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Non-Domestic Rating (Chargeable Amounts) (Amendment) England Regulations 2006

Volume 686: debated on Monday 30 October 2006

rose to move, That the Grand Committee do report to the House that it has considered the Non-Domestic Rating (Chargeable Amounts) (Amendment) (England) Regulations 2006 [35th Report from the Joint Committee].

The noble Baroness said: I commend to the Committee the Non-Domestic Rating (Chargeable Amounts) (Amendment) (England) Regulations 2006 which, if approved, will be made under Section 57A of the Local Government Finance Act 1988 as inserted by Section 65 of the Local GovernmentAct 2003.

These regulations make one specific change to the transition scheme for the current non-domestic rating lists. The transition scheme was brought in as part of last year’s revaluation of non-domestic rates and is designed to soften the impact of sudden and dramatic rises in business rates bills as a result of revaluation. The change is required to give effect to a High Court decision earlier this year and brings into the transition scheme a very small group of properties that were not covered by the original transition scheme.

This is a small change to a very technical set of regulations and affects only a very small number of non-domestic properties. I shall do my best to explain how the scheme works and how the change affects it. I hope that noble Lords will bear with me while I attempt to do so. I should emphasise up front that, although the change will impact on a handful of properties only, it is good news for them and they will stand to benefit financially.

Under the original scheme, which took effect on1 April 2005, properties that had a rateable value of zero pounds on the last day of the previous ratings list—in this case, 31 March 2005—were not included in the transition scheme. These regulations bring those properties into the scheme. Briefly, the transition scheme works by limiting the amount by which rate bills can increase or decrease compared with the rate liability for 2004-05. The scheme lasts four years and the cost of capping increases to some rate bills—for those in upward transition, obviously—is funded by capping reductions in other rate bills: those in downward transition. There have been similar transition schemes as part of each revaluation since 1990, in 1995 and 2000.

The caps obviously change depending on whether relief is being given to a large or small property; they are different. The arrangement for small properties is more generous, to reflect the greater burden that rates generally pose for small businesses compared with larger concerns. For the rating period that began on1 April 2005, however, all ratepayers will pay their full rates liability in 2009-10—the final year of the five-year life of the current rating lists.

To qualify for transitional relief under the original scheme, properties had to have a rateable value greater than zero on 31 March 2005, the last day of the old rating list. The rateable value of a property is generally based on the assumed rent that the property would attract if let on the open market on a specific date. In some cases, this will be a nil value, but the property must still be shown on the non-domestic rating list.

Because the amount of rates that a property has to pay is calculated according to its pre-revaluation liability, any property with a rateable value of zero pounds at 31 March 2000 would continue with a zero liability for the four-year life of the 2005 scheme. If you multiply anything by zero, it comes to zero. The most that ratepayers in this position would have to pay would be a small contribution each year toward the cost of the small business rate relief scheme.

Previous schemes in 1995 and 2000 had allowed properties valued at zero to be considered for transitional relief. As the 1995 and 2000 transition schemes lasted for the full five years of the rating lists, the base liability on the last day of those lists remained at zero because the liability of the final day on one list was used to calculate the transition bill for the following five-year rating period. The effect was that the hereditament never had a liability and would have continued to pay zero indefinitely. We obviously wanted to avoid that paradox in the 2005 transition scheme. The major institution caught in this contradiction was British Waterways.

By definition, a transition scheme should smooth changes in rates bills, not act as a de facto exemption from rates. The transition scheme for the 2005 revaluation set out in the original regulations addressed this and tried to ensure that it did not happen by excluding from the scheme properties that had a rateable value of zero on 31 March 2005 but which had moved to a positive rateable value on1 April 2005. It treated such properties as analogous to a property that was entered on to the rating list for the first time on 1 April 2005. In both situations, there was no liability in the 2000 list but there would be a positive liability in the 2005 list.

In the case of British Waterways, whereas from 2000 to 2005 it paid no rates, in 2005 it was liable to pay £746,925. As I will explain in a moment, another 18 hereditaments also fell into the same category, out of—this is a very important figure—the 1.7 million hereditaments as a whole. Removing this tiny category from the scope of the transition scheme meant that those ratepayers would have to start to pay rates, quite rightly, but that they would also inevitably not qualify for transitional relief. This approach meant that ratepayers in this situation would pay their full rates liability from the first year of the 2005rating list.

The scheme came into effect from April 2005. Ratepayers were issued with rate demands that had been calculated either in line with the Local Government Finance Act 1988 or, where the transition scheme applied, the chargeable amounts regulations. The British Waterways board challenged this aspect of the regulations. The High Court found that excluding hereditaments with a rateable value of zero as at 31 March 2005 from the transition scheme was unlawful. British Waterways is the only ratepayer on the central rating list to be affected by the court judgment. At the time when these regulations were laid before Parliament, the Valuation Office Agency had identified 13 properties on local rating lists that fell into the same situation as British Waterways. Since then there have been further changes to the rating lists. We have now identified 18 properties in a similar position to British Waterways.

These amending regulations give effect to the court’s decision by bringing British Waterways and the other affected ratepayers into the existing transition scheme. The effect is that, instead of having to pay their full rates liability for each of the five years’ life of the 2005 rating list, these ratepayers will have a greatly reduced rates bill until the final year of the scheme, beginning 1 April 2009. It is possible that appeals against the 2000 rating lists that have yet to be decided may result in some additional properties having their rateable value at 31 March 2005 reduced to zero.

So what have we done to make redress? The Secretary of State has refunded the money paid by British Waterways in respect of the 2005-06 rate liability as required by the court. Refunds due to the other affected ratepayers on the local lists will be calculated and paid by the relevant billing authority when these amending regulations have been approved and come into effect. We have already alerted local authorities to the impending changes and will let them know when the revised arrangements come into effect so that they can reassess liability for the affected properties and adjust payments accordingly.

The amending regulations have very limited effect but give effect to the court judgment. I beg to move.

Moved, That the Grand Committee do report to the House that it has considered the Non-Domestic Rating (Chargeable Amounts) (Amendment) (England) Regulations 2006 [35th Report from the Joint Committee].—(Baroness Andrews.)

I thank the Minister for that very lengthy explanation of this matter, which has arisen because of the British Waterways problem. It is clear that it is a small issue as regards rating, but it is probably a major issue for the properties involved. I have no difficulty in supporting these regulations.

It was definitely a hot-towel afternoon as I settled down yesterday to read the regulations and the Explanatory Memorandum. It is a pity that the issue had to go as far as judicial review before it could be resolved. I have a question that the noble Baroness may not be able to answer today, but I would appreciate an answer in writing. Although we believe that only a relatively small number—around 18—of properties are involved, the amounts of money are quite large. The cost was estimated at £3.3 million when there were 13 properties. Where the billing authority is, for example, a small, rural district council, the rebate would represent quite a large sum of money. I understand that in the fullness of time the authorities will get this back through the pooling arrangements of NDR, but I am interested to know, first, how long that might take and, secondly, whether there will be a clear mechanism for identifying that the rebate is exactly what was paid out. Anyone who has experience of local government finance will know that promises are often made that certain costs will be covered. However, when settlements arrive they are so opaque that it is difficult to have a clear audit trail and be able to see whether a local authority has received back what it has paid out. Apart from that, I am happy to support the regulations.

I am very grateful for the support of both noble Baronesses. I am sorry that the Explanatory Memorandum is a rather surreal read. On the question of multiplying zero by zero, after a while one begins to wonder whether one can get something more than zero. On the point that the noble Baroness made about recouping the money from the local rating arrangement, the costs will of course fall on those authorities but they can be recouped from the pool as a whole. In relation to the whole of the distributable amount, which runs to £17.5 billion, we are talking about a small sum, even though it is identified as some £3 million. That in itself is often an unpredictable amount because there are ebbs and flows. I will write about the process that we will follow to ensure that those authorities are not out of pocket. I have a very able team of experts behind me who will help to do that. I should like to thank noble Lords very much.

On Question, Motion agreed to.