HC Deb 15 July 1969 vol 787 cc569-78

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

11.11 p.m.

Mr. Bryant Godman Irvine (Rye)

My constituent, Mr. Dutt, who lived for 14 years in Bromley, found that at the end of that 14 years he wanted to move, so he entered into negotiations, about which I am sure the Chief Secretary knows, and sold his house for £15,000. The situation in which he found himself was similar to that which applies to many houses in this country, in that his was one house in a square. All the houses round the square were occupied, and there was therefore no spare land which it would be possible to develop. There was no access into the land at the back, and the various people who occupied houses in the square had been approached and all had refused any prospect of development.

There was, in particular, the owner of a place called Turret House who had been asked whether she would allow it to be developed. She was a Mrs. Hodson, and she said: Nobody can develop the overall site unless I sell half my garden to provide access. I have lived here 14 years and, as I love it, I have no intention of selling an inch. So far as Mr. Dutt is concerned, that puts paid to the Land Commission's argument ". A Mrs. Welch said:

All the residents are determined to act together to keep developers out. Knowing how determined we are to preserve our homes, we feel sorry for Mr. Dutt, confr3nted with the bill. What worries us now is that we could be in the same boat if we wanted to move. Everybody occupying premises around the square has said "No" to development. There was therefore no application by my constituent to the Bromley Council for development. When he decided to move he got a letter from the person purchasing his house which said that the purchaser would take the land for residence only. My constituent was assured that if this was the situation there would be no question of planning permission being granted, and also that he would not be liable for any charge, but in due course he received an assessment saying that there was a sum of £4,000 for which he would be liable, out of the £15,000 he had received. Therefore he was assessed for £1,160.

So Mr. Dutt came to me, and I wrote a letter to the Minister. The Minister replied on 24th March, and in the course of his letter he said: The levy is payable on what is known as the development value of land, which is the increase in value that comes with the prospect (which is not necessarily dependent upon there being planning permission) of putting the land to a new and more valuable use. The situation as I see it is that nobody can be certain, when he sells a house in these circumstances, which are not unusual in this country, that he will not be encumbered later with an assessment for development value. It appears that nobody can sell a house with any certainty that a straightforward sale can be carried out without an assessment of this sort.

The second thing is that is my constituent had done everything he could. He made inquiries about what the position was to be so far as development value would be concerned. He was advised that without planning permission, which he had not got, he was not liable, and that if he did apply the application would be refused.

The third thing is that when the Daily Express dealt with this case it said that this was purely a tax on hope value, and if it is a tax on hope value, I cannot follow the reason why the assessment is not made at the time the development is taking place. My constituent moved out. He is not there. Nobody is developing his land. If at some future stage there could be development, which my constituent thinks impossible, why not charge the person who then has the land?

Having been presented with these facts, I then received a letter from a gentleman who lived in Carmarthen. He found himself in exactly the contrary position. In his case, he had a mother of 94 and he had land on the outskirts of Carmarthen ripe for development. In accordance with the views he held, it seemed to him that it would be possible for him to obtain an increased value for the land if he sold it, but he was not proposing to do so.

He said in his letter to me: Some three years ago, under a compulsory order of the local authority, twin main sewerage pipes were laid across the centre of two fields owned by my mother (aged 94). These fields form the boundary of the town's southwestern perimeter. It is generally felt that these two fields now present themselves as a front-line proposition for development. Only yesterday, in an endeavour to expedite payment of compensation to my mother in respect of the laying of the main sewerage pipes, I was informed by an official of the District Valuer's staff that no compensation could be claimed for loss of development value as no outline planning consent had been sought or given for the fields in question. This line of reasoning, I feel, only aggravates the absurdity of the Land Commission's ' prospect value' in connection with Mr. Dutt's house sale. In Mr. Dutt's case, development prospects appear very remote, and the Land Commission demand blood money. In mother's case, development ' prospect value' is generally accepted as highly favourable but the Land Commission does not want to acknowledge this when it comes to compensatory circumstances. 'Prospect value' surely is an absurdity but, if the Land Commission cling to it, then it should work both ways. So here we have my constituent, who has land for which he has not obtained and cannot obtain planning permission, being assessed for development value, and in Carmarthen we have a case where there is land which could, in the view of the owner, be ripe for development, and he is not allowed to claim for development value.

In these circumstances, I thought there was a matter which the Minister would like to explain to the House, and that is why I sought this debate.

11.20 p.m.

Mr. John Hunt (Bromley)

I am grateful to be able to speak in this debate, so rightly initiated by my hon. Friend the Member for Rye (Mr. Bryant Godman Irvine). I share his mystification at the operations of the Land Commission in the assessment of development value. The contrast which he has drawn between the two cases which he cited has highlighted the extremely ambiguous and anomalous position which appears to exist on development value. I am particularly concerned with the case of Mr. N. K. Dutt, who sold his house in my constituency for £15,000 to move to the equally salubrious and residential area of Rye. Then, out of the blue, and quite contrary to the legal advice which Mr. Dutt had received, came notification from the Land Commission that, in its view, the property was worth not £15,000 but £11,000 and that the balance of £4,000 represented what it called expectation of development, on which betterment levy would be paid.

This assessment came as a bombshell not only to Mr. Dutt but to many other owner-occupiers in Bromley who might inadvertently be placed in the same position and face a levy demand of similar magnitude. What is particularly disturbing and outrageous in this case is that this assessment was made in spite of the facts that no planning application for development of the site had ever been submitted and that the Bromley Council had in any case said that in the event of any such application it would most certainly be refused.

So the case of Mr. Dutt has caused real consternation and anger in my constituency and, I believe, far beyond it. Many people there feel, as my hon. Friend and I feel, that if this levy is to be paid at all it should be paid by the person who eventually does the development, rather than the original owner, Mr. Dutt. So we are entitled to some guidance and assurance from the Minister. If this is forthcoming, this short debate will prove very worth while.

11.22 p.m.

The Minister for Planning and Land (Mr. Kenneth Robinson)

In seeking an Adjournment debate on the practice of the Land Commission in assessing development value, the hon. Member for Rye (Mr. Bryant Godman Irvine) has chosen a topic which we have had many opportunities of debating in recent months—most recently, about one hour ago. I should like to pay tribute to the restrained way in which he made his case. I will not therefore spend long on a general exposition of how development value is assessed, for this is in any case a relatively simple matter, but I will deal in more detail with the way in which the current use value of land is ascertained, since I think it is this aspect of the levy calculation which is causing the hon. Gentleman some concern.

But, first, I would like to make one comment on the phraseology adopted by the hon. Member. It is that the Land Commission has no "practice" but to follow the law. To my mind, the word "practice" carries the implication that one has chosen to follow a certain course, or that one is exercising one's discretion in a certain way. This is not the position in which the Land Commission finds itself in relation to betterment levy. It has no discretion in the way in which it applies the very tightly drawn code in the Land Commision Act. Clearly, there are some matters which it decides one way or another or values to which it may ascribe a higher or lower figure. But all these matters are subject to appeal before the Lands Tribunal, a body with a vast fund of experience of land values, or to the courts.

As I have said, I will deal only briefly with the way in which levy is assessed. First of all one starts with a top value. Where it is the sale of land which is being levied—and over 85 per cent. of all levy assessments are on the sale of land—the top value is the price for which the land has been sold, or, to use the legal jargon, the consideration. I will not pretend that it is always simple to ascertain the consideration for the sale of land. In a few cases other factors, such as a promise to do work, or an exchange of chattels, are involved and this requires some adjustment of the price paid. But in the great majority of cases there is no room for dispute about the top value where land is sold.

Where land is leased, the top value is ascertained by capitalising the annual rent and adding any premium that has begin paid. This is a common feature of valuation and again leaves little room for dispute. Where the levy charge results from land being developed, the top value is the value of the site for its new use. The determination of top value in these circumstances is a matter of valuation, and, of course, differences may arise between the levy payer and the Commission about the figure. But at least it can be said that the value derives from an actual use, whereas the more difficult figure to reach, that of current use value, must of necessity be based on negative assumptions.

Given a top value, development value is arrived at by deducting a base value. I think that it is now well known that this base value is either the price paid by the vendor for the land or its current use value plus a further one-tenth of the current use value added.

There are other allowances which may come into the calculation in certain circumstances—the levy payer may spend money which has increased the development value of his land; there is an allowance for costs of valuations involved in the levy calculation; and now, under the Finance Bill which we are debating this week., there will be an allowance for the cost of selling the land which is subject to levy.

Of all these matters, the one which is the most difficult to appreciate is the determination of current use value, and I will now comment on this. The current use value of the land is the value which the land would bring on the open market on the assumption that planning permission would not be granted for any material development. This means that in arriving at current use value the valuer may assume that it would be permissible to carry out the various small extensions or rebuilding works which would not themselves attract levy, but that he must also assume that any development which would attract levy would not be permitted.

This is the crux of the matter. Betterment levy is a charge on the added value which planning permiss, on or the prospect of it confers on land, and to arrive at this added value one must ascertain the value of the land both with and without the benefit or prospect of this permission.

I am, of course, well aware that the fact that levy is charged where there is a prospect of planning permission being granted is one feature of the scheme of levy which has provided the Press and some hon. Members with the opportunity to indulge in some lighthearted sarcasm.

But if levy were not taken in such circumstances, the scope for avoidance would be unlimited. In that event all a vendor need do to avoid levy would be to sell his land before getting planning permission to develop it. Furthermore, there is nothing unreal about the money which passes. The sale price, on which levy is assessed, is just as real whether or not there is planning permission.

In many cases the fact that planning permission to develop the land does not exist presents no problem to the valuer or the levy payer. Take, for example, the case of agricultural land sold to a building firm which expects that in the course of a few years it will be able to secure permission to develop the land.

The local value of agricultural land as such will be apparent, within the normal limits of valuation, and any excess price paid is clearly the amount which the developer is prepared to invest against the chance of one day securing planning permission. As a result the landowner who is selling his agricultural land will have some levy to pay and, given the scheme of betterment levy, no one would deny that this is the sort of case in which levy is properly payable.

Difficulty arises where it is less apparent that a price is being paid which takes account of the fact that one day development of the land may be permitted. A person may, for example, buy, for a substantial amount, a plot of land for the purpose of extending his garden, with no intention of building on it. But it does not follow that he would have paid that price for it in a world where the use of land was completely restricted to its current use. In other words, the price he pays is something of an investment, and although meanwhile the land is used as part of a garden the purchaser feels that its value is assured because the market will always support the high price which an ultimate use as a building plot would command.

The Press has been quick to criticise the Land Commission for charging levy where the prospect of development seems somewhat distant. But, as I said earlier, this is not a scheme which the Land Commission has devised for increasing its revenue—it is on the contrary, only the proper application of valuation judgment in accordance with the Act and is subject to appeal to the Lands Tribunal.

Valuation is not an exact science and a valuation represents no more than an expression and record of the valuer's opinion. A valuation is the conclusion reached by the valuer after careful consideration of the facts. In short, it is broadly the valuer's reasoned view of the probable resultant of all human motives and reactions likely to be involved in relation to the land in question. This view is one which must stand up before the Lands Tribunal, and so long as taxation depends upon the assessment of land values I can see no fairer way of reaching a conclusion.

The hon. Member for Rye has quoted the case of the sale of a house, standing in slightly less than 1 acre of ground in Bromley by Mr. N. K. Dutt for £15,000. The hon. Member for Bromley (Mr. Hunt), the constituency Member concerned, has also mentioned the case of his constituent. This sale was duly notified to the Land Commission, and as it appeared that a charge to levy might be due, the district valuer was asked to open negotiations on behalf of the Commission, but neither the levy payer nor his solicitors have responded to the district valuer's letters.

In the meantime the levy payer has not been so reticent about writing to the Press. The Press has made great play of the fact that the local planning authority has said that an application to develop Mr. Dutt's former house would be rejected, and that in these circumstances the charge to levy is unjustified. I think that we must discount the amount of the levy which may be charged that has been quoted because the district valuer has not had an opportunity to negotiate with the levy payer, but, of course, the fact remains that some levy may be due.

In this particular case this may not he so surprising as the hon. Member would have the House believe. I understand that the purchaser owns adjacent property——

Mr. Hunt

Not adjacent.

Mr. Robinson

I understand that it is, and that there is planning permission for a development which may be facilitated by the inclusion of a part of the garden of Mr. Dutt's former house and that the purchaser has an interest in small developments of this nature. If Mr. Dutt gets into touch with the purchaser, all these matters can be sorted out.

From what I have said I hope the House will appreciate that, simply because there is no immediate plan to develop the land, it does not follow that no payment has been made for development value. Moreover, it is important that a payment for development value should be recognised at this stage since, if the land is eventually developed, the price paid for the land will form the base value when the levy is then calculated. Many house prices, particularly the prices of older houses, are supported by the fact that purchasers are prepared to include a certain amount for the prospect of development in the price they pay.

It is in order to relieve the owners of small houses of a charge to levy in these circumstances that the Government introduced Clause 39 of the Finance Bill. This Clause increases the supplement to current use value from one-tenth to one-fifth where a house standing in a quarter acre or less is sold for not more than £10,000. Thus, if a house is sold for £6,000, so long as its current use value is at least £5,000, no levy would be payable. This provision will be of considerable assistance to small house owners, although where larger sites such as that sold by Mr. Dutt change hands the Commission will continue to watch for development value and assess it to levy on the present basis.

The hon. Member for Rye has also mentioned the case of Mr. H. Footman, of Carmarthen, but, in spite of the hon. Member's courtesy in letting me know yesterday that the case would be raised in this debate, I have not been able to obtain full details of it prior to this debate. But the hon. Member has asked for a reconciliation between one case and another, and this gives me the opportunity of saying that, whilst I have some doubts about the value of discussing in the House individual levy cases, I am sure that there are considerable arguments against attempts in a debate of this kind to reconcile a decision in one case arising out of a particular set of circumstances with a decision on a quite separate case which may appear to have similar characteristics. I will, however, consider what the hon. Member has said about the case of Mr. Footman and about the relationship between this case and Mr. Dutt's case and write to him when I have had the opportunity of considering it.

11.36 p.m.

Mr. Graham Page (Crosby)

The Minister's lucid and very careful explanation of the incidence of levy has only confirmed the injustice and unfairness of the imposition in many cases. In this case the right hon. Gentleman has explained that the levy is not a levy on money received but a levy on added value. That may be so. The Minister has advanced the extraordinary proposition, or repeated it from what the district valuer seems to have said, that in valuing the present value of the property account must be taken not only of the prospects of development of that property when a local authority has said that it would not grant planning permission but also of the fact that the purchaser of that property owns some adjoining property.

I should not have thought that this was the right principle of valuation. One does not dispute that the land itself should be valued, perhaps on its hope value. Heaven knows that there is hardship enough arising out of that in many cases, because one has to wait for so long to realise the money from that hope value. However, if the district valuer is to take into account, the fact that the buyer also owns adjoining property and that by that marrying of the two properties the property purchased has increased in value, a wrong principle of valuation has been applied.

I know that this principle of marrying two sites and increasing the value of the whole applies when one is faced with compulsory purchase. One can argue it in a valuation in those circumstances. But I have not heard it argued in the case of valuing property for a hope value. If that is to he the case, there will be greater and greater hardship in these cases where the owner has to wait so long to realise the value but at the same time has to pay the levy out of money that he has not received. This is an argument which we have had many times in connection with the levy, but as each case comes up such as those which have been put before the House tonight we see the unfairness and injustice of the whole system of levy, and the sooner we get rid of it the better.

Mr. K. Robinson

If I may correct the hon. Gentleman on one point, I did not say that the valuer took this into account in making his valuation. I quoted what I understood to be the fact to show that perhaps the hope element here was not as remote as the right hon. Member for Rye suggested.

Question put and agreed to.

Adjourned accordingly at twenty minutes to Twelve o'clock.