Subordinate Legislation
Non-Domestic Rating (Telecommunications and Canals) (Scotland) Amendment Order 2008 <br />(SSI 2008/84)
Good morning and welcome to the 12th meeting in 2008 of the Local Government and Communities Committee. I remind everyone to switch off their mobile phones and BlackBerrys. Under agenda item 1, the committee will continue its consideration of the negative instrument before us. Members will recall that the committee considered the order last week when Jim Tolson said that he would lodge a motion to annul it. Where a Scottish statutory instrument is subject to such a motion, the committee has adopted the practice of holding an evidence-taking session with the minister and officials prior to the motion's being debated formally.
We welcome from the Scottish Government: the Cabinet Secretary for Finance and Sustainable Growth, John Swinney MSP; Laura Sexton, senior policy adviser in the non-domestic rates team; and Zahid Deen, head of the telecoms policy team. I invite the cabinet secretary to make any introductory remarks that he wishes to make.
Thank you, convener. I will try to keep my introductory statement as tight as possible, but you will appreciate that there is quite a lot of information of some complexity.
As the convener said, the committee took evidence from officials last week. I will set out why I believe that the order is the only sensible solution to the rating of fully unbundled local loops in Scotland.
The order provides for the continuation of an existing system that is straightforward and administratively efficient, allows BT to recover its full costs and increases competition in an expanding telecoms market to maximise the benefit to consumers in Scotland.
On efficient and sensible administration, assessors are required to value all lands and heritages for non-domestic rating unless they are expressly excluded by statute. The BT telecoms network is currently valued by the Valuation Office Agency and Scottish assessors as a single United Kingdom network and the value is apportioned among the four home countries. That has ensured harmonisation of valuation practice between Scotland and the rest of the United Kingdom. It has been necessary also because, historically, BT has been unable to disaggregate the information necessary to carry out valuations on an individual country basis. Not only is it not possible for the assessors to carry out a separate and distinct valuation of the Scottish part of the BT network with or without unbundled loops, but it is not possible for it to value fully unbundled loops, again because BT has been unable to provide the necessary information.
To obtain that information, Parliament would need to approve primary legislation to give the assessors the powers to require BT to provide the necessary information for Scotland, which BT has made it clear that it will provide only if required by statute. Even if that information could be obtained, the assessors would need to collect and collate information on the number of fully unbundled loops in each of the 1,069 telephone exchanges in Scotland. Valuations would then need to be carried out for the fully unbundled loops in each exchange and the resulting valuations aggregated into a single entry for each local loop unbundling operator for each council area where there is a fully unbundled exchange.
If there were 40 exchanges in a local authority area and each exchange had fully unbundled loops, 40 valuations would require to be carried out and then aggregated to form a single entry on the valuation roll. That exercise would have to be repeated for each separate local loop unbundling operator in a given area. An added complication would arise where an exchange lies in one council area and the customers' premises are located in another. In such cases, the assessors would have to identify how much of the loop lay in each area to apportion the value. Any change in any exchange would give rise to a right of appeal, both for the local loop unbundling operator and for BT in respect of the remaining network.
In summary, to resource the separate valuation of the fully unbundled local loops and the resultant appeals burden on an on-going basis, each of the 14 Scottish assessors would be required to staff the collection and analysis of local information and make and change entries on a regular basis. Resources would also be needed to deal with appeals. Telecoms operators routinely appeal any changes to their valuations and BT currently has 64 appeals awaiting hearing by the Lands Tribunal for Scotland, of which half are as a result of unbundling. Resources would also be needed for consultants' fees for analysis of the valuation of the BT network and for legal fees and expert witness fees for tribunals before the Lands Tribunal for Scotland. One lands tribunal hearing is expected to last for at least two weeks. Those are the points on administrative efficiency, which explain the complexities that would arise if the order was not supported.
On the second point that I raised, in relation to BT's ability to recover its costs, local loops have been unbundled only since 2005, following a finding by the regulator that BT exercised significant power in the market for wholesale local access in the UK. The purpose of local loop unbundling is specifically to stimulate competition in the provision of broadband and voice services. The regulator, the Office of Communications, has set a ceiling charge that an unbundler must pay to BT for an unbundled loop. The charge allows a regulated return on the BT assets that are used in unbundling and covers overheads, including the rates paid by BT on those assets that are rateable.
Ofcom has written to the committee, setting out the basis for the local loop unbundling charge. There are two key points. First, historically wholesale charges have been set to allow BT full cost recovery, including the recovery of business rate costs. Ofcom is committed to ensuring that BT continues to recover appropriate costs, including those of business rates. Currently, the ceiling charge for each fully unbundled local loop is £81.69 a year per line, excluding VAT. Ofcom set that price on 1 January 2006, taking account of BT's business costs at that time. BT has charged annual rental of £80 since August 2005 and has never raised that charge; nor has BT approached Ofcom to review the ceiling charge. Secondly, Ofcom is currently reviewing BT's charges for local loop unbundling and for other products. The review covers business rates. BT is closely involved in those discussions, and Ofcom has provided written confirmation that, following the review, BT will continue to be able to recover its business rate costs in full.
The final area that I will cover is competition in the telecoms industry. If the order were to be annulled, that would bring uncertainty to telecoms operators in Scotland and would put our telecoms market at a disadvantage compared with the market in England. It would have a profoundly damaging impact on competition. For Scottish consumers, it would lead to a reduced opportunity to benefit from a choice of suppliers, the highest bandwidths and the lowest broadband prices.
I understand that the committee has received information from Carphone Warehouse, which is by far the largest unbundler of lines here, offering services in exchanges covering 1.5 million Scottish households and businesses. Unbundlers such as Carphone Warehouse are making a real and positive impact on the broadband market here, especially as they offer a range of competitive—by some margin—broadband prices and packages. If the order were annulled, an operator such as Carphone Warehouse would be faced with, on the one hand, certainty on business rates elsewhere in the UK and, on the other hand, uncertainty, administrative costs and a potentially increased charge in Scotland. In that situation, I fear that unbundlers would stall their planned investment here and take their business south of the border and that their existing Scottish telecoms investment might be undermined.
That is not conjecture on my part. Carphone Warehouse confirmed that when it stated that if the order did not proceed, it could not justify rolling out any more exchanges and might have to close existing unbundled exchanges. That illustrates the potential negative effect on Scotland, especially the impact on consumers who are served by exchanges in different parts of the country. Access to the most affordable telecoms packages must be encouraged as part of the process.
I put those points on the record and I am happy to answer any questions that the committee may have. I appreciate the opportunity to make a more substantial statement than I would normally have made.
I thank the cabinet secretary for his introductory remarks and call Jim Tolson to speak.
I lodged the motion to annul the order, which is to be debated under item 2 on the agenda, due to the failure of the Scottish Government to provide authoritative evidence on the matter and to compel the cabinet secretary to come to the committee to explain the position. The position that we heard about in last week's evidence session seemed to be rather flawed, and no justification was given for proceeding with the instrument. The Government failed to provide us with the information that was necessary to enable the committee to make an informed decision, and we were left with the following questions. What is the rateable value for local loops? How much does BT currently pay in business rates for those loops? How much does BT recoup from other providers for the use of the loops? What growth has been seen in the market under the current arrangements?
The Government's first line of argument appears to be that Scotland would be disadvantaged by taking a different approach from that of England and that the value of the assets cannot be assessed for Scotland alone. How does that fit in with the Scottish National Party Government's stated preference for an independent Scotland?
What assessment has the cabinet secretary made to back up the Government's assertion that annulling the order could affect the telecoms market and investment decisions, and that—as the cabinet secretary has stated again today—providers might take their business to England instead? Has the cabinet secretary not considered whether changes might be made to make investment more attractive here than in England? After all, there is currently a huge market-led growth in broadband in Scotland.
Why, given the compelling views that have been expressed and given the fact that nothing need change from the existing position, has the cabinet secretary not proposed to extend the current arrangements until 2010, so that we can take a view on the matter then, when we have more evidence to hand? Is the cabinet secretary saying that the main reason to make the timescale indefinite instead of specifying 2010 is that that aspect of the arrangements alone could lead to a major shift in investment priorities? Does he recognise that that view is refuted by one of the major players in the market—BT? If he believes that certainty or otherwise about business rates is so important, why does he not seek to use that as a tool to encourage investment in Scotland? Such considerations come under his portfolio.
I seek answers to those questions. The letter from Ofcom takes things forward, although questions arise regarding the differences between BT and Ofcom. One says that the situation is black; the other says that it is white. We need answers from the cabinet secretary.
There was a lot in there, but I invite the cabinet secretary to respond.
Mr Tolson made some specific points about the amount of non-domestic rates income that is generated in Scotland from the BT network. The information on that has been supplied to the committee—the total comes to £22 million. That was in the letter that came to the committee yesterday, I think.
I want to ensure that committees get the information that they require to let them make judgments. My attendance today is a measure of the committee's dissatisfaction with the information that it received last week. I am here willingly to address the relevant points. The rateable value point has been answered.
Mr Tolson made some further points—I suspect that they were not so much questions as political points—about the Government's political position. Of course, I would be happy to debate them, but we live in a devolved Scotland and we are operating within a framework in which the Government is constrained in the policy areas that it can take forward. Therefore, we must find the most competitive position for Scotland within the United Kingdom framework. That is why our proposal is the one before us today.
Mr Tolson also spoke about the order putting Scotland at a competitive disadvantage and about operators perhaps preferring to invest in England, rather than Scotland. The answers to those questions are contained in the submissions that other operators have given to the committee. They say that they would have certainty. As far as I am aware—and there is nothing to suggest that this is not the case—the United Kingdom Parliament is intent on approving a complementary order. In fact, it might have approved it already.
Zahid Deen (Scottish Government Enterprise, Energy and Tourism Directorate):
It is in the process of being agreed.
It is in the process of approving a complementary order for England and Wales. We can appreciate that operators in England, therefore, would have certainty that business rates were caught up in the charges that they pay, whereas operators in Scotland would not have that certainty.
To return to my argument about administrative efficiency, whichever way we look at the issue—and it is difficult to get a precise quantification of the impact—there will be more administrative complexity if the assessors must put in place infrastructure to manage and monitor the local loops, the unbundling of local loops and the recharging of the unbundled local loops to various operators.
The fact is that people chop and change their provider. Every time someone decides to move to Carphone Warehouse or BT, the required change would have to be monitored, managed and pursued by the assessors. That distinct task would increase administrative costs, which would have to be passed on to providers. As a result, provision would inevitably cost more in Scotland than in England, with—I suspect—investment flows going in much the same direction.
You seem to be saying that if the order is annulled, there will be less choice and higher prices. What will be the cost to the Scottish Government and, indeed, the Scottish taxpayer? I note that in his grandstanding speech Jim Tolson did not mention the impact on the Scottish taxpayer or where the additional money would be found.
Last week, we heard that the estimated one-off cost to the taxpayer of setting up a charging system was £9 million with an annual cost of roughly £1 million. Do you have any further information on or details about that?
It is difficult to give precise numbers. Last week, my officials set out the two figures that you mentioned, which were based on a calculation. It is difficult to provide robust information or give a reliable estimate because, as I pointed out in my opening statement, we do not have access to disaggregated information about the BT network.
That said, as any objective analysis will conclude, more administrative complexity will result if we do not continue the existing arrangements. The 14 assessors would have to assess and make calculations based on the baseline position of the local loops; tabulate the figures for the 1,069 telephone exchanges throughout Scotland, which, of course, would mean examining a very wide array of areas; examine individual transactions to find out who was buying broadband from which provider; and then carry out a recharging exercise. Moreover, members of the public remain free to choose their own broadband provider—if, as I said to Mr Tolson, that choice is available. Inevitably, all that would mean increased costs, which I imagine would fall not on the Scottish Government but on local authorities. The Government's priority is to maximise the resources available to local authorities for delivering front-line services.
As we are all discovering, this is an area of some tension among operators, and introducing our own system would result in a significant number of appeals both by the operators of unbundled local loops and by the remaining party, BT. After all, if BT is not satisfied by the business rates valuation, it will appeal. Equally, an operator might feel short-changed in that respect and also appeal. Introducing our own system would make things far more complex, and I think that the arrangements that the Government has proposed deal with the issue more simply.
I call David McLetchie, to be followed by Alasdair Allan.
Are we getting only one question each today?
I will go back round the table.
I wonder whether you could clarify your response to Mr Tolson on where matters stand in the rest of the UK. The impression that I—and, I think, other members—gained from last week's discussion was that the regulations governing unbundling and the rating system were already in place in England, and that we were simply putting the Scottish marketplace on the same footing. From Mr Deen's response to Mr Tolson, I understand that that is not the case, and that the relevant equivalent regulations that will be applicable in England have not yet been approved by the Westminster Parliament. What is the situation?
The order has been laid at Westminster and it has to lie for 40 days, which expire tomorrow. There is no—
That was my next question. No Ali Baba has lodged a motion to annul during those 40 days and 40 nights. Is that correct?
The sustained, interrogative inquiry into these issues that is expected in the Scottish Parliament is not used at Westminster.
So no member of any political party at Westminster has tabled a motion of annulment on the equivalent statutory instrument that will apply in England. Is that correct?
The instrument came into force on 1 April—
Unless it is annulled.
Yes.
And no one has lodged a motion of annulment.
No, and the 40-day period expires tomorrow, although I suppose that we should touch wood.
Indeed. Is this instrument part of the Scottish National Party Government's commitment to a single United Kingdom market?
It is a practical demonstration of the fact that this pragmatic Administration can use administrative efficiencies and straightforward processes without adding to business costs or undermining the competitive position of companies in Scotland.
One of the arguments that we heard at last week's meeting, and which you have reiterated today, is that if we do not make the present temporary regime permanent, and if operators are on unbundled loops, that will impact on the growth and development of the market in Scotland. Do you accept my proposition that, during the past year, there has been a 351 per cent growth in the number of unbundled loops?
I accept that number.
So if we have a growth rate in unbundled loops of 351 per cent in one year under the present temporary regime, why is it so essential that it is made permanent to generate growth in the marketplace? Is 351 per cent growth unsatisfactory?
I do not follow the logic of your question, Mr McLetchie.
It is perfectly logical.
The instrument that is before the committee today will continue the regime that has delivered a 351 per cent increase in one year. [Interruption.] Convener—
Yes, I was about to intervene, but surely you do not need to plead for my help.
I do not, but it is a bit difficult to concentrate.
I accept that there is too much talking going on. I ask you to proceed, and I remind colleagues that they will all get their turn.
The instrument will allow the regime that has delivered a 351 per cent growth increase in one year to continue. If the committee decides that we should not continue with that regime, we will then have to go to the other scenario, which means assessors and a separate valuation, which will build in an element of complexity to the arrangements. Why would we interrupt a system that is delivering a 351 per cent increase?
We are going to have to move on.
The logic is that the argument or debate on the options in the consultation was not between continuing and not continuing the present regime; it was between the option to continue with the present regime until 2010—which is the temporary arrangement that has seen a growth rate of 351 per cent in the market—and a permanent, indefinite regime, which is what is proposed. My point, therefore, is that if the present temporary regime, with temporary continuations, which might await a recasting of the rates system throughout the UK, has not deterred operators and has generated 351 per cent growth in the past year, why would not continuation for two more years generate a continued growth in future years?
That would be fine were it not for the fact that the order that came into force on 1 April in the rest of the UK is an indefinite order. That means that people in the marketplace will say, "We have absolute certainty about investment south of the border but, in Scotland, there is only a small window before the situation becomes uncertain." That proposition would be used in the marketplace in a way that would be damaging for Scotland.
Could you give us some information about the contact that you have had with assessors about the issue? The Scottish Assessors Association has told us that it would not be possible to carry out a separate valuation of the Scottish part of the BT network, including or excluding unbundled loops, based on the information that is currently held. What view have assessors been giving to the Government on that question?
The assessors made a submission to the Government's consultation process, and quite clearly expressed a preference for the order that is before the committee. The Scottish Assessors Association has made it clear that it cannot undertake to make a separate valuation because the necessary information is not available, and primary legislation would be required to ensure that that information could be made available to assessors. That position has been confirmed in information that has been given to the committee by BT.
Therefore, from a practical point of view, what would the Government have to do if this legislation were to be annulled today?
We would have to take steps to put in place a valuation regime that we do not currently have primary legislation cover for. That would be, even for this Administration, a bit of a challenge.
There is certainly plenty of legislative space for you to do it, so that would not be an issue.
The committee is wrestling with a difficulty that is caused by the fact that serious people are arguing the case on both sides. One of the problems for the Government has been that it has overstated the consequences of not supporting the amendment order—we have been told that there will be an apocalypse or a total meltdown but, under the temporary regime, that has not happened. On reflection, might it have been better to have had a fallback position in which the temporary regime was continued while the Government considered the evidence that serious people are raising about their concerns?
On practical issues, you say that, if the order does not go through, you will have to implement a ratings regime and so on immediately, and that there would be appeals and so on. However, BT says that, based on "practicality and past precedent", the appeals would be
"processed annually, or at most twice yearly."
Clearly, BT is not currently engaged in a hugely convoluted process by which it establishes rateable value and raises money. Is it not fair to say that you are not comparing reasonable alternatives, because nobody is in favour of the apocalypse? Quite frankly, there has been assertion rather than evidence about the consequences of moving to a different regime. If you had decided to continue with the temporary regime, you might have been able to explore the issues further.
While we have had a temporary regime in Scotland, there has also been a temporary regime in England, so the playing field has been a level—if temporary—one. England has now opted for an indefinite approach, which creates certainty for operators in England.
Johann Lamont made a point about BT not having a convoluted process. In a sense, that makes my point. BT is the owner of the wires. It is involved in the process already. I am trying to avoid getting 14 assessors involved in the process, because they do not really need to be involved in it. I accept that administrative efficiency is a question of judgment. The point that I would make on the Government's behalf is that we quite simply do not have the information from BT to say what the degree of complexity would be. I accept that for that reason we cannot evidence firmly either the apocalyptic scenario or the administrative efficiency scenario. The argument that I am trying to marshal is that, given the volume of possible contacts that are involved, on balance, we favour the status quo for reasons of administrative efficiency.
There are two issues. First, it is convenient to get someone else to do things for you when they already have the information, but that is not necessarily to say that they should do those things. Perhaps if you had given yourself space, you could have explored the position further. That might have been reasonable, given BT's concerns.
Secondly, the fundamental point that you seem to be making is that where a market operates across the United Kingdom, it is a risk for Scotland to take a different position. That argument would apply regardless of whether there was an independent Scotland; the regulatory framework in the rest of the UK would determine your position. The core argument is that it is too difficult to get involved and that BT has all the information already—although you could ask for the information—and, critically, if something is happening elsewhere, we cannot be different. That is an interesting place for you to put yourself. A market will apply across the UK, whether there is a devolved or independent Administration in Scotland.
I have a final wee point.
Please make it a wee point.
One of the assertions that BT makes is that the operators who are coming in are taking the attractive stuff. What is the Government's policy on encouraging, incentivising or rewarding those who are willing to go to the places that are less attractive? Are there any plans to use the tax regime to do that? It seems to me that you are saying no at the moment.
There are pragmatic arguments about convenience, which it should not be surprising that the Government takes forward. Why on earth should we volunteer to add cost burdens to the businesses of Scotland? Why should we add burdens to the costs of local authorities when we are part of the United Kingdom and have the opportunity to argue for this proposition? That is the type of pragmatism that I thought that people would welcome, rather than complain about.
The question is whether there is a value in adding complexity to a measure that, on the basis of all the evidence that I have seen, is working in a relatively straightforward fashion at this time.
I turn to the issue of the access of other operators to the process. Mr McLetchie made a point about a 351 per cent increase. However, we are still talking about numbers that are a reasonably small proportion of the total number of opportunities. There is plenty of opportunity for market growth for different providers.
My questions have been asked.
Can I ask my other questions now, convener?
You can, Kenny, but I thought that I might be entitled to ask a general question.
Indeed.
On the question of costs, cabinet secretary, you said in your evidence that there will be a debate between BT and Ofcom on the issue of BT recovering its costs in full. A particular question was raised at last week's meeting and by Johann Lamont earlier in this meeting. What will be the Scottish Government's involvement in the process? How will it assess the impact of the increase, given that there has not been one since 2005? What impact will the debate between BT and Ofcom have on Scottish business and consumers? I presume that BT will increase costs, as there has been no uplift since 2005. Am I wrong to expect that? If that is the case, what effect will it have on consumers and businesses?
Many years ago, when John Swinney and I were on the Enterprise and Lifelong Learning Committee, we considered e-business and e-commerce in Scotland, and the job opportunities that they presented for the remotest parts of Scotland, which can access jobs and work by those means. What is the Government's view on the possible effect of increased costs on that? Surely it is not neutral on that. Surely the Government cannot say that a decision about costs being passed on is not a decision for it but one for Ofcom and BT.
I will invite Zahid Deen to make a few remarks in a moment. However, on the overall position, Ofcom has a regulatory responsibility in the marketplace—that is why it was set up. It must assess whether pricing structures are reasonable and credible, and decide on parameters within which companies can operate. As I said in my opening evidence, BT currently charges £80 plus VAT, but it could charge £81.69 plus VAT. The ceiling already provides room for manoeuvre. Obviously, the Government wishes to do all that it can to minimise the costs and burdens on business, which is why we are reducing business rates for small companies and why we have done so much to help the competitiveness of the small business community in the Scottish marketplace. Obviously, we would argue that we do not want prices to increase to an extent that they become a burden on Scottish business, and we would make appropriate representations to Ofcom on that. Ultimately, though, Ofcom is a regulator that exercises independent functions. However, we will do all that we can to try to persuade it not to—
But have representations been made to Ofcom at this stage?
I think that we have made representations.
Have we?
Ofcom has not opened the consultation on that yet. However, I should put the issue in context. As has been pointed out, BT can negotiate an increase in the charge at the moment, but it has chosen not to do that. If the charge goes up, it will go up marginally and will be spread over 12 months—the monthly increase will be a matter of pence. However, there would be a big impact on costs if there was an impact on local loop unbundling investment. For example, the Carphone Warehouse offers broadband packages that are £12 to £15 cheaper than BT's packages, which means a saving of about £150 a year for consumers. The Carphone Warehouse is in Greenock, Gourock and Pollok in Glasgow just now. If it pulled that investment, that would mean that consumers in those exchanges would lose the £150 a year advantage that they gain from the Carphone Warehouse. That is the kind of impact on costs that exists. The unbundling charge that BT negotiates with Ofcom is trivial in the wider scheme of things. In addition, I must point out that BT is a huge and great organisation that has revenue of £27 billion a year and makes a £2.7 billion annual profit. BT negotiates with Ofcom on a daily basis. The idea that BT, with its huge lobbying power and huge resource, cannot negotiate the charge with Ofcom, an independent regulator, is nonsensical.
I have one further question. Is the £81.69 being levied across the UK?
Yes.
The increase will impact across the UK rather than being concentrated in Scotland, so Scotland will benefit from that.
Well, we are where we are, convener.
It seems a good deal.
Provided, of course, that the committee is minded to support the order. In other circumstances, there would be a formidably different position.
There is one more question, which is from Bob Doris, who has not had an opportunity to speak.
I have been able to ask only one question; everyone else has asked loads.
Bob Doris has not been able to ask one at all; I do not want to cause a fight between colleagues.
David McLetchie asked about seven questions but I got to ask only one and have a couple more that I want to ask.
My question is an extension of the points that have been raised. It appears to me that, ironically, BT does not want the temporary arrangements to continue; its ultimate goal is for them to end altogether and for an entirely different rating system to underpin the network. It must want that for one of two reasons. The first would be that it was not recovering the full cost. If BT is charging £80 plus VAT but is able to charge £81.69 plus VAT, it must be recovering the full costs; why would a private company not maximise its income for full cost recovery?
Is there a second reason why BT would oppose stability in the market? I can only imagine that, if BT was to change the system, it might put other companies at a structural disadvantage. As Mr Deen said, the other companies are competitive at the moment; to put them at a structural disadvantage would make them uncompetitive and it is only natural that BT would like to be the dominant player. If the system was to change in the way that BT would like, would that give it a structural advantage within the marketplace?
I do not know whether that is a question for the cabinet secretary, but I will allow him to attempt to answer it.
I simply reiterate the point about full cost recovery. The strong view that Ofcom has expressed is that the arrangements provide for BT to recover the full costs. That approach is well evidenced by the information that we have seen so far. There is a discussion between BT and Ofcom about the pricing mechanism. As Mr Deen highlighted, it is tied up with a range of other factors, but the point on full cost recovery appears to me to be pretty strong.
Everyone has had their opportunity to ask a question or questions. I am trying to get to the point at which we will ask Mr Tolson to move the motion to annul but, if Kenneth Gibson has a question that has not been asked, I will allow him to ask it. After that, I will give Jim Tolson the opportunity to ask one last question. I will then ask for the committee's co-operation in moving to the debate on the motion.
Thank you, convener. I want to get to the crux of the matter: the impact on the consumer and, indeed, the Scottish taxpayer. My understanding is that, if the arrangements do not continue indefinitely, the pricing structure for BT will remain throughout the UK, so there will be no benefit to consumers but we will still have to pay the £9 million set-up costs and the £1 million a year running costs; there will be chaos among assessors and a disincentive to invest in Scotland. I realise that, pragmatically, the Scottish Government accepts that the system will work best at a UK level. Some issues have been raised on independence with regard to that, but I am sure that the cabinet secretary agrees that it is a small price to pay to ensure that we do not have to send our troops to Iraq or accept Trident and to ensure that we get control of Scottish oil.
That was obviously a question that had to be asked. It is a question that has never been asked before and it was certainly not worth waiting on, but you can make an attempt to answer it if you want to, cabinet secretary.
I have always loved the dispassionate way in which you assess Mr Gibson's questions, convener.
I hope that the committee will take my answer in the spirit in which it is meant. I was never motivated to support independence by local loop unbundling, which was never high on my list of concerns. However, a pragmatic approach will allow the business community and individuals in Scotland to have access to services, and the Government is right to pursue it.
With the co-operation of the committee, the next question will be the last. I see nods of agreement, although I am ignoring Kenny Gibson. We need to proceed, but first I invite Jim Tolson to ask any further questions that he wishes to ask.
Thank you, convener. Cabinet secretary, you have mentioned full cost recovery a number of times. We discussed several points last week and the issue of full cost recovery is crucial. It is fair that businesses that profit from a system are charged the rates accordingly, but we heard last week that many businesses that profit from local loop unbundling are not paying the rates. That seems extremely unfair; the rates are being charged to BT. Is that more convenient? Yes. Is it fair? It did not seem so.
The committee needs a detailed explanation of the chain of events for the payment of rates from local loop unbundling. Who pays and when? How is BT able to recover the money that you and Ofcom claim it can in full? That is the crux of the matter for the committee today.
My officials will correct me if I get this wrong. As I understand the collection mechanism, BT pays a business rate over its entire network. A negotiation or discussion takes place between the Valuation Office Agency and the Scottish Assessors Association over the distribution in the constituent parts of the United Kingdom. A utility approach has driven the mechanism; particular assessors in Scotland deal with one utility, which is not an uncommon arrangement. The negotiation takes place and then the income becomes part of the non-domestic rates income of Scotland and is distributed to local authorities.
I cannot do an audit trail of all the financial data within BT because much of the information is private and I have no access to it. I rely on Ofcom for information on full cost recovery. However, if there has not been full cost recovery, why is BT not charging to the ceiling? I know that the difference is only £1.69 but, as Mr Deen said about charging issues, the margins are measured in pence. So, a lot of pence are involved—169 of them, to reassure the committee about my remaining arithmetic skills. There is therefore some room for manoeuvre if full cost recovery is not being delivered, but I am advised that BT has not used that room for manoeuvre.
The advice of Ofcom, combined with the fact that BT has not raised its charge to £81.69, suggests that the balance of evidence is that full cost recovery has been delivered.
Thank you to all who participated in our question session.
We now move to item 2. I invite Jim Tolson to move, or not, motion S3M-1726, and to speak to the motion.
This has been another long evidence session, and I appreciate the cabinet secretary coming along to clarify many points that committee members raised last week. A major concern of mine was apparent unfairness in the charging of business rates. On balance—to use a word that the cabinet secretary used—I am now convinced that BT is not disadvantaged, because it will be able to recover its rates fully now and in future. I therefore do not intend to move motion S3M-1726.
Thank you—and I thank the cabinet secretary and the other witnesses who have given us their time this morning.
I will suspend the meeting for a minute, hoping that nobody will run off too far.
Meeting suspended.
On resuming—