§ 2.42 a.m.
§ Mr. Terence L. Higgins (Worthing)
I am glad to have the opportunity of exercising the traditional right of a backbench Member to raise a matter which he feels is of particular concern to himself or to his constituents on the Third Reading of the Consolidated Fund Bill. Although I do not expect it to be universally popular at this hour in the morning, I would say, "Long may this tradition continue".
The point which I am anxious to raise concerns the basis of valuation for rating purposes, and I am very glad that the Financial Secretary has done me the honour of offering to reply to the debate, not least, perhaps, because speaking at 2.45 a.m. is something for which he is admirably fitted by his recent training on the Finance Bill. I will try to put the point to him as briefly as I can.
The whole question of rates is of vital importance to my constituents, because the number of elderly people in Worthing over retirement age is almost one-third of the total population. They have been badly hit by the rise in the cost of living, because many of them are living on fixed incomes. The burden of rates falls particularly harshly on them because there is very little industry in the constituency.
I hope that I shall not introduce too partisan a note into the proceedings if I say that the whole problem of rates has been largely overlooked in recent discussions which we have had in the House, and in particular people in my 1500 constituency have become concerned because of the promise which was made in the Labour Party manifesto which said,We shall also seek to lighten the burden of rates which today falls heavily on those with low incomes. While the reform of the rate system and investigation of alternative forms of local government finance may take some time to accomplish, we shall seek to give early relief to ratepayers by transferring a larger part of the burden of public expenditure from the local authorities to the Exchequer.This was not adequately covered by the Prime Minister in his reply to the debate last week, and this is a very important matter to my constituents.
In writing to one of my constituents the Prime Minsiter tried to explain that the reason why early relief could not be given to ratepayers was the economic situation, but this is a completely invalid argument because the way in which the burden of public expenditure is shifted from one part of the community to another is surely in no way affected by what the current economic situation may be. My constituents are greatly disappointed by the fact that the Minister of Housing had an opportunity of transferring part of the cost of certain local services from the rates to the central Exchequer soon after the Labour Party was returned to office in October and did not take it.
This is by way of setting the general background to the problem, because clearly all these problems become much more crucial if doubt is cast on whether the basis on which the rates are levied is disputed. There has been a considerable amount of doubt about the basis of valuation on which rates are charged. This has been particularly important in Worthing, and I put a Question to the Chancellor of the Exchequer last March asking how many appeals against rating assesments in Worthing remained undecided and when all of them were likely to be heard. I received this Written Answer:By 12th March, 3,206 appeals against assessments in the 1963 lists for Worthing had been received by the West Sussex Local Valuation Panel: 1,616 remain to be decided.… the appeals … should be cleared within 18 months …"—[OFFICIAL REPORT, 16th March, 1965; Vol. 708, c. 239.]In these circumstances, there is a great deal of delay in hearing appeals against 1501 assessments, and this obviously must reflect the dissatisfaction which people have about the assessments which have been made.
It is true that people disputing assessments can defer payment of half the increase until the appeal is heard, but this is not a reasonable means of relieving hardship in such cases because people often dare not defer payment of that part of their rates because they may find at a subsequent date that they must find a large lump sum which they are unable to afford out of their incomes. It is vitally important, therefore, that appeals against the basis of assessment should be speeded up as rapidly as possible.
I come to the whole question of valuation. As the law stands, assessments are deemed to be correct until they have been proved to be incorrect, but in the absence of adequate rental information on which valuations can be based and challenged the historic check or safeguard has largely vanished. This has happened, first, because the percentage of houses which are being rented as against the number of houses which are owner-occupied has greatly decreased and, consequently, the amount of rental information available has correspondingly diminished. It has happened, secondly, because the control of rents which will be carried further by the Rent Bill, when it becomes law. This will mean that there will be no market valuation regularly available on which valuation officers can base their assessments. This change must be faced up to as an inevitable consequence of the introduction of the Rent Act. I hope that the Financial Secretary will give his views on this point. In writing to one of my constituents in December, the hon. and learned Gentleman stated:In considering the rental evidence on which to base their valuations, valuation officers normally discard those rents which, for one reason or another, do not represent a fair indication of the free market value of the property; for example, controlled rents, service tenancies or rents which seem excessive".But once one has controlled rents under the Rent Bill, the whole basis of valuation largely falls to the ground and we will have rents based on rateable values and rateable values based on rents. Then the whole process of valuation becomes circular and inevitably grave doubts will 1502 be cast on the fairness on which rates are being assessed on individuals.
The situation becomes increasingly bad when we discover that rents may be taken as a basis for valuation when a very large number of properties of a particular kind remain unoccupied and are being held back until the market price rises to reach what the investors originally intended to obtain. No account appears to be taken of that when assessing the rateable value.
The main point that I want to raise, therefore, is whether the Financial Secretary will think seriously about an alternative to the present basis, or, if that is not considered desirable, whether he will at least agree and, if necessary, introduce legislation to implement a better check on the present basis of valuation.
The crucial points which arise are twofold. First of all, on the question of comparisons between different types of properties, at the moment anyone complaining about the basis of a particular assessment is not generally allowed to make comparisons between different types of properties, although as far as the legislation is concerned it would be allowed. The reason for it is that there has been a decision of the Lands Tribunal, I understand in the case of Wilson v. Taylor on 29th April, 1957, where the Tribunal held that in determining the rateable value of flats comparison with houses is of little value, as normally rents of flats bear little or no relation to rents of houses, even where there is similar accommodation. The extension of that decision has been to rule out in any appeal case the idea that one can compare, even in general terms, the rateable value of a house with that of a flat which may be next-door to it. It seems that this has been an extremely restrictive ruling, preventing people from appealing against a rateable value which has been assessed by the valuation court on an effective basis.
I hope that the Financial Secretary will agree that, in view of the increasing control of rents which is going to take place and in view of the diminishing proportion of houses, flats and bungalows which are rented as against owner-occupied, it is reasonable to extend the comparisons, not only within the same type of property, but also between different kind of property—between flats and bungalows, or between bungalows and 1503 houses, and so forth. Unless that is done, it seems that the basis on which anyone can appeal effectively against a decision will be severely and drastically limited.
I would urge the First Secretary, in view of the circumstances which I have outlined, that he should consider whether capital values are not, in the present situation, a better basis on which to evaluate the rateable value of property. We have heard a great deal of talk during the Finance Bill about discounted cash flow, and it would be reasonable to put forward the view that the value of any particular property represents the discounted value of its expected future earnings, and therefore that the ratio of the rentable value of a property to its capital value must be the same if it is compared with the ratio of some other property's rentable value compared with its capital value. However, if one looks at the valuations which have taken place in a number of instances, it is possible for two properties to be rated at the same value for purposes of assessing rates, and then to find that the capital or selling values of those two properties are totally different, even double in some cases. I hope that the First Secretary will agree that the situation must be regarded as a piece of economic nonsense.
I also hope that, when the review of rates and the rating system which is being undertaken is completed, we will find that the Government will feel the need to alter the present basis of assessment for rating purposes, and that they will overrule the decision of the Lands Tribunal which has prevented in recent times a reasonable comparison between different types of properties as well as between properties of the same type, such as flats, such as houses and such as bungalows. I hope that legislation will be introduced which will enable capital values to be used, if not as a substitute for the present notional rents, at least as evidence against the assessment made by rating officers on the basis of the notional rent, by those who feel that the present basis has not operated fairly in individual cases.
§ 2.55 a.m.
§ Mr. R. W. Brown (Shoreditch and Finsbury)
Many of my constituents are finding the present rateable values to be extraordinarily high. I pay tribute to my hon. Friend, who looked into the 1504 matter for me but was not able to solve the problem. In my constituency it has become much clearer just how stupid the present valuation system is. Finsbury has been joined to Islington to form a new London borough. The figures show that people in the Finsbury area have rateable values twice as high as those of people living in Islington for precisely the same type of property. That is an absurd situation when it is appreciated that the owner of the property is the same company and that the houses were built at exactly the same time in exactly the same style, and have the very same amenities. The whole matter needs to be looked into especially since my constituents are now faced with rent increases based on rateable value which means that in one area the people not only pay higher rates but higher rents as well.
The rating system as a whole is, in principle, based on an Act of 1601, and much of that Act has not yet been repealed. It seems absurd that in 1965 we should still regard such a system as sacrosanct and impossible to change. In the Finsbury part of my constituency, the idea of trying to ascertain what the rent would be if the property were freely offered for letting in a free market, and with no legal restrictions on rent, is quite impossible. In making an analysis of what happens in my constituency, I was astonished to find that out of about 15,000 hereditaments the assessment was made on the basis of about 300 privately-owned properties. When I challenged the rating officer the only answer I got—after, as I thought, proving my case—was, "Whilst I accept what you say, I can only work within the law. If you want this system altered, you will have to change the law."
Another influence in one part of my constituency is its close juxtaposition to the City. I know that normally it is quite impossible to have a very wide difference on the two sides of a road where the rateable value can be high on one side and low on the other, but in this special case the people concerned are not living there because they want to but because they have no freedom to go elsewhere, due to their jobs and 101 other factors.
The City rating is, of course, very high because of the type of place the City is. What the valuers have done in Finsbury is to tail off rateable values from the 1505 high City levels down to the Islington part of the new borough very gradually. Thus, those of my constituents who live close to the City—they do not have fine views because many overlook such things as breweries and other industries and have to suffer the smells and noise therefrom have high rateable values on their property because of the influence of the City.
I urge the Government to look at this situation. I am sure they must try to find a solution in order to get a more modern method of assessing rateable value of what a property is worth. I was sorry that the hon. Member for Worthing began by making a political point. Some of us in London have been trying to fight this situation for many years and it came to a climax in 1962 when all heriditaments came up for revaluation. There is no need for this to be a party political point. It is a difficult situation and it will take a great deal of effort on the part of any Government to find a new norm for assessing the worth of property in terms of rent. As my hon. and learned Friend the Financial Secretary knows, my constituents are suffering and I urge him to try to find a solution.
§ 3.2 a.m.
§ The Financial Secretary to the Treasury (Mr. Niall MacDermot)
The hon. Member for Worthing (Mr. Higgins) and my hon. Friend the Member for Shoreditch and Finsbury (Mr. R. W. Brown) are both trying to lead me from the path of virtue, because it is not in order to discuss future legislation on this Bill. I will seek as far as I can without straying too far from the rules, to answer their points.
The hon. Member for Worthing introduced his remarks with general comments about the question of local government finance as well as that of the rating system. It is not only at a quarter to three in the morning that we on this side of the House are getting a little tired of that sort of sniping with which he began. The system he is complaining about was introduced by his Government. The revaluation that he is complaining about was started by his Government. If he is complaining that we have not altered the whole of that system within one year, a year in which we have had to grapple with the most serious economic situation the country has met in recent 1506 times, I think it is time he chose a different tune.
§ Mr. Higgins
I think we entirely agree that the problem of valuation is an intractable problem that has confronted both Governments. My point was that it was not reasonable to say that the economic situation had prevented the transfer of part of the expenditure from rates to the central Government.
§ Mr. MacDermot
I entirely reject that argument. One cannot do a major operation of this kind except within the context of a total review of the system of local government finance. That is what is taking place now, and included is the problem of the rating system. It is well known that the present system has been a matter of widespread complaint for many years by people who feel that it has caused a burden to fall unfairly and we are seeking to find practicable and equitable remedies. This examination is now in its final stages and I hope that it will soon be possible to make an announcement of the Government's proposals.
On the general question of the revaluation, I emphasise what I said in the Adjournment debate on 9th July—the Inland Revenue office has a very onerous job in conducting this revaluation as well as many other responsibilities. Since I have been responsible for this aspect of the Treasury's responsibilities, I have been most impressed by the way in which, despite the severe staff shortage, the valuers and their staffs have carried out their work.
I do not accept that the revaluation was inadequately done in Worthing or elsewhere. Undoubtedly there have been some mistakes, but of course there will be in any such system. That is why we have the appeal procedure. When the hon. Gentleman gave notice that he was to raise this subject tonight, I made inquiries to see what had been the total number of rating appeals since April 1963, when the current valuation lists came into force, compared with the number for the corresponding period following the introduction of the previous list in 1956. At 30th June, this year, there had been fewer proposals for the reduction of rating assessments than by 30th June, 1958, with the old list. This time it is just under a million and last time it 1507 was just over a million, although there were 17½ million hereditaments in the June 1963 revaluation and only 15½ million in 1958.
The hon. Gentleman referred especially to flats. I remind him that valuation officers are obliged by law to assess all properties according to the rents which they may reasonably be expected to bear. The valuation officers have to follow the views laid down by the Lands Tribunal that they should have regard to the rents paid for flats when dealing with flats and, when dealing with houses, to the rents paid for houses. It is only when there is insufficient rental evidence for properties of a particular type that rental evidence of properties of a different type is relevant, and even then it has nothing like the same force or relevance.
I am told that in Worthing and district the rental evidence for properties of different classes was reasonably plentiful and that when valuing flats and houses, respectively, the valuation officer did not need to go beyond the evidence available to him for that type of property. The Worthing and District Flats Residents Association over the last two years has repeatedly criticised the general level of the assessments of flats as being too high in comparison with the level for houses. It has forwarded evidence of rentals being paid and on which it relies for substantiating its case.
The Inland Revenue has looked into all this extremely carefully in the light of the evidence produced by the Association and other evidence at its disposal, but it concluded, as I told the Association in the correspondence to which the hon. Gentleman referred, that the general level was correct and that any individual mistakes which might have been made could be put right by the ordinary appeal system. It is of interest that of 900 or so appeals which were heard by the valuation court in the district in the first year, some two-thirds related to flats and in about 90 per cent. of those 600 appeals the valuation officer's assessment was confirmed. I appreciate that the hon. Gentleman is making an attack on the basis of valuation as laid down in the existing law, but I am pointing out that in performing their task, which is what we as Parliament have put on them, the valuation officers have applied the exist- 1508 ing law, and the figures show that they are doing their job competently.
The hon. Gentleman suggested that the general existing valuation basis was unfair and that we should abandon it for valuations based on capital values. This is one of the proposals which the Government are looking at. While I cannot forecast the outcome of the examination, I recognise that there could be certain advantages in changing to a capital basis.
Clearly, there would be more evidence available of the capital value of dwellings. The basis might be more intelligible to domestic ratepayers. On the other hand, a change to capital values would obviously lead to some pretty drastic changes in the relative rate burdens of different classes of ratepayers and of different ratepayers in the same class. It is the preliminary view of the Valuation Office that if we shifted to a capital valuation basis the effect would be to increase the burden on dwellinghouses compared with other properties. For commercial and industrial properties in some areas there would be less evidence of value instead of more and special difficulties in arriving at the capital value of public utilities.
These difficulties could no doubt be overcome if it were thought that it would be a fairer basis for valuation. In any event, revaluation on a capital basis might take five or six years to carry out, assuming that there were valuers available to do that work. If the suggested basis for revaluation is the right solution, I must point out that it is very much a long-term solution. In the meantime, the Government are concentrating on what can be done to make the rating system more tolerable in the immediate future and we hope to make an announcement very soon.
The remarks I have made—which seem to have induced a state of somnolence on the part of one hon. Member—apply also to the remarks of my hon. Friend the Member for Shoreditch and Finsbury about his constituency. As he pointed out, the propinquity of the City of London, with its very high rateable values, to a part of the area of that borough produce, on applying existing law, differences in rating valuations which may seem surprising to people merely comparing two properties which are very similar in themselves, but which 1509 because of their situation have a very different rental value. It is this which leads to the difference in rating assessment. The valuation officers can do no more than apply the law as it is laid down. They make such use as they can of things like the tone of the list to even out imbalances which there may appear to be within the valuation list. Subject to that, all they can do is to apply the law.
I am satisfied that the Valuation Office is doing this in a fair and reasonable manner. Whether the system can be improved is outside the scope of what is legitimate for us to discuss, but I hope that we shall have announcements soon which will help on this matter.