§ Motion made, and Question proposed,
§ That the Docks and Harbours (Valuation) Order 1970, a copy of which was laid before this House on 4th March, be approved.—[Mr. Freeson.]
§ 10.56 p.m.
§ Mr. Graham Page (Crosby)
I think that at least we should have an explanation of this Order. It is most discourteous to the House to present an Order of this importance without some explanation. The Parliamentary Secretary will have to accept an explanation from me at some length under those circumstances.
§ The Joint Parliamentary Secretary to the Ministry of Housing and Local Government (Mr. Reginald Freeson)
I have no doubt that I shall not be able to stop the hon. Member for Crosby (Mr. Graham Page) in full flight, but I do not need an explanation from him. I am aware of the background to the Order.
§ Mr. Graham Page
The hon. Gentleman may not need an explanation, but the House and the public need an explanation. This Order the Government themselves bring before the the House for affirmative Resolution. It is not a Prayer by the Opposition. The Government have a duty to the country and to the House to explain the Order. If the hon. Gentleman will not do so I shall have to do so at some length.
The parent Statute for this Order was passed as long ago as 1961—[Laughter.] The hon. Gentleman need not laugh at this. The Order needs an affirmative Resolution. I should have thought it right to explain it to the House. It is something new. There is no precedent for the Order, although it is based on a statute of 1961. Negotiations have been going on for a long time to produce an Order which the hon. Gentleman puts before the House merely by quoting its title.
I have some split loyalties over this Order because my constituency contains part of Liverpool docks, and a very important part where a £39 million dock is being built. It is important to the local authority that it should receive a proper rate for those docks. It is also 1134 important to the Mersey Docks and Harbour Board, the owners of the dock, that the board should pay proper rates and not too much by any wrong formula which may be contained in new Statutory Instruments. It is particularly important to Liverpool because Liverpool, with London and Manchester provide about 45 per cent. of the gross revenue collected by docks.
This Statutory Instrument is being made under the parent Statute, the Rating and Valuation Act, 1961, Section 3 of which was consolidated in Section 35 of the General Rate Act, 1967. By that SectionThe Minister may by order make provision for determining the rateable value of hereditaments to which this section applies … by such method as may be so specified.The hereditaments to which the Section applies include, under subsection (2)(c)any hereditament occupied by the persons carrying on, under authority conferred by or under any enactment, a dock or harbour undertaking".It is with reference to that paragraph that the Order is made.
Section 35 of the 1967 Act is a repetition of Section 3 of the Rating and Valuation Act, 1961. Up to 1961, and, indeed, thereafter until this Order takes effect, docks and harbours have to be valued for the purpose of rates as any other public utility undertaking, namely, on a profits basis. That was decided to be the position by a case in 1961—British Transport Commission v. Hingley.
The profits basis is calculated by subtracting from the gross receipts of a dock undertaking the working expenses, the tenant's share of profits, the cost of maintenance and insurance, and a sinking fund for ultimate renewal. The result obtained from that calculation is the net annual value, to which the rate poundage is applied and the rates collected by the local authority.
That has resulted in the course of time in some rather Gilbertian situations. In a case as long ago as 1873—the Mersey Docks and Harbour Board v. Liverpool Overseers—the board by Statute was bound to devote all its receipts to working expenses, maintenance and interest on a date; and therefore, being bound by Statute to apply all the surplus receipts to those objects, there were no profits left to be rated.
1135 A later case—Port of London Authority v. Orsett Union—in 1920, put that partially right by saying in effect that sterility in earning profits effects value, but sterility in disposing of those profits does not affect value. In the Orsett Union case, although the surplus revenue had to be spent on improvements in the port, it was still held that there was a profit which could be rated.
So, therefore, there was an uncertainty in the law which it was desired to remedy as long ago as the 1961 Act. The Mersey Docks and Harbour Board v. Liverpool Overseers case raised two other anomalies in the law. First, there was the question whether a dock should be valued as a whole estate or separately on what was called a parochial earnings basis. In the Liverpool case the parochial principle, it was said, must apply whenever possible; and only if it were not possible to apply the parochial principle of assessing each dock on its earnings was the estate basis or acreage basis, as it was called, applied. The second of those two anomalies raised by the Liverpool case was that buildings connected with the docks should be separately rated, but that rule was overruled by a later case in 1955 of Clayton v. British Transport Commission.
I have mentioned those cases to show that at the time when the Rating and Valuation Act was passed by Parliament there were grave uncertainties in the law and it was desirable that Parliament should try to find a formula which would remove those uncertainties. It was right and proper at that time to make provision for them to be resolved, but at the same time it was not desired to change the actual liability for rates.
I should like to quote from the debates of the time when Section 3 of the Rating and Valuation Bill, 1961 was passing through the House. I refer to the OFFICIAL REPORT of 10th May, 1961, in which we find that the then Minister of Housing and Local Government, Mr. Henry Brooke, said:Here let me emphasise, what I said repeatedly in Standing Committee, that this Clause is not designed either to increase or diminish the overall liability to rates. That overall liability will be left substantially unchanged. The only question is whether a valuation can better be done by a formula than on the basis of the profits method. That applies throughout.1136 The hon. Gentleman who was leading for the Opposition at the time, the then hon. and learned Member for Kettering, Mr. Gilbert Mitchison, referred to something which the Minister had said in Committee, and he quoted the Minister in these words:if it were understood that the new formula was designed not to make any material change upwards or downwards in the amount of rates payable but rather to produce a more satisfactory and simple method of arriving at assessments '.He then went on to say:After what he has already said, I feel sure that the right hon. Gentleman will be able to confirm that those conditions for the use of the powers under this Clause will still apply …Indeed, the Minister did confirm that in reply, as reported at column 449, when he said:I cannot guarantee that it would leave the rateable value of every individual hereditament unchanged, but the formula would not be acceptable to the Government if it made any substantial upward or downward change in the rateable value of a class of undertakings."—[OFFICIAL REPORT, 10th May, 1961; Vol. 640, cc. 442–9.1The intention of Section 3 of the Act of 1961, which is now Section 35 of the Act of 1967, was that it should remove the anomalies and uncertainties in the law without necessarily changing the liability to rates.
The Act of 1961 was followed by the Ministry of Housing and Local Government setting up a Working Party on Rating and Valuation, which started its work in 1963; and this is directly relevant to this Order because now, seven or eight years after that working party started, we see its one statutory effort. Nothing seems to have been produced by the working party until in 1968 the Dock and Harbour Authorities Association was asked by the working party to try to devise a formula based on revenue from the docks, that revenue to be the basis of rating.
The association tried to devise a formula, but failed to produce agreement on it. I understand that it was then that the Ministry of Housing and Local Government decided that the profits basis could not continue. In particular, it pointed to Port Talbot, where the profits basis produced what was thought to be far too high a rateable liability. It also pointed to 39 ports in respect of which there was a nil assessment to rates. So the profits 1137 basis was obviously unsatisfactory, although over the whole country it was producing about £3⅓million.
As a result of deciding that the profits basis could not continue, the Ministry in October, 1969, produced its own formula based on gross receipts, and last November held a meeting of all concerned—the docks authorities, the transport authorities and the local authority associations—in an effort to obtain agreement on a new basis of rating the docks and harbours. I understand that nothing final came out of that meeting. So we have before us an Order which is something of a pilot scheme relating only to one dock, Port Talbot, as a sort of test of this scheme of rating on the basis of gross receipts.
It is true that the Order nowhere mentions that it refers only to Port Talbot, but one discovers that in Article 2(a), where the Order is said to apply only toa dock or harbour undertaking at which a jetty provided for the accommodation of iron ore carriers of 100,000 tons deadweight fully laden is capable of being used for the discharge of such carriers not later than 30th September 1970,".So, after about 8½ years of attempts to find a formula, we have merely a pilot scheme referring to one particular dock. I am in no way blaming the Ministry, for it has made great efforts to obtain agreement between all the parties concerned.
In this pilot scheme, the percentage taken as the rateable value of the dock is a percentage of the gross receipts—7½ per cent. I understand that, taking a cross-section of docks and harbours, the total rateable value on a profits basis is 5.23 per cent. of total gross receipts. If that is the average over a cross-section, I ask the Minister to explain the reason for taking the figure of 7½ per cent.
The intention of Section 3 of the 1961 Act and of Section 35 of the 1967 Act was to tidy up the law, but not to alter the liability. On the Ministry's own figures, the average, taken over a representative number of docks, is 5.23 per cent. yet in this Order, applying to Port Talbot only, the figure of 7½ per cent. has been chosen. There may be some very good reason for it but it does not appear in the Order, and it is feared by both local authorities and dock undertakings that the 7½ per cent. may be used as a precedent when we move on from this 1138 pilot Order to one which is to apply to all docks and harbours.
Perhaps I should put the question now. Is it intended in due course to bring in an Order of this sort applying to all docks and harbours—all 111 of them—and, if so, when?
I turn now to considering whether the gross receipts formula is satisfactory. The formula means that one takes all the revenue of a dock undertaking and finds the figure of 7½ per cent. of that revenue; that figure is the net annual value upon which rates are charged. But gross receipts from dock undertakings differ from dock to dock, not only in amount but in the sources from which they come. The Order changes the amount for which Port Talbot is liable very considerably.
The gross receipts at Port Talbot on average over the years 1963 to 1965 were £716,943 and, on the existing profits basis, the rateable value was, therefore, £95,000. On the formula under this Order, I calculate that the figure will be about £45,000, which is a very substantial difference. If the 7½ per cent. on gross receipts is applied throughout the dock undertakings, in some cases substantial increase in rateable value will result, in others substantial decrease.
That must necessarily follow because the sources of revenue for each dock or harbour are not the same. Rents of property in one dock may include services, the payment for which should not be rateable; in another dock they may not be included in rent. Some docks may charge for cargo handling facilities; some may not. But these items will come into gross receipts if they are charged by the docks, and will not come into them if they are not charged. We are, therefore, not comparing like with like from one dock to another.
Perhaps the most substantial difference in docks, a difference which will increase over the next few months, is the charge for stevedoring. It is Government policy that ports should take over stevedoring, and charge for it, of course. In some cases now that is part of the gross receipts of a dock undertaking, and over a short period of time others will be changing to that system. Again, some docks own office blocks on the fringe of or within the dock estate. In the rents of those office blocks there may be provision for 1139 lighting and heating to be paid for by the landlords. Here again, some dock undertakings adopt one practice and some another. Some dock undertakings may collect river dues, as opposed to normal dock charges; other dock undertakings do not have any such receipts within their revenue.
Another substantial difference is that some docks provide labour; this may be a substantial item of revenue to a dock undertaking—a substantial item of expenditure, too. When we compare a dock which provides labour with another which does not, we are not comparing gross receipts on a like basis. I question whether the gross receipts formula is a satisfactory formula on which to base rateable assessment. It is our duty in the House to try to hold the balance between, on the one hand, the local authorities and other ratepayers within their area and, on the other, the dock undertakings and the consumers who eventually pay for the goods which come through the docks.
I ask for an assurance that the 7½ per cent. will not become a firm precedent for a future Order applying to all docks and harbours, and that we shall be able to continue the discussions and negotiations to try to work out a proper and fair formula. This is a complicated Order. It brings before the House an entirely new principle of rating. We have never had to consider rating from the point of view of a percentage of gross receipts on any undertaking. We have had to consider it before not just from the valuation of the property on a rental basis but from the profits earned out of the property, and we have become familiar with that; there are many decided cases on it; but this is an entirely new matter, which is brought before the House on an Order applying only to one undertaking.
I am concerned that this Order should not be a precedent without further discussion.
§ 11.23 p.m.
§ The Joint Parliamentary Secretary to the Ministry of Housing and Local Government (Mr. Reginald Freeson)
I straight away give the assurance that this is not a precedent, nor is it a pilot or test scheme, to quote the words of the hon. Member for Crosby (Mr. Graham 1140 Page). I think that he has perhaps misunderstood the position a little, despite the detail in which he went into the matter.
As the hon. Member rightly said, the conventional method of getting the rateable value of a property is based on the rent at which it might be expected to be let, and normally this can be based only on the evidence of rents actually passing for other, similar, property. The property with which we are dealing here—docks and harbours—is never let, and in these cases the valuer has to estimate the rental value on the basis of other evidence. Statutory docks and harbours are assessed on the basis of their profits.
The profits method does not provide altogether satisfactory results for docks and harbours; in particular, as the hon. Member has said, it tends to produce very low, or even nil, assessments for older undertakings and high assessments for undertakings in which there has been recent heavy capital investment.
It is this kind of scheme with which we are concerned, the Port Talbot scheme. It was because of this state of affairs this uneveness in results—and not so much because of the detailed history which the hon. Member set out—which was generally recognised to be unsatisfactory that power was taken in the Rating and Valuation Act 1961 for the Minister to provide by Order for the Valuation of docks and harbours by a formula.
Consultations about a formula for valuing all statutory docks and harbours are now well advanced, but not complete. It is hoped that it will be possible for an Order to be made, prescribing such a formula for the rating years from 1971–72 onwards. It is the intention that the general Order, when it is made, will supersede the present limited one now before us. This Order follows an undertaking given in 1966 by my right hon. Friend the Member for Coventry, East (Mr. Crossman), who was then Minister of Housing and Local Government.
At that time proposals were afoot for the construction of the new tidal harbour at Port Talbot, to accommodate large iron ore carriers bringing in supplies to Margam steelworks. The object was to establish considerable economies of scale by bulk conveyance. However, the rateable value of the new harbour, on the 1141 usual profits basis, would have meant an assessment of over £1 million—more than the combined assessments of the Ports of London and Liverpool.
A rate bill based on an assessment of this magnitude would inevitably have threatened the whole project economically and undermined its very objective. The extra rates would have wiped out the savings expected from importing in bulk. As the Government already had in mind a formula to produce more sensible and even assessments for docks and harbours, it was decided that when the new harbour came into operation its assessment would not be more than half the assessment which would be produced by the profits method. This harbour at Port Talbot will come into operation in 1970–71, while the general formula will not be ready to take effect before 1971–72.
To fulfil the undertaking given by my right hon. Friend, special provision has to be made for Port Talbot, for this coming financial year at least. This Order is expected to produce an assessment for Port Talbot in the coming year in the region of about £200,000, which is well within the terms of the undertaking. In the view of the present Minister this is a reasonable figure when viewed alongside the profits-based assessment with which it will be contemporary.
During the drafting of this Order the Department has consulted all concerned on both the local authority and port authority sides, as well as the B.S.C. These bodies are generally content with the Order as an interim measure, although there are parts of it which they do not wish to be taken as precedents for the general Order—naturally enough, as negotiations on that Order are still in progress.
I am glad to take this opportunity of assuring the House and all those concerned, that this Order is entirely without prejudice to the general Order and, I stress, should not be taken as a test Order or a pilot scheme. It is an interim measure. One question asked was why have the 7½ per cent. basis of relevant profits for rateable value assessments. I have dealt with this in my general observations. It is because this figure produced a sum which is reasonable as compared with the amount which would be produced by the normal profit-based assessment.
1142 I stress again, however, that it is not a figure which will necessarily repeat itself in the formula. I make no judgment about that one way or another at this stage. The negotiations are continuing, and the present Order is confined as an interim measure to Port Talbot alone.
§ Question put and agreed to.
That the Docks and Harbours (Valuation) Order 1970, a copy of which was laid before this House on 4th March, be approved.