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Baroness Hamwee: My Lords, we on these Benches accept that this is a privilege matter, but it was strange to hear that the amendment which this House passed would affect the levy of local revenues. Certainly it is a financial matter but I would not have described it in that way. Part 2 is about minimum reserves and monitoring. Although the Minister talked seductively about the new powers for local authorities—for example, in terms of borrowing and charging—they are set out elsewhere in the Bill. I thought that the Minister's linking of this part with the other parts of the Bill was interestingly creative.

The Minister explained how responsibly and carefully the Government will use, or not use, the provision that we are discussing. I accept that. That brings us to the point which we discuss regularly with any Bill; namely, what will happen if a different party gains office? I am sure that if the party of the noble Baroness, Lady Hanham, were in power, they would do away with the measure within the first week of coming to office. Our party would do the same. But when one is considering a point of principle, one has to look beyond the immediate term. I believe that the Minister quoted Mr Hammond saying that there are occasions when elected representatives get things wrong. That is true. Although noble Lords are not elected, central government are through the ballot box. The executive is comprised of elected representatives.

The noble Baroness, Lady Hanham, rightly mentioned freedoms and flexibilities, but they are set out elsewhere in the Bill. They are not in the part that we are discussing. Freedoms do, indeed, carry risks. Both parties in opposition are saying that in recognising that, one should also recognise that local authorities should be allowed to take risks because that is the way that they grow, develop and provide the best service. I am sorry that we shall not have an opportunity to pursue the matter but I accept that it is a matter of financial privilege.

Lord Rooker: My Lords, I do not think that there is anything for me to say if the noble Baroness intends to capitulate. However, in due course, I invite her to read in Hansard the debate on Amendments Nos. 3A and 6A and tell me tomorrow what the difference is.

Baroness Hanham: My Lords, this is not a capitulation. I understand that we are constrained by the procedures of both Houses. If I was told that this

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was not a privilege matter, I would divide the House on it. I have been told that we cannot divide on the matter. However, if that is not the case—

Lord Rooker: My Lords, I used the same form of words in the previous debate with regard to the Commons taking a privilege view on Amendment No. 3A. I was ignored and this House has just voted against what the Commons wanted. We are in exactly the same situation with the amendment that we are now discussing. As I say, I invite the noble Baroness to read the debate on Amendments Nos. 3A and 6A in Hansard and tell us tomorrow why she took a certain view on one amendment and not on another when the reasons were exactly the same.

Baroness Hanham: My Lords, I shall take the Minister's advice. For the moment I shall take the matter no further except to make two small points. I noted the bonfire of controls which the Minister keeps talking about. However, I believe that it will be a damp squib, not a bonfire of controls.

I want to draw attention to the fact that, from the outset, the Minister has threatened us over Part 4—oh yes—and in particular that, if we did not conform and caused him too much trouble, the whole part would be withdrawn and fall because he did not want to lose the Bill. I have heard that and what he said today on exactly the same point about Royal Assent. None the less, he does it with such charm and such a smile that, for today's purposes, I shall not press the matter to a Division.

On Question, Motion agreed to.

4.30 p.m.


19page 32, line 15, leave out "be the same as or different from" and insert "subject to subsection (10A) below, be less than, but not greater than"
The Commons disagree to this Amendment for the following Reason—

19ABecause it would alter the area of taxation, and the Commons do not offer any further Reason, trusting that this reason may be deemed sufficient.

Lord Rooker: My Lords, I beg to move that this House do not insist on their Amendment No. 19 to which the Commons have disagreed for their reason numbered 19A.

Amendment No. 19 effectively rules out the possibility of transitional schemes which have an element of downwards phasing. The Government cannot accept that we rule out the possibility of downwards transition as a method of funding any transitional scheme. However, I understand the concerns that inspired the amendment and I want to address them in the points that I shall make, which also apply to the amendments grouped with Amendment No. 19.

Amendment No. 20 allows any transitional scheme to be revenue neutral over the five-year life of the rating list rather than confining it to revenue neutrality

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in each year. The amendment was introduced in this House at Third Reading. The Government have accepted the principle, as I hope is understood, but in Amendments Nos. 20A, 20B and the consequential amendments we have improved the drafting while accepting the principle. The new drafting provides a power for the general taxpayer to be recompensed for, in effect, loaning ratepayers money in the first few years of a five-yearly self-financing transitional scheme.

Clause 66 fulfils the White Paper commitment to ensure that there will always be a transitional scheme as a result of revaluation of non-domestic properties every five years. Transitional schemes were used at previous revaluations to allow ratepayers time to adjust to changes in their bills, with both significant increases and decreases resulting from changes in rateable values being phased in by annual stages. However, there is currently no legal obligation on the Government to have such schemes. The White Paper commitment was that, in future, a transitional scheme must always be established at a revaluation. That guarantee requires that future schemes be entirely self-financing.

Two methods are likely to be used to achieve revenue neutrality. First, a transitional scheme could phase in both increases and decreases in rates over time, balancing the rates lost against the rates gained. Secondly, the rates lost could be made good through a supplement on rate bills generally. That is achieved by increasing the multiplier, which ensures that the total revenue remains the same.

The rating professional bodies—the Royal Institution of Chartered Surveyors, the Institute of Revenues Rating and Valuation and the Rating Surveyors Association—have consistently argued that the Government have tied our hands by limiting any scheme to be revenue neutral in each year. They suggest that we should keep open the option of devising a scheme that is revenue neutral over the full five years of the life of the rating list.

A scheme which aims for revenue neutrality over five years allows more options to be considered for the way in which any transitional arrangements might be structured. However, it introduces greater complications in calculating how any shortfall in revenue might be covered in any single year. If we used the flexibility of five-year revenue neutrality to devise a scheme that benefited those in downward transition, that would require, in effect, a loan from the Exchequer in the early years to be made up in the later years of the scheme. Government Amendment No. 20A makes it clear that the Secretary of State has a power to recoup that cost to the public purse in latter years.

By introducing the amendment, we leave open the possibility of devising a scheme that benefits those properties that have reduced in value. Everyone recognises that we cannot decide on any scheme until we have the data on the new valuations. We now accept that we should consider the mechanism of

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spreading the revenue neutrality over the five years when we draw up the options for any transitional scheme for 2005 and subsequent revaluation years.

Revenue neutrality in each year has the advantage that we could announce any scheme early in the process, therefore giving assurance to ratepayers. Revenue neutrality over five years requires the agreement of the Exchequer, so it will be more difficult to provide guarantees to ratepayers early in the process. However, we are prepared to keep all those options open.

I shall turn to the second issue raised in the amendments approved in this House and overturned in the other place. The Royal Institution of Chartered Surveyors and the other rating organisations have argued that downward transition is unfair to ratepayers. It is often in areas in economic decline, where property and rental values have dropped relative to those in the rest of the country. Let me reassure the House that the Government well understand the arguments here.

However, if we are to ease the tax burden on those whose property values have risen sharply as a result of revaluation, as we all agree that we should, we have to seek the best way of funding that relief. We are not prepared to rule out any downward transition, for the same reasons that the amendment we have tabled does not rule out revenue neutrality over five years, or in fact year by year. I can provide reassurance, however, that the issue will not be forgotten as we devise the transitional schemes for 2005 to 2010.

The Office of the Deputy Prime Minister is in the process of commissioning a research project to model different options for the 2005 transitional arrangements. The project is in three phases. In the first phase, we will consider a wide number of options and the likely beneficiaries and costs of each option based on assumed new valuations. The findings for that should be available in January 2004. In the second phase, we will narrow down the options in consultation with the stakeholders—businesses, in particular the CBI, the British Retail Consortium and other relevant bodies, and the rating professionals. We will then model the agreed options using new valuations that we have at that stage. The results of that phase should be available by late March 2004. In the third phase, we will finalise our preferred option and model it using final valuations produced by the Valuation Office Agency. That report is due in June 2004.

That project will be monitored by a project group including representatives from the professional bodies and business interests. I assure the House that the issue of downward phasing will be very much on the agenda. We will consider models which include options for immediate or quicker downward phasing. We will not rule out any possibilities at this stage. We need to conduct the research based on the actual data available from the Valuation Office Agency next year. We will make decisions based on the data and the discussions that emerge from that project. We will develop the scheme with key stakeholders including representatives from the rating professional bodies.

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Finally, let me make it clear that the regulations which will set the form of the transitional scheme will be based on the report from the research project and will be subject to affirmative resolution of both Houses of Parliament. Therefore, Parliament will have the opportunity to debate the matter further when we have the relevant information. I beg to move.

Moved, That the House do not insist on their Amendment No. 19 to which the Commons have disagreed for the reason numbered 19A.—(Lord Rooker.)

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