Local Government and Communities Committee, 20 Feb 2008

Meeting date: Wednesday, February 20, 2008

Official Report 116KB pdf

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Subordinate Legislation

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Valuation and Rating (Exempted Classes) (Scotland) Order 2008 (Draft)

I welcome the Cabinet Secretary for Finance and Sustainable Growth; Robin Benn, team leader of the non-domestic rates team; Laura Sexton, the senior policy adviser to the non-domestic rates team; and Linda Hamilton, a principal legal officer in the legal division.

The Subordinate Legislation Committee did not draw our attention to any points, and so we move straight to the cabinet secretary.

I seem to be going off my script this morning; obviously I have not prepared properly. I should have said that the instrument is laid under the affirmative procedure, which means that the Parliament must approve it before it can come into force. It has been normal practice to give members the opportunity to ask questions of the minister and his officials prior to the formal debate, in which officials cannot participate. Therefore, I give the minister an opportunity to make any introductory remarks that he might want to make—or he might want to hold them back.

I would like to make an opening statement and to explain some of the background to the order to assist the committee.

From 1 April 2008, the Valuation and Rating (Exempted Classes) (Scotland) Order 2008 will exempt from rating in Scotland any international subsea telecommunications or electricity cable and associated apparatus and works.

Wherever practical, we want to maintain the policy of harmonising rating valuation practices with those in England, Wales and Northern Ireland. In England and Wales, liability for rating is determined by local authority boundaries and stops at the low water mark. In Northern Ireland, rates can be levied only within a local government district boundary. In practice, that means that international subsea telecommunications and electricity cables are not rated in other parts of the United Kingdom. However, in Scotland, under existing legislation, rating liability generally extends seaward of the low water mark of ordinary spring tides in Scottish waters, which means that subsea cables are rated. The new instrument is intended to address that anomaly, as the resulting business rates burden might discourage operators from improving connectivity between Scotland and its international neighbours.

Reducing business rates for international telecommunications and electricity cable operators in Scotland by exempting subsea international cables from rates will reduce operators' fixed costs and improve the business case for expansion of the connectivity links between Scotland and its international neighbours.

The proposed new rating exemption further underlines our commitment to attracting businesses to Scotland and to creating a supportive business environment in which they can flourish. It is entirely consistent with the strategic priority contained in the Government's economic strategy to focus investment on making connections with Scotland better than they are today.

I am happy to discuss any issues arising from the committee's consideration of the draft order, or to answer any questions.

Thank you for those opening remarks. I invite committee members to ask their questions.

On the day that Dr Paisley is visiting the Parliament, will the cabinet secretary explain how a cable between Scotland and Northern Ireland can be regarded as international, when I assumed that we were all still part of the United Kingdom, which is one indivisible nation?

That is a fascinating first question. The order will exempt a cable that has one end in Scotland and the other end outside Great Britain—it is the Great Britain point that is at issue. Northern Ireland is part of the United Kingdom, but it is not part of Great Britain. That is the distinction that is being applied. The practical effect is that cables such as the new electricity cable between Scotland and Northern Ireland will be exempt from business rates from 1 April 2008. From the Government's perspective, that is a good thing and it will increase the economic opportunity that arises from that link.

I understand that; I just wanted to emphasise that, although you have repeatedly described the cable link as international, it is not—that is the wrong nomenclature. However, it is perfectly correct that you are exempting from rates cables that connect one part of the United Kingdom with another.

My point was that circumstances will arise in which we have cables that are international connections and which will be exempted by the order. For example, the development of the cable to the Faroe Islands is an international connection that would be liable for business rates if the Government did not take the step of introducing the order.

I accept that some connections are international, but connections between Scotland and Northern Ireland are not international.

The last time that I looked, Northern Ireland was still part of the United Kingdom and, regrettably, so was Scotland.

From what you said, my understanding is that there is a degree of reciprocity in the rating system in Northern Ireland. The cables will not only be exempt from rating by Scottish assessors, but will not be liable to be rated at the other end by the Northern Ireland authorities. Is that correct?

At present, Scotland is the odd country out. We could apply business rates to cables that emanate from or arrive in Scotland, whereas England, Wales and Northern Ireland currently exempt such cables. The Scottish position must be addressed to ensure that the exemption applies throughout the countries of the United Kingdom.

I will move on from cable connections within the United Kingdom to the true international cable connections: those with foreign countries. Do all foreign countries with which we may have cable links of the nature that you describe exempt such cables from any form of non-domestic rating? In other words, will the same reciprocity apply, or could we have a situation in which we exempt a cable from rates—thereby denying revenue to our Exchequer—but the same structure, which may have been created and built by investors and companies in this country, is rated abroad?

That could be the case. I cannot say definitively whether every country to which there might be a connection applies business rates in such a situation. All that I can reasonably do is set out what the Scottish Government considers to be the correct rating regime for subsea cables. It is a matter for other countries to decide what their rating position should be.

We have a competitive disadvantage in Scotland, because we apply rating to subsea cables in a way that the other countries of the United Kingdom do not. The Government takes the view that establishing an exemption for subsea cables within Scotland and within Scottish waters will give us a competitive advantage. I would like to think that our having that exemption, when other countries do not, would encourage investment in Scotland because of our more sympathetic rating regime.

I was going to ask a similar question to Mr McLetchie's, without denying that Scotland is of course a nation. I also point out that we are citizens of Great Britain and Northern Ireland.

We are citizens of the United Kingdom.

Now, now.

Northern Ireland is not British. The United Kingdom is the United Kingdom of Great Britain and Northern Ireland. Therefore Northern Ireland is an appendage; it is not part of Britain as such.

What is the situation with regard to the Isle of Man? Does it have an anomalous position or would it fall within the scope of the order, if indeed we have subsea connections to the island?

I cannot give you a definitive position on the Isle of Man, but I am certainly happy to provide that information to the committee. [Interruption.] My officials have updated me, Mr Gibson. On the basis of my new encyclopaedic knowledge of the rating regimes of different jurisdictions, I can tell you that the Isle of Man is not rated either.

I do not want to get into a discussion about the status of the Isle of Man.

Thank goodness for that.

I have a simple question. The Executive note states, under the heading "Financial Effects":

"The costs of this measure are likely to be negligible. This Order will not impose any financial burden on local authorities".

What will its effect be in respect of loss of income?

Our assessment is that there will be a negligible loss of income. Under the order, there are likely to be only a limited number of circumstances in which there would be a potential loss of revenue. I have given the example of the Faroe Islands, where a cable is about to become operational that would have been liable for rates. The sum would not be significant. The order follows the pattern of a number of other orders that have been introduced, which have created exemptions from business rates for what I would call non-domestic subjects. If a cable runs within Scotland it is subject to business rates, but if it is in a non-domestic situation it is not liable for business rates under the order. In April 2006, offshore wind farms were exempted from rating for these purposes. Wave and tidal power electricity generators were similarly exempted at that time, as were offshore oil and gas pipelines. Offshore oil rigs and any public road bridge lying wholly or partly over the bed of the sea were exempted in 1977. The order follows a pattern of exemptions that have been applied to non-domestic subjects over time. We estimate that the order will have a negligible impact in respect of financial loss.

So, the policy is about harmonising the process, rather than about the cost to business. Given that the cost is negligible, the rates would hardly be a deterrent to a business.

All those factors might apply. Our assessment is that there will be a negligible impact on the public purse.

In relation to potential income as well as the administration costs.

This has been a fascinating discussion on a somewhat esoteric subject to say the least.

It is far from esoteric, Mr Brown.

Absolutely. It is particularly odd that a Scottish National Party minister is engaged in harmonising things throughout Great Britain. It is interesting.

On a more serious note, are any other things outside the low water mark still rated? I just want to know the context of the order. I confess that it had never occurred to me that these sorts of things were rated but, clearly, they are. Are telephone cables and so on rated?

If you will indulge me, first of all I would like to say that, far from harmonising the situation, what this SNP minister is doing is removing competitive disadvantage, and I make no apology for doing so.

On other scenarios, in my answer to Johann Lamont's question, I went through a number of elements of provision that have had exemptions applied to them. Along with the particular change that we are discussing today, that list strikes the Government as providing pretty comprehensive coverage of the possible avenues for application. Obviously, the order that we are discussing today takes that into account. This order would exempt subsea telecommunications and electricity cables. To answer your point directly, telecommunication cables would, obviously, be exempt as a consequence of the order.

I am not an expert, but I imagine that there are telephone cables and other things of quite some significance all around the United Kingdom that connect to all sorts of places. Presumably, if they are rated, they must bring in a reasonably significant sum of money.

I am afraid that my encyclopaedic knowledge of subsea telecommunications cables does not extend that far. However, we consider that new cables of the sort that I referred to in the Faroese example would be of the type that would be caught by the existing provision.

If there are no other questions, we will move to the formal debate on the motion. I invite the cabinet secretary to move motion S3M-1187.

I have nothing to add to my comments, so I will simply move the motion.

I move,

That the Local Government and Communities Committee recommends that the draft Valuation and Rating (Exempted Classes) (Scotland) Order be approved.

Motion agreed to.