HL Deb 26 July 1976 vol 373 cc1133-9

7.33 p.m.

Baroness STEDMAN rose to move, That the draft Compulsory Acquisition by Public Authorities (Compensation) Order 1976, laid before the House on 15th July, be approved. The noble Baroness said: My Lords, speaking on behalf of my noble friend Lady Birk in moving for the approval of the draft Compulsory Acquisition by Public Authorities (Compensation) Order 1976, I think your Lordships will find it helpful if I explained a little of the background to it before dealing with its content.

Your Lordships will recall that under the community land scheme a stage will be reached when it will become the duty of all land scheme authorities to acquire all land needed for all relevant development. It will then be possible to introduce the final stage of the scheme, the second appointed day, brought in by order under the Community Land Act. As from the second appointed day, the basis of compensation for a land transaction will be current use value—broadly the value of the land in its existing use, taking no account of any increase in value conferred by the grant or hope of a fresh planning permission.

But in the interim period until that stage is reached, compensation will be assessed in accordance with the rules laid down in the Land Compensation Act 1961 (or, in Scotland, the Land Compensation (Scotland) Act 1963), under which compensation is essentially market value. The arrangements for securing the development value of land for the community will lie in the Development Land Tax Act, which received Royal Assent on 22nd July and which comes into operation on 1st August. Under the Development Land Tax Act, Community Land Act authorities, certain other local authorities and some other public bodies which are both exempt from development land tax and which possess compulsory purchase powers in relation to the land being acquired, will deduct from the consideration or compensation on an acquisition from a private owner an amount on account of any development land tax for which the private owner may be liable on the disposal. In short, in this interim period, certain public authorities will buy land net of development land tax.

I should like to make one further background point perfectly clear. The order is concerned entirely with transactions between certain public bodies. It does not affect private transactions or transactions between the public and private sectors, for which the arrangements for the application of development land tax to the market value basis of compensation, which I have just described, will apply.

Turning now to the intention and contents, the order has been laid under the powers contained in Section 26 of the Community Land Act and requires the approval of both Houses if Parliament. The purpose of Section 26 is to apply the principle of the net-of-tax system to land transactions between the bodies specified in that section, that is to say where land belonging to a local or new town authority, the Land Authority for Wales, the Peak Park Joint Planning Board, the Lake District Special Planning Board or any joint board which may be established under Section 2 of the Community Land Act, is acquired by one of those bodies or by a Minister. The draft order also proposes, in Article 3, to add certain other bodies to that list. I will deal with those in a moment.

Your Lordships will realise that an arrangement of this kind is necessary simply because when one authority empowered to buy net of development land tax is buying land with development value from another such authority (which, by definition, is exempt from paying the tax), the problem arises of which authority is to have the tax benefit. They cannot both have it, and a choice has to be made. The choice proposed in the order is that the benefit should go to the acquiring authority. The proposal is founded on the principle that, in the same way as if the land were in private ownership, the benefit of being able to acquire land net of development land tax should go to the public body which is to develop the land or bring it into development. The selling authority will retain part of any increase in value which may have been due to their own activities, but on the other hand there will be little or no difference for the acquiring authority between buying from another authority or the private sector. For example, where a district council is buying from a county council land which the district council need for council houses, the price assessed under the land compensation rules would be the open market value of the land as a housing site. Under the rules as modified by the order, the price will be reduced by approximately the amount of development land tax which would have been due if the land had been in private ownership. The actual cost would be somewhere between current use value and market value depending upon the factors which have to be taken into account in an actual development land tax calculation, such as the original cost of acquisition by the county council and any expenditure on improvements.

If I may now deal with the technicalities, it was explained at the Committee stage of the Community Land Act that the financial basis for transactions between local authorities is the Land Compensation Act 1961 or the Scottish Act of 1963. Although the 1961 Act governs compensation for compulsory purchase—and compulsory purchase between public authorities is almost unheard of—the practice is to apply the rules to acquisition by agreement; and it is in this context that the provisions of the order will be most relevant.]

It was, of course, impossible to provide in the Community Land Act, since it preceded the Development Land Tax Act, for a net of development land tax formula to apply to these transactions. Hence the Act made provision in Section 26 with the intention of enabling what one might call a "net of notional tax" basis to be applied by order. Article 4(2) of the order achieves the desired "net of notional tax" result, by modifying the compensation rules to provide that the compensation shall be assessed as the difference between the normal open market value and the amount of development land tax which would have been deductible if the land were being acquired from a person liable to the tax.

Since no actual tax liability is involved certain assumptions, set out in paragraph (b) of the modified rule (2), have to be made: first, that the selling body was not totally exempt from development land tax; secondly, that the time of the disposal is the date at which the compensation is to be assessed; thirdly, that the consideration (from which the calculated amount of "notional" tax falls to be deducted) was the open market value; fourthly, that the selling body's cost of acquisition—for the purpose of calculating notional tax—did not include any tax deducted by that body when it acquired the land. Without that assumption the benefit of the reduced price system would not be passed on to the acquiring body as intended; and, fifthly, that no development value had previously been realised by the vendor body (so that in every case no notional tax deduction is made in respect of the first £10,000 of realised development value, 66⅔ per cent. of the next £15,000 is deducted, and 80 per cent. is deducted from any amount in excess of £160,000).

Article 4(3) has the effect that the modified basis—the "net of notional tax" basis—does not apply where the land being transferred was acquired by the selling body before 1st August 1976, the date from which the development land tax operates. The reason for this is that, by and large, most land in the possession of land scheme authorities was acquired before the development land tax system was made known—let alone introduced—and these acquisitions were carried out without the benefit of the net of tax arrangements. It was therefore thought right that the proposals, now embodied in the order, should apply only when the vending authority acquired the land in the first place after the operative date of the Development Land Tax Act, 1st August.

If I may turn back now to Article 3, this specifies five additional bodies to whom the modified basis of compensation will apply. I have already explained the relationship of the order to the development land tax system, and if noble Lords have been studying the Development Land Tax Act they may have noticed that these five bodies are among those specified in Section 11(2) as being exempt from development land tax. But they are also authorities who may be authorised to purchase land compulsorily, and they will therefore deduct tax when acquiring land from a person liable to pay it. They are also bodies having functions and responsibilities which are broadly similar to those of the land scheme authorities themselves; namely, to develop land, or arrange for it to be brought into development, for the benefit of the community. The comparability of these bodies with local authorities has been recognised for Community Land Act purposes by including them in the Community Land (Outstanding Material Interests) Order 1976 which came into operation on 6th April. It is therefore appropriate to bring them within the circle of bodies to which the net of notional tax arrangements apply. My Lords, it is a complicated order, but I beg to move.

Moved, that the draft Compulsory Acquisition by Public Authorities (Compensation) Order 1976, laid before the House on 15th July, be approved.—(Baroness Stedman.)

7.45 p.m.

Lord SANDFORD

My Lords, it is indeed a complicated order, and the noble Baroness knows only too well how much we on this side dislike anything to do with the Community Land Act, which this is, and the development land tax, which goes with it; and I do not notice very much enthusiasm from her own Back Benches either. But after that little salvo, I have to admit that if we are to have these wretched provisions, those provided in this order are sensible and necessary. However, I wonder whether the noble Baroness could confirm that there is nothing in this order Which empowers the bodies specified in it to acquire land compulsorily under the Community Land Act. My understanding is that that is done under Section 18 of the main Act by order of the Secretary of State, and I like to think that all we are concerned about now is the code of conduct that will govern transactions between those main authorities, which are referred to in Section 18 of the main Act, and the further authorities specified in Section 26 and in this order.

Secondly, is this list of authorities exhaustive? It does not seem to me that it is. For example, there is an authority known as the Chichester Harbour Authority, which is exactly on all-fours with the Lee Valley Regional Park Authority, but which is not in the order. So what are the criteria by which this batch of five authorities, which I can see have need to deal in land, are selected, and, it seems to me, quite a lot of other authorities, of which the Chichester Harbour Authority is one, do not appear in this list?

7.47 p.m.

Baroness STEDMAN

My Lords, the answer to the noble Lord's first question is that his assumptions are right. This order is only for the purpose of assessing compensation. Secondly, the list is not necessarily exhaustive. As he said, there are other bodies which may be able to make out just as good a case as the ones we have included, and any others can be added by further orders if their case is made out. Any bodies that are added to the land scheme as bodies able to buy net of tax from these authorities have to satisfy two conditions: first, that they should themselves be exempt from development land tax on disposing of land in their ownership; and, secondly, that they should possess the compulsory purchase powers. Section 11 of the Development Land Tax Act lists all of the bodies which are not subject to development land tax. Subsection (1) lists the generalised bodies—the county and district councils and so on—and subsection (2) lists eight bodies by name. Five of these eight bodies possess compulsory purchase powers, and it is these five which we have now included in Article 3 of the order.