§ 11.15 p.m.
§ The Minister for Planning and Local Government (Mr. John Silkin)
I beg to move,That the Acquisition from the Crown (Grants) Order 1976, a draft of which was laid before this House on 15th July, be approved.With the leave of the House I propose, Mr. Deputy Speaker, that we take at the same time the second Order,That the Compulsory Acquisition by Public Authorities (Compensation) Order 1976, a draft of which was laid before this House on 15th July, be approved.The Orders are both concerned with applying to certain land transactions within the public sector the principle of the community land scheme under which acquiring authorities are enabled to buy land for development at reduced prices.
The Compulsory Acquisition by Public Authorities (Compensation) Order, does two things. First, in article 3, it lists five bodies in addition to those specified in Section 26 of the Community Land Act to whom the arrangements in article 4 will apply. Second, in article 4, it modifies the rules for the assessment of compensation for compulsory purchase in their application to transactions between these bodies. I shall deal with the second point first.
The Order is necessary because until the second appointed day—when the basis of compensation will change to current use value—compensation for the compulsory purchase of land from the private sector will continue to be determined on the market value basis laid down in the Land Compensation Act 1961, or the corresponding Scottish Act of 1963, but the price the local authority actually pays will be reduced by the amount of any development land tax for which the vendor is liable.
What we could not do in the Community Land Act, because it preceded the Development Land Tax Act, was to make provision for similar arrangements to apply to transactions between local authorities and certain other public sector bodies. However, in anticipation of the Development Land Tax, Section 26 of the Community Land Act provided for the modification, by Order requiring the 198 approval of both Houses of Parliament, of the statutory rules for assessing compensation for compulsory purchase, in this limited field only. Of course, compulsory purchase between public authorities is almost unheard of, but it is the practice to apply the compensation rules to purchases by agreement, and it is in this context that the provisions of the Order will normally be relevant.
The principle underlying the net-of-tax purchase provisions of the Development Land Tax Act is that the benefit of being able to acquire development land at reduced prices should go to the authority which is to develop the land or bring it into development. The modifications to the compensation rules as set out in article 4 of the Order are designed to apply that principle to transactions between the specified public sector bodies, all of whom are both exempt from development land tax on disposing of land and entitled to deduct tax on buying it.
The effect of the modifications will be to reduce the cost to the acquiring authority by approximately the amount of development land tax which would have been due if the land were in private ownership.
Article 4(2) of the Order achieves the desired "net-of-notional-tax" result by providing that compensation shall be assessed as the difference between the normal open market value and the amount of development land tax that would have been deductible if the land were being acquired from a person liable to the tax. But since no actual tax liability is involved, certain assumptions, set out in paragraph (b) of the modified rule (2), have to be imported: first, that the selling body was not totally exempt from development land tax; second, that the time of the disposal is the date at which the compensation is to be assessed; third, that the consideration, from which the calculated amount of "notional" tax falls to be deducted, was the open market value; fourth, that the vendor's cost of acquisition—for the purpose of calculating notional tax—did not include any tax deducted by that body when it acquired the land—without that assumption, the benefit of the reduced price system would not be passed on to the acquiring body as intended; fifth, that no development value had previously been realised by the vendor.
199 Paragraph (3) of article 4 has the effect that the modified basis—the "net-of-notional-tax" basis—does not apply where the land being transferred was acquired by the vendor before 1st August 1976, when development land tax system begins to operate.
Article 3 specifies five additional bodies to whom the modified basis of compensation will apply. I have already explained the relationship of the order to the development land tax system, and hon. Members who have been studying the Development Land Tax Act may have noticed that these five bodies are among those specified in Section 11(2) as being exempt from development land tax. But they are also authorities which may be authorised to purchase land compulsorily, and they will therefore deduct tax when acquiring land from a person liable to pay it. They are bodies having functions and responsibilities which are broadly similar to those of the land scheme authorities themselves, namely, to develop land, or arrange for it to be brought into development, for the benefit of the community.
The comparability of these bodies with local authorities has been recognised for Community Land Act purposes by including them in the Community Land (Outstanding Material Interests) Order 1976, which came into operation on 6th April. It is therefore appropriate to bring them within the circle of bodies to which the net-of-notional-tax arrangements apply.
The Acquisition from the Crown (Grants) Order, which requires the approval of the House of Commons only, runs parallel to article 3 of the compensation Order, but in relation to acquisitions by the same five bodies from the Crown.
Since the Crown is outside the scope of the Development Land Tax Act, and also because land cannot be acquired compulsorily from the Crown, the arrangements for enabling public authorities to buy Crown land at reduced prices are covered not by Section 26 of the Community Land Act but by Section 40.
Under that section, the Secretary of State may make to any body mentioned in subsection (1), or specified in an Order under that subsection, a grant in respect of the acquisition of land from the 200 Crown. The intention behind Section 40 is that where the authorities buy land from the Crown the price they pay should correspond with what it would have cost them if the land were being acquired from a person liable to pay development land tax. But because the Crown is not liable to DLT, the land will be transferred at market value and the acquiring authority will receive a grant representing the DLT that would otherwise have been payable.
Article 3 and the schedule to the Order specify five additional bodies to whom the grant arrangements are to apply; and as I have said these are the same five bodies referred to in the Public Authorities (Compensation) Order. The reasons for applying that Order to them apply equally to the Section 40 grants scheme, and the grants Order provides accordingly.
§ 11.23 p.m.
§ Mr. Hugh Rossi (Hornsey)
I thank the Minister for the clear way in which he explained the meaning of the two Orders. At the same time, however, I wish to express the distaste of the Opposition for the way in which the Compulsory Acquisition by Public Authorities (Compensation) Order operates.
The Order seeks, by Statutory Instrument, to make a substantive change in legislation. As the Minister knows from our many discussions during the passage of the Community Land Act through this House, one aspect of it that we disliked more than any other was the arbitrary powers being given to the Government in a whole variety of ways. The specific instance now before us is that the Minister can now, by way of a Statutory Instrument, ask the House to amend an existing Act of Parliament.
In article 4 of the Order to which I have referred we are replacing part of a section of the Land Compensation Act 1961. In the ordinary way, such an amendment of legislation requires an Act of Parliament—an Act that follows the due legislative processes through both 201 Houses, when the matter is fully probed and ventilated. Indeed, the Minister is seeking by this device of a Statutory Instrument to amend substantive legislalation. Not only is this a matter of concern to all Members; it is a matter that causes great difficulty to people outside the House who are confronted with the task of interpreting and advising upon legislation. It is difficult enough, where there are a number of Acts, one amending the other, for legal advisers to be able to thread their way through the statutes, ariving ultimately at the up-to-date situation. As a practising lawyer, the right hon. Gentleman knows what difficulties can be encountered by solicitors and members of the Bar.
The matter is made even more difficult when such advisers not only have to refer to statutes but have to try to find various Statutory Instruments that may or may not be issued from time to time at the whim of a Minister, altering Acts of Parliament. The task of being up to date in the law and being able to advise citizens of their rights becomes well-nigh impossible when a process of that kind is followed. One cannot do anything but deplore it.
I turn to the Order. If I understood the Minister correctly, it not only relates to acquisitions of land between public authorities but can operate between public authorities and private citizens. I thought I understood the right hon. Gentleman to say—no doubt he will correct me if I am wrong—that he is now adding five new authorities under article 3 to those authorities that now have the power of acquiring land net of development land tax. I understood the Minister to say that that means they would be in the same position as local authorities under the Act and could therefore acquire on that basis from other authorities who were not liable to pay the tax, or from private citizens who were liable to the tax.
If my understanding of what the Minister has said is correct it is a matter greatly to be regretted that he is adding to those who can assess, and, in effect, charge tax, five diverse bodies—the Highlands and Island Development Board, the Lee Valley Regional Park Authority, the Scottish Development Agency, the Scottish Special Housing Association and the Welsh Development Agency.
202 In explaining the Order the Minister said that these bodies, when they buy land in future under the Act, will buy it at the difference in value between the market price of that land and the development land tax that would be chargeable on that land if the vendor were liable to the payment of development land tax. Who is to assess what the tax is? One can only assume that these five bodies, as with authorities which already have the power under the Community Land Act and Development Land Tax Act, will be able to assess and deduct that tax.
In other words, this Order is saying that these five bodies are now taxing bodies. They have, in effect, the same powers as the Inland Revenue, to assess someone's development land tax should be in order to arrive at the price at which the land is to be sold to them. This is a matter that we deplore. We think it is wrong that bodies of this kind should be able to assess tax in this way and acquire land as a result.
Perhaps the Minister can also explain precisely the meaning of article 4 (2) (v) which reads:before the disposal no realised development value had accrued or had been deemed to accrue to the vendor".Does that mean that one has to discount the value attached to the land by reason of the cost of development? If one is to do that, how does one arrive at the development land tax? Perhaps the Minister can explain how one takes that factor out of account if the whole exercise of article 4 (2) is to deduct a development land tax from a price which is to be paid.
In the other Order we find that the same five bodies are listed as those authorities that may now qualify for grant when they acquire land from the Crown, because the Crown may not, under the Community Land Act, sell net of development land tax. Therefore, it must be made up to those authorities in some other way, namely, out of moneys provided by Parliament. Presumably, as the Minister has presented the Order to the House at this time, he must have in contemplation some transaction that these bodies, or some of them, wish to enter into. Can he tell us what the transactions are? What amount of grant will have to be provided by Parliament under 203 the operation of this Order? Will the Minister say whether any transactions are being contemplated at present to which either of these Orders would be applicable?
§ 11.33 p.m.
§ Mr. Graham Page (Crosby)
I am glad to welcome the Minister back to these muddy waters of the Community Land Act and the Development Land Tax Bill. I thought that he had deserted us over the land tax. He certainly needs to grasp these matters to explain the Orders, as we need to grasp them in order to understand them.
Why have these five bodies been selected from the many bodies that are exempt under Clause 11 of the Development Land Tax Bill?
§ Mr. Rossi
On a point of order, Mr. Deputy Speaker. I regret having to interrupt my right hon. Friend, but I find it very difficult to hear what he says against the background of conversation below the Gangway. I found myself being distracted during my speech by this conversation, but I carried on as best I could. If hon. Members wish to have a conversation that is unrelated to the matters before us, will you invite them to do so outside the Chamber?
§ Mr. Deputy Speaker
I am sure that hon. Members in the Chamber have heard the words of the hon. Member for Hornsey (Mr. Rossi).
§ Mr. Page
I am grateful to my hon. Friend the Member for Hornsey (Mr. Rossi). I learnt my politics on street corners, shouting down trams in North London, so I have always had a fairly good voice to get across the Chamber. However, I should be grateful for a little attention, because both Orders are extremely difficult to understand.
I was asking why the five authorities in the schedules had been selected. The Order refers to Section 40 of the Community Land Act, which deals with purchases by authorities from the Crown. It deals with purchases by local authorities, by new town authorities, by the Land Authority for Wales, the Peak Park Joint and Lake District Special Planning Boards, and the joint boards established under Section 2 of the Act. Those are in the Act already. To those are added the bodies specified in the Order.
204 The bodies exempt from the payment of development land tax include a considerable number of other authorities, and among them are parish councils as opposed to district councils or county councils, and such other bodies as Letchworth Garden City and the Commission for New Towns, and so on. It puzzles me why they do not come into an Order of this sort.
I understand that after the House has approved the draft the Lee Valley Regional Park Authority, for example, when acquiring property from the Crown, will receive a grant of an unspecified amount decided by the Treasury, as direct payment, instead of the development land tax that it might have pocketed on the way in other circumstances. Why do not other authorities, too, get this advantage? Why is a district council entitled, if acquiring from the Crown, to get a grant under Section 40 and yet a parish council is not? Why not include parish councils and Letchworth Garden City and the New Towns Commission? Will the Minister be good enough to explain why? It would be of assistance to those of us who are trying to understand the Order.
I come to the Compulsory Acquisition by Public Authorities (Compensation) Order 1976. This is a little more complicated than the other Order. As I understand the theory of the development land tax, it is a tax on a value created by the community so that the revenue from it must go to those who provide the services for the community. Normally it will not go direct but will reach the providers of the community service via the Treasury, the tax having been paid to the Board of Inland Revenue. If the purchaser is a particular kind of public authority—one of those set out in Section 11 of the Development Land Tax Bill—it may benefit direct by pocketing the tax out of the purchase money before paying the money over.
To use the example of the Lee Valley Regional Park Authority, if that authority were to acquire church property, it being so much worthier than the church it would be allowed to pocket the tax and to retain it for itself. It could deduct what it thought was the development land tax payable if it were to be accounted for to the Board of Inland 205 Revenue. The Community Land Act, in effect, provides that that could not be done if the sale were to another exempt body. That was provided for in Section 39 of the Act, which rules that there should not be purchases net of tax as between two public bodies. But that does not satisfy the Minister, because he turns back to Section 26 of the Community Land Act and finds that by fiddling about with the law of compensation he can bring about almost the opposite result to that which was set out in Section 29(2) of the Development Land Tax Act.
Let us assume again that the Lee Valley Regional Park Authority acquired land compulsorily from the South Hertfordshire District Council. It would have to pay only a fictitious price—the market value less what it estimated, the development land tax would have been if it had been a transaction with a private body. That would be because Lee Valley had acquired the land from a body mentioned in Section 26(2) of the Community Land Act. It is a local authority, and a local authority is defined in that Act either as a district council or a county council. The definition does not cover a parish council. It includes the Land Authority for Wales, the Peak Park Joint and Lake District Special Planning Boards and the joint boards, but there are, as I mentioned in connection with the other draft Order, a lot of other exempt bodies which do not have to pay development land tax. If the Lee Valley authority acquired from a parish council, a police authority, a fire service authority, the Commission for New Towns, Letchworth Garden City, the North Eastern Housing Association or any of the Northern Ireland authorities, the transaction would be exempt. Why this selection? What is the principle that determines that the bodies mentioned in the Order shall enjoy the benefits while others do not?
If the district authority were acquiring from the Lee Valley authority it could pocket the tax. If a parish council from within that district were acquiring from the Lee Valley authority, it could not. On what principle is the distinction made? It makes nonsense of the Development Land Tax Act and the Community Land Act to make this selection.
206 We come to what must be deducted from the market value in the Compulsory Acquisition by Public Authorities (Compensation) Order. What has to be deducted is development land tax. That might sound simple to those who have not had to spend 28 sittings in Committee and many hours studying the Development Land Tax Bill, now of 192 pages, to try to find out what development land tax is and how it is calculated.
It is a problem for any authority when it is told "First, you must guess what the market value is"—I do not know whether it will go to the district valuer to find out or whether it can estimate the value for itself—"then you must deduct development land tax, which is not yet imposed by law". The Development Land Tax Bill is not yet on the statute book.
§ Mr. Page
Then it is only just. It still has to be printed as an Act. I presume that it will turn out to have another 192 pages to be studied.
The provisions about purchases net of tax ate set out in Section 39 and Schedule 7 of the Development Land Tax Act. Are those provisions, consisting of 15 pages, for calculating what is to be deducted in net of tax transactions to apply to transactions covered by the Order? It does not say so. Why is it necessary, in any dealing between a public authority and a private person, to have to wade through 15 pages of calculations to find out what the development land tax is when, in an Order of this kind, one can say "The public authority guesses what the development land tax is and deducts that amount"?
I foresee a lot of trouble between local and public bodies over this matter. Who will assess the tax as between two authorities? If one is entitled to pocket part of the purchase money to which the other is entitled, I cannot see the one which thinks that it is entitled to a considerable part of the purchase money abiding 207 by an estimate by the purchasing authority of what may be the development land tax.
The Order gives no clue as to how the tax is to be calculated. It contains only five small paragraphs of assumptions that have to be made, whereas, for transactions between local authorities and private persons, there are 15 pages of the Development Land Tax Act setting out how the amount should be calculated. I suggest that the Board of Inland Revenue should assess the tax in the proper way and that we should not have this net-of-tax purchase procedure.
These five paragraphs of assumptions are not easy to understand. My hon. Friend the Member for Hornsey referred to the last one—that one must assume thatbefore the disposal no realised development valued had accrued or had been deemed to accrue to the vendor.That raises enormous problems under the Act. There are all the definitions of "realised development value", "deemed disposals", when development value is deemed to accrue, and so on. The tax is not easy to calculate. But the Order leaves it to the whim of the authority that is paying purchase money to some other authority to deduct what it sees fit from that purchase money.
This Order, complicated as it is, should be extended to give some clue as to how the development land tax is to be estimated by the authority that is to pay the purchase money and by the authority that is to receive the purchase money, so that there shall be no dispute between them about the amount of the tax.
My main questions are: why is there this discrimination between authorities, to the detriment of smaller authorities, and how can one estimate the development land tax to be deducted from an estimated market value?
§ 11.50 p.m.
§ Mr. Paul Hawkins (Norfolk, South-West)
I intended to ask only one question. I was surprised to hear my hon. Friend the Member for Hornsey (Mr. Rossi) thank the Minister for making the meaning of the Order as clear as day. I have not been closely involved in these intricate matters, but I am bewildered and, from what my right hon. Friend the 208 Member for Crosby (Mr. Page) said, so is he—which is saying something. My right hon. Friend, who is a solicitor, says that other solicitors may find difficulty in understanding these provisions. I can certainly confirm that chartered surveyors who will have to advise clients on value or compensation to be paid will find it very difficult.
When one public authority acquires from another, as is apparently the case in at least one of the Orders, is it permitted to delay payment of compensation for the extra three months laid down by the Chancellor of the Exchequer in his recent statement, in addition to the inordinate time by which all public authorities delay the payment of due compensation to ordinary private citizens?
This is one of the worst habits of all Governments. They use every excuse to prevent the citizen from receiving money that is due to him.
§ 11.53 p.m.
§ Mr. John Silkin
I can tell the hon. Member for Norfolk, South-West (Mr. Hawkins) that the extra three months' provision does not apply, though no doubt the legal profession, of which I have been a member for many years, will see that delays occur.
In reply to the hon. Member for Hornsey (Mr. Rossi), I must say that this is not a substantive change in legislation it is a modification of rules in the Land Compensation Act 1961.
I have endeavoured, to the best of my ability, to follow in the footsteps of my distinguished predecessor, the right hon. Member for Crosby (Mr. Page). I have studied carefully everything done by him. I looked up Section 273 of the Town and Country Planning Act 1971 and Section 252 of the Local Government Act 1972 and said that if they were good enough for him they must be good enough for me.
I do not want to do down the right hon. Gentleman. This provision has a very respectable parentage which goes back many years. I suspect that the hon. Member for Hornsey, who was not born yesterday, knows this full well.
The hon. Member for Norfolk, South-West described his right hon. Friend as 209 being bewildered. He was not bewildered; he was a little confused, perhaps, as was his hon. Friend the Member for Hornsey.
I want to make it absolutely clear that this Order does not affect the question of public authorities and the private citizen, it refers purely to what happens as between a named number of public authorities and other authorities, under the Act.
§ Mr. Silkin
What I tried to say in my opening speech was that the powers do exist vis-à-vis the private sector. There was a gap in respect of these public authorities and the public sector, and this Order will put the balance right.
Coming back to the earlier point—the power of the five bodies mentioned to buy net of tax is not contained in the Order but in the Development Land Tax Act.
The next point that the Member for Hornsey raised concerned article 4(2)(v). The point about it is this. Since the development land tax circumstances of a local authority that is selling are not the same as for a private seller, it has been decided that the nearest equivalent of an actual DLT calculation will be produced by treating each disposal as a first disposal in a financial year—in other words, no tax is payable on the first £10,000 of development value, and then, until 31st March 1979, 66⅔ per cent. is payable on the next £150,000, and so on.
§ Mr. Graham Page
This is an extremely important point. Does it mean that development land tax is to be calculated for this purpose as 80 per cent. and not 66⅔ per cent?
§ Mr. Silkin
No, it is the reverse of that.
The hon. Member for Hornsey asked about transactions affecting the Crown, I do not know of any.
The right hon. Member for Crosby asked about these five bodies, and he became very eloquent. He had every right to do so. These five are as nearly analogous as I could get to the local authorities themselves, and they have two distinct features. The first is the exemption from development land tax and the second is the power of compulsory purchase, which they had before this Order was ever produced. That is what 210 makes them distinctive. I think that deals with that question. Really, of course, it deals with most of what the right hon. Gentleman was saying, for example, when he talked about parish councils. They have no CPO powers. A parish council can go to a district council and ask that council to purchase compulsorily for it. The parish council does not come within this provision, because it has no compulsory powers of acquisition.
Equally, it may sound strange to the hon. Member—I must admit that it sounded strange to me when I first saw it—but Letchworth Garden City has no compulsory powers of acquisition, either. Of course, the Commission for the New Towns has no such powers. So although they are in many ways similar to these five bodies, they are not on all fours.
§ Mr. Graham Page
That distinction is irrelevant. All the bodies that I have mentioned, plus those in the Order, are those bodies that do not have to pay development land tax. There seems no reason why the Minister should have produced the Order merely picking out those with compulsory powers. I know that the Order says that, but why pick them out? Why not select all those that have the benefit of freedom from the tax?
§ Mr. Silkin
Because Letchworth Garden City, for example, and the Commission for the New Towns have no powers to acquire land compulsorily from, let us say, Crosby District Council, if there is one. It is for that reason that those are excluded. I do not know that these five bodies could acquire land from Crosby District Council, or would want to, but they have the power to acquire from a public authority.
I think that I have dealt with all the points put to me. I hope that the House is satisfied that the Orders are necessary. They come up only because the Development Land Tax Bill, as it then was, followed the Community Land Act. Had they run simultaneously, or in the other order, this matter could have been dealt with somewhat earlier. But this is the only procedure we have.
§ Question put and agreed to.
That the Compulsory Acquisition by Public Authorities (Compensation) Order 1976, a draft of which was laid before this House on 15th July, be approved.—[Mr. John Silkin.]