§ Where a landlord carries out improvements to controlled rented living accommodation then an annual allowance of ten per cent. of such cost to him shall he allowed for the ten years following as a deduction from gross rents received.—[Mr. W. Clark.]
§ Brought up, and read the First time.
§ Mr. W. Clark
I beg to move, That the Clause be read a Second time.
The purpose of the new Clause is simple, and I hope that we will not spend too long on it, because it deals with a reasonably narrow point.
The idea of the new Clause is to accelerate the modernisation of rented property. I fully appreciate that if one wants to improve rented property one can take advantage of improvement grants and standard grants, but I remind the Committee that, whereas standard grants are mandatory on local authorities, improvement grants are only discretionary and are not operated by all local authorities throughout the country.
When one applies for an improvement grant, assuming that the local authority will accept it, quite often one gets the position where the landlord spends far more money on the property than is allowable for grant. I think that a simple example will explain the point I am trying to make. If one is spending £500 on improvement of property—and I hope that the Committee appreciate that it is only rent-controlled property in which I am interested in this new Clause —more often than not the local authority, the surveyors and so on, cut that figure from £500 to some lesser figure to take note of the maintenance element in the improvement. For the sake of my hypothetical example of £500, let us say that £100 is deducted as being ordinary maintenance which will obviously be allowed to the landlord under an ordinary maintenance claim. It leaves him with £400 as actual improvement to the property, and if the local authority concerned is operating the improvement grants scheme—and I remind the Committee that is discretion- 1486 ary—it means that the landlord pays out £200 on improvements.
I appreciate that under the Housing Acts he can get an allowance for increased rental on this £200 improvement, and he can increase the rental of this controlled property to the extent of £25, but if one looks at this more closely, after deducting Income Tax at 7s. 9d. in the £ from £25, the landlord is left with a return of about £15 a year not for the £200 that he has spent. I think that that is working against the success that one hoped the improvement grants scheme would bring in the housing situation.
Without deploying all the arguments, I am sure that everyone agrees that there is a tremendous amount of modernisation to be done in this country, and I am suggesting that the improvement grants could be improved. I am suggesting in this new Clause that of the improvement element of £200, 10 per cent. each year for ten years should be allowed as a deduction from gross rents. Then, if he were allowed to charge a capital allowance, or whatever it was called, of £20 per year, being 10 per cent, of £200, instead of a net return of £15, his return would be about £23.
I do not intend to detain the Committee much longer, but I ask my hon. Friend whether he will give sympathetic consideration to this sort of allowance or benefit to landlords of rented property. It should be remembered that any improvement in property—and I have given figures to show that it is not all jam and honey for the landlord—would affect tenants all over the country and enable them to live in proper surroundings.
With that brief introduction, I hope that my hon. Friend will find it in his heart to say that he will look at this sympathetically. I do not know what it would cost the Revenue, but whatever it was it would be spread over 20 years.
§ Mr. Mitchison
I hope that the Government will be sympathetic to somebody else who has hardly been mentioned, the tenant. The landlord is 1487 not content with getting 7½ per cent. net on his outlay. It is proposed that he should be given 11½ per cent. net at the expense of other taxpayers. I see no reason whatever for any such concession, and I think it rather remarkable that seven hon. Members opposite have thought fit to put their names to this new Clause. They will not, of course, vote for it. They know that it is too ridiculous for that.
As the hon. Member for Nottingham, South (Mr. W. Clark) frankly explained, the position about these improvement grants is that not only can a person get a considerable contribution from the local authority, but that the figures to which the hon. Gentleman was referring represent an increase of rent against the tenant of a controlled rented property.
I should have thought that the Tory Party, with the Rent Act behind it, had done enough against the tenant already. The trouble about improvement grants is simply this, that landlords of private rented property are very slow to apply them, and if the Minister of Housing and Local Government were here he would be bound to say that that has been the difficulty for some considerable time.
When this matter came before us during the course of legislation, the Tory Party voted solidly against a proposal that the tenant should be allowed to make the landlord pat in the necessary improvements. Apparently the only use which the Tory Party has for improvements is to increase the landlords' income, partly at the expense of the taxpayer, and partly at the expense of the tenant.
§ 10.0 p.m.
§ Mr. Percy Browne (Torrington)
I am surprised to find the hon. and learned Member for Kettering (Mr. Mitchison) so incredibly out of touch with things as they are in the country. I want to go a little further in support of the new Clause than my hon. Friend has done in moving it, and I should like the hon. and learned Gentleman to come with me to the country districts, where he will find that many landlords are working people.
The hon. and learned Gentleman has said that he does not like the expression 1488 "working class". Nor do I. I would call them ordinary working people, who own one or two properties, who are, in fact, unable under the Rent Restrictions Act and the £30 rateable value limit in the country, as it is now, to afford any improvements at all, to the detriment, not only of the property, but also of the tenants. The hon. and learned Gentleman may laugh, but if he came to my constituency I should be able to show him properties which come in this category. It seems to me that it is ridiculous for the Government to encourage the building of new houses on virgin land, while, at the same time, they allow structurally sound houses to fall into wrack and ruin, because the small landlords are unable to afford sufficient funds to make these improvements for the benefit of the properties, the landlords and the tenants.
It is a fact that while the standard grant of £150 and a discretionary grant of £400 have been provided in spite of these, the landlord himself is bound to pay a considerable sum towards the improvements if they are to be done, and with properties such as I have just mentioned, they find it very difficult, if they have not got the money themselves, to provide it.
§ Mr. Mitchison
I must point out to the hon. Gentleman that this Clause does not help the landlord to put up any money whatever. It merely increases the return on whatever money he does put up.
§ Mr. Browne
Exactly. This is the point that I am making, and I am sorry if I have not been sufficiently explicit for the hon. and learned Gentleman to understand it. I trust that tomorrow he will read HANSARD to see what I have said. He will find that I am suggesting that this new Clause will help the small landlord who may have been left one or two properties, like a man who once worked for me. He was left two cottages, in one of which he lived himself, but he could not afford to do the improvements, nor to raise the money to do them. As the hon. and learned Gentleman well knows, if landlords are to provide these four amenities to comply with the regulations, they cost a considerable sum more than the £150 of the standard grant.
1489 I should have thought that this Clause would have been accepted by both sides of the Committee, because it would increase the amount of accommodation in the country and would enable landlords to improve properties which otherwise would go to wrack and ruin. The Government have paid a great deal of lip service to a "property-owning democracy". I regret that they have done nothing to encourage landlords to build houses for rent, which must be the future trend if we believe in the mobility of labour and want to increase the amount of accommodation. I believe that the Clause will do something to alleviate this difficulty, and I hope that it will be supported.
§ The Financial Secretary to the Treasury (Sir Edward Boyle)
This debate, short as it has been, has managed to engender, as this subject always does, a certain amount of controversy, and it reminds me of the wise remark of a famous historian, Sir Lewis Namier, that history is the story of the interplay between groups of men and tracts of land. I never hear this subject debated nowadays without feeling that he had something on his side.
This new Clause provides that where a landlord carries out improvements to what is described in the new Clause as "controlled rented living accommodation that is to say, living accommodation subject to statutory rent control—then, an annual allowance of 10 per cent. of the cost shall be allowed for the 10 years following as a deduction from the gross rents received. It is a rather curious feature of the Clause as drafted—I criticised the drafting of a Clause put forward from the other side of the Committee yesterday, and I must in fairness do the same today with my hon. Friend's new Clause—that it makes no specific reference to taxation, though the rubric makes it quite clear that the intention of my hon. Friend is that the deduction should be allowed for Income Tax purposes. The expenditure which would be relieved under this Clause is capital expenditure and as such it would not normally qualify for relief from Income Tax. As the Committee will be aware, under the Income Tax Act, 1952 allowances may be given for capital expenditure on industrial 1490 buildings and to a certain extent on agricultural works, but not on dwelling-houses or commercial buildings. I notice that the proposal of my hon. Friends in this Clause bears a rather strong resemblance to the allowance which is given for new agricultural works under Section 314 of the 1952 Income Tax Act.
I must say that at first sight I had some sympathy with this proposal. It is certainly a great deal more restricted in its scope than many proposals of a similar kind which have been put forward at one time or another. It relates only to improvements effected by landlords in properties subject to rent control. I appreciate the force of the argument that if a landlord is prevented from getting back the cost of improvements by raising the rent he ought to be given some other financial inducement to keep properties in good repair. I do not think one can stress the point too often that if we want to achieve steady rate of growth based on a first-class competitive national economic position it is important that we should make the best economic use of the assets we already have.
§ Mr. Mitchison
The landlord is already allowed a statutory 2½ per cent. I am sure the hon. Gentleman has that in mind.
§ Sir E. Boyle
Yes. I was merely saying that he ought to be given some financial inducement. I am coming to the 1961 Act very shortly in my speech.
There is one defect in the proposal of my hon. Friends to which I wish to draw attention before coming to the main argument which I wish to put before the Committee. Except in those cases where a subsidy has been granted, rent control ceases when the property becomes vacant. In practice, the property is then usually sold, so that the landlord recovers the value of any capital expenditure he has incurred. The Clause makes no provision for anything of the nature of an Income Tax "balancing charge" to recoup the Income Tax relief given by the proposed allowance for improvements. I think I should carry my hon. Friends with me in saying that in principle it would not be equitable that a landlord should receive tax relief not only on the capital expenditure but on an expense which did 1491 not leave him permanently out of pocket in the end. There is, however, a much more important reason and I come to the principal reason why, while I have considerable sympathy with the object of the Clause, I would not advise the Committee to accept it.
The reason is that the Government have already taken certain measures designed to encourage improvements to rent controlled living accommodation. I think we ought to see how those are working out before we adopt a proposal which would constitute a very big new departure in our system of capital allowances. The Rent Act, 1957, allowed a landlord to increase his rent in consequence of improvements to the property provided that the tenant had consented both to the improvements and to the increased rent.
The limit of the increase in rent permissible under Section 5 of the 1957 Act was originally 8 per cent. of the amount expended on the improvement by the landlord, but the Housing Act, 1961, which came into force as recently as 24th November last year, raised the proportion of the net cost of improvements which can be added to the rent from 8 per cent. to 12½ per cent. That is the point I want to put to my hon. Friends because I am not sure that it is quite realised.
In the debate on the Second Reading of the Bill last year my right hon. Friend who was then Minister of Housing and Local Government explained that this figure of 12½ per cent. had been fixed in the light of the existing tax position. He said these words, and I make one quotation from his speech because I think it extremely relevant to this debate, in talking about the change from 8 to 12½ per cent.:This 8 per cent. is not a clear return. It is subject to Income Tax, like other forms of income. In the case of companies it is subject to Profits Tax as well. Out of what remains after tax has been paid the owner has to amortise this expenditure over the likely life of the property before he can get any return at all on his capital expenditure.Properties improved with the aid of standard grants may have a life of no more than fifteen years in front of them. In such cases a gross return of 8 per cent. not only provides no incentive to the landlord; it does not even leave him with enough to redeem his original expenditure after Income Tax has been paid at the standard rate…I am proposing, 1492 therefore…to increase the permitted return to 12½ per cent. This is reckoned, of course, only on the landlord's share of the expenditure…"—[OFFICIAL REPORT, 27th March. 1961; Vol. 637, col. 971.]I think that those words made it perfectly plain that the figure of 12½ per cent. for the permitted return—and the increase from 8 per cent. to 12½ per cent. —had been decided on in the light of our present rates of taxation. I therefore cannot help feeling that, even if there were no other considerations at all, it would hardly be consistent with the Government's approach during the passage of that Bill for us to alter the tax position only a bare six months after the Bill had passed into law. That is my principal reason—and, I think, a fair one—for asking my hon. Friends not to press this new Clause tonight.
There is further evidence that the Government are not neglecting the social problem that has given rise to this new Clause. In addition to the scheme of rent increases for improvements, there is also a system of direct grants to landlords and owner-occupiers by local authorities for part of the cost of improvements. The Committee will know that the principal provision here is in Section 30 of the Housing (Financial Provisions) Act, 1958. Under Section 32, a grant of up to half the expenditure may be made, with an overall limit of £400 per dwelling. Furthermore, under the House Purchase and Housing Act, 1959, the local authority is obliged—subject always to the tenant's consent—to make such improvement grants where the improvement consists in installing a bath or shower, a wash-hand basin, or w.c., or certain other essential things.
The Committee may remember that earlier this month my right hon. Friend the Minister of Housing and Local Government said that he was not fully satisfied with the use that was being made of those grants, and went on to say:I believe…that more good can be done in the next phase if authorities could select particular areas of their towns to demonstrate to landlords and tenants alike what can be done, picking out streets where improvement or conversion is worth tackling and approaching landlords and tenants to enlist their interest."—[OFFICIAL REPORT, 2nd May, 1952; Vol. 658, c. 1144–5.]When we add that legislation together, it seems to me that the Government 1493 certainly have not neglected this important question of giving sufficient inducement to landlords to keep rent-controlled accommodation in proper repair. I entirely agree with my hon. Friends that this is an important subject both on social and economic grounds—and I hope that the Committee will have noticed that we have the pleasure in this debate of the presence of my hon. Friend the Parliamentary Secretary to the Ministry of Housing—but do let us remember, as I have said, that it was only at the end of 1961 that the amount of the landlord's net cost of improvements which could be added to the controlled rent was increased from 8 per cent. to 12½ per cent.
That amount was fixed on the assumption that the additional rent would be subject to tax at normal rates. It is too early to estimate the result of that Act and, by the same token, I am sure that, a bare six months afterwards, it could not be right to grant an Income Tax allowance which would not only mark a very big departure in our scheme of capital allowances, but would upset the basis of legislation that has only recently been altered with the existing tax position in mind.
It is for those reasons that, while I have considerable sympathy with the objectives of those who have moved and supported the new Clause, I could not advise the Committee to accept it. Therefore, in view of that explanation, I would ask my hon. Friends not to press it.
§ 10.15 p.m.
§ Mr. Geoffrey Hirst (Shipley)
As hon. Members will observe, the home team is still batting—stonewalling as efficiently as ever. I must say, however, that the Financial Secretary, with his charm, persuasiveness and keen intellect, is a more interesting batsman, even if he makes no runs, than some other hon. Members on the Treasury Bench. We can, on that account alone, be impressed by his speech, but I cannot entirely join with the hon. and learned Member for Kettering (Mr. Mitchison) for, unlike him, I am not a wopping great landlord, if he will forgive the phrase.
§ Mr. Hirst
I understood that the hon. and learned Gentleman owned an acre or two.
When I hear the hon. and learned Member for Kettering speak on this subject I am always under the impression that the scene becomes rather like a bull fight, where there are no bulls but only red flags.
My remarks so far have not been entirely germane, so I must come to the matter at hand. While I have some sympathy with the views expressed by my hon. Friends, even if I do not share all of them, I must admit that I feel disappointed. The Financial Secretary always impresses me. I have great respect for him, but it is really tiresome, to be frank, to have this sort of stuff trotted out to us.
The point at issue has already been explained and whatever this shopping list of legislation is all about, this business of it containing one potato, one banana and one totato would not keep anyone alive for very long. It may be a shopping list, but it is not a very adequate one. It seems fantastic that we should have spent in pursuance of a policy—which, incidentally, I would like to see more adequately pursued—great sums of money for building up our housing resources in this country and that, in spite of the magnificent effort of the Tory Party, it is still far short of what is actually needed. We really are treating this subject in an awfully bureaucratic way. While we spend these vast sums of money and while the subsidies are prodigious we find sensible, intelligent, well-educated and brilliant young men on the Front Bench arguing about £20 here or £30 there.
Let us have a sense of proportion about this. I am not quite sure whether I get angry or just fed up over this. The Treasury representatives just do not seem to grasp the fundamental point which exercises the minds of we back benchers. Many of them were so much more brilliant when they were on the back benches, as I remember so well. This is really a simple issue, and it will be a shame if we are to continue to be bowed down with talk of administrative convenience, so-called fairness, and similar arguments which get us nowhere but which are adopted merely for argument's sake.
1495 I am rather attracted to some of those phrases—like "knock-about" and "tumbledown"—used by the hon. Member for Sowerby (Mr. Houghton). I like his phrases, in a way. They express so keenly and sincerely with much greater plausibility the views which I sometimes hold on a proposed new Clause such as that which we are now discussing.
I was cross last night, and I have no doubt that I shall be cross again before we are through with the Finance Bill. I suppose, however, that it is only right that we should have our moods, for it would be rather tedious if we spoke in the same vein the whole time. I sometimes like to think that we can adopt one technique on one occasion and another technique when discussing another matter. I have been listening to the same sort of Civil Service handouts being trotted out by Ministers for twelve years now. Some Hon. Members have been listening to them for thirty years. I do not know how they have lasted so long.
Whatever one might say about the way in which the Civil Service works and how it operates according to its prescribed ways, we are, by the proposed new Clause, trying to improve the facilities and comfort of tenants and the capacity of landlords to make provision for them. When my hon. Friend the Member for Torrington (Mr. P. Browne) spoke of how well we all knew about what was happening in this direction, I was tempted to tell him that this does not apply to his constituency alone. It applies throughout the country and when a man gets a few £s to invest in a house he does not automatically become a bloated landlord like a Clore or Cotton. They do not all become hon. Members for Kettering, for some of them are in quite a modest way.
§ Mr. Mitchison
I cannot stand this any longer. I wish that the hon. Member 1496 would tell me whether he intends to divide the Committee or not.
§ Mr. Hirst
It is not a question of dividing. I am trying to get the Government to see the merits of a first-class back-bench proposal. If I use the hon and learned Member for Kettering by way of illustration he only adds to my case, and he must forgive me if I find it amusing. I hope that my hon. Friend the Financial Secretary will find that I have been thoroughly gracious towards his speech, in spite of difficulties, but with all possible persuasiveness and with all the fun and the odd quips, I still say that here we have a first-class Clause the design of which may not be perfect but which obviously has a clear intent.
One thing that gets people down is the perpetual knocking down of back-bench Amendments or Clauses, whether from this side or the other side of the Committee, on the ground that because of the way they are drafted they do not do something which we want to do. It is a lovely way out, and perhaps if I stood at the Dispatch Box, which God forbid, I might use that excuse as well. But it does not get us anywhere. It does not profit us or add much to the strength, dignity and standing of those who answer debates, if year after year they say that the way a Clause is drafted is undesirable and they never produce the answer for which back-benchers have prayed or have demanded.
§ Mr. W. Clark
Any disappointment is difficult to accept, but in view of the Financial Secretary's reply to the effect that we should see how the present provision goes on, because it has been in operation only for six months, and in the hope of better things to come, I beg to ask leave to withdraw the Motion.
§ Motion and Clause, by leave, withdrawn.