§ The MINISTER of HEALTH (Mr. Neville Chamberlain)
I beg to move, "That the Bill be now read a Second time."
This is a very short Bill, containing only one operative Clause-, but it is a Bill which is of very great importance to the inhabitants of London, and particularly to the tenants of the smaller houses, whose interests it is designed to safeguard and to preserve. Although it is only a short Bill, I am afraid 1 can hardly describe it as self-explanatory. I hope, however, in the course of the observations that I am going to make, to be able to make it clear to the House what it is that the Bill is designed to effect and the method by which it is proposed to carry out that design. I would preface my remarks by reminding the House that what I have to say applies to London only, because the methods of valuation in other parts of the country are somewhat different from those that obtain in the Metropolis. Probably hon. Members are aware that the- method of valuation in the Metropolis is governed by an Act of Parliament which was passed as long ago as 1869, and, among other things, that Act of 1869 provides that there shall be a fresh valuation every five years, and it is because the period for a. fresh valuation is now coming round that I have presented this Bill to the House.
There are two taxing authorities who are concerned in these valuations. There is the Inland Revenue Department, which is concerned for purposes of national taxation, and there are the rating authorities in the metropolis, who are concerned with local taxation, and the peculiarity of the situation is that both of them base their calculations upon the same valuation list in London, which is conclusive as regards what is called the gross value, both for Inland Revenue and for local rating purposes. The valuation to he made is prepared, in the first 135 instance, by the overseers, who submit their provisional valuation lists to the assessment committees. The assessment committee is in form the first judicial authority; that is to say, any ratepayer and the surveyor of taxes can challenge any item in the valuation list. It is only after having heard any objection that may be made that the assessment committees then fix the gross value in the valuation list, and, subject to appeal to a sessional court, that valuation list then becomes a valuation list which is conclusive as to the value of any particular property, both for local and national taxing purposes. I hope that, if I say anything which is rather elementary, those who are familiar with these matters will forgive me, because they are rather complicated and technical, and it is possible that there may be some who are not familiar with them. Let me, therefore, first tell the House what we mean by gross value. It is defined in the Act of 1869 as follows:The term 'grass value' means the annual rent which a tenant might reasonably be expected, taking one year with another, to pay for an hereditament, if the tenant undertook to pay all usual tenant's rates and taxes, and tithe commutation rent-charge, if any, and if the landlord undertook to hear the cost of the repairs and insurance, and the other expenses, if any, necessary to maintain the hereditament in a state to command that rent.That, then, is the gross value, which is first established by the assessment committees. Of course, that gross value is not an actual value upon which are levied either taxes or rates. Those taxes and rates are levied upon a net value, which is arrived at by deducting from the gross value certain allowances for repairs and maintenance, but whereas the gross value is common both to the national and the local taxation, when we come to the net value, there the two part company, and the allowances which are permitted for the repairs and maintenance follow two different Statutes. In the case of national taxation, they follow the Finance Act, and in this case it is the Finance Act of 1923, Section 28, which gives the various classes of allowances to be made. But in the case of the local taxation, to obtain the rateable value, that is, the net value upon which rates are levied, you have to turn to this same old Act of 1869, to which is appended a Schedule, which classifies the various 136 classes of property which have to be valued, and puts against each class the allowances which may be made for the purposes of finding the rateable value.
The last valuation took place in 1920, and at that time the permitted increases of rent which are allowed under the Rent Restrictions Acts had not come into force. Consequently, in assessing the value of houses that came under the Rent Restrictions Acts, the old valuation was followed, that is, the valuation for five years before that; in other words, the valuation of 1915. Therefore, no question of increased assessment in consequence of increased rents arose in 1920, but to-day the situation is different. The rents can be raised, for the most part, by 40 per cent. above the pre-War standard, and we have to consider what should be the increase in the assessment of the house in respect of which this increased rent is being charged and obtained. It is, of course, from the point of view of the Revenue, extremely important that full account should be taken of this increase in rent. It is important that landlords who are receiving this increased rent should not escape any part of their proper share of Income Tax, because, if they did, it would, obviously, be very unfair to other payers of Income-Tax, not only in the Metropolis, but, in other parts of the country where assessments have already been put up.
Therefore, it is to the interest of the surveyor of taxes to see that in the new assessments the full 40 per cent. is added where this increased rent has been obtained. Now see what is the effect of that upon the rateable value. If the deduction for repairs remains as it has always been up to now in accordance with the Act of 1869, then any increase in the, gross value means an equivalent increase in the net or rateable value, and since the landlord can pass on to the tenant any increase in rates, it follows that to increase the assessment without increasing the deduction for repairs would be to increase the outgoings of the tenants of those houses which now fall under the Rent Restrictions Acts. Therefore, there has naturally arisen a demand that some increased allowance for repairs and maintenance should be permitted before arriving at the rateable value. We have endeavoured in this Bill to meet. that demand. In the first part of the Schedule we have set forth the same scale of allowances for maintenance and repairs as 137 is now permitted under the Finance Act of 1923; that is to say, the first part of the Schedule assimilates the procedure, in the ease of rateable values, to what is already the case in respect of Income Tax. While that may be very fair and very reasonable in regard to a good number of the properties which are concerned, it does not altogether meet the case of those houses, and especially the smaller class of houses, which have now come under the Rent Restrictions Acts. What we have done, therefore, is to supplement that first scale of allowances—much more favourable, as it is, than the allowances given under the Act of 1869—by a further scale of allowances, which gives increased advantage to the tenant, and that is what is to be found in the Second Schedule to the Bill.
Having explained what are the objects of the Bill, I might, perhaps, come to the Clauses themselves. The first sub-section of Clause 1 simply substitutes, in respect to these classes of hereditaments, that is, the small houses, the Finance Act allowances for the scale which is provided in the Schedule of the Act of 1869. But seeing that that is not, in those particular cases, sufficient for our purpose, we have introduced in the proviso what is in effect an alternative. Where the first allowance is insufficient, a second allowance may be substituted for it, and the second part of the Sethedule comes into effect. This proviso is a fine example of Parliamentary draftsmanship, and, I think, will afford some gratifying mental exercise to those who like to try their minds upon it. It is certainly not very intelligible at the first perusal, and I dare say that some hon. Members may care to try their hand at expressing the same meaning more precisely when we come to the Committee stage. But I say that if you set your mind to this proviso, and once grasp the principle embodied in it, then I do not think you will have any further difficulty, and I may say, in confirmation of that, that the assessment authorities themselves have expressed the view, not only that it is perfectly clear to them, but that they think it will be quite easy to work in practice.
I am going to try to paraphrase what this proviso says, for the convenience of hon. Members who have not yet entirely mastered it. It is a long one. There are 153 words in it, without a full stop, and 138 there are perfect nests of parentheses. I would ask hon. Members to be good enough to bear in mind one or two points we have in view. First of all, we want to ensure that the Inland Revenue is going to get its pound of flesh, in other words, that there shall be no temptation to the assessment authority not to put up the assessment to the full 40 per cent. on account of any consideration of any injustice which might thereby be caused to the tenant, and, in the second place, we want to ensure that no injustice shall be caused to the tenants by protecting their interests and allowing the other scale. Therefore, in effect, what the proviso says to the assessment authorities is this: We have given you here a scale of allowances which is intended to enable you to put up the assessment by the full 40 per cent. Of course, if you choose not to put it up by 40 per cent., you can put it up by something less; but, if you do, you will be no better off, because then you will have to reduce your scale of deductions, so that the net result will be the same as if you took the full scale and the full assessment. I do not know if I have succeeded in making that clear to the House, but I think hon. Members will find that is a short summary of the rather complicated formula which they will find in the Bill.
I will next try to convey better to the minds of hon. Members how this will work in practice by giving one or two concrete instances of the effect. Let me take a house the gross value of which in the valuation before last was £15. Hon. Members will recollect that I explained that the valuation in 1920 practically followed the one in 1915, and, therefore, I take the 1915 valuation as corresponding to what we generally call pre-War value. Assuming that the assessment on that house is increased by the full 40 per cent., that will give you a gross value up to £21. In 1916, after using the scale of deductions then in force, the rateable value of that £15 house would have been £12. If, after increasing it by the full 40 per cent., we still maintained the old 1869 deductions, the rateable value, instead of £12, would now be £17. Under our scale, to be found in Part II of the Schedule of this Bill, it is brought back again to £12. In the case of a £30 house, the rateable value in 1916 would have been £24. If we left the 1916 scale 139 in force it would be £35, assuming the gross value to be put up 40 per cent., but under our scale we have brought it down to £26. Take another example—a house of the gross value of £60. The old rateable value would have been £50. If we had taken the 1869 Act it would have been £70, but under the new Schedule it is brought down to £58. In the case of a £100 house, the old rateable value would have been £84. If the 1869 scale were left in force, it would be £117, but under our scale it comes down to £102.
I think there are two considerations that may, possibly, occur to hon. Members after hearing those figures. The first one is that the allowance becomes less favourable as you go up in the scale of values. That is to say, the lowest class of house gets the greatest advantage. The second consideration is that in the highest scale, although the allowances now are much more favourable than they would have been if the 1869 Act had been left where it was, nevertheless they do still show some increase over 1916. I would say, in comment upon that, that one must bear in mind the probability that the rateable value of the whole district will be increased by this new valuation. We are not dealing only with houses, but we are dealing with buildings other than houses, and, on the whole, therefore, I think one may fairly contemplate the probability that there will be some increase in the rateable value; but, if that be so, unless the expenditure increases, there must be a diminution in the poundage, and, therefore, even if the rateable value of a particular property be increased, it does not follow that the actual rates to be paid in respect of that property will also increase. They may—and I am quite sure in some cases they will—be actually less than they were before.
The second paragraph in the proviso deals with three special cases. There is the case of the new house; 8.0 P.M. there is the case of the house which has been so reconstructed that it has practically become a new house; and there is, finally, the house which is not under the Rent Restrictions Acts at all, and is out of control, and, probably, may have been increased more than 40 per cent. It is quite clear it is impossible 140 to lay down a hard-and-fast rule which would be applicable to every one of these cases, and, therefore, what we do here is to say that the allowances may not in any case be greater than those which are allowed in the second part of the Schedule, but that they may be determined within those limits in such a way as may appear equitable, having regard to all the circumstances of the case. The second Sub-section of the Clause represents one other small concession, but one to which some importance has been attached by the assessment authorities and the borough, councils. It provides that where the application of the new scale results in a fraction of a pound in the rateable value, that that fraction has to be disregarded.
I have explained to the best of my ability the meaning of the Clauses of the Bill. I would only say in conclusion that the Bill is not only approved in its present form by the borough councils and by the assessment authorities, but that they are very anxiously awaiting its passage into law, because, as the House will quite understand, this is about the time of the preparation of the valuation lists, and it is essential for them, therefore, to know at the very earliest moment the scale of deductions so that they may be prepared to deal with the situation.
§ Mr. WEBB
I do not know whether I may venture to express my congratulations to the right hon. Gentleman on having really gone a very long way to make this extraordinarily complicated Measure clear. It has been a masterpiece of exposition, and I certainly have not risen to express any dissent, or any desire to resist the Second Reading tonight. There are, however, one or two questions I should like to ask. It may be—I think it is very likely—that I have failed to understand some of the points that the right hon. Gentleman has made. The right hon. Gentleman in his explanation said that the Act applies not only to the small houses und-r the Rent Restrictions Act hut also to all the hereditaments of London. I can quite understand the reason for bringing into an extremely complicated scheme the houses which have been restricted under the Rent Restrictions Act. But I cannot at first sight see why in connection with the thousandpound-a-year house, which has not been 141 at all affected by the Rent Restrictions Act, there should be any change in the valuation or in the amount of deduction allowed. There are some houses assessed at £1,000 a year, where there is no question of the Rent Restrictions Act, and, so far as I can make out, the occupier or owner of such a house, in respect of the assessment of the rateable value, and assuming the gross value is £1,200, is entitled to make a reduction of one-sixth as the maximum amount. In practice, so far as I can observe, the maximum is practically always allowed. Therefore, there would be a deduction of £200 from the gross value on that house in order to arrive at the rateable value. I am not personally concerned in a house of that magnitude, nor do I feel particularly inclined to press the claim of such owners and occupiers.
The last item in the Schedule called Part II deals with houses and buildings the value of which exceeds £150. The maximum amount of reduction that can ever be allowed in order to arrive at the rateable value is £40. I do not understand that. It seems to me that under the present law, as the occupier and owner of that house is entitled to a deduction of one-sixth of the gross value, if the gross value is going to be more than £250 it seems to me there is going to be a smaller deduction. I do not know whether it is desirable that there should be a smaller deduction, and it may be that the average cost of repairs and maintenance comes to one-sixth of the rent. Indeed, I do not find that the amount of repairs and maintenance diminishes as the rent goes up What is the reason for including in Part II of the Schedule that ease where the increased gross value exceeds £150 and in which the maximum amount of deduction is only to be £40? Perhaps the right hon. Gentleman will make that clear. Again, I cannot quite make out proviso (a) and proviso (b) in Clause 1, which seems to me to be intended to be mutually exclusive. It seems to me that some cases may fall under both provisoes. The definitions differ in each case. I only mention these to ask for some explanation of these instances in an extremely complicated Measure. There is one other point. In regard to Part 1, the right hon. Gentleman has told us that it follows the present arrangement with 142 respect to Income Tax. But I would point out that where the owner can show that on an average over a term of years the actual cost of maintenance has exceeded the deduction, he is allowed to claim the whole of the excess. I assume that that privilege is carried on, that it is not abrogated by this Bill, that the maximum amount of reduction does not prevent the man from making a claim, which I understand he can make, if his average expenditure over a term of years on repairs has been more than the deduction allowed. I will not take up any more time. There is no reason why the Second Reading of this Bill should not be taken before 8.15, but I would ask the right hon. Gentleman, if not now, at a later stage, to answer the queries that I have put to him.
§ Colonel VAUGHAN-MORGAN
I am sure the House is grateful to the right hon. Gentleman for the explanation he has given of this very complicated Measure in introducing the Bill before us. He touched upon one point which 1 should like for a few minutes to develop. He explained that though the assessment of a house might be raised, it did not follow that the expenditure of the tenant liable to the rates would necessarily increase. Obviously, if the total amount levied over a given area. be not greater than before, then, if the increase in assessment be proportionate over the whole area, the total paid by each individual would not be greater. But in the Metropolis certain conditions obtain in the county area of London which do not affect the boroughs outside. We have a standard of level assessment in the inner area of the County of London which is higher than that generally maintained in the boroughs outside. And where we have, or should have, under this Bill the level of assessment increased, it seems, I submit, that the result in the County of London would be a greater contribution to the cost of joint services, the total of which is defrayed by the boroughs both in and outside the County of London. For example, it is calculated that under the provisions of this Bill the additional amount chargeable by way of rates on the inhabitants in the County of London, consequent on the levelling up of assessment, would be increased by a sum of something over £100,000 on the police rate alone. This would involve them in an additional charge beyond that paid by 143 the inhabitants of the outlying boroughs and relieve these latter to a corresponding extent. That is a point which it may not be necessary or possible to take into account in this Bill, but a point which, I submit, the right hon. Gentleman might well take into account when he comes to deliberate on the more important Measure which, we understand, is in. preparation to deal with rating and valuation throughout the Kingdom.
Personally I am no admirer of the Act of 1869. This Bill which is now before the House would do something at any rate to remove the objections which apply to it. It will undoubtedly make for the relief, encouragement, and comfort of the inhabitants of our city. But I should like to put it further to the right hon. Gentleman whether in the preparation of the Bill which is in view he will not consider rather the alteration of the basis of assessment in London, and bring it into something more comparable with the system which obtains outside, rather than adhere to the basis of the Act of 1869 for London. When we come to consider Income Tax, that is to say "Property Tax," under Schedule A, it is obvious that the landlord must pay the full rate of tax on the rent received, but it does not logically follow that because he has to pay a rent enhanced by the difficulties of the present situation the tenants should pay rates on an increased assessment. If we extended to the area of London the principle of adjusting assessment which obtains outside and in the county generally, we should get over our difficulty, and we should at any rate remove the injustice from which the inhabitants of the inner circle of London now suffer, as compared with the areas surrounding.
Perhaps the right hon. Gentleman would also take into account one other point. Under the Finance Act of each year the taxpayer assessed under Schedule A has the right of appeal to the Income Tax Commissioners. At the present moment and just prior to the commencement of the quinquennial period, I should like to put in a plea on behalf of the ratepayers that the same opportunity for appeal should be given annually during the period for which the assessment is fixed—a corresponding right to the appeal to the Income Tax Commissioners allowed with regard to the assessment under Schedule A.
144 Generally I should like to welcome this Bill very heartily. As I have said, I am sure it will relieve the minds of a great many Londoners of serious anxiety. It will simplify the position for them and it will restore, or tend to restore, justice to the inhabitants of London. It will, at any rate, reduce the incidence an the ratepayer's of London of the high standard of assessment which has been continuously adopted in London as compared to the area outside the county area, much to the credit of our Metropolis.
§ It being a Quarter-past Eight of the Clock, and there being Private Business set down by direction of the Chairman of Ways and Means wader Standing Order Yo. 8, further Proceeding was postponed without Question, put.