I beg to move, "That the Bill be now read a Second time."
I wish as shortly and as simply as I can to make plain the Bill's purpose. Before the passing of the Railways (Valuation for Rating) Act, 1930, there had been considerable dissatisfaction with the method of deciding the assessment for rating purposes of the railway undertakings; which assessment, up to that date, was of a very parochial character. What had to be done was to attempt to ascertain separately as a basis of valuation what rent would be paid by our old familiar friend "the hypothetical tenant" for each particular hereditament in each individual rating authority area, and the Act of 1930 really introduced for the railways a national instead of a parochial valuation.
Railways, like most public utility undertakings, are valued on the profit or revenue principle, under which the annual value of the undertaking is deduced from the annual profits or net receipts which are earned. The Act of 1930, therefore, provides for four stages in this valuation process. First, there has to be an ascertainment of the average annual net receipts of each of the four main line railway companies. Second, there is the determination of the net annual value of each company undertaking as a means of arriving at the rent which a hypothetical tenant would pay for the undertaking as a whole. Third, there is the apportionment of the net annual value so obtained amongst the separate railway hereditaments occupied by each company in each separate rating authority area. Last, the calculation from this apportionment of the annual value and the rateable value of each hereditament. The net receipts of the railway companies for these purposes are obtained over a period of five years; and the results so obtained are made the basis of the valuation of the railways for a subsequent period of five years. Thus, the average annual net receipts for the period 1940 to 1944 form the basis of the net annual value and thus of the rateable values for the years 1946 to 1951 for England and Wales and for 1948 to 1953 for Scotland.
The work of ascertaining these particulars, and of recording them in the railway valuation roll, for the railways operating in England and Wales, is done by the Railway Assessment Authority; and for the railways operating in Scotland, by the Assessor of Railways and Canals. But because the London Midland and Scottish Railway and the London and North Eastern Railway operate partly in England and partly in Scotland the Act of 1930 set up an Anglo-Scottish Railway Assessment Authority which was charged with the function of apportioning the net annual receipts between the parts of the two railways operating in the two countries.
This Bill is made necessary because the conditions governing railway operations in the quinquennial period 1940–44, upon which particulars the next valuation roll is to be based, make it impossible for the Railway Assessment Authority accurately to determine the net receipts of the individual companies in those years. The railways were taken under Government control, and the usual clearing house activities of the railway companies were largely suspended. Even if the net annual receipts could be ascertained for that period, it would be difficult, if not impossible, to calculate the hypothetical rent for the five years 1946–51 from the net annual values resulting from the abnormal conditions of 1940–44. The earnings of a particular railway in the war years would not give a fair indication of the likely earnings of that undertaking in the next five years, and, therefore, any valuation based upon such uncertainties would certainly not be a fair one.
After very careful consideration, we decided that there was no alternative to that of arbitrarily determining the notional net receipts of the war years for each undertaking for valuation purposes. During the period 1940–44, the average annual pooled receipts of all the railways was, in round figures, £79 million. From this pool, £43 milion was paid to the railway companies, and it is that figure. with minor adjustments, which has been taken as the average net receipts for the undertakings for the purposes of the operation of the Act of 1930.
In order that the machinery of that Act may work, this figure had to be apportioned between the various undertakings. That was done, and the resultant figures were accepted by the interested parties concerned, the railway companies and the local authority associations. From that, a further step had to be taken, because it was really impossible to calculate from these figures the rent of the hypothetical tenant. We had to go further and determine the net annual value of each undertaking, and thus leave the Railway Assessment Authority and the Assessor of Rail- ways and Canals the comparatively straightforward task of determining from that general figure the net annual value, and hence the rateable value of each of the separate railway hereditaments.
The lines upon which we worked this were roughly these: It was found that the proportion in which the £43 million had been divided between the undertakings in 1940–44 represented an increase of 12.7 per cent. on the net receipts for each of the undertakings actually ascertained for the years 1935–39 that formed the basis of the valuation roll of 1941–46. We, therefore, thought that it would be appropriate to take the annual value of each railway for 1941–46, the current roll, and increase that suitably by a common percentage in order to give figures for the valuation roll for 1946–51. These figures were worked out in discussion with the local authority associations, which consulted the railway companies on the matter, and the resultant figures are set out in Part I and Part II of the First Schedule to this Bill. They represent an increase of 14.1 per cent. over the figures of the previous period. On the basis of those figures, the Railway Assessment Authority will proceed to work out a draft valuation roll, and the machinery of 1930 will thus operate normally—by that, I mean that representations and objection to that draft roll can be made in the usual way; appeals can be made to the courts as to the correctness of the roll in relation to any particular hereditament, and so forth. There will, however, be no opportunity to challenge the main figures of net annual values which this Bill contains and makes fixed and final.
Clause I (3) deals with the expenses of the Anglo-Scottish Railway Assessment Authority or the joint Authority as it is designated in the Subsection. By Part II of the Second Schedule to the Act of 1930, the expenses of the Joint Authority are to be apportioned between England and Scotland in the proportion in which the aggregate net receipts of the undertaking, common to the two countries, bear to one another. Part III of the First Schedule to this Bill gives the distribution of the notional net receipts of the two undertakings for the purpose of arriving at the expense for this fourth quinquennial period. The figures, therefore, set out, have been accepted by the railway companies and by the local authorities. Clause I (4), together with the Second Schedule to the Bill, deals with modifications of the principal Act, which are consequent upon the changes which I have already indicated.
I desire to give a short explanation of Clause 2. This Clause makes a minor alteration in the Act of 1930 to cure a defect disclosed in the case of the Southern Railway v. the Worthing Corporation in 1943. Briefly stated, the defect was this: A property may during one quinquennial period cease to be a railway hereditament, and, therefore, will not be included in the next railway valuation roll. But because of the amount of time which has to be taken up in calculations, investigations, and so on, there may be a period between the end of one quinquennial period and the completion of the valuation roll for the succeeding period. Local authorities are not able to bring into ordinary rating properties which have ceased to be railway hereditaments until the new roll has been produced, and it can be proved that the particular property is omitted from that new roll In other words, the decision in the Worthing case was really that the old valuation roll remains in existence until the new one is completed. This can lead to a loss of rates by rating authorities inasmuch as there is a period during which no rates can be raised on the particular hereditament that has ceased to be a railway hereditament. A promise was given by the Coalition Government last year that this matter should be put right in the period of the fourth railway valuation roll period, 1946–51, and the wording of Clause 2 has been introduced in agreement with a conference of local authorities, and I understand that the railway companies have accepted the principle laid down.
Lastly, there is Clause 3 which applies, with the necessary modifications, the provisions of the Bill to the London Passenger Transport Board. This is necessary to be done because the Act of 1930 does not apply directly to that Board, but was applied to it with modifications and adaptations by an Order of the Minister confirming the scheme made for the purpose by the Railway Assessment Authority in exercise of the powers that were given to him by Section 92 (3) of the Passenger Transport Act, 1933. I hope that these explanations will be helpful to the House, and that we now can secure the Second reading of the Bill.
Judging by what has happened so far in this Parliament there will be comparatively few occasions on which I shall be able to congratulate a Minister on anything, especially Ministers in the Health Department. But on this occasion, I must thank the Minister and congratulate him on the most admirable way in which he has explained this frightfully technical matter. I am personally indebted to him for the way he has put it, and I am sure it anyone wants to know anything about this obscure subject he has only to read that speech to be fully informed of the purpose of this Bill. I must congratulate him most heartily. For our part we do not propose to offer any opposition to this Bill, more particularly because it is going to a Select Committee. Therefore, any of the more detailed arguments necessary to make sure that it is completely fair all round will be before the representatives of the House on that Committee, whose report, no doubt, we will await with interest.
It seems to me from such inquiries that I have been able to make in this matter that the real difficulty is that under the Act of 1930 these valuations called cumulo valuations—a delightful word whatever it really means—have to be rated on the basis of the previous five years' workings of the undertakings. Owing to the war and the fact that there was a railway agreement which limited what the railways themselves got, whatever might be the gross total, the Government taking the balance, there was some difference of opinion as to whether the valuation should be based on the total earnings of the railways which included the Government share or on the amount which the railway companies got under the agreement, which was £43 million per annum. As the result of discussions and talk over a long period the Government have come down on the decision that the £43 million was the right basis to accept. I think that is correct. That being so, to an outsider, who is not concerned with the details of these intricate matters, this will appear as the only fair basis. It would be very hard to make a valuation on something out of which the undertakings receive nothing. I gather that most of the local authorities concerned have accepted this basis, and anyhow if they have not they can make their case upstairs. There is no reason on my part to delay the House any further, only again to thank the Minister for his most interesting and lucid explanation.
I should like to say how pleased I was to listen to the Parliamentary Secretary moving the Second Reading of this very complicated Bill. I think that he did it in language that made perfectly plain the main principles with which we are concerned. I should like, however, to offer one or two comments upon the provisions of this Bill and to say that I do not think that the assessment is really as fair and as generous to the local authorities as it should be. It will be seen in the First Schedule that there are certain figures showing the net annual value of the undertakings in England and the cumulo yearly rent or value of the undertakings in Scotland. These figures make a total of £8,725,770, which is intended to be the figure upon which railways will pay rates to local authorities during the forthcoming five years or the fourth quinquennial period. These figures represent an increase of approximately 14 per cent. above the previous figures for the third valuation role. My contention is that the increase is totally inadequate, because the local authorities throughout the country are faced with very heavy costs in the postwar years as a result of the war period, during which there had to be a great deal of work left undone. This work must now be done. Therefore, I think that the local authorities are entitled to receive a more just share of the increased prosperity of the railways during the past five years.
As a matter of fact, during the past five years the average annuual net receipts for the railways have been in round figures £82 million. That figure is equivalent to an increase of 139 per cent. above the figures for the previous third valuation role. The figure in the previous valuation role was approximately £35 million. Therefore, the increase in net receipts of the railways during the past five years, amounting to 139 per cent., shows that the railways are in a position to pay more rates than is proposed in this Bill. I should like also to give one or two figures in relation to the actual rates which are paid by the railways and one or two figures by way of comparison. In 1929 the railways paid in rates to local authorities £4,637,000. In 1941, the first year of the third valuation role, they paid £942,000.
Yes. I do not want to tell the House, of course, that the railways receive all the advantages of that reduction. They do not wholly receive that advantage, because they became derated under the 1929 legislation, and what they received by derating they had to pass on to the Railway Freights Rebate Fund in order that charges on the carriage of certain goods and commodities might be reduced. Nevertheless, they received a fairly substantial advantage as a result of the operation of the 1930 Act. The average receipts, as I said just now, for this first year, 1941, of the Third Valuation Roll were approximately £35 million. For the contemplated period that we are now considering the receipts have increased to approximately £82 million.
But my complaint is this: that the Government apparently are not allowing the local authorities to receive the advantage of the increased receipts of the past five years, because they have fixed a sum of £43 million a year to be paid to the railway companies for the use of the railways during the period of Government control. Apparently they are basing their nett annual values for rates, during the coming five years, on the reduced payment of £43 million, rather than on the gross average figure of £82 million. I therefore say again, that the proposed increase of 14 per cent. which is suggested is totally inadequate for the local authorities, and ought to be substantially higher.
I should like to emphasise the precise effect of this new basis of assessment, and the proposals contained in this Bill, upon my own local authority. In 1929, the Acton Borough Council received in rates, from railway undertakings, £28,666. That was the average figure for a previous period. In 1941, the first year of the third valuation roll, that figure dropped to £2,856. As I explained previously, a proportion of that reduction is accounted for by derating legislation, which is purported to be made good to the local authorities from annual Exchequer block grants. We estimate that we have received from the block grant, by way of compensation for losses due to derating of railway hereditaments, approximately £16,000 per annum, which left us with a loss, in 1941, of nearly £10,000 to our rates as a result of the operation of the 1930 Act. We say that in view of the annual loss which we have suffered since 1930, the increased costs which local authorities will have to bear in postwar years, and the tendency of the rates to rise, the Government should be far more generous in their approach to the local authorities. The figures which appear in the First Schedule should be increased substantially.
I hope I have been able to make myself intelligently understood by the House, because rating and valuation are a mysterious problem to all interested in local government matters. It is difficult to argue, especially in relation to figures and statistics. I hope that the Parliamentary Secretary may be able to hold out some hope that the figures in the First Schedule are not to be taken as definite, and that there may be some prospect of meeting the local authorities' requirements. It has been said that the local authorities agreed to the figures. I do not know what choice they have had, but I do know that the losses in my borough, as a result of the 1930 Act, have been fairly substantial year by year.
Would the hon. Gentleman direct the remainder of his interesting speech to the point that any increased amount such as he advocates will fall on the shoulders of the railway companies? Would he say, in addition to giving reasons why it is most undesirable that local authorities should have less money to spend, why it is desirable that the railway companies should provide more money?
We are now discussing the basis for payment of rates during the fourth quinquennial period. They are based on the receipts of the railway companies during the years 1941–45. The railways earned. during that period, approximately £412 million gross. The nett revenue of the pool reveals that in 1941£45 there was a surplus of approximately £412 million. The Government have agreed that they will pay to the railway companies £43 million per annum.
That goes far outside the whole scope of this Bill. The undertaking which the hon. Member has just referred to did not refer exclusively to rating, but to all sorts of things, such as the provision of new rolling stock, and the like.
I realise that. I am probably taking longer to explain this point than I ought to take. The Government are basing their figures in the First Schedule, not on the surplus of £412 million, but on the reduced sum equivalent to £43 million per annum which they are paying to the railway companies. They are basing these figures on £215 million, and not on the gross figure of £412 million.
Valuation here is being made on the nett annual receipts of the railway companies. They are £13 million per annum. Does my hon. Friend suggest that the Government should pay more to the railway companies in order that their valuation may be higher? Does he say that, instead of the Government retaining it, it should be paid to the railway companies so that we can increase their valuation?
We are now up against very complicated and technical matters. I know the Government have agreed to pay the companies £43 million per annum, but they have made a good profit out of the railways during the past five years. They are £197 million in pocket as a result of their agreement with the railway companies.
But the local authorities ought not to suffer on that account. I hope the Government will be a little more warm-hearted about this. If they cannot give to the railway companies more than £43 million each year, can they help the local authorities by an increase in the Exchequer block grant? Can they make good some of the loss which my local authority has suffered as a result of the 1930 Act? The loss to the rates in my own locality has been substantial. I have tried to answer the point put by the Noble Lord the Member for Horsham (Earl Winterton), although I do not know whether I have succeeded in doing so to his satisfaction. The essential point is that the Government have done very well out of their agreement with the railway companies, and there should be ways and means of increasing the net annual amounts, as outlined in the First Schedule, and give the local authorities a squarer deal than they have had up to now.
Before I come to the substance of what I wish to say, it would be well if I made it clear that, although I am a member of the Railway Assessment Authority and of the Anglo-Scottish Railway Assessment Authority, I am not speaking on their behalf, but am expressing my own opinion on this matter. It has long been evident that some legislation ought to be introduced to deal with certain defects which have been disclosed in the operation of the Railways Act, 1930. What the Measure now before us does is to make an arbitrary valuation for the purposes of the next quinquennial valuation of railways, but it does not, except in regard to one point in Clause 2 of the Bill, make the fundamental amendment which is necessary to provide a permanent machinery for dealing with this problem. I do not know what is in the Minister's mind with regard to that. It may be that, because of the prospect of nationalisation of the railways, he considers the matter should stand over, but it seems to me that it will have to be dealt with, unless the proposition is that all nationalised industries are to cease to contribute to local rates. Certainly, that is an idea which, so far as I know, has not been advocated by anybody, and it is not the basis upon which the affairs of the State have been conducted in this country in the past. On the contrary, it has always been the custom for a contribution in lieu of rates to be made in respect of Government property.
Therefore, I return to the point that a permanent amendment of the principal Act is necessary, and this Bill does not make that Amendment. I think that is a great pity. I do not know whether hon. Members realise that, from the time when the 1930 Act was passed to the present moment, the Railway Assessment Authority has not made a valuation of any one of the mainline railway companies. The first valuation which it purported to make of the Southern Railway Company was the subject of litigation which extended over a long period of time and ultimately went to the House of Lords, with a result very different from that which had been contemplated. The effect of this was that the valuations of the mainline railway companies for the first quinquennium were subjected to a process of negotiation and compromise. The same thing happened with regard to the valuations of the second quinquennium. There was no valuation, but a species of bargaining between the local authorities and the railway companies in which the local authorities got a very bad deal. In the third railway valuation roll there was also a compromise, and now that we come to the fourth, again the figures are arbitrarily being written into the railway valuation roll.
That is a highly unsatisfactory state of affairs. It arises in part—I say this expressly and deliberately—from the fact that the railway companies have, with great persistency and ingenuity, and in the most suave and delightful fashion, done everything they possibly could to obstruct the operation of the Statute, but it also arises because there are fundamental defects which have arisen out of the long history of the valuation of public utility companies. Those defects are as follows. First of all, a valuation is made on the basis of the average net profits or net receipts of the railway companies for a past period of five years, but the valuation operates for a future period of five years. Into this estimation there have been introduced all kinds of conjectures about what might happen in the future, suggestions about the risks which railway companies run, and other means of discounting the future, and therefore, reducing the valuation, in spite of the fact that it purports to be made upon definitely ascertained facts of the past. The railway companies have always got the benefit of saying, "We are conducting a most uncertain, risky and dangerous trade, and therefore, our valuation for the future ought be based upon the assumption that we are standing at a high degree of risk."
Now we come to this period in which the railway companies have been enjoying a guaranteed revenue from the State of £43 million a year, and in which the railways have actually been earning on an average more than double that figure. In this respect, my hon. Friend the Member for Acton was correct. The earnings of the railway companies during that period have been, as he mentioned, over £80 million a year. It is true that the earnings have been divided between the railways and the State, and that there has been, in effect, a partnership between the two; but that is no reason for reducing the valuation of the railways. The only result, of course, would be that under the agreement which was made with the railways for their control, the State would have to pay the increase of the valuation by a deduction from its share of the earnings of the railway companies. They would still remain with their guaranteed £43 million.
Therefore, one of the primary objects of this Bill, which has not been mentioned so far, is to make sure that the share of the State will not be impinged upon by having any regard to the part of the earnings of the railways which it appropriates. There is a good deal to be said for that, but it is not very helpful to the local authorities that they should be deprived of the benefit of the increase in the earnings from railway operations in this period, as they have been deprived of them in previous periods owing to the way in which these valuations have been made and the contention which has been continually made that the railway companies have been running under great economic risks, and therefore, although their valuation are based upon ascertained facts of the past, they should he discounted with regard to the future. So, by this ingenious procedure, coupled with two others which I think it is as well I should put on record, as illustrating the defects of this procedure, the valuation of railway companies, like that of all public utility companies is carried on. It is not an isolated matter, and, therefore, the importance of the subject is very great.
The valuation of the railway companies is conducted upon the basis of ascertaining the receipts of the undertaking, and deducting from those a sum which represents the earnings of the movable assets—the rolling stock, etc. The amount to be deducted is calculated by taking a percentage of the estimated capital value of the movable assets the balance left after this deduction is the net annual value or the rent of the land and of other fixed assets, etc. The valuation of the rolling stock is made upon the basis that the whole of it is to be bought tomorrow morning, at the present day price of replacement, without regard to the sum of money which it actually cost the railway companies to acquire it all in the past. Yet that sum of money is the actual capital on which they are conducting their business. Secondly, upon that capital valuation of the rolling stock so estimated is based a percentage of earnings, such as 12½, 15, 17½ or even higher, again on the theory that the railway companies are operating their undertakings at such extreme risk that they have to be compensated for embarking their capital, although as we all know, they continue to operate their companies and pay their shareholders moderate dividends. It is high time that this matter was properly dealt with, instead of by a patchwork such as is contained in the present Bill.
Lastly, I may as well point out the consequences which accrue to the railway companies and to their shareholders. If the contentions which the railway companies have put up in the past with regard to these matters, and which are being put up at this moment, are true, as a result of which the net annual value of all the main line railway companies of the country has been put at a figure of £7 million or thereabout, I would ask the House to consider the logic of that position. If there is to be a proposal for nationalisation of the railways, and the railways are to be valued on that basis, because of the theory that they are operating at a risk, they are only going to get about six or seven years' purchase of that net annual value. This is a matter which might very well be borne in mind in the negotiations in regard to these matters. Those are the grounds upon which I am saying, without qualification, that during the past 16 years, and indeed for very much longer, the railway companies of this country have been very seriously undervalued.
I am sure that the whole House is indebted for the speech to which we have just listened from the hon. Member for North Battersea (Mr. Douglas), who over a long period has made a very special study of this rather abstruse and intricate subject. In the course of his speech he made a number of observations which I am sure will be fruitfully studied by His Majesty's Government, in connection with the discussions that will take place with regard to their project for the nationalisation of the railways. My justification for rising is that it happens to have fallen to my lot during the last two or three years to have been acting as the chairman of a body representing all the local authorities in the country in their negotiations with representatives of the railway companies and of the predecessors of the present Minister, to see whether some agreement could be reached for a more effective and satisfactory valuation of the railways for rating purposes. I desire merely to add a few sentences to the remarks of my hon. Friend in order to stress the way in which the Act of 1930, which this Bill seeks to amend, has operated, to the profound dissatisfaction and prejudice of local authorities. It is no exaggeration to say that the Act of 1930 has produced results that were entirely contrary to the anticipations of local authorities and considerable injustice has resulted from the failure of railway companies to pay their fair share of rates, as compared with other ratepayers.
It is, therefore, worth while that the House should know and have on record precisely what was intended by Parliament in passing the Act of 1930. Prior to that time, as the Minister has said, the railways were rated on a parochial principle. In each parish an estimated rental had to be worked out of the particular railway plant, stations and undertakings in that parish—all on a very complicated system. Each parish worked out the rateable value of the property of each railway undertaking in its parish. The method was cumbersome in the extreme; there was no co-ordination for hearing appeals; there was a lack of uniformity and the whole procedure was most unsatisfactory. Further difficulties arose when the railway amalgamations took place shortly after the end of the last war. Between 1918 and the passage of the Act of 1930, there were protracted discussions between representatives of railway companies, local authorities and Government Departments concerned, to try to produce a Measure which would simplify and rationalise the whole basis of the rating of railway companies. To some extent the Act of 1930 was an agreed Measure.
The significant Section of the Act and that to which the local authorities attached importance is Section 4 (2) which, with the express object and purpose of avoiding unnecessary litigation and the complications of the past, provided that:
The Railway Assessment Authority and any court before which any determination of the Authority is under appeal shall not be bound to give effect to any custom or practice affecting the valuation of railway hereditaments which obtained prior to the passing of this Act in regard to the deduction or allowance to be made in respect of the capital of a tenant, but shall have regard to all relevant circumstances and all material considerations with a view to securing that such estimated rent shall represent a fair and just division of the net receipts as between landlord and tenant.
Notwithstanding that provision, which was aimed at giving the Railway Assessment Authority, of which my hon. Friend the Member for North Battersea has been a distinguished member for many years, a free hand by applying equitable principles to arrive at a fair annual value of the railways, when the first assessment on the four main line railways came to be made for the first roll period—on the Southern Railway—there was very expensive and very protracted legislation which went to the House of Lords, and in the result the assessment made by the Railway Assessment Authority, was cut down by about half on the ground that, notwithstanding the Section in the Act I have just quoted, it was necessary for the Railway Assessment Authority and for the courts to apply the principles of rating which had been in operation before. The absurdity of the position was made apparent when this decision was applied by the Railway Assessment Authority to the next undertaking, the London and North Eastern Railway, and reached the conclusion that the assessment of that undertaking must be nil.
The manifest incongruity of that position meant the complete frustration of the purposes of the Act of 1930. It became impossible for the Railway Assessment Authority to perform its functions. as contemplated in the Act. It would have been ludicrous if the railways notwithstanding the profits they were earning had been given a nil assessment and escaped any contribution to the rates at all. Negotiations took place, and arbitrary figures were inserted both for the, first roll and for the second roll after dis- cussions which were not very satisfactory to the local authorities. When the third roll came to be considered, war had started, and the Railway Assessment Authority confessed its complete inability to apply the provision of the Act of 1930, and as a result of discussions with the railway companies who alone had access to the relevant information and accounts, again figures which were completely arbitrary were inserted. A round figure of £6 million for the four companies was thought convenient and was then split up on no rational basis between the four companies.
My right hon. Friend the Member for Horsham (Earl Winterton) has asked why railway companies should contribute more by way of rates than is provided for in this Bill. The reason is that owing to the operation of the Act in the past railway companies have paid far less than their fair contribution to the rates. Therefore, the local authorities feel that, having lost on the swings, they should not also lose on the roundabouts in view of the fact that the railway companies have enjoyed considerably enhanced net receipts during the war years, and they feel that justice would be done if the Act were applied. I am afraid that this subject is very abstruse, but I will try to explain the position without reference to complicated sets of figures. During the war years, the railway companies had the advantage of having their rate liabilities calculated by reference to the lower earnings of the pre-war years. Under the Act, the accounting period for the fourth roll which we are now considering is the war years. The railway companies would therefore gain both ways if they were now able to say, "Ah, well, the war years were anomalous and therefore the accounting period provided in the Act should now be disregarded."
I have no hesitation in saying that but for one fact all local authorities would be resisting the Bill now before the House as being completely inadequate and as perpetuating an injustice from which all local authorities feel they have been suffering as a result of the Act of 1930. Local authorities are induced to give this Bill their reluctant and qualified approval because of the announcement recently made of the intention of His Majesty's Government to nationalise the railways. That introduces an entirely different feature into the situation. If the railway companies were to remain privately owned undertakings, local authorities would be pressing very strenuously for an upward revision of the figures provided in the Schedule to this Bill and would also be pressing for a complete review of the machinery of the Act of 1930 which has produced such completely grotesque and unreal results. Local authorities are giving reluctant consent to the purely temporary provisions which are being made for dealing with the fourth roll period because the 1930 Act cannot be put into operation and because some machinery is necessary to provide, during the next few years, a basis on which the railway companies should pay a contribution to local rates. But as the railways are shortly to be brought under Government control, new problems will have to be faced both by the Government and the local authorities.
I hope that we shall have an assurance from the Minister that these figures now being inserted in the Bill for the fourth roll period are not intended as any permanent basis on which contributions will be paid by nationalised railway undertakings to local authorities. That argument would be completely unsound.
The basis on which the Minister seeks to justify this Bill is that the railway companies and their shareholders have been receiving only £43 million during the last four years although the earnings of the railway companies have been considerably higher—£89 million one year, over £100 million another year, and, as I think the Minister himself said, an average over the last four or five years of approximately £79 million. If these railway companies had been nationalised a few years ago or were already nationalised, the argument which is the whole basis of the Minister's present proposals would no longer be available to him.
If these railway companies were State-owned undertakings, as they will be in a few years' time, there could be no such argument. Their net receipts average some £79 million. They are the profits of the undertaking. Rate contributions to local authorities ought to be calculated on that basis, and I want to stress that if this legislation were not introduced and if local authorities had been left to Lace this matter at arms length in the law courts with the railway companies, they would have contended that £79 million being the average over the last five years would have been the right figure, because the Act of 1930 does not refer to the net receipts of the company abut to the net receipts of the undertaking.
The basic principle of rating property is to gauge the productive value of the hereditament in question; that is the basis on which an attempt is made to spread rate burdens equitably between one ratepayer and another. Therefore, testing the ability of the owners of the undertaking to pay, whether it be in private hands or in Government hands, the correct figure from which to proceed is the net receipts of the undertaking; i.e., the average of £79 million. It so happens that during the five years of the war those net receipts have been divided as to £43 million to the railway companies, and the Government, I am glad to say, have had the balance. Now some provision has to be made by Parliament as to what contribution shall be made to local authorities during this period. The figure of £43 million has been imposed by the Government and has then to be used as the starting point on which to calculate what is the net annual value of the railway companies.
In order to arrive at the figures inserted in the Bill, a rough-and-ready percentage of 20 per cent. is taken to produce the figures in Part I of the First Schedule which total £7,814,000. Now the House should appreciate that for the purpose of this Bill it has been assumed that 20 per cent. is an appropriate percentage to apply to the net receipts of a railway company, whether the net receipts are £42 million, £79 million, or anything else, in order to arrive at the net annual revenue. I want to emphasise that this principle of applying 20 per cent. is not accepted by local authorities. It must he remembered that prior to the Act of 1930 there were considerable discussions between local authorities and railway companies to see if an agreed basis could be reached for rating railways. Those negotiations must have taken a long time because there were transitory provisions in force between 1918 and 1930. During those discussions local authorities contended that the appropriate percentage to apply to the net receipts of a railway in order to arrive at the net annual value was 30 per cent. The railway companies were willing to accept a minimum of 20 per cent.; then, if I remember rightly, some compromise was under consideration of a figure of 25 per cent., but local authorities thought that 25 per cent. was not enough, and no agreement was reached.
It should also be remembered, that prior to the Act of 1930, and prior to the operation of the transitory provisions, the total of the assessments on railway hereditament throughout the country represented an average of well over 40 per cent. of the net receipts. Therefore it should again be stressed that local authorities have always contended that the appropriate percentage to apply to the net receipts in arriving at the net annual value is not anything as low as 20 per cent., which is the figure assumed for the purposes of this Bill, but something much more in the order of 30 per cent.
I have ventured to make these remarks because I think the House should know, now that it is asked to amend the 1930 Act, that probably no Act on the Statute Book has ever produced such unreal, perverse and grotesque effects as this Railways (Valuation for Rating) Act of 1930. By all means let the House amend it for a short interim period, but let it also remember that the Act must be swept away. It is no use imagining that this Act and its provisions, which have been productive of such expense, uncertainty, unreality and confusion, is of any use as a basis for the valuation of undertakings of this kind. It should also be remembered that when the railways are nationalised, and it becomes necessary for my right hon. Friend the Minister of Transport and the Parliamentary Secretary to consider these matters that local authorities will require the whole history of this matter to be taken into account. They will not expect this interim measure to be used as the basis for future rate contributions by State owned railways. I hope, therefore, that when the Minister comes to reply, we may receive from him some assurance that those considerations will be borne in mind.
I want to find out a few things about this particular proposal. Unfortunately, I was unable to be here when the Parliamentary Secretary made his statement, and I may be raising a point that has been dealt with already, but I will take a chance on that. The position in Scotland with regard to rating is somewhat different from that which exists in England, and cities like Glasgow find themselves in a rather curious position. A large number of the concerns which paid fairly high rates in prewar days have now gone out of existence. A large number of the concerns that were necessary during the war have also gone out of existence, with the result that the rating valuation of the city is much lower than it was.
We have a system in Scotland whereby the local authority assessor goes to a place, examines it, finds as near as possible what is the turnover, and what are the likely profits. He puts a valuation on it, and rates are paid on that valuation. There is a court to which parties can appeal if they consider the valuation too high. In Part I of the First Schedule the cumulo yearly value of the London Midland and Scottish undertaking is £598,960. Supposing the London Midland and Scottish undertaking in the city of Glasgow is £250,000—I do not know the figure—and the city assessor assesses the value of the undertaking in the city of Glasgow at £300,000, is the Minister prepared to make any provision for negotiating the difference between the city assessor and the railway assessing authority? Obviously not. I would like to ask whether it is not a bit undemocratic arbitrarily to put down a figure and tell the authorities they have to accept it. I would remind the Minister that the Scottish people, when their representatives signed the Act of Union never for a moment dreamt they were going to have a tax placed on them arbitrarily without the opportunity of being able to consider the matter. This is an indirect tax and the powers are taken from the local authority to rate according to the proper value. I hope the Parliamentary Secretary will take this matter into consideration and promise that with the Minister he will see whether something cannot be done to accommodate local authorities in Scotland, instead of doing it in this arbitrary fashion.
So far as I have been able to follow the Debate, it seems to me that the arguments which have been used are not against what the Bill does, but what it fails to do. The Bill seeks merely to give the necessary basis, with the 1930 Act in existence, for the fourth quinquennial period. It is not proposed to alter the 1930 Act. With much of what has been said in regard to the operations of that Act, I have a great deal of sympathy as an old local government administrator. But it is not the purpose of this Bill to alter the operations of the 1930 Act. The purpose of this Bill is to provide the necessary figures for these operations to be carried out and we have had to determine what can be regarded as a reasonable figure for the net annual returns of the railway undertakings. For the operations of the railways in the years ahead the mere fact that during the war the figure was as much as £79 million does not make a fair basis for valuation if the railways only got £43 million out of that £79 million. What we have to deal with is a fair basis for the valuation of the railways in 1946–1951.
It may be said that in the years gone by there ought to have been another valuation of the railways in the period 1941–1946, but we are dealing with the period ahead of us. I cannot be expected to give an undertaking on what will be the attitude of the Ministry to the valuation and rating of railways as a permanent thing in the future, or what would be done under conditions of nationalisation of the railways. It may well be that the whole problem of the valuation and rating of public utility undertakings needs to be dealt with. I think there is a great deal to be said for that. In answer to my hon. Friend the Member for West Renfrew (Mr. Scollan) I would say that this Bill does not attempt to deal with the methods by which the valuation is carried on by the Assessor of Railways and Canals in Scotland. It leaves in existence the methods followed in the last 10, 15, or more years and says that instead of arriving at the figures themselves by their own operations, the Railway Assessment Authority in England, and the Assessor of Railways in Scotland, are to take the figures here put down as being the net annual values of the railway undertakings. How those figures are to be applied in Scotland remains a matter for the assessor, in the same way as has been the case after the railway assessment authorities have decided the figure in the quinquennial period.
The railway rating authority has fixed this figure. The assessor in the case of the city of Glasgow may assess the value of the same undertaking at least £50,000 more. The whole point is that there is no appeal. When we have a Government-appointed assessor that is undemocratic.
The apportionment of these figures between various local authorities is an operation of the assessor. As to the question as to whether he has operated fairly or not, I have already said that actions in the courts are still possible against the draft rolls which will be provided. This Bill makes no change as regards ordinary operations, and does not attempt to settle the value of particular railway property in Glasgow. It merely says to the Assessor of Railways and Canals that this is the cumulo figure he has to take. But for the war, it would have been arrived at by other means, but this is the figure he has to take as covering the net value of the undertakings in Scotland for this particular purpose. I think the argument of my hon. Friend the Member for Acton (Mr. Sparks) that the valuation of the railways should be made to vary with the expenditure of the local authority is extraordinary. The valuation of railways does not enter at all into the question of the expenditure of the local authority, which is dealt with in the rate poundage after the apportionment has been decided.
Perhaps I did not make myself clear. I was not advocating that the rates paid by the railways should vary with the expenditure, up or down, of local authorities. What I was thinking of was that local authorities were facing considerably increased expenditure in the postwar years as a result of failure to carry out works during the war period. In view of that expenditure and the tendency of the rates to go up, there should be a greater contribution from the railways to the rate, and the basis should be increased in order to make provision for that.
Then why should we pick out the railways? Why say that because the expenditure of local authorities is to be increased, we must increase the rateable values of the railways and not the rateable value as a whole, merely on the plea, not that they have earned more or deserve to pay more, but that the expenditure of the local authority has been increased? We cannot settle the question of valuation of an undertaking on that basis. If the expenditure of the local authority is increased, the expenditure is met by increasing the rate poundage. The income of the railway companies was increased by 12.7 per cent. If we take this £43 million over the 1935–39 period that was made the basis of the previous valuation, the valuation of the railways has been increased by 14.1 per cent. and, to that extent, it is probably true that we have done what my hon. Friend the Member for Acton asked should be done by increasing the proportion of the valuation.
Question put, and agreed to.
Bill accordingly read a Second time.
Bill committed to a Select Committee of six Members, four to be nominated by the House and two by the Committee of Selection; All Petitions against the Bill presented at any time not later than five clear days after the making of this Order to be referred to the Committee; Petitions against the Bill may be deposited in the Committee and Private Bill Office, provided that such Petitions shall have been prepared and signed in conformity with the Rules and Orders of this House relating to Petitions against Private Bills; Petitioners praying to be heard by themselves, their counsel, or agents, to be heard against the Bill, and counsel or agents heard in support of the Bill; Committee to have power to report from day to day the Minutes of Evidence taken before them; Three to be the quorum.—[Mr. Key.]