Telecommunications Infrastructure (Relief from Non-Domestic Rates) Bill

Marcus Jones Excerpts

3rd reading: House of Commons & Committee: 1st sitting: House of Commons & Report stage: House of Commons
Tuesday 5th September 2017 Commons Chamber

[The Second Deputy Chairman of Ways and Means (Dame Rosie Winterton)]

With this it will be convenient to discuss the following:

Clauses 2 to 4 stand part.

That the schedule be the schedule to the Bill.

Clauses 5 and 6 stand part.

New clause 1—Report on operation of the relief—

“(1) The Secretary of State shall, by 30 September 2018, lay a report before Parliament containing an assessment of the operation of the relief in the 2017-18 financial year.

(2) The report shall include an account of—

(a) the impact upon the level of local authority income raised through non-domestic rating,

(b) the level of investment likely to have been stimulated by the proposed relief, and the scope for extending the relief to other forms of investment,

(c) whether the duration of the relief is appropriate,

(d) the views of those subject to charge of non-domestic rates on the relief, and

(e) the efficacy of the existing mechanism for distribution of relief.”

[The Parliamentary Under-Secretary of State for Communities and Local Government (Mr Marcus Jones)]

The Government are committed to supporting full-fibre telecommunication infrastructure and the roll-out of 5G. This will deliver a step change in the speed, service quality and reliability of broadband and mobile services. Independent research suggests that increased broadband speed alone could add £17 billion to UK output by 2024, so this is a vital measure for the whole economy. The Bill will provide the powers we need to implement an important part of that strategy.

At the 2016 autumn statement, the Government announced 100% rate relief for new full-fibre infrastructure in England. The clauses in the Bill will allow us to deliver that relief with retrospective effect to 1 April 2017. We have already published draft regulations that illustrate how we will use these powers to implement the relief. The draft regulations have been prepared in consultation with telecoms experts in the Government, Ofcom and telecoms providers. Business rates and telecoms are technical fields so there is considerable scope for complexity where they meet. However, I am glad to say that through our work with the sector, we believe that we have found a clear approach to allow the valuation officer to identify, capture and quantify new fibre.

[Mr Edward Vaizey (Wantage) (Con)]

I refer the Committee to my entry in the Register of Members’ Financial Interests. Is my hon. Friend aware of some concerns in the telecoms sector that the tax relief could be gamed? People could switch off lit fibre and light dark fibre in order to take advantage of the tax relief. Some have suggested that a better way of implementing may be simply to limit the quantum of business rates paid by telecoms companies. Will my hon. Friend comment on those concerns, which I have heard from a number of providers?

[Mr Jones]

I understand the concerns raised by my right hon. Friend, and I have great respect for his considerable knowledge of the matter. I reassure him and the various bodies that hold concerns that the relief is not a measure to support the relighting of fibre that has been turned off. Indeed, it is to support the laying of new fibre in the ground. This technical matter is laid out in the draft regulations and explained in the accompanying consultation document published by my Department last week. Consultation will ensure that the proposal reaches the right audience in the telecoms sector. With business rates experts, we will ensure that the relief will work as planned. The consultation will also allow us to move quickly to implement the relief once the Bill has passed and ensure that support is available for new fibre.

[Kit Malthouse (North West Hampshire) (Con)]

Even if this were a relief that applied to currently dark fibre that is lit, or to fibre that was lit, is unlit and is then lit again, if the premise of the scheme holds true, this is an investment. The idea is that this is meant to spur more economic activity. Therefore, more tax will be gained from corporation tax, pay-as-you-earn and other forms of business rates because people will have premises that become available for use and that are then much more commercial. Rents will rise, values will rise and all the rest of it. The Government do not need to be too chary about where the relief goes, because if the relief is seen as an investment, not just some kind of freebie for the industry, it will benefit everyone, including the Government.

[Mr Jones]

My hon. Friend is right that this is an investment in the infrastructure of the country. Indeed, it is a relief that is time-limited for five years. After that five-year period, that fibre will attract its own income into the business rates pool, whether on the local list or on the central list.

[Mr Vaizey]

I hope the Minister will forgive me for interrupting his eloquent speech, but I was spurred into action by my hon. Friend the Member for North West Hampshire (Kit Malthouse), who is a newly elected member of the Treasury Committee—I congratulate him—and who displays the forensic skill we will see in many hearings in months to come. It behoves me to clarify that it is possible under the current regulations for a telecoms provider simply to lay new fibre in existing ducts, turn it on and take advantage of the tax relief, even though there is already fibre in those ducts. That would be seen as gaming the system—taking advantage of the tax reliefs without building the new infrastructure my hon. Friend the Member for North West Hampshire has campaigned for so vigorously. That is simply the warning light that I put up, and it may be that my hon. Friend will drive future Treasury Committee hearings towards that subject.

[Mr Jones]

By definition, full fibre is fibre that goes all the way from an exchange to the particular business or residential property that it individually serves. Therefore, by definition, even if an existing set of ducting was used, the new fibre would be an expansion of the network, because it would serve a different property from the current fibre. I therefore hope that my right hon. Friend is reassured.

[Sir Oliver Heald (North East Hertfordshire) (Con)]

As my hon. Friend will know, there are homes and businesses in the rural parts of North East Hertfordshire that are more than 1,000 metres from the nearest cabinet, so providing fibre straight to the door is the best solution. Will the proposed change mean that more work can be done on that more quickly?

[Mr Jones]

My right hon. and learned Friend hits the nail on the head. The whole design of this legislation and this tax relief is intended to encourage providers—not just the large ones, but the smaller ones, which these proposals are very good for—to bring that new, direct fibre cable to homes and businesses.

[Kit Malthouse]

Will the Minister give way?

[Mr Jones]

I will just make some progress first, if I may.

The Bill contains six clauses. Clauses 1 to 3 provide the powers for the relief, and clauses 4 to 6 cover consequential and financial matters. Business rates are payable on three classes of properties: first, occupied properties shown on the local rating lists held by local authorities; secondly, unoccupied properties shown on local rating lists; and, thirdly, properties on the central list, which is held by my Department.

The main business rates legislation in the Local Government Finance Act 1988 contains separate provisions for charging rates on those three classes. Clauses 1 to 3 provide powers to allow relief in those three classes. Clause 1 allows for relief for occupied hereditaments shown on local ratings lists. Clause 2 allows for relief for unoccupied hereditaments shown on local ratings lists. Clause 3 allows for relief for hereditaments on the central list.

Clauses 1 to 3 have similar structures and serve the same purpose. First, the powers in the clauses will allow the Secretary of State to set conditions as to when the relief will apply. This is not a wide-ranging power covering all properties. The power can be used only for telecommunication hereditaments. Through these powers we will target the relief on operators of telecoms networks who deploy new fibre on their networks. That will incentivise and reward those operators who invest in the fibre network.

[Edward Argar (Charnwood) (Con)]

In that context, could the Minister clarify something for me? The Bill says the relief will apply to hereditaments used “wholly or mainly” for the purpose of telecommunications. Is a standardised definition of “mainly” extant in legislation, or could he enlarge on what it would be defined as?

[Mr Jones]

I think it would be best for me to reassure my hon. Friend that the sole purpose of this legislation is to cover telecommunication hereditaments. As he has heard, the aim is for the Government to provide a targeted, five-year rate relief to incentivise the laying of new fibre cable, which will hopefully serve and support his constituents in Leicestershire.

[Julian Knight (Solihull) (Con)]

I thank the Minister for giving way—he is being most generous in allowing interventions. In 2015 and last year, Solihull enjoyed a higher growth rate than China, but it is still one of the poorest areas for broadband provision, particularly business provision. The Minister can imagine what more could be achieved if we had better broadband, so the Bill is very welcome, as is the £60 million in targeted tax relief. Does he agree that the relief will not only boost Solihull’s economy but key in to the midlands engine, which is absolutely at the heart of UK growth and productivity?

[Mr Jones]

My hon. Friend is a keen advocate and supporter of the businesses of Solihull. My understanding is that, by the end of the current roll-out period, 91% of properties will have been reached by superfast broadband. However, the Bill will incentivise providers to roll out more direct fibre services to all parts of the country. Hopefully, businesses and individuals in Solihull will also benefit from the provisions in the Bill.

Through these powers, we will target the relief on operators of telecoms networks who deploy—I have reiterated this point a number of times for the sake of clarity—new fibre on their networks. The proposals will incentivise and reward operators who invest in the fibre network.

These concepts have not been defined before for business rates. The powers in the clauses will therefore allow us to develop definitions with experts in the telecoms and business rates sectors. By taking this approach, we can ensure that we accurately capture in the relief only those parts of the telecoms network that comprise new fibre, which has been a significant concern of right hon. and hon. Members.

[Richard Graham (Gloucester) (Con)]

The Minister knows that I am as keen as he is to make sure that all the blackspots in our urban constituencies are broadband-enabled as soon as possible. For some time, my concern has been that if new developments do not get fibre connections, there will be a continuing gap, and that every time Ministers stand up and say they will get 95% or 100% coverage, there will be new places without coverage. I am pleased that the Minister’s colleague, the Under-Secretary of State for Digital, Culture, Media and Sport, my hon. Friend the Member for Salisbury (John Glen), wrote to me saying that Openreach will “provide FTTP”—fibre to the premises—

“to all new developments with more than 30 plots for free.”

That is great news, and it means that Ministers do not have to consider the option I was recommending of enabling local councils to make it mandatory for new developments to have fibre connections. However, will the Minister say something about developments with under 30 houses, because part of the regeneration of all cities is getting small plots redeveloped with housing, and that may involve developments of fewer than 30 homes?

[Mr Jones]

I thank my hon. Friend for that comment. He is absolutely right that it is extremely important that new housing developments serve well the people who purchase the properties in relation to superfast broadband. He is right that it is a requirement for developments of under 30 dwellings to have a broadband connection and for developments of over 30 properties to have a superfast broadband connection. In bringing forward those requirements, which started this January, the Government had to make a very challenging decision in getting the balance right between making sure that people are properly served with the latest technology and that we build the homes required to deal with the housing shortage in our country.

[Mr Vaizey]

I am very grateful to hear my hon. Friend talk about these issues. In my constituency, the developer Linden Homes built a housing development with houses selling for hundreds of thousands of pounds, and for the mere price of £6,000 to deliver broadband, refused to stump up that money. It is this kind of behaviour by developers that brings them into disrepute. I congratulate the Government on making great progress, because no new home should be built without superfast broadband.

[Mr Jones]

My right hon. Friend is quite right. Developers who are not necessarily compelled to provide superfast broadband should think to themselves how the installation of superfast broadband could become a selling point for the property. The provision of superfast broadband is becoming more and more important, particularly as more and more people work from home.

[Kit Malthouse]

I acknowledge that the Government made huge progress in changing the building regulations so that this becomes mandatory for developments of over 30 houses. However, does it not strike the Minister as peculiar, in this century, that building regulations require the provision of electricity, water and drainage to every house, no matter the size of the development, but not, now, this vital piece of infrastructure that is becoming mandatory for modern living?

[Mr Jones]

Even in developments of under 30, developers are required to provide a broadband connection for the people who are going to be occupying those properties. It is the developments of over 30 that require fibre broadband to be connected. While my hon. Friend does not seem happy with the premise on which that is based, the rationale behind it is based on the viability of new developments. Quite often, the smaller developments are more difficult for developers to find viable. Therefore, rather than prevent those developments from taking place by overburdening developers with regulations, a balance was struck.

[Amanda Milling (Cannock Chase) (Con)]

Since speaking on Second Reading about connectivity to new homes, another case arrived in my inbox last week. I cannot go through it in an intervention, but needless to say it involves BT Openreach and the developer, with lots of emails to and from the constituent. I am sure that I will be writing to my right hon. Friend the Minister for Digital about it over the next few weeks.

[Mr Jones]

I am sure that my right hon. Friend the Minister will be very happy to talk to my hon. Friend about this issue.

As I have said, through our work with the sector and the Valuation Office Agency, we believe that we have found a clear way to capture the concept of new fibre. We have set this out in our draft regulations and the consultation document that we published last week. However, this is a technical and fast-moving sector, so we will keep the operation of the relief under review to ensure that it is working as planned and that the regulations keep pace with the continuing technical advances and changes in the industry. Accordingly, it will remain important that we have the powers available to amend the operation of the relief scheme over time. The powers in the clauses will also allow the Secretary of State to determine the level of relief to be awarded. As I have said, the Government intend to allow telecoms operators 100% relief, but only for new fibre. That new fibre will of course form part of existing telecom networks with existing ratings assessments.

Through the operation of this scheme, we intend to ensure that the relief is awarded only in respect of new fibre and not existing fibre. To achieve this, the powers in the clauses will allow us to set, by a formula contained in regulations, the correct level of relief for each property, reflecting the amount of their network that qualifies for the relief. This will be based on a certificate of the amount of rateable value that it appears to the valuation officer is attributable to the new fibre. The consultation document we published last week explains how, when taken together, the formula in the Bill and the formula in the draft regulations will deliver the correct relief for a property.

As I have said, these provisions are mirrored in the first three clauses of the Bill. Sometimes the letters in the formula differ, but that is merely to conform to existing lettering in the sections into which the formula will be introduced. Hon. Members will have noticed that clause 1 includes a table referring to different subsections. In theory, there will be instances where a property could be eligible for the new fibre relief but also for another such as charitable relief, although we believe this to be extremely unlikely. However, for completeness, the table in clause 1 makes it clear which relief should apply. No such conflict can arise for unoccupied properties or properties on the central list, so the table appears only in clause 1. The rules we have adopted here are consistent with the existing hierarchy of reliefs in the business rates system. Charity relief will apply above all others, and then reliefs such as small business rate relief. The relief for new fibre will apply only where no other relief applies.

Clause 4 gives effect to the schedule to the Bill. As I have described, the Bill makes a number of amendments to different sections of the Local Government Finance Act 1988. Most of the amendments in the schedule are to that Act, and are necessary merely to ensure that those provisions continue to make sense and operate as intended. We are also in the schedule making consequential changes to the Business Rate Supplements Act 2009. Ratepayers entitled to mandatory reliefs in the main business rates system are also entitled to the same relief against the business rate supplement currently applied to larger properties in London. The Bill ensures that that continues to apply for the new fibre relief through these consequential amendments.

Clause 4 also includes the normal power to make regulations for other consequential provisions. We intend to use these powers to make consequential changes to the regulations that govern the transitional relief scheme. This will ensure that the relief is also available for those ratepayers who are either receiving transitional relief or whose reductions from the revaluation are being capped to fund the transitional relief.

Clause 5 provides the normal authority from Parliament that is necessary when making provisions that create a charge on public funds.

Clause 6 provides that the Bill applies to England and Wales. Business rates policy is devolved, so it will be for the Welsh Government to consider whether to introduce a similar relief. The Welsh Assembly Government have asked for the powers in this Bill to apply to Wales, although it will of course be a matter for Welsh Ministers to exercise those powers in relation to Wales. In Scotland and Northern Ireland, business rates legislation is made in their own Parliaments, so again it will be a matter for them whether to proceed with this measure. However, under the Barnett formula, Wales, Scotland and Northern Ireland will receive their share of the funding of the relief. As we have discussed, the relief for new fibre will apply from 1 April 2017, so clause 6 also provides that the amendments and powers in the Bill can take effect retrospectively for the financial year commencing 1 April 2017.

[Jim McMahon (Oldham West and Royton) (Lab/Co-op)]

We have just had a run-through of what the Bill contains, and by and large we welcome it. It is one of the remnants of the Local Government Finance Bill, which fell when the general election was called, and which contained things that industry and local government leaders wanted to see introduced. This could well be the first of several proposals, and I would welcome a conversation about that.

--- Later in debate ---

It is important that the big players—Virgin Media and BT Openreach—understand that the Government have not just written a cheque for £60 million, which they are happy to write off if the scheme does not work. It is a deal, and the money is being made available because the Government are determined to see broadband rolled out. There is an expectation that it will be rolled out, and if it is not, the Government should have the facility—the mechanism—to change the scheme if it is being abused. By adopting this new clause the Government would send a message to the big providers that the Government are watching to make sure that they deliver what is required, and that there will be a review in 12 months so that if the relief is not working the Government can change the legislation. I would welcome the Minister’s views on our new clause.

[Mr Marcus Jones]

Before I talk about the new clause, I would like to make a few observations about the hon. Gentleman’s opening comments. He mentioned the Local Government Finance Bill, which eventually fell when the general election was called. I spent many happy hours with him in that Bill’s Committee, where we debated the merits of allowing local areas to keep more of the taxes they raise locally. I reassure him that, as per our manifesto in the last general election, we are still absolutely committed to allowing local areas to keep more of the taxes that they raise locally. I expect that we will work over the coming months with the local government sector to discuss how we can take that aim forward.

On the point that the hon. Gentleman made about operators gaming the system by, for example, purporting to lay new fibre cable but simply relighting existing fibre cable that is already in the ground, I reiterate that the relief is all about the physical laying of new fibre in the ground. We believe that the definitions in the regulations provide a clear way of capturing what constitutes new fibre, so we consider that we will not be providing business rate relief when new fibre is not being installed and people are merely relighting existing fibre that is already in the ground.

I am grateful to the Opposition for tabling the new clause and giving us the opportunity to discuss at greater length the operation of the relief. Although, as I will explain, we cannot agree to the new clause, I hope that I can provide some detail and assurances on the operation of the relief. It is important to recognise that investment in fibre is a long-term commitment. To support and incentivise that commitment, the relief for new fibre will apply for a five-year period between 1 April 2017 and 31 March 2022. That was the commitment given by the Chancellor in the autumn statement of 2016, and that commitment will be met through the Bill and the draft regulations that we published last week. This is part of a wider package of measures worth £1.1 billion that we announced at the autumn statement to support the market development of digital networks underpinned by full fibre, to ensure that we have the world-class digital infrastructure that we need. This includes £200 million to support local bodies in the roll-out of full fibre networks in their area, and in July 2017 we launched a £400 million investment fund providing finance for network providers to match their fibre investments. Alongside the legislative changes we brought forward in the Digital Economy Act 2017, such as changes to the system that governs access to land and the powers for universal broadband, we are therefore creating the right environment for investment. This measure is a crucial part of that: it is crucial that we provide the necessary support and the environment to allow this investment to happen, and that is what the Bill will do.

Although I am not unsympathetic to the hon. Gentleman’s new clause, I do not think it would support the overall measure to require the Government, as the new clause would do, to review the operation of the relief only one year into the five-year period. This would create significant uncertainty in the sector about the future of the relief, especially as the new clause specifically questions whether a five-year scheme is appropriate. That could in itself damage the success of the scheme and jeopardise the returns we expect for both businesses and households.

As I have said, we cannot agree to the new clause. However, the Government do of course keep all taxes and reliefs under review, and that will include the tax relief for new fibre. We will continue to track the operation of the scheme, and where we believe it can be improved, we will take action. The Bill will allow us to do that. It will also allow the Chancellor in the lead-up to the conclusion of the scheme in 2022 to consider its success and whether it should be reviewed or repeated for future years.

The Bill allows for future relief schemes within the boundaries of telecommunication infrastructure, and for different levels of relief and different technologies within those boundaries, but, as with all taxes, that is a matter for the Chancellor of the Exchequer as part of the Budget process. However, I can give some details of where we will meet some of the aspects of the new clause from existing legislation and practice.

Under the existing local government finance system, local authorities are required to submit to my Department non-domestic rating returns containing information about the business rates income and relief in their area. These are provided before the start of the year as estimates, and after the end of the year as final out-turns. This information is published in full on my Department’s website. I can assure the House that these returns will be amended to include separate information about the level of new fibre relief, so this information will be available for each local authority in England. We expect the first returns to include this information to be the out-turn data for 2017-18, which are expected to be published in the autumn of 2018.

At earlier stages in the progress of the Bill, I gave the House the assurance that we will compensate local government for the cost of its share of the relief. We restated that commitment in the consultation document that we published last week, and I give the same assurance again today. The relief that will be awarded on the central rating list held by my Department is not included in the published return provided by local government, but I can confirm that we will also publish the value of the new fibre relief in respect of the central rating list.

I also assure the House that we take very seriously the challenge of developing a suitable mechanism to deliver relief to new fibre, and that we are listening to the views of the sector. We have been working with Ofcom, the valuation office and the sector to ensure we have the correct mechanism. Last week, we published a consultation document, as I have said, and draft regulations illustrating how this will work. We will have further dialogue with those stakeholders, collect views as part of the consultation and publish a summary of responses to that exercise. In view of the assurances I have given, I hope that the hon. Gentleman will not press his new clause.

Question put and agreed to.

Clause 1 accordingly ordered to stand part of the Bill.

Clauses 2 to 4 ordered to stand part of the Bill.

Schedule agreed to.

Clauses 5 to 6 ordered to stand part of the Bill.

The Deputy Speaker resumed the Chair.

Bill reported, without amendment.

[Madam Deputy Speaker (Mrs Eleanor Laing)]

As indicated on the Order Paper, Mr Speaker has certified that clauses 1, 2 and 5 relate exclusively to England and Wales, and are within devolved legislative competence. As the Bill has not been amended in Committee, there is no change to that certification.

Under Standing Order No. 83M, a consent motion is required for the Bill to proceed. I shall now suspend the House for about two minutes while the Government table the appropriate consent motion, copies of which will be available shortly in the Vote Office and will be distributed by Doorkeepers.