parliamentary Secretary, Cabinet Office; Shipley, Labour)
It might help the Committee if I can aid the hon. Gentleman as we go through the provisions. He asks about the reference to ''that paragraph'' in line 30 on page 29 of the Bill. That is paragraph 5 of schedule 7 to the Local Government Finance Act 1988, which is amended by clause 64(5) to (7). I hope that that is helpful.
Mr Geoffrey Clifton-Brown (Cotswold, Conservative)
That is very clear. I shall have to look at Hansard to ensure that the Under-Secretary has got it right, but I am sure that he has. Perhaps he can also say why the same letters are used with different meanings. The legislation is difficult enough to understand, but the letter A has at least two if not three different meanings as one goes through the provisions, which causes great confusion. As I have said, it would be better to use different letters.
Mr Robert Syms (Poole, Conservative)
Theoretically, with a revaluation, there is a change in values. The multiplier is changed, but there is the same amount of money. I noticed in the chart that the Library made me after the last revaluation that the amount coming from business went up by £1 billion, more than one might have expected.
When the calculation for the multiplier against the rateable value is made, what assumptions are made about a reduction in appeals? Does the multiplier reflect an assumption about that by setting the amount of money raised at a slightly higher level than would be necessary, so that when the appeals come along, there is the expected sum, but if the appeals are not won, there is more than was expected? Although the calculation is meant to be simple, some of the assumptions made in the calculation could determine whether business pays a larger chunk of the funds that sustain local government.
Mrs Valerie Davey (Bristol West, Labour)
I, too, want to probe further. I am not convinced that the underestimating losses on appeals are as significant as the Government believe and I wonder whether the powers in the clause are necessary. Will the Minister estimate the losses over the past three or four years? How much has the Treasury lost as a result of losing appeals? Is the problem significant enough to justify the new power, with all the negative effects that the hon. Member for Cotswold outlined?
Mr Christopher Leslie (Parliamentary Secretary, Cabinet Office; Shipley, Labour)
I appreciate the lapse in time between the previous speaker and me: a few extra seconds can make all the difference. Rate poundage for England and Wales is calculated under rules set out in schedule 7 to the Local Government Finance Act 1988.
Mr Phil Woolas (Oldham East and Saddleworth, Labour)
If my hon. Friend can hold on for a few minutes we will be through.
Mr Christopher Leslie (Parliamentary Secretary, Cabinet Office; Shipley, Labour)
I appreciate that reassurance from my hon. Friend.
I was rather tickled by the hon. Member for Cotswold when he asked why the same letters are used with different meanings. This is the answer that I now have to hand. A, B, C, D and E in clause 63 are being inserted into section 43 of the 1988 Act. A, B, C, D and E in clause 64 are inserted into schedule 7 to the 1988 Act. I hope that that answer helps the hon. Member for Cotswold.
Clause 64 provides for two multipliers in future in England. There will be a small business non-domestic rating multiplier, and a non-domestic rating multiplier. For any year in which a small business rate relief scheme is run under clause 63, the second multiplier, the non-domestic rating multiplier, will be
set at a higher level than the small business rating multiplier to produce an addition to rate yield equal to the rate yield lost through small business relief. The options for small business relief in Wales are still under consideration and I know that my hon. Friend the Under-Secretary of State for Wales will be happy to go further into that when we reach clause 65.
In addition to providing for the funding of small business relief in England, the clause also makes changes, for both England and Wales, to how the multipliers, including the English small business multiplier, are to be adjusted to take account of the effects of revaluations. Under the 1988 Act, all non-domestic properties are revalued every five years. The next revaluation will be on 1 April 2005. The purpose of revaluation is not to change the total yield from rates, but to redistribute the rate burden in line with movements in the property market since the last revaluation. If there is a significant increase in total rateable value at a revaluation, the multiplier must be reduced. Alternatively, if there is a significant decrease in total rateable value, the multiplier must be increased. Thus, in a revaluation year such as 2005, the calculation of the English and Welsh multipliers will include an adjustment to offset changes in the total rateable value for each country between 31 March 2005—the last day of the old rating lists—and 1 April, the first day of the new lists.
The hon. Member for Poole asked an important question about the effect of appeals. That point was also touched on by the hon. Member for Kingston and Surbiton. The value for the first day of the new lists is
subject to something known as ''erosion'' through successful appeals by ratepayers for reductions in their new rateable values having retrospective effect from 1 April. Therefore, the Secretary of State and the Welsh Assembly are currently required to estimate what will be shown for 1 April once the effect of successful appeals has been allowed for. The estimated final rateable values for 1 April are used when making the adjustment to the multipliers to offset the effect of revaluation.
The estimates are difficult to make. I do not know the precise amounts of loss on appeal for the year, although I understand that the assumptions we made in setting the multiplier, both in 2000 and 1995, estimated the losses for appeals at around 5 per cent. Those estimates subsequently proved to be relatively robust.
Mrs Valerie Davey (Bristol West, Labour)
If the estimates were robust, why do the Government need the extra power?
Mr. Leslie rose—
Mr Christopher Leslie (Parliamentary Secretary, Cabinet Office; Shipley, Labour)
I must answer the question asked by the hon. Member for Kingston and Surbiton about whether those sums estimates were robust. We believe that they were. However, they were not entirely accurate, as they were estimates. I hope that that answers the hon. Gentleman's question.
Debate adjourned.—[Mr. Woolas.]
Adjourned accordingly at two minutes past Five o'clock till Tuesday 11 February at five minutes to Nine o'clock.