HC Deb 20 December 1954 vol 535 cc2557-66

Motion made, and Question proposed, That this House do now adjourn.—[Mr. R. Thompson.]

10.10 p.m.

Mr. George Thomas (Cardiff, West)

I am glad to be able to raise a topic of considerable importance to a not unsubstantial proportion of the public, and I am also glad that in this Christmas week I am able to raise a question which will, at least, find support on the benches opposite, or so I believe, as well as on this side of the House.

It concerns the Estate Duty valuation of houses that were owner-occupied by deceased persons and which, by necessity, continued to be occupied by the beneficiaries. Successive Chancellors of the Exchequer since 1944 have granted a concession that, where the element of vacant possession at the date of death inflates the value of the house more than it did before the war, it should be disregarded for Estate Duty purposes. The Chancellor has maintained, both in the House and in correspondence with myself, that this concession still operates.

On 4th November last, in reply to a Question of mine, the Financial Secretary to the Treasury informed the House that he considered that the Chancellor's concession still operated. But there is abundant evidence that valuation officers throughout the country do not share the opinion of his Department. The Chancellor's opinion, as stated in correspondence with me, is that the concession value has diminished, and, in some areas like Cardiff, has disappeared, because the premium on vacant possession has diminished or disappeared.

The important words are that "the premium on vacant possession has disappeared." The concession has never given relief in respect of increases over the pre-war value which are not attributable to the factor of vacant possession. Nonetheless, by the change of practice which has been sanctioned by the Treasury during the past year, instances of grievous hardship are to be provided to the Minister from the City of Cardiff, from Bedwellty, from Cornwall and from other pants of the country.

I propose to give but two illustrations to the House with which, I believe, the. Minister will not be unfamiliar. The first case is that of a middle-aged man who died this year and left his widow only the house and its contents. He left her no money. The house was valued at £850 in 1938, but the Estate Duty valuer now says that with vacant possession it is worth well over £2,000 today. If the widow is to meet the obligation of this inflated value of vacant possession, when the house never can be vacant, she will have to sell her home in order to do so.

There is another case in Cardiff with which the Minister is very familiar, because he has sent me a letter about it in which he says: The gap between the cost of building a similar house and its vacant possession value on sale has closed completely. I submit to the Minister that it is quite fallacious to suggest that vacant possession value today is no more than it was in 1939, because it is worth about £200 to the person who owns the house in the part of Cardiff from which these examples come.

The legal profession in Cardiff are disturbed. The legal profession are anxious about the hardship and the injustice involved in the change of practice by the Department. Firms of long standing and of the highest repute in South Wales are making their protest against the change in practice of valuation officers. The Minister may tell me tonight that there is no change, but it is strange that the legal profession in South Wales are quite satisfied that there has been a change in the policy pursued since 1944.

District valuers must be the only people in South Wales who believe that there is no premium on vacant possession at the present time. The long list of people waiting for council houses is an indication of the premium on vacant possession. If this concession is still in practice anywhere in the country, the Minister ought to tell us the cities and towns. The Financial Secretary to the Treasury, in whose justice I have very great faith, has often made a promise to look into individual hard cases. That means nothing at all. When we submit our cases to the hon. Gentleman, we find that he can do nothing about them. It is the shadows that are behind him that frighten me. The hon. Gentleman has no real power in this connection. Those who suffer are widows and children.

I ask the Financial Secretary to re-examine the whole question of this concession and at least to give an assurance that he will make a statement which will satisfy the people responsible for the administration of these estates. They feel that the concession is not operating but that it ought to operate, and that the sums involved are so small that the Chancellor could well afford to continue the practice of his predecessors.

10.18 p.m.

The Financial Secretary to the Treasury (Mr. Henry Brooke)

I certainly take no exception to the action which the hon. Member for Cardiff, West (Mr. G. Thomas) has taken in raising this subject on the Adjournment, nor to the manner in which he has done so. Indeed, it is excellent that the House should spend half an hour discussing a matter of some technicality.

This concession was announced to the House on 18th May, 1944, by the then Chancellor of the Exchequer. So far as I can ascertain, there have been only five Parliamentary Questions drawing attention to it in the 10 years since that date, and the matter has never been debated. Those facts alone seem a very good reason for debating the matter now. I want to do everything in my power to clear away misconceptions. I think there are misconceptions and misunderstandings about this concession, even in the minds of some members of the legal profession, and I will try to state the facts as accurately as I can. Whether or not the debate gives the hon. Member for Cardiff, West any satisfaction in other senses, he has served a good purpose by enabling the matter to be ventilated and restated. The fact that there have been so few Parliamentary Questions does, I hope, go to prove, first, that the concession in itself was reasonable when it was made, and, second, that its administration has been reasonable.

Miss Irene Ward (Tynemouth)

Can the Financial Secretary say whether the Questions have all been asked within a recent period, or whether they have been spread over the years?

Mr. Brooke

The Questions have been spread over the last 2½ years.

The hon. Member for Cardiff, West has described what the concession implies, but perhaps it would be well if I read again the original words of Sir John Anderson, as he then was. He said: The general rule of valuation for purposes of Estate Duty is to take the market value at the date of death. I have however, reached the conclusion that, in the exceptional cases to which he refers, it would be right in assessing the value of the house to disregard any increase in the market value above the pre-war value in so far as it could only be realised by a sale with vacant possession."—[OFFICIAL REPORT, 18th May, 1944; Vol. 400, c. 350.] The hon. Member was good enough to quote the answer I gave to a supplementary question which he asked about six weeks ago. I then said: The concession continues to operate in all parts of the country where it is still the case that the element of vacant possession at the date of death inflates the value of the house more than it did before the war."—[OFFICIAL REPORT, 4th November, 1954; Vol. 531, c. 580.] I now wish to see whether I can make this plainest by taking a purely hypo- thetical example; I stress that it is hypothetical and that I have no particular house or part of the country in mind. We will imagine a house which before the war had a market value, with vacant possession, of £1,200. We will assume that, before the war, the market value of the house, without vacant possession, was £1,000; that is to say, people were willing to pay a premium of £200 for the benefit of vacant possession. Values have changed since then. This house after the war, may have reached a position in the market where its value with the benefit of vacant possession rises as high as £3,000. The value without vacant possession might be only £2,000, because, in conditions of house shortage, people were prepared to pay a premium of no less than £1,000 for the advantage of vacant possession.

Let us see exactly how the concession works. The concession says that the amount taken into account for Estate Duty purposes in respect of the element of vacant possession shall be no larger now than it was on that house before the war. On this hypothetical house the prewar premium for vacant possession was £200. Therefore, when the benefit of the concession is given, the value of this house for post-war death duty purposes will not be £3,000 but £2,200.

The reason for the concession was that dependants who might well desire to live on in the house, could not, in the conditions of 1944, secure the full £3,000 for vacant possession. The very simple reason for that was that, owing to the housing Shortage, they could not give vacant possession. There was nowhere else where they could freely go. That is why the concession was introduced. It was always intended to be a temporary concession to meet a temporary situation. In the 10 years that have elapsed, certain things have been happening. The price of houses has risen, quite apart from the vacant possession element. There has been a change in the value of money, and for that and other reasons the cost of building new houses is considerably greater than it was.

The secondhand value of everything tends in normal circumstances to get into a certain relationship with the cost of the new article. There was a period after the war when the price of secondhand cars went well above the price of new cars, because new ones were unobtainable, and in those circumstances people were paying a premium almost corresponding to the vacant possession premium for a secondhand car. But as the market returns to normal, the price of the secondhand article will revert to a normal relationship with the price of the new article.

The fact that building costs have risen since the war has, in conjunction with the changes in the value of money, tended to put up the price of new houses and correspondingly the price of what I might call secondhand houses. In addition to that, there is not, I am thankful to say, in many parts of the country the same acute housing shortage that there was immediately after the end of the wax. Consequently, there is nothing like the same premium on vacant possession in those parts of the country.

One cannot lay down any precise figures for the country as a whole, because I believe we are agreed in all parts of the House that the housing shortage remains in acute form in a number of built-up areas, whereas most of us can think of places where there is no longer any housing shortage altogether out of relation with the pre-war housing situation.

Mr. G. Thomas

Would the hon. Gentleman say who decides when that level has been reached, when there is no building shortage?

Mr. Brooke

I think that the district valuers have got to decide in relation to certain facts, some of which I have mentioned and some of which I am going to mention.

In years like 1945 and 1946 people were paying fantastically high prices for houses which were in a wretched state, and they were paying those prices, wisely or unwisely, simply because they felt that they must at all costs get a roof over their heads. That is not happening to the same extent anywhere now, and if one goes about the country one sees a great many more "For sale" boards than one did at the end of the war. That is another consideration that valuers have to take into account, because if there are constantly up for sale a good many houses of the type in question, that in itself indicates that there is not the same difficulty or scarcity attaching to the vacant possession element.

For all these reasons, people are not so willing now as they were some years ago to pay a very large premium for vacant possession. That means, to go back to my hypothetical example, that the gap between the £3,000 with vacant possession and the £2,000 without vacant possession has been closing, and when it comes down to £200, which according to my example was the premium that could be obtained for vacant possession before the war, then the special circumstances disappear and the Chancellor's concession has nothing left to operate on.

I thought that the hon. Member was not quite correct when he spoke of the element of vacant possession disappearing altogether. The point which one has to watch in the operation of this concession is where the element of vacant possession has dwindled to no more than what it was for a house of that type before the war. This was a temporary concession. That, no doubt, is why it was not written into the law. In some parts of the country the exceptional conditions which it was designed to meet have passed away, and the concession has expired naturally; it has died a natural death. In other parts it has not and is still of substantial value to dependants who desire to occupy a house which belonged to a relative who has died.

May I try to remove some misapprehensions which exist about this concession? I am not for a moment charging the hon. Member with having given further currency to any of these misapprehensions, but I think it might be of value if I mention them. Some people have evidently fallen into the simple error of imagining that the Chancellor's concession substitutes for the present value of property the pre-war value of property; that, of course, is not the case.

Secondly, some people have imagined that this concession excludes entirely the value of vacant possession; that is not so. It excludes the excess over the prewar value of vacant possession for a house of that type. Thirdly, it does not involve or foreshadow any permanent change in the law for the benefit of near relations living in the house. It was a war-time concession designed to mitigate a war-time situation which is now gradually passing away. It would be improper for us to discuss the possibility, probability, or unlikelihood, of any changes in the law. My argument has been that the special circumstances which brought the concession into being are now passing away.

Lastly, I want to stress that, despite what the hon. Member said, there has been no change in policy. Neither has there been any directive issued by the Treasury. Some misunderstanding has possibly arisen through my predecessor, the present Minister of Transport, when he was Financial Secretary to the Treasury, endeavouring to give a fuller explanation, in a Parliamentary answer on 14th May, 1953, about the nature of the concession. I want to stress that the answer which he gave at that time in no way modified the nature of the concession. He was seeking only to explain it.

I have examined his words very closely in relation to the original words used in 1944, and I can confirm that there is no difference between them. I also ask the House to accept from me that no directive has gone out from the Treasury to district valuers. What has been modified is the difference in value which the concession makes. As I have sought to explain, that has been modified by economic circumstances. The hon. Member will not wish me to go in detail into the cases to which he referred, although I recognise them. I was a little surprised that in one case the hon. Member mentioned a pre-war value of £850 for the house, because I think I recognise the case to which he was referring. I should like to tell him that in that instance the house had been bought in 1937 for £1,500.

I thank the hon. Member warmly for having raised the matter tonight. I assure the House that I am always ready to look into any further cases of this kind that are put to me, and to do everything which is in my power to make clear, as I have sought to do this evening, the effect of what necessarily is a somewhat technical matter and an element in the administration of our affairs which it is certainly not easy for the layman to understand, and which even the professional man has not always grasped.

10.36 p.m.

Mr. Michael Higgs (Bromsgrove)

I am sure that the House and all who are interested in the administration of estates and in assisting the relatives of deceased people will be grateful to the hon. Member for Cardiff, West (Mr. G. Thomas), who raised the matter, and to my hon. Friend the Financial Secretary to the Treasury for his explicit reply.

As one who is concerned professionally in that kind of work, I too was given the impression some 18 months or two years ago that there had been a change of heart. It so happens that my practice spreads over two or three adjoining areas of different district valuers' offices, and it certainly was noticeable—I put it no higher—that at about the same moment the realisation of changing circumstances seemed to have penetrated into the district valuers' officers in two or three districts. One accepts entirely, of course, what my hon. Friend has said, that that was not the result of any directive, but I do not think that it was any accident. The realisation must have spread through the bush telegraph, if not through official channels.

There is one other point to which I should like to draw the attention of the House. This concession was, as my hon. Friend has said, a war-time or immediate post-war measure, and in its inception it was due entirely to that form of scarcity which followed the war, and which was not common to houses. But now there are beginning to operate on values of houses a number of other kinds of scarcity which may get mixed up in people's minds with war-time scarcity.

The obvious example is the operation of town planning in its post-war sense. A house in a country district, where there is no extreme shortage of houses, as there is in a big city like Cardiff, may still have an enhanced vacant possession value simply because it is one of the few houses in a pleasant country district and nobody else is allowed to build there because it is in a green belt.

Again, a house in a town or city may have an enhanced value, not because of general post-war scarcity, but because there is a scarcity of building land in and around that town due, again, to the green belt which is preserved around its boundaries and to the fact that all the building land in the town has been used. If we add to that the fact that the town is one of those which in days of full employment attracts people either from the country or from overseas, there is a scarcity value upon vacant possession which may not be due to the causes which were in mind when this concession was first introduced but which are none the less causes which produce the same effect upon the value of houses and upon the pockets of people who are placed in the difficulty which the hon. Member for Cardiff, West described following the death of the breadwinner.

While this may not be a matter for legislation, and it would be improper to suggest it now, I am wondering whether the time will not soon come when we may have to consider whether some similar concession is necessary through legislation, or whether, without legislation, the scope of the concession ought to be enlarged to cover scarcities of that kind.

Question put and agreed to.

Adjourned accordingly at Twenty Minutes to Eleven o'Clock.