I beg to move amendment No. 7, in page 1, line 5, at beginning insert—
The amendment takes advantage of the fact that the Bill amends the Local Government and Rating Act 1997—which amended the Local Government Finance Act 1988—in order to make a necessary adjustment to the present arrangements.
The present Act stipulates three conditions for qualification as a rural settlement. First, a settlement should be wholly or partly within the area of the authority making the rural settlement list. Secondly, it must appear to the authority to have had a population of not more than 3,000 on the last 31 December before the beginning of the chargeable financial year in question. Thirdly, in that financial year the settlement must be wholly or partly in an area designated by the Secretary of State by order as a rural area for the purposes of the section.
Thus there is a triple qualification that depends not only on the size and position of the settlement—the geographic or demographic components of rurality—but on the political decision of a particular Secretary of State who, not entirely randomly, I hope, designates particular local authority areas. The result is an anomaly: settlements that cannot possibly be construed as other than rural—small villages surrounded by green fields, farming communities—but that have the misfortune to be in a district council or borough council area that is not considered rural by the Secretary of State, fall through the net.
That happened in relation to the original rate relief and to the hardship relief for foot and mouth. Why should a village not be a village simply because the Local Government Commission has chosen to draw a sufficiently wide boundary line around a conurbation or major town in order to declare it to be non-rural? My hon. Friend the Member for Northavon (Mr. Webb) illustrated that, as I mentioned on Second Reading, by drawing my attention to the position of villages in south Gloucestershire, which is not considered to be rural. His constituency is not considered to be rural—the villages are not villages under the terms of the Act—solely because a Secretary of State decided that the suburban elements of the district cancelled out the size of the settlements that fell outside of those areas.
I thank my hon. Friend for giving way. The area in which my constituency lies, north Somerset, is suffering especially in the present foot and mouth crisis because it is not designated or seen to be a rural area. My hon. Friend makes a valuable and relevant point.
Is it not preposterous to suggest that north Somerset is not rural? It flies in the face of reason to tell anyone who has been on the high Mendips that that is not rural. There are no doubt Labour Members who have the same problem; they could have within their constituencies rural communities that are not classified as rural simply because of the present system.
The amendment would strike out the relevant condition. The Secretary of State could still intervene—there would be no problem with that—if a local authority were spuriously to classify a settlement as rural. There are plenty of ways in which that could be done. However, to suggest that simply because one individual asserts that a local authority area is not rural, then no community or farm within it is rural and none of the population is a rural dweller, seems an extraordinary state of affairs, which the amendment would rectify.
I commend the amendment to the Committee and, if the Minister is not minded to accept it in the terms in which it is drafted, I ask him to consider the means by which rural areas are identified by the Secretary of State. He should consider whether there is a case for identifying parts of those local authority areas that are not entirely rural in nature as rural for the purposes of this and similar legislation. At the very least, he should revise the present list, because it is entirely inadequate and is unfair to many people whom I think the House would wish to support.
I have a degree of sympathy with that part of the case put by the hon. Member for Somerton and Frome that attempts to secure greater clarity and therefore greater perceived fairness in the Bill's definitions. We can all have fun at the Government's expense with the definitional problem of what is and what is not rural. Apparently, north Somerset is not rural—I agree that that is absurd. It is also absurd that the rural group of Labour MPs has 168 members; it would be interesting to know how many of that group represent seats that their own Government do not regard as rural.
My hon. Friend may be amused to know that the Labour party counts both North Swindon and South Swindon as rural seats. Those who, like my hon. Friend, know Swindon well will see the absurdity of such definitions. There is also the more serious question of whether or not a Secretary of State would be tempted to twist the definition of rurality to suit purely political purposes rather than to establish objective indicators.
If the Government are dividing the country into urban and rural areas and giving specific privileges to areas according to status, the House should insist that those definitions are clear, open and evidently fair, so that those who fall one side of the line or the other can accept that that happens as the result of a fair and transparent process. That need for clarity and fairness is greater than ever in view of the fact that we are increasing the reliefs available to certain types of business in rural areas.
One accepts that there will be places that fall narrowly on one side of a line or another. The hon. Member for Somerton and Frome said that it was absurd to classify farms as being in non-rural areas. However, some farms are inside the area of the Greater London Authority, for example, and it would be tough to argue that that was a rural area. Some of our most urban areas contain businesses such as farms that are generally found at the heart of our rural areas. Thus there will always be definitional problems.
Does the hon. Gentleman accept that the Greater London area would not be a settlement of less than 3,000 people? There are two qualifying elements for the Secretary of State.
Indeed, so; and even the constituent boroughs of Greater London—Bromley contains a number of farms—would not qualify under that criterion. Nevertheless, definitions are needed and some settlements will fall just to one side of the line or the other. However, I seek to support the point made by the hon. Gentleman that it is important that the matter is not left purely to the discretion of the Secretary of State, because that will inevitably introduce an element of suspicion that political considerations may hold sway over more objective considerations. That would be unfortunate and would cast doubt on the legitimacy of the improvements that the provision might bring about.
The amendment would alter the means of designating rural areas and settlements for the purposes of the village shop rate relief scheme. It would not affect the farm diversification relief provided for by clause 1, which is not limited to such designated villages. However, it would affect the existing village shop rate relief scheme and the extension to it under clause 3.
The amendment would remove the requirement for settlements identified and listed by local authorities as eligible for the relief to be in rural areas designated for the purposes of the scheme by the Secretary of State. There would be no way of defining the areas within which the village shop rate relief scheme would apply. Nothing would stop councils identifying as settlements eligible for the relief areas with populations up to 3,000 in towns or cities, demarcated, for example, by ward boundaries or main roads.
The hon. Member for Somerton and Frome says that the Secretary of State could make the relevant decisions in other ways, but his amendment would remove the Secretary of State's ability to decide what a rural area is.
The Minister is construing the word ``settlement'' in an extraordinary way. If the Secretary of State failed to challenge a local authority's determination that part of a conurbation was in its own right a settlement of fewer than 3,000 people, he would fail in his duty properly to represent the Government's view.
The amendment effectively removes the Secretary of State's ability to do that, so the hon. Gentleman is protesting against his own amendment in making that comment. The amendment would turn the scheme into rate relief for small food shops and certain small general shops, post offices, pubs and petrol stations throughout England and Wales. It would no longer be a scheme of rate relief targeted at isolated rural communities. A general scheme of rate relief would be much more effectively achieved through our proposals in last year's local government finance Green Paper. Those proposals would cover all small businesses; that approach would be preferable to amending the scheme that we are now considering, which was designed for other purposes.
The comments of the hon. Member for Somerton and Frome give the impression that some small villages in rural areas will not qualify for relief under clause 3. That is not so. Rural villages with populations below 3,000 will qualify. The designation of the 151 local authorities as rural does not apply to clause 3; it applies to the temporary relief being given to local authorities for foot and mouth. It does not stop local authorities giving relief to small businesses in their area, but it affects the amount of assistance that they subsequently receive from the Government for doing so. Without the amendment, clause 3 will provide for rate relief for small shops in rural settlements with populations under 3,000, irrespective of whether they are in the areas of the 151 rural local authorities.
While the matter may be slightly outside the scope of the Bill, it has highlighted the great concern about the present crisis and about how Government support will be brought to where it is needed.
There are issues to be dealt with. I respond to correspondence on this issue from Members of Parliament, so I am fully aware of the concern. However, the question of what can be done needs to be discussed elsewhere, not in Committee today. The amendment is unnecessary and I ask the hon. Gentleman to withdraw it.
Mr. Heath: I am wholly unconvinced by the Minister's response. I was careful not to make any claims about qualifying the Bill's provisions. I said that this was an opportunity to deal with an anomaly that was all too clear to those people who are struggling to make ends meet as a result of the foot and mouth crisis. They are anomalously discriminated against by the present legislation. It would be quite proper to take this opportunity to do that.
I do not believe that it was ever anyone's intention that there should be discrimination against villages that happen to lie on one or other side of a local authority boundary, depending on the general nature of the local authorities and their hinterland. We do not have homogeneous local authorities in this country. Some are clearly urban, but the great majority of district council areas contain urban and rural settlements. The problem is that the rate relief to which the provision applies is aimed only at places in the areas designated by the Secretary of State. That is an anomaly and the Minister should consider it more carefully.
The hon. Gentleman protests that I point out the effect that his amendment would have. He appears not to accept my statement that the relief under clause 3—his amendment would change this—would apply to all small rural villages with populations below 3,000, whether or not those were part of the 151 local authorities designated by the Secretary of State.
This is a dialogue of the deaf; I have accepted what the Minister says about that relief. However, the matter concerns other non-domestic rate reliefs, whether through the hardship relief or other measures. The Minister has clearly not been listening, but I hope that he will study the record of the Committee carefully and at some future time, if he has the opportunity, do something to correct matters. We have probably now aired the subject sufficiently, and I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
With this it will be convenient to take the following amendments: No. 11, in page 1, line 15, leave out from `than' to end of line 16 and insert
`£12,000, or any amount prescribed by the Secretary of State by order, whichever is the higher.'.
No. 1, in page 1, line 15, leave out from `amount' to end of line 16 and insert `which the Secretary of State may by order prescribe, and which he will review within three years beginning with the day on which this subsection comes into effect.'.
No. 12, in page 1, line 16, at end insert—
`(6FF) The Secretary of State shall make at least one order in each year under subsection (6F) to prescribe an amount in relation to the subsequent financial year.'.
The purpose of amendments Nos. 10 and 11 is to put the relief on a more generous scale and to make it more consistent with other Government actions. There are several reasons for that, the most important of which is to match the scale of the crisis now affecting so many businesses in the countryside. This Committee may not be the place to rehearse the full extent of the devastation caused by foot and mouth disease, but the Minister knows that the reliefs that we are discussing under the clause originated before foot and mouth struck. They were intended to deal with the crisis that was already going on, and not the one that has been added to it.
The amendments would, among other things, have the beneficial effect of approaching more closely an effective way of coping with the scale of the crisis affecting businesses in the countryside. In that context, I am grateful for the support of the National Farmers Union for the amendments. The NFU noted that, when the existing village shop rate relief scheme was extended to pubs and petrol filling stations, relief was limited to properties with a rateable value of up to £9,000, rather than the £6,000 in the Bill. That recognised the fact that premises that provide key services in rural areas can have higher rateable values than £6,000, as mentioned on Second Reading. Clearly, farmers should be encouraged to introduce the most appropriate diversification projects. However, it is conceivable that we shall frustrate the policy objective behind the Bill if we continue to set the level too low. I hope that the Minister who replies to the debate will take those comments on board, because they go to the heart of the Bill.
If the Bill is to be effective, it should not exclude businesses with a rateable value of more than £6,000. The figures that we have chosen—£8,000 and £12,000—invite the Government to introduce more coherence into their policy. A Department of Trade and Industry Green Paper on small businesses makes the cut-off point for such businesses a rateable value of £8,000. If that is the general definition of a small business, it is not obvious why it should not apply to the rural small businesses that the Bill is meant to help. The crisis relief level for businesses affected by foot and mouth disease is £12,000. We therefore have a cornucopia of choices for the rateable value, and the Government should settle on one. They should at least explain why the level in the Bill differs from that in other legislation and in some of the Green Papers that they have introduced.
Does my hon. Friend agree that businesses that rent former agricultural premises on farms from farmers might come into the equation above the rateable value level of £6,000? As the Minister of State made plain on Second Reading, those businesses are eligible where
``the farmer still lives on and runs the farm but rents out a part of it to someone else''.—[Official Report, 30 April 2001; Vol. 367, c. 655.]
Surely those businesses come into the equation above £6,000.
My hon. Friend makes a powerful point. I hope that the Minister will explain, in response to the amendments or in a clause stand part debate, why she thinks such businesses will be eligible when everyone else who has considered the Bill thinks that they will not be.
The Minister might be aware that the Association of Convenience Stores also thinks that the proposed rateable values that we seek to change are unrealistic. It says that stores with the turnover that would be covered by the proposed levels of rate relief operate below the margins of profitability and that those with a turnover significantly below that level are widely seen as no longer viable and are unlikely to survive in the long term. That clearly applies to other businesses that might be set up under diversification proposals. I hope that the Minister will take on board the fact not only that there is incoherence in the plucking out of the level in the Bill but that those who are most closely connected with the businesses that operate under such difficult conditions in rural Britain say that the Bill will have much less of an effect if the Government stick to their limits rather than accepting those that we have proposed. One can, of course, introduce only one of the limits, but not all of them. I merely invite the Government to explain why their figure is better than those that we have suggested in amendments Nos. 10 and 11.
Amendment No. 12 is slightly different and has two aims. The first is to ensure that the level of the rateable value is kept up to date as revaluations happen and if the crisis for businesses in rural areas is long term. It is small in scale compared with the money that such businesses are currently losing, but we do not want the situation to worsen in time and if the crisis continues. That is why we seek an annual look at the level set by the Secretary of State.
The second and perhaps equally important aim of the amendment is to give Parliament some say in the process. Once the legislation has been passed, we shall not want the details to disappear into the interstices of bureaucracy and decisions made by administrative fiat. We want the House to have a handle on how such legislation continues to operate. That is why, having carefully considered the Liberal Democrat amendment and ours, I think that ours is superior. I say that in the knowledge that I shall make generous comments about other amendments tabled to the clause by the hon. Member for Somerton and Frome. I seek no advantage for my party; our amendment simply has a better handle on the Government than amendment No. 1.
Several detailed and key improvements that need to be made to the Bill would be made under our amendments. Amendments No. 10 and 11 are clearly not compatible. If the Minister says which she prefers, we shall not press the other. I invite her to accept the fact that those most intimately concerned with running and preserving rural businesses think that the level of rateable value suggested by the Government in the Bill is not adequate and needs to be changed during the Bill's passage.
Generosity is not a one-way street, and I reciprocate the tone of the comments made by the hon. Member for Ashford. I puzzled for some time on how to put a figure for rateable value into the legislation via an amendment, one that did not ossify the system by adding a figure that would be immutable in future and would quickly go out of date. He has succeeded in doing so, for which I applaud him. He and I tackle precisely the same issues in our amendments, and I am inclined to think that his formulation is better than mine in my amendment No. 1. Therefore, I would be happy to support the relevant amendment, were he to press it.
The rateable value of £6,000 will exclude an awful lot of small businesses—local shops—that operate on the edge of profitability. It will exclude those with premises of a high rateable value, irrespective of the degree of profitability of the site. We know that the two are not necessarily related. On Second Reading, I referred to a point made by the Association of Convenience Stores, which suggests that such businesses need a turnover of at least £4,000 a week to be viable. A rateable value at a low £6,000 threshold suggests a weekly turnover of less than £1,346. That big gap must be made up somewhere. By using that threshold, the Minister is saying that she does not expect the shops that are to be helped by the process to be viable businesses in their own right, and that there must be some other means of injecting finance into them if they are to survive. We would not want such an intention to be behind the proposals.
The other difficulty is the new anomaly between the rateable value threshold for shops as set out in the Bill and the rateable value that has been applied by secondary legislation to pubs and petrol stations. There is no obvious reason for the Government to differentiate. The argument that properties are bigger in the case of pubs or petrol stations is not borne out by the evidence. At the very least the Government should tell us how they arrived at their chosen figure and how many properly defined small businesses and shops in rural communities will be excluded by setting it so low.
The suspicious mind might say that, because so few shops will apply, the measure allows the Government to appear to be doing something of value to those shops without costing the Exchequer any money. I hope that we can banish that ungenerous notion from our deliberations this morning. However, as far as local businesses in my constituency and many like it are concerned, the measure is little more than a gesture because so few of the shops in question will benefit to any great degree.
We are not discussing the reform of the business rate in toto, but we should be. The system is anomalous and unfairly biased against small shops and in favour of large retailers—the Asdas and the Sainsburys of this world. However, we should provide as much equity as is available within the terms of the Bill.
The hon. Member for Ashford has proposed that provision should be made for annual audits. That is a sensible suggestion. My amendment seeks simply to ensure that a review takes place before the completion of the initial five-year period of the agricultural premises elements of the Bill. It is clear that any figure that the Secretary of State chooses should be affected by rate revaluations, and needs to be uprated at regular intervals. However, despite Ministers' assurances, that uprating has not occurred under the present arrangements. The Minister must deal with that difficulty and explain how it arose.
This is a core section of the Bill and this is a core criticism from those outside the House who are interested in the Bill. We await the Minister's justification for a threshold figure that, to any independent mind, is set too low to be fully effective.
I am grateful to the hon. Members for Ashford and for Somerton and Frome for outlining their objectives in tabling the amendments. There is some confusion in the Committee about this part of the Bill and the effect of the amendments. This part of the Bill relates not to shops but to farm diversification. Hon. Members are, rightly, asking why the issues relating to shops differ from those relating to farm diversification, and I shall come to that. However, the comments of interest groups such as the Association of Convenience Stores really apply to those clauses of the Bill that relate to shops, rather than to this clause, which relates specifically to farm diversification. Different limits have been set and I shall attempt to assist the Committee by explaining why.
The four amendments in this group concern the setting of the rateable value thresholds for farm diversification relief. Amendment No. 1 requires the Secretary of State to review the rateable value threshold for rate relief for new farm diversification enterprises within three years and amendment No. 12 makes such a review an annual requirement. I understand from our debate that the hon. Members for Ashford and for Somerton and Frome would come down, if pressed, on the side of annual reviews. I shall return to that. Amendments Nos. 10 and 11 would set a minimum level of £8,000 and £12,000 respectively for the threshold.
Amendments Nos. 1 and 12 are unnecessary and would have no practical effect. In any case, I give the Committee a commitment that we shall keep the level of the threshold under review. Under the order-making power in the Bill, we shall be able to change it at any time if necessary. A statutory requirement to review the threshold or to make an order each year will not affect whether any change in the threshold is necessary, nor will it necessarily lead to such a change.
We intend to review the threshold at the time of the next national revaluation. Committee members will know that revaluation takes place on a statutory basis every five years, and the next revaluation is due to take effect on 1 April 2005. The previous revaluation took effect on 1 April 2000, when we increased the threshold for mandatory village shop rate relief from £5,000 to £6,000 in line with the overall increase in rateable values for properties of that size. We shall do so again if necessary. That demonstrates that the Government review the threshold at which such reliefs are set and that they do so at the time of the revaluation, when we know what changes it will bring and, therefore, what a new, appropriate threshold would be. The House approved the new threshold at the time.
We intend to commence the relief as soon as possible after the Bill is enacted. The three-year period required by amendment No. 1 would end in mid-2004, which would be less than a year before the 2005 revaluation. That means that the threshold would have to be reviewed twice in the same year.
The annual review under amendment No. 12 would add unnecessarily to the number of regulations laid before Parliament. There would be no point in making an order every year when there was no change in the threshold. Rateable values for a property of a given size do not change from year to year, but are adjusted only at the five-yearly revaluations or when there is a significant material change to the property, such as extension. Thus annual changes to the threshold are not needed to ensure that the relief is kept up to date. We have said that we shall keep the level of the relief under review and change it if we need to.
The Minister made a good point about the revaluations happening every five years, but it does not apply to new businesses, which are valued on the date on which they come into being and which might therefore have a higher rateable value.
The rate valuation office will assess a new business as if the date were that on which the value was set. A new business might be above or below the threshold. Hon. Members need to understand the purpose of the Bill, which is to enable farms and farmers to diversify. It is not meant to give relief to every single business that might be set up or to challenge the way in which the market works; it is there to support small businesses and this clause relates to small businesses that might be set up on farms as a means of diversification.
Anyone setting up a fairly large business would have to accommodate the necessary rate in making the business case for it. If it were large enough to have a significant rateable value, then it would be odd for the Government to support it for five years on the ground that that was absolutely necessary, and then to stop doing so—which is what the legislation is about. If the business were not sustainable in the first five years, it would be unlikely to be sustainable after that time—if it were a big business.
In addition, we have to think about the market, and about how competition works in rural areas. The measure is designed to give rate relief not to every business, but to small businesses linked to farming. We know that farmers have been having difficulties, that, for farming to continue, it will have to diversify more than ever before and that we need to encourage and enable farms and farmers to diversify. We do not pretend that we shall support every business in a rural area through this measure. That would be far outside of the intention of this legislation and would, I suggest, attract opprobrium from a number of businesses in rural areas that are already established and would not be eligible for new relief.
We are discussing two points, one of which is the nature of a small business and whether it is worth £6,000 a year or £12,000. The right hon. Lady said that, because of the valuation process, we need not worry about the annual revaluations proposed in amendment No. 12. Can she not imagine a period of severe inflation—which will happen if there is another Labour Government after 7 June—with rents going up sharply over a five-year period? Because of the way in which the provision is drafted, no account would be taken of that.
The hon. Gentleman flies into fantasies. It is this Government who have managed to reduce inflation to its lowest point for a generation, although there has not been a Labour Government in power for all of the time in question. I was trying to be accommodating to Opposition Members, but the hon. Gentleman drew me into that little political spat.
I shall respond to the issues raised in the other two amendments, which the hon. Members for Ashford and for Somerton and Frome mentioned, namely why different levels have been set for different aspects of rate relief. A rateable value limit of £6,000 will cover most small businesses that might be established on farms. Individual rateable values vary according to the precise nature of the property and, as the hon. Member for Somerton and Frome says, the local rent or market. Typically, that level would be sufficient to cover a farm or craft workshop, office or commercial premises, or a food processing unit of about 100 sq m in the south of England. In the north or west of England, it would cover premises of 200 sq m. It is not our intention to help large-scale businesses that set up on former farm premises.
In different circumstances, we have used different thresholds for other rate reliefs. The village shop rate relief scheme allows discretionary rate relief for properties up to a rateable value level of £12,000, as that allows local authorities to help properties that are in need of relief but are above the £6,000 threshold for mandatory relief. For the new mandatory relief for village pubs and petrol stations in England, we have set the threshold at a rateable value level of £9,000, because those more specialised properties tend to be larger and have higher rateable values than shops or most other small business premises.
Our additional financial support to councils to meet discretionary hardship relief for businesses affected by foot and mouth disease is set at the higher £12,000 level used for discretionary village shop relief, to ensure that a wider range of smaller businesses in hardship is covered. We know that that will cover 77 per cent. of businesses in rural areas.
A rateable value level of £6,000 is at the top of the target range of the rate relief for all small businesses in England that was proposed in last year's local government finance Green Paper. However, that scheme was proposed on a different basis, with relief on a sliding scale, tapering from 50 per cent. relief to a rateable value level of £3,000, to zero at the higher level of £8,000. That will apply to all small businesses throughout England, so the effects at the margins of the threshold are more significant, hence the taper.
I have tried to argue that there are rational reasons for different levels. We are confident that the level of £6,000 will cover the majority of small businesses that are likely to be set up through farm diversification. It will give an incentive to diversify into small businesses, but people in other rural businesses will not feel that their businesses are badly affected by those on farms having a superior advantage.
I sense that the Minister is reaching a conclusion. Before she does so, I invite her to address the vexed issue of whether third parties would be eligible. I shall accept an assurance that she will tackle the subject later.
I was going to deal with that in the clause stand part debate, but I am not sure what your feeling about that is, Mr. Benton. The subject is not directly relevant, but I am happy to deal with it now if that is what you decide.
I am happy to reassure the hon. Gentleman that what I said in the House stands up, because the rate affects the building, not the person. I shall deal with the matter in detail later.
I hope that hon. Members understand that we are not simply trying to be awkward by saying that amendments Nos. 1 and 12 are not necessary. I also hope that I have given an explanation for the level of the limit that hon. Members find acceptable.
The Minister gives a full explanation of why she rejects the amendments, but it is not convincing. I understand that the relevant part of the clause does not deal with shops, but the NFU says that farmers should be encouraged to bring forward the most appropriate diversification projects, and that setting the level too low would frustrate the quality of the objective behind the legislation. That applies to whatever business is introduced under a diversification scheme. We are not talking simply about shops, which, as the Minister said, are dealt with under clause 3.
The Minister's second point was that reviewing the threshold will be constantly in the Government's mind, but that is not good enough either. It is the classic response of an administrator, not a parliamentarian, to say, ``Don't worry, the Government have got everything under review.'' That is not the most reassuring phrase for those who run businesses that are struggling on the edge of survival or for those who are contemplating setting up newly diversified businesses and who are wondering whether it is worth taking that risk in the terribly difficult economic circumstances that hold sway in the countryside. Hearing that the Government have got everything under review in Whitehall will not encourage people to diversify.
It is important for Parliament to have a say annually, even if the Government have decided that no change is necessary. Hon. Members might want to have their say, especially if they represent constituencies where diversification is needed to keep businesses in being. Such debates would be good for Parliament, apart from anything else.
The Minister said that the Government's purpose in the Bill is not to support every business, which is, of course, right. However, she is setting up a straw man to some extent. We are not suggesting that the rate relief should support every business, which is why we suggested the option of two limits to the rateable value. We are not suggesting that any big business should be supported, but that levels should be more realistic and consistent with the Government's view of what a small business is. The Minister rightly made a distinction between big and small businesses. Her elaborate and ingenious defence of the definition of small business in the Bill as opposed to that in other Government documents does not wash. I can see why the DTI might have wanted to apply a taper scheme to the small businesses that it suggested supporting in the Green Paper. Nevertheless, the limit on a small business in that part of the Government's mind is a rateable value of £8,000, while the limit in the part represented by the Minister's Department is £6,000. That is simply inconsistent and incoherent, and I did not find that part of the Minister's explanation satisfactory. In the light of that, I shall press the amendment to a vote.
Question put, That the amendment be made:—
The Committee divided: Ayes 5, Noes 9.
I beg to move amendment No. 6, in page 1, line 19, leave out `one year' and insert `two years'.
The amendment is not simply an attempt to outbid, for no good purpose, anything that the Government have put into the Bill. There are sound reasons why the one-year period set out under proposed new subsection (6G)(a)—in particular its application to (6G)(b), which is the most crucial part of the measure—should be extended. We had a rather pointless or fruitless exchange about the meaning of the phrase ``183 days'', and I think that we ascertained that it is roughly equivalent to six months. The period of six months during the previous 12 months is arbitrary, but I accept that the Government have to set some limit. I also accept that the measure cannot be retrospective to an unlimited degree. Every building in the country could probably be described as having once been in agricultural use and would therefore qualify under the measure.
I recognise that we have had a crisis of staggering proportions in our agriculture industry over the past few years and that farm incomes are at the lowest level that anybody can remember. The requirement for farmers to diversify has never been stronger than over the past few years. As a result, many people who previously used their premises and land for agricultural purposes have sought to extend their business arrangements into new areas in order to cross-subsidise their agricultural activity.
The crisis in farming is one thing, but the additional difficulties caused by foot and mouth disease mean that those businesses that took the plunge during the past year or so have met with probably the most adverse trading conditions possible for setting up a new business. That means that many people who set up a non-agricultural business on farm land or premises in the 12 months prior to the past year are probably struggling to make ends meet much more than their business plans suggested they would be.
The Minister is partly right in her interpretation that the measure will deal with third-party businesses operated from farm premises—I accept your ruling, Mr. Benton, that we shall deal with this matter in due course. A period of time is required to make a building ready for occupation by another business, during which it is being converted but is probably still owned and operated by the farmer, and after which it is let to the other business. Foot and mouth disease will have had a critical effect, in terms of finding tenants, on those farmers who have chosen to create workshops or retail premises on their farms. Now would be the worst time for anyone to start up a new business on farm premises or in a rural situation.
For all those reasons, the six months within the previous 12 months provision, although relatively generous in that it is to some degree retrospective, will in practice eliminate many of the businesses that the Minister and I want to support in terms of diversification. Many businesses that have been set up in the past 12 months may not qualify under the provisions and may be stillborn because of circumstances beyond their control. That is the result of the crisis.
That is why I ask the Minister to allow for agricultural operations for six out of the past 24 months, rather than the past 12. That would not extend the net substantially, because we are dealing with a relatively small number of businesses and with a small degree of relief. However, it would ensure that new businesses, which will be set up in the worst trading conditions of this century or the last, have a chance of surviving. Such a provision is not outwith the Government's intentions and has not been plucked out of the air to outdo them, because that is not the way to deal with legislation. It is a sensible extension of the Government's proposals for dealing with the present circumstances, and I ask them to consider it.
As I assumed, the amendment is intended to extend the period of retrospection so that the relief is available to diversification businesses established up to 18 months, rather than six months, before the provisions come into force. Businesses that have been without rate relief for that long are precisely those that will be able to survive; those that have been established in the past year and have not had rate relief are the least likely to.
The amendment would also extend from one year to two the period during which properties must be in agricultural use to qualify for rate relief. Once they move into non-agricultural use, they become rateable. The amendment does not increase the 183 days qualifying period. The purpose of a qualifying period of 183 days during one year is to ensure that relief is available to premises that are in agricultural use for more than half the time. That will allow relief to properties whose use changes seasonally, but which are, for the most part, agricultural and which are in non-agricultural use for the smaller part of the year.
The amendment would set a qualifying period of 183 days during a two-year period, so properties would have to be in agricultural use for only a quarter of the time. That would allow relief for properties that were primarily non-agricultural, but which had a secondary agricultural use. That would include sheds used for winter storage of farm equipment for three months in each of the two years, or for a total of 183 days, which were regularly used for other rateable purposes for nine months in each year. Those cannot be considered as new diversification enterprises.
The hon. Member for Somerton and Frome wants to support farms that have had real problems during the foot and mouth crisis, and I understand why he wants to do that. However, the problem that he faces is that the amendment would extend relief for farm diversification to buildings that have not essentially been used for farming. He wants to use the Bill to help in another way those who have had problems with foot and mouth disease, but the amendment will have a different effect from what he expects, and I am not convinced that that is the most effective way to help farms that are part of the current crisis.
I have sympathy with the hon. Gentleman's aim, but the consequences of pursuing it in the Bill would be greater than he realises and would not necessarily further help the farms that diversified 18 months ago. His main aim was to help someone who had, perhaps, diversified 16 or 17 months ago, and so had not had long to establish the business. I understand that. None the less, the amendment would have a much wider effect. In many senses, it would go beyond what we are trying to limit relief to--new businesses set up in buildings that have essentially been farm buildings, which are exempt from rates.
We all want to assist farmers suffering the results of foot and mouth disease. My constituency has had a significant number of outbreaks, and I can say that there has been extensive relief for many farmers, whereas many of the other businesses that receive no relief at all have suffered greatly. One therefore has to approach relief for farms bearing in mind the problems of other businesses.
The amendment would not make the most helpful change at this stage. I am unable to accept it, as it undermines the core purpose of this part of the Bill. I hope that the hon. Gentleman will withdraw it.
I listened to the Minister's comments with great care, and am grateful at least for her sympathy with my intentions. She had two objections to my amendment. One was a result of interpreting the amendment in a way in which I had not. Were my amendment agreed to, the problem could be dealt with by consequent amendment, simply by requiring the 183 days stipulated in proposed new section 43(6G)(a) of the Local Government Finance Act 1988 to be a continuous 183 days. That would get round the difficulty of the two three-month periods.
I never set a limit on the ingenuity of lawyers and accountants, so I am sure that someone in the country would contrive to use a building for agricultural purposes three months in each year and so claim rate relief. However, the Government's intention is to allow for diversification and to define a building in agricultural use. Relief is primarily intended not for buildings in use part time, but for ones that have ceased to be used for agricultural purposes in the past year, which will now be used for an alternative business purpose. That was the spirit in which I proposed my amendment, which is why a six-month period within two years was perfectly reasonable. For the provision to be watertight against clever accountants, I accept that a subsequent amendment would be needed.
I do not accept the Minister's second point to the same degree. If our purpose is to support diversification, I maintain that we want to do so not only for those contemplating diversification, but for those who have taken the plunge. I accept that retrospection can go only so far, or one would be dealing with established businesses. Someone who had attempted to start a new business a year or so ago would have had to weather the worst trading conditions imaginable. The Minister may be right to say that only the strongest will survive them. My purpose is to ensure that as many diversified businesses as possible weather that storm. The amendment would be one way in which the Government could assist that process.
My problem with foot and mouth disease is that, even if we take a sanguine view—given the events of the past week, we are by no means convinced in Somerset that the epidemic is near its end—there will undoubtedly be an epidemic of business failures across rural areas of the country in the next few months. If we close our eyes to that, we shall be failing to represent people properly. I agree with what the Minister said on Second Reading about the Bill not being a response to the foot and mouth crisis. However, it could have furnished a mechanism by which to help a little. The time limits will mean the failure of business that might have been helped.
I am disappointed that the Minister cannot accept the amendment. We shall find other ways to pursue the same objective, but for the moment I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
I beg to move amendment No. 2, in page 2, line 17, at end insert
`, except that subsection (6F) will continue to apply to any hereditament, subject to the condition in subsection (6G) being fulfilled, for a period of five years beginning with the day on which it first applies.'.
The amendment concerns another of the issues on which we received assurances from Ministers on Second Reading. There is a difficulty in the interpretation of the Bill, with respect to the five-year qualifying period after which the measure lapses, subject to review by the Secretary of State. There seems to be a suggestion that a business that qualifies for relief towards the end of the period does so with an expectation of relief only for the unexpired portion of the five years. That poses considerable difficulties for businesses that want to diversify late in the day, towards the end of the period for which the provision is in force. It will be impossible to persuade borrowers, for instance, that a business plan has any respectability if the relief that forms part of it is contingent on a decision, a year ahead, by the Secretary of State.
It seems much more appropriate that the Bill should make it clear that, if a business qualifies under the other relevant clauses for rate relief, that relief will continue for five years for the business or hereditament, irrespective of the continuation of the provision in force beyond that time. I understood, or think that I did, from the Minister's comments on Second Reading, that that was her intention. Otherwise, there would be an unseemly scrabble in the first year for rate relief for as many businesses as possible, after which there would be no point in bothering, because the full benefit would not be obtained. However, I cannot discern that approach in the Bill, and nor can those outside the House who are better qualified than I am to examine it.
The amendment is not the most elegant ever, but I hope that it would ensure that the rate relief would be extended for a full five-year period to any business that qualified for it at any point in the five years during which the provision had effect. At the end of the time, the Minister might want the provision to be reintroduced. If so, any business or hereditament that qualified in that latter period would have the guarantee of a five-year rate relief. That is a sensible way forward and it is in line with what I think the Bill seeks to achieve. It gives those seeking to take the plunge in this area confidence that their business rates position will be consistent during that period. If the Minister is not minded to accept that, I should be grateful if she would explain to me exactly how the measure will work and how it will apply to a hypothetical business that wants to diversify in the fourth year after the Bill comes into force. How on earth will such a business be encouraged to diversify by the promise, as it would appear, of only one year's rate relief?
It is time to show some reciprocal generosity towards the hon. Member for Somerton and Frome. I was attempting to draft an elegant amendment to achieve the same objective as his. That objective is wholly right. Having read his amendment, I decided that I would not bother drafting my own, and that we would support his instead because it seems to do the job—an important job.
Certainty is vital for future business planning, particularly for businesses that are genuinely unsure about the likely extent of their liability. There is a long history of Governments of all parties offering rate reliefs and grants—all kinds of goodies—to businesses. That history tells us that businesses that are set up specifically to take advantage of some short-term Government scheme are unlikely to be viable in the long run. They are less likely to be viable than if they planned on a consistent basis.
If the Government introduce a scheme such as this to provide outside relief to businesses, it should be a consistent part of the planning of those businesses. The attitude of businesses to its introduction should not be, ``It will be worthwhile if we do this now, regardless of business circumstances, but it would not be worthwhile if we set this business up in a year or two's time, regardless of business circumstances.'' One of the unintended side effects of the legislation will be to drive more businesses to take decisions based purely on the reliefs rather than on the underlying business climate, whereas, if the Government accept this amendment, or introduce something of their own to achieve the same effect during the future stages of the Bill, the bumpiness of the effect of people responding to rate reliefs would be smoothed out.
It seems wholly sensible, and would serve the purposes of the legislation better, for the Government to offer people an advantage spread over time, so that businesses were not seeking to take decisions purely in light of the timing of the pump-priming measure proposed under this part of the Bill. I very much hope that the Minister will accept the spirit, if not the letter, of the amendment and either accept it or introduce something of her own at a later stage.
I have listened with great care to hon. Members and I know that they are concerned about the matter generally. It is my ambition to bring together all the existing reliefs. People are confused by the many different ways in which they can get rate relief, and that confusion frequently results in their being unsure whether they will get any. That is a real problem, which we dealt with in the local government finance Green Paper. My problem is that the White Paper has not yet been published. We are working on it, and I anticipate that it will be out in the not-too-distant future.
I acknowledge that that is difficult for Committee members, as I am talking about other changes that I hope will bring more coherence to the rate relief regime, and we are referring to something that is intended as a short-term measure to provide immediate help to farmers who want to diversify into non-agricultural activities. We have presented the Bill quickly to provide that relief as soon as possible.
I do not think that we want to debate that matter further now. The hon. Gentleman knows that it takes time to consult on and draw up legislation, while ensuring that the resources of the Parliamentary Counsel are used effectively. We sought to get the Bill through the House quickly so that there can be immediate relief.
The amendment would extend the period of relief to five years from the date when a hereditament first received relief, even if that extended beyond the five-year life of the scheme. However, the Bill seeks to meet a specific need--one that is clear now but may not always be. The scope for diversification is finite. We are providing a scheme that applies for a fixed five-year period that will be known to all ratepayers and so will be clear.
Hon. Members know that it is not only in local government finance that further proposals are being made. Everyone knows that we shall have to consider the future organisation of farming. To introduce a measure such as the amendment would, in many senses, suggest that everything would continue for some time. The impetus to recognise a new and different system would be curtailed if we accepted the amendment.
We have provided a power to extend the scheme if it is still needed in five years' time. That would need to be considered with our proposal for a rate relief scheme for all small businesses in England, which was in the local government finance Green Paper. If implemented, it would provide mandatory rate relief to all small businesses covered by the farm diversification scheme in the Bill, as well as those not covered by it.
The Government must look at the issue carefully. It is important that we rationalise the number of relief schemes, how people apply for relief and what they know is available. Confusion about what people might be eligible for is a problem. I have been to several authorities and talked to farmers and others involved in, for example, the tourism industry, including those offering bed and breakfast. Many of them are confused as to what they are entitled to receive, so the case for rationalisation is fairly strong.
I understand the arguments made by the hon. Member for Somerton and Frome, but he will understand that if I agree to the amendment, I would seal in law for more than five years something that would make that rationalisation even more difficult. The Government may have to extend the relief because agreement may not be reached elsewhere. However, to do so today would make it much more difficult in the medium term to sort such matters out in a rational way and see the conclusion of the scheme, because it would be overtaken by a more comprehensive scheme that would enable rate payers to be much clearer about what was available. I realise that that is not what Opposition Members want, but it is the right way to proceed. I invite the hon. Member for Somerton and Frome to withdraw the amendment.
I listened carefully to the right hon. Lady. I applaud her intention to consolidate and reform legislation on this matter. However, we both know that the road to local government finance reform is extremely long and arduous, with many twists along the way. The experience of those who want simplification, codification and reform has not been entirely happy.
I do not understand the argument that, because the provision for relief on former agricultural premises extends beyond five years, it will somehow stymie all Government attempts to reform local government finance. That is an extraordinary position. It is a time-limited relief; the other reliefs are not time limited. Do they stymie local government finance reform? I suspect not. We are talking about a simple inequity. A business that qualifies on the first day on which the Bill comes into effect will qualify for five years of rate relief; but a business that qualifies four years and 364 days after that date will qualify for only one day of rate relief—unless the Secretary of State decides to introduce an extension to the requirement.
If the Government intend to extend and encourage diversification throughout the period, that intention should be as strong on the first day as on the last. There is no internal logic to the argument that different considerations should apply. The Minister is right to say that diversification might be the done thing in five years' time. I doubt it, but it is possible that, by then, things will have changed so much that the provision will no longer be needed. However, that does not alter the fact that any hereditament that qualifies up till then should benefit from the scheme in full, not in an attenuated form.
Sadly, the right hon. Lady's argument does not make sense. It is not in line with what the Government said that they intended. I therefore seek the opinion of the Committee.
Question put, That the amendment be made:—
The Committee divided: Ayes 6, Noes 9.
We have now reached the debate on hereditaments, to which I am sure Committee members have been looking forward all morning. I shall be brief, as the Minister knows what the issue is. She and her officials have defined the term in a way that I think we would all welcome. Outside organisations that have read the Bill think that the term applies in a more narrow sense. In particular, they think that third parties who rent or lease buildings from farmers would not be entitled to the relief. That would significantly narrow the effect of the reliefs available under the legislation. I hope that during the clause stand part debate the Minister will be able fully to assure the Committee and those observing its deliberations.
``the Bill will apply to any premises which used to be used for farming and which will now be used for other purposes, whether the premises are rented out; whether the farmer still lives on and runs the farm but rents out a part of it to someone else; whether the farmer himself uses the premises; and whether the farmer is a tenant or an owner.''—[Official Report, 30 April 2001; Vol. 367, c. 655.]
That is in stark contrast to the excellent document ``Words and Phrases legally defined'' produced by the House of Commons Library, which states that a hereditament is
``whatever is capable of devolving upon death.''
It must be something that one owns, which one passes on upon death, so it does not apply to something that one rents--leaving aside the technical matter of agricultural tenancies, which are hereditaments on the grounds that the tenant of a farm can pass his tenancy on to his son when he dies.
Wiltshire Tracklements, a company in my constituency, rents a building from Pinkney Park farm to make mustards, but there is no suggestion that the excellent Mr. William Tullberg, the owner of Wiltshire Tracklements, can pass on the tenancy of that building to his son on his death. On his death, the tenancy lapses unless some other agreement has been made in the normal commercial way between Mr. Tullberg and the farm owners. Wiltshire Tracklements' tenancy at Pinkney Park farm is not a hereditament and therefore would not benefit from rate relief under the Bill. The Minister's answer on Second Reading was extremely plain, and I look forward to her explanation of that distinction.
Clause 1 provides for the new mandatory rate relief for former agricultural premises. It achieves that by amending section 43 of the Local Government Finance Act 1988, which sets out ratepayers' liabilities, including provision for other mandatory rate reliefs. The 1988 Act uses the same definition of a hereditament as was used in the General Rate Act 1967. Section 64(1) of the 1988 Act states:
``A hereditament is anything which, by virtue of the definition of hereditament in section 115(1) of the 1967 Act, would have been a hereditament for the purposes of that Act had this Act not been passed.''
Section 115(1) of the General Rate Act 1967 defines a hereditament as
``property which is or may become liable to a rate, being a unit of such property which is, or would fall to be, shown as a separate item in the valuation list''.
I hope that that clarifies the issue. My hon. Friend the Member for South Ribble (Mr. Borrow) was a valuation officer in a previous life. He is nodding emphatically; that is precisely how valuation officers have dealt with the matter.
Other definitions relating to hereditaments may well survive, but a leading legal dictionary states that the word is now used only to mean a unit for rating purposes. Statutes from 1836, and probably earlier, may well have used the term differently, but now it is used as I have explained. That is its use in the provisions that we are considering, derived from the definition in the General Rate Act 1967.
I am sure that the Library keeps a close note of our proceedings and will see how we are working.
Proposed new subsection (6F) defines properties eligible for relief. Paragraph (a) specifies that they must meet the conditions in proposed new subsection (6G). Any property that does so will be eligible for the relief, and there will be no restrictions on who occupies it. Rates are levied on the occupiers of property, not the owners, but they are assessed on the nature of the property. Whoever is the ratepayer—whether a farmer owner-occupier, tenant farmer or third party—will receive the relief if the property qualifies for it.
I am able to be so clear about this matter because in our consultation last November we suggested that relief be restricted to farmers, as it is farmers whom we want the rate relief to help. That consultation may have affected what people outside the House believe about our intentions. However, we dropped the restriction because the response to the consultation was clearly against it. Opposition Members have clearly judged matters by their experience. The Government listen and respond to consultations and we recognised that farmers and the wider rural economy would benefit if under-utilised agricultural premises were brought into other uses, where the potential for that exists.
Farmers may establish such enterprises as part of the farm. However, the enterprises may be set up by family members or by a company legally separate from the farm, even if it is in the same ownership or occupation. Farmers will also benefit if they let or sell part of their farm to a third party to operate a separate business. That indirect form of diversification brings the same benefits, and properties used in that way will also qualify for the relief.
I hope that the matter is now clear to Opposition Members. The new rate relief will be available with respect to small-scale properties used for non-agricultural activities, which were previously in agricultural use. The purpose of the relief is to help farmers who want to diversify but who are discouraged from doing so by the additional rate burden. The clause will halve the rate burden, making it easier for farmers to move some of their property into small-scale, non-agricultural activities.
The new rate relief is not intended to subsidise other rural businesses, including those that are already well established, or those that are not on farms. We are taking a range of other measures to support rural businesses, as set out in last year's rural White Paper. The new rate relief is one measure aimed at a problem that concerns farmers at present.
Question put and agreed to.
Clause 1 ordered to stand part of the Bill.
Clause 2 ordered to stand part of the Bill.