NEW ROXBORO HOTEL, ROSTREVOR (Hansard, 13 July 1976)

§ Mr. J. Enoch Powell (Down, South)

I imagine that anyone hearing that a debate was to be initiated on the Adjournment on the subject of compensation for damage in Northern Ireland would assume that one or other, or one or both, of two aspects would be at issue —namely, the inadequacy of compensation or the delay in assessing and paying it. I admit that the majority of the correspondence on this subject which I have had with the Minister of State's Office has been on one or other of those two aspects.

Perhaps I might take the opportunity of paying tribute to the fact that in a difficult area the replies which he and his colleagues have given have, upon the whole, been helpful both to myself and to my constituents. However, this morning is an exception. The complaint which I wish to make this morning is against excessive compensation—compensation so excessive as to amount to a public scandal and therefore to render it necessary that the facts should be registered publicly by means of this debate, so that the desirability of a recurrence being in due course prevented should be fully and publicly accepted.

I shall briefly explain the circumstances. Towards the end of 1972 the New Roxboro Hotel, Rostrevor, which is near Newry in my constituency, 600 changed hands at a price, I understand, of just under £20,000. Improvements were subsequently made. I am prepared to assume that those improvements might even have doubled the value of the property. Unfortunately it was severely—indeed hopelessly—damaged by terrorist action in 1973.

A claim for compensation was made, and right at the beginning of this year it became known that the Northern Ireland Office had agreed with the claimants a settlement in the amount of £360,000. You will imagine, Mr. Deputy Speaker, the consternation which the news of such a settlement caused not only in my constituency but more widely when this was reported. A property of which the value at the time of destruction was about £40,000 had in the course of two or three years, by reason of its destruction, attracted an agreed compensation of £360,000.

I should say that it was part of the agreement, accepted by the claimants in the settlement with the Department, that if the hotel were not substantially rebuilt by 1978, £100,000 of the £360,000 would be repayable. However, even upon that hypothesis an accrual of about £220,000 would have been achieved by reason of the destruction of the premises. If that is pitching it too high, by reason of inflation and the lapse of time, it cannot be denied that an enormous capital gain would be made simply by the fact that the property was destroyed and not replaced.

I cannot believe that this can be right or justifiable. I appreciate—or at least hope that I am correct in appreciating—that the sum, whether the larger or the smaller, will attract capital gains tax at a severe rate. I do not expect the Minister of State to make a precise statement on that subject, because it is the very proper rule that the tax affairs of individuals or individual companies are not discussed. Nevertheless, I hope that the Minister will be able to indicate in general terms that in such circumstances, without specific reference to this case, capital gains tax would be applicable. Even so, when all that has been taken into account, there is something clearly wrong when compensation is agreed at a level of this kind in such circumstances.

Perhaps I should say a word about the fact that the compensation was agreed 601 and not adjudicated by a court. I understand that this took place because the Department believed that if it had not agreed with its adversary it might have found that the sum awarded by the court was higher still. It is clearly a matter of judgment, and I dare say that the Department was guided by its professional advisers. All I have to say on that is that if that be the case, the unsatisfactory nature of the law or the practice of the courts is even more crassly revealed than if this had been a direct adjudication.

I understand that the general principle by which the courts are at present guided, and by which the Department assumed they would be likely to be guided in this instance, is not to have regard to the alteration of the market value of property after damage but to assess the cost of the complete reinstatement of the damaged or destroyed property as new. I suppose that to reinstate a Scottish baronial hotel in 1978 on the shores of Carlingford Lough might prove a very expensive operation. I accept that there may be different types of case where it is proper to regard the cost of reinstatement and enabling the people affected to carry on in business as proper criteria.

However, something is clearly badly wrong with the present rules, practices or laws if there could ever be a repetition of the monstrous and scandalous outcome of this case.

When I use those harsh expressions, I am not implying any malfeasance on the part of the claimants in this case. As the law stands, they are evidently entitled to the amount of the settlement, but that does not make the scandalous nature of the circumstances any more acceptable to the general public. There are many people in my constituency and in Northern Ireland who, for various reasons, suffer very severe damage as a result of terrorist action and are unable to obtain full or even, in some cases, partial compensation. It is a matter of public interest that, quite apart from the sums involved, anything of this kind should be prevented from recurring.

No doubt the Minister will confirm that there is an investigation, not merely in progress but terminating, on the reform of the law governing compensation for damage to property by terrorist 602 action. Whatever legislation or reform follows that review, the Government must include provisions to prevent a recurrence of the situation I have described and ensure that even if reinstatement is taken into account as a criterion for compensation, it can never again result in grossly excessive, unrealistic compensation being the outcome, as in this case.

§ Mr. Concannon

Perhaps it is slightly worse than usual. I thank the right hon. Member for the way in which he raised this subject. He showed that he understood the difficulty in which we find ourselves over this legislation.

My right hon. Friend the Secretary of State for Northern Ireland is gravely concerned, as are all hon. Members, about the amount of compensation being paid for criminal damage to property in Northern Ireland. The responsibility for meeting the cost lies with the United Kingdom taxpayer. The system is governed by the Criminal Injuries to Property (Compensation) Act (Northern Ireland) 1971. This was passed by the former Stormont Parliament.

The law provides that if the amount of compensation offered in settlement is disputed by the claimant, he can have his claim determined by the courts, and my right hon. Friend, as respondent to the claimant, is legally bound to pay what the Court decides. Compensation is now paid by the Northern Ireland Office from moneys voted by this House.

As the House has been informed before, the sums we are having to pay are substantial and cannot be considered lightly. For criminal injuries to property, the amount paid out under the 1971 Act as compensation in the last three years was of the order of £28 million, £40 million and £46 million respectively. The House will not fail to note the steep annual increase.

There are a number of reasons for my right hon. Friend's concern. The first is 603 that we all deplore the deliberate and vicious, but quite senseless, criminal acts which are responsible for damage and destruction. Those who plan and execute these acts, whoever they are, and whatever they purport to believe, will never succeed by this means in deflecting the Government from their policies.

Nor, I am sure, will the criminals responsible succeed in crushing the spirit of the people of Northern Ireland, who alone suffer from these mindless acts of destruction. We must look to the community itself to support the forces of law and order in order to root out and eliminate the evil sources of criminal devastation of the Province's own resources.

The second principal reason for concern is that the costs of compensation are a severe drain on national resources which could so much better be used for more productive purposes.

Thirdly, the present legislative framework for payment of compensation and the practical effects which this produces can lead in certain cases to situations in which the compensation paid might well be thought to be anomalous—and even in some cases an abuse. There are not many such but those that do exist stick out like a sore thumb.

The right hon. Member has made his point about one such case—the New Roxboro Hotel at Rostrevor. I would not dissent from what the right hon. Member has said about this case, but it would not be right for me to comment in detail on the process of settlement which was arrived at, in accordance with the statutory procedure, in the light of professional legal advice, and always subject to the final decision of the courts. The net costs to the taxpayer have to be taken carefully into consideration. These include the costs of court hearings, fees to counsel, and staff time. The likely views of the court, based on precedent, when settlement is still open, must also weigh heavily.

Although it is not right for me to go into the details of the process of settlement in the case of the New Roxboro Hotel it is right, and I am glad to do so, that I should say something of general application arising from the circumstances in the case.

604 Compensation in a case of this kind may be claimed first for the building itself, next for its contents, and finally for the so-called consequential loss suffered as a result. But the Act as it stands gives no guidence as to the basis on which the compensation should be assessed. The House will wish to judge for itself whether this imprecision in the law is a situation which it is appropriate or right to leave in being.

But the effect of the legal situation which at present applies is that where a building has been totally destroyed or destroyed beyond repair, compensation could range from market value, on the one hand, to the cost of rebuilding, or reinstatement, at the other extreme. The gap between the two can be very substantial indeed.

For lack of precision in the law, cases have undoubtedly occurred in which awards by the courts based on rebuilding or reinstatement have been made, thus setting a precedent, in which the viability of the premises before damage was such as to raise more than a reasonable presumption of doubt in the mind of the ordinary person whether they could have been rebuilt had they been damaged in circumstances other than those compensable under the 1971 Act. In this case I can illustrate the point most vividly by saying that the reinstatement value claimed by the owners was eight times greater than the net loss in market value of the property, as professionally estimated by the Commissioner of Valuation.

A further question then arises. There is no provision in the present Act to require actual rebuilding. There have been a number of cases—but I must add that there is no evidence whatever that this will apply in the case referred to by the right hon. Member—and I believe indeed that such cases are probably and fortunately few in relation to the number of awards made—in which the cost of reinstatement—far in excess of the market value of the property, has been awarded, yet there has so far been no obvious attempt to carry out rebuilding. Nevertheless such cases are conspicuous and the public interest requires that they be ventilated.

605 What has happened to the compensation awarded in these cases is not something on which I need to speculate. Indeed—and I hasten to add this—there may be understandable reasons for the absence of visible reinvestment in bricks and mortar, planning permission, damage to adjoining property, the security situation. In such cases the bona fides of the applicants' assurance to the court which heard the case may not be open to question.

I have said enough to illustrate the very difficult problems in this area to which the present Act gives rise, and to which, as I shall explain, my right hon. Friend the Secretary of State is now addressing himself.

In this particular case—and the right hon. Member has mentioned this—the officials of the Northern Ireland Office, very properly in my view, have done their best in reaching a settlement within the coinstraints of the law.

Although there is no power in the Act, as I have said, to enable this to be done, the settlement was made on the basis of agreement that £100,000 of the payment would be refunded if the claimant did not reinstate the hotel by the summer of 1978. How this might be enforceable is hypothetical but the very fact that it was done is unquestionably right. And I see advantage that it should be noted by this House. This is one of the reasons why I accept gladly that this debate will be a good thing.

One further point of general application arises from this case. I have mentioned consequential loss as a further element for which a claim may be made and on which the Act gives no precise guidance, though a series of judgments in the courts have allowed very substantial compensation to be paid under this heading. The phrase, in the case of a business enterprise, means in effect loss of profits. It can also even cover such claims as for demolition, site clearance, and foundation work. I need only say here that the Northern Ireland Office, in this case, mindful of the public interest generally, negotiated a settlement which was, again—and this is purely coincidental—about one-eighth of the amount originally claimed by the owners under this heading.

The right hon. Member has referred to the application of capital gains tax in 606 cases of this kind. Here I need only say that I am satisfied that the Commissioners of Inland Revenue have been fully appraised of the circumstances in which compensation of this kind may be paid and will no doubt draw such conclusions as may be appropriate in this and other similar cases.

The right hon. Member's intervention today has served his purpose. My right hon. Friend the Secretary of State acknowledges much of what he says and agrees above all that the public in Northern Ireland and indeed throughout the United Kingdom should be fully aware of the issues. Society must understand the implications of criminal acts committed by members of that society. Though these are few in number the consequences of their evil deeds are a burden upon all. It is for the Community to consider how far this can be allowed to go on.

My right hon. Friend has long been aware of the need for a review of the situation. The House will recall that on 24th November last he announced that he was setting up a committee under the chairmanship of Sir James Waddell to review the principles and operations of the Act and to report to him. My right hon. Friend expects to receive the report of this committee towards the end of this month.

From what I have said—and I have only touched on some of the problems of the current system—the House will realise that the question of payment of compensation for property damage in Northern Ireland today is complex and raises many and far-reaching issues. These include public expenditure and the burden on the United Kingdom taxpayer; the risks of anomaly or abuse; the problems of maintenance of the commercial and industrial life blood of the community; problems of avoiding social injustice and genuine hardship; and the need to prevent criminals and terrorists from benefiting in any way from their misdeeds.

Moreover, since my right hon. Friend invited Sir James Waddell and his committee to review the situation, the question of economy in public expenditure has become of increasing importance. The very necessary pressures to contain public resources and expenditure and to use them 607 as productively as possible are of heightened importance.

Thus my right hon. Friend must naturally take some time to study all the implications of the report and to form his own views. He intends to proceed with all despatch and positively. No doubt he will find that the Waddell Committee will point him on the way to his further consideration of what should be done in the sort of case referred to tonight, and in other areas as well. He will need to reflect and to make up his mind on what should be done over the whole field. He will no doubt take carefully into account what the right hon. Member has said in raising this particular case tonight.

With all this in mind, my right hon. Friend intends to proceed, as the House has already been informed, by introducing proposals for amending legislation in the 608 autumn. He will do so in the light of his mature consideration of the report, which he then has it in mind to publish, simultaneously with his own proposals for amending the present Act as appropriate by Order in Council. These proposals will be accompanied by an explanatory memorandum. There will, of course, be an opportunity for the proposals to be debated.

I thank the right hon. Gentleman fox the way in which he raised the matter. It is very valuable that this case and others like it should be given an airing.