§ Order of the Day for the Second Reading read.
§ THE LORD PRIVY SEAL (THE MARQUESS OF SALISBURY)
My Lords, this is a small Bill, which it is my duty to ask your Lordships to read a second time this 1091 afternoon. I hardly dare invite you to read it, for I do not think I ever had the honour of reading a Bill which was more difficult to follow unless one was provided with the technical knowledge possessed by the noble and learned Lord opposite, which will enable him to understand it without difficulty. To the ordinary layman, however, the actual drafting of the Bill is hard to follow. But, though the drafting is difficult to follow, the actual proposals of the Bill are simple enough. It is a purely temporary Bill. It is to operate for one year, and one year only; that is to say, in respect of one valuation only. The valuation, of course, takes place in one year, but it extends over a period of five years, and this measure is submitted to Parliament in order to deal with this particular valuation only because it is to be followed by a permanent Act, which, as your Lordships know, the Government have given notice they intend to introduce, to deal with the whole question of rating valuation over the whole country. Notwithstanding that fact, it is necessary to bring forward this Bill for the approval of Parliament, as the quinquennial valuation is upon us and we must deal with it immediately. We cannot afford to wait until the permanent measure is passed into law. It is for these reasons, therefore, that this temporary Bill is proposed.
There is the further limitation that the Bill refers to the Metropolis only. The Metropolis stands in a different position from all other areas, because here, and here alone, the valuation for national purposes and for local purposes is the same. There is but one gross valuation for national and local purposes in the Metropolis, which, therefore, stands in a somewhat singular position. There is, however, this peculiarity, that though the gross valuation is the same, the valuation upon which the subject is taxed for national or local purposes is a net valuation, and that net valuation is arrived at in the two cases under different Acts of Parliament and by different sets of considerations. Though the gross valuation is the same for national and local purposes, the net valuation is different. There is this further circumstance to bear in mind. It is important, indeed vital, from the point of view of the national Exchequer to maintain the gross value at its full figure; otherwise the revenue will be the loser. On the other hand, in the case of local valuations it is important 1092 that the deductions should be sufficient; otherwise the ratepayer will be taxed at an unjustifiable standard. These considerations have to be borne in mind.
Upon this complicated set of circumstances the Rent Restrictions Act was imposed, and that Act permitted rent to be raised 40 per cent. In the great majority of cases the rent has been raised 40 per cent. But that raising of the rent would, of course, carry with it necessarily the raising of the rateable value. It would, no doubt, occur to your Lordships that there would be a corresponding allowance in arriving at the net valuation. But that is not so, because under the law as it stands, under the Act of 1869, a definite amount of deductions is allowed, and no more than a definite amount. Though the Rent Restrictions Act allowed rent to be raised 40 per cent. it did not provide that the proportion of the deductions to arrive at the rateable value should be varied accordingly. The effect of this omission is that now, when the quinquennial valuation has come round again, the assessment authority will be aware that if they raise the gross value, as they ought to raise it, 40 per cent., then there will not be sufficient deductions allowed under the law to produce a just rateable value upon which the ratepayer can be assessed.
After all, the assessment authorities are very human and the temptation, which will be at once thrown upon them, is to underrate the gross value in order to save the ratepayer from this inequitable result. But if they underrate the gross value what happens is that the revenue will lose its just sum of taxation. Accordingly, we are presented with this dilemma. If the assessment authorities, yielding to temptation, see that the ratepayer is justly treated, the result will be that upon the other side of the account—namely, that of national taxation—the revenue will lose its just due. It is to meet that difficulty that this Bill is submitted for your Lordships' approval.
We propose that, in order to avoid the difficulty which I have tried to explain to your Lordships, an increased scale of deductions should be allowed. In the first place, it is proposed that the same deductions should be allowed in the case of local taxation as are, by law, permitted in the case of national taxation. The deductions in the case of national 1093 taxation are, as the law stands, larger than the deductions allowed in the case of local taxation, and we propose that the higher scale of deductions belonging to national taxation should apply in the normal case instead of the lower scale of deductions which has hitherto been allowed in respect of local taxation.
I am sorry to say, however, that although that might be sufficient when the normal conditions of housing are re-stored, yet in the present state of things it will not be sufficient. We shall not yet have done justice to the ratepayers and the deductions will not be sufficient. Accordingly, these normal deductions, which are contained in Part I of the Schedule, have to be supplemented by the special deductions contained in Part II of the Schedule. What is provided, in effect, is that where the deductions in Part II, calculated according to the principles of Part II, are larger than the deductions calculated according to the principles of Part I, the deductions of Part II shall prevail, and the benefit of the difference will be given to the ratepayer. That is, broadly, the general effect of the Bill.
The only other point to which I shall call attention is this. It will be seen that the scale of deductions allowed in the case of the poorer class of property is larger than the scale of deductions in the ease of the richer class of property. There is nothing new in this. It has always been a principle of deductions for rating purposes, and for the very good reason that the cost of repairs in the case of the smaller property is higher than in the case of the larger property. Your Lordships, therefore, need not be detained by this point, because it is merely carrying out the principles which already obtain. There is a very elaborate provision in paragraph (3) of Part II of the Schedule, upon which I need not dwell. It is designed to meet a special class of cases—cases, for example, of property which is outside the Rent Restrictions Act and where the rent has gone up a great deal more than is permitted by that Act. It is clear that a different scale of deductions is here called for, and in order to meet these special cases a general discretionary power is given to the authority to allow an equitable deduction.
I do not think that I need call attention to any other provisions of the Bill. I will merely repeat that your Lordships 1094 have to deal only with a temporary Bill, which is rendered necessary by the effect of the Rent Restrictions Acts upon the very peculiar conditions of valuation which obtain in the Metropolis, and in the Metropolis alone. In order to meet that difficulty, I submit for Second Reading this Bill, which will be superseded by the permanent Bill as soon as it passes into law.
§ Moved, That the Bill be now read 2a.—(The Marquess of Salisbury.)
§ LORD PARMOOR
My Lords, the noble Marquess, in the very lucid explanation that he has given of this complicated Bill, suggests that the drafting of it would be easily comprehended by an expert who has had to deal constantly with rating questions and rating Statutes. He really overrates the mental capacity of experts. I am bound to admit that I have never read a Bill which has taken me so much time in my attempt to understand it as the Bill which is now before your Lordships, and I am not quite sure that I understand it even at the present moment. I do not want to underrate the importance of the question. The noble Marquess has pointed out—and I will state in a moment my own view upon that point—that this is a temporary Bill and that a permanent Bill is going to be introduced. I do not know whether it has been already introduced in another place.
§ LORD PARMOOR
I am anxious to take the opportunity of this temporary Bill to express my hope that it will not be inconsistent with what I consider are the essential principles to be observed when this rating question is finally settled. The burden and the incidence of rates have become extraordinarily important as regards the whole of the industries of this country. As was pointed out in another place, Income Tax may be very hard, but it is at any rate supposed to be taken out of income, whereas the extraordinarily heavy burden of rates may be extracted from industries which are actually being carried on at a loss, and, therefore, in the rating question, you really have a matter of more importance in some respects even than that of Imperial taxation itself.
1095 I have not before me the actual figures, but a few years ago, when I addressed your Lordships somewhat on the same point, the amount raised by rates in this country was, approximately, £200,000,000 a year. Whether that figure is more or less at the present time I am not certain, but the amount is enormous. The point that I am anxious about in regard to this Bill is this. It is of great importance that there should be one valuation for all purposes—local and Imperial or central—and I doubt whether that principle has been observed in the Bill that is now before your Lordships. I admit that the Bill is a temporary settlement, as the noble Marquess has pointed out, rendered necessary by what is called the forty per cent. addition to rents allowed under the Rent Restrictions Acts.
As regards the extent of this Bill, it is quite true that it refers only to what is called the quinquennial valuation which takes effect on April 6 of next year, but, in addition to that, it will be operative for the succeeding four years, because it is not only effective as regards original valuations but also effective, if I may quote from the terms of the proposed Bill itself, for the purpose of the revision of that list. Your Lordships are aware that in the country at large we have annual valuations for rating purposes. I am one of those who think that that is much too constant and gives rise both to unnecessary expense and also to unnecessary litigation, but if you have a period of five years, as we have under the Valuation (Metropolis) Act at the present time, it is necessary to allow opportunity of revision each year in order to alter, according to changing conditions, the rate or assesment fixed. The principle which the noble Marquess has enunciated will, therefore, not only operate as regards the quinquennial valuation which comes into operation next year but also as regards the four succeeding years.
Now a question upon the principle of the Bill. It is too often thought that you can discuss rates by reference to the landlord and the tenant. That really is a fundamental mistake as regards the principles of rating in this country. The rate is fixed upon the occupier. He may be the owner or he may be the tenant. He does not pay in respect of the tenancy, but in respect of his occupation. I emphasise that point because in this Bill 1096 as it stands you do not apply the principle of occupation but you apply a distinction as between the landlord and the tenant, and when you come to a question of assessment—that is, what the premises are worth; either the annual value or the net rateable value—it ought to be wholly independent of whether you are looking to the tenant or to the landlord. Of course, it is a matter of agreement between them as to whether one party or the other shall pay the rates in any particular case, but it is a fundamental error to suppose that there ought to be a different incidence of assessment in the two cases. The property should be assessed in the same way, whether you are having regard to the one interest or to the other.
The noble Marquess also said, quite accurately, that in the Metropolis what is called the gross annual value is conclusive both for local and Imperial purposes, but in the country at large what we call the gross rateable value in the Metropolis is called the annual value or net annual value, and the difference which has arisen as regards the Metropolis is that, although the gross rateable value is the same both for local and Imperial purposes, yet the deductions made in order to get at the net value for Income Tax, or for the purpose of assessment, or for the purpose of rating, has been arrived at in a different way by different deductions. That is wholly unjust in principle. Whether you are assessing property in order to see what you may get out of it in Income Tax, or whether you are assessing it in order to see what burden may be put upon the owner in the nature of rates, the assessment should be the same in each case. I stress that for this reason: that when the Permanent Bill comes to be framed I sincerely hope that. For all purposes not only will the gross rateable value be the same but the net rateable value will be the same as that which is called the annual value for Income Tax purposes. There is no possible reason why there should be a distinction between the two, except this: that if you have distinctions of this kind you give ground for an infinite variety of discussions and, very often, to heavy matters of legal cost.
As to the next matter to which the noble Marquess referred, I go the whole way in the direction which he has indicated. He has pointed out that the 1097 deductions now made under Section 28 of the. Finance Act, 1923, are more favourable than the deductions allowed for arriving at rateable value under the Valuation (Metropolis) Act, 1369, and the first purpose of Part I of the Schedule of this Bill, if I understand it aright, is to substitute for the existing deductions which could be made under the Valuation (Metropolis) Act, 1869, those which could be made now under the Finance Act, 1923, for Income Tax purposes. I regard that as a very important principle and also as a perfectly just and right one. You ought to arrive at the same result and therefore you should allow the same deductions, whether you are arriving at the income which a man is getting from his property or whether you are arriving at the rateable value on which the rating assessment should be made. That, I think, involves a fundamental principle of a very important character, and I stress it now because I hope that that principle will not be lost sight of when the permanent Bill comes to be considered.
I cannot say the same, of course, as regards Part II of the Schedule. Part I of the Schedule having introduced the right principle of uniformity, Part II upsets it. Part II introduces in this case more favourable deductions for rating purposes than are allowed under the 1923 Act for Income Tax purposes, and to a very considerable extent, and I should like in a word or two to show what the anomaly may be. I will take the case, if I may, of an owner who is in occupation—what we call an occupying owner—because that eliminates the factors which come into operation if we distinguish between tenant and landlord. If you look at the Schedule, Part I—and I will take the case of a house of which the gross value is £40—under Part I the deduction for Income Tax purposes would be £10; that is to say, the annual value for Income Tax purposes would he £30 a year, and the assessment would be made on that basis.
Now, if we look at Part II, which is to succeed during the temporary period Part I, you see there under Class 1 (b)—I also take the case of a house of which the gross value does not exceed £40—the deductions in that ease will be £8, plus one third of £20, and therefore, although the assessment ought to be the same, in one case it will be £30 and in the 1098 other only about £25. In principle it seems to me that that cannot be justified. If it is right that the assessment should be £25 for rating purposes, it should also be £25 for Income Tax purposes. I am assuming that a man is in occupation of the house. Why it should be worth more when it comes to be a matter of Income Tax than it is when it comes to be a matter of rates, I do not know. It appears to me that the annual value and the net rateable value ought to be the same.
I understand that the noble Marquess says that there is a special difficulty about the Rent Restrictions Act. I am not going to raise an objection to that at the present moment, but what I want to point out is the principle. We have always failed in ill proposed measures of rating reform by going into a lot of detailed cases instead of confining ourselves to the wide principles which ought to be generally accepted. The result seems to be equitable on the face of the Act of Parliament, but practically it is most inequitable in the sense that it puts everyone to enormous expenditure The only people who profit by it are people who are interested in rating, not from the point of view of paying, because they want simplicity, but from the point of view of having the most complicated questions as to what the rate of payment is really to be.
I quite agree with what the noble Marquess said as regards the paragraph relating to Class 1 (b). He will find a similar paragraph, I think, in all rating measures. He certainly will find it in the Valuation (Metropolis) Act, 1869, dealing with a class of buildings to which general principles will not apply, and you have to deal with them in what is called an equitable way. That is quite right. I think the noble Marquess is fully justified in what he said on that point.
I do not raise any objection to the Second Reading of the Bill, which has already passed another place. I read very carefully what was said on that occasion and I think there must be a mistake in the figures in the OFFICIAL REPORT because, after reading it most carefully, the figures are to me quite incomprehensible. he had made a most 1099 lucid explanation. I accept that, but it shows that the figures cannot possibly have been accurately reported. We shall all sympathise with the attempt which has been made in this Bill to tide over a special period in a special locality—for the Bill does not apply outside the Metropolis—but I sincerely hope that, when it is superseded by a permanent Bill, that permanent Bill will accept what I think is a fundamental and the only true principle—namely, that when you assess property, whether for rating or Income Tax, or anything else, there ought to be one assessment, and one only for all purposes.
§ LORD BANBURY OF SOUTHAM
My Lords, I have often heard objections raised to Bills because they deal with matters by reference, and if ever there was a Bill which dealt with questions by reference it is this Bill. I do not know how many Acts of Parliament you would have to study in order to understand what Clause 1 means, or, indeed, if you got all the Acts of Parliament, whether you would understand it.
But I rise to draw the attention of the House to Part II of the Schedule, the last paragraph of which says this:Class 3 (b).—Houses and buildings without land other than gardens where the increased gross value exceeds £150 … £40.If you look at paragraph (b) in the provisions to subsection (1) of Clause 1, to which my noble friend did not allude at very great length, you will see that it begins by sayingin the case of a hereditament which was not included in the said valuation list or the gross value of which as shown in the said valuation list has been increased by reason of structural alterations or has been increased by more than forty per cent.The effect of that, as I understand it, is this. There is a large house at the present moment, say, in the City of London, with a gross value of £1,200. The net value would be £1,000; that is to say, you could deduct £200. But the house has been added to, other storeys have been put on, and the value has been increased from £1,200 to £2,000. Under this Bill, instead of being able to deduct a sixth part of £2,000, or even the £200 which you could have deducted before the structural alterations were made, all that you can deduct is £40.
1100 I pointed that out to Mr. Neville Chamberlain, and he informed me that the matter was dealt with in paragraph (b), and that when he put in the Bill "£40" he meant to put "or a larger amount as provided for in paragraph (b)." I cannot, however, see anything in paragraph (b) which would provide for that, and I propose on the Committee stage to put down an Amendment, which would enact that, if there is a greater amount allowed under paragraph (b), that greater amount should be included, and I have been given to understand that the Government are prepared to accept that Amendment. I hope that that is so. I will, therefore, not elaborate the point further, but I have the Amendment in my pocket, and I will put it down after the Bill has been read a second time.
§ THE MARQUESS OF SALISBURY
My Lords, I should like to be allowed, first of all, to thank the noble and learned Lord for his extremely helpful speech, and to say in reply to my noble friend behind me (Lord Banbury), that the attention of the Government has been drawn to the point to which he referred. Whether we can accept the Amendment I would not like to say quite positively straight off, but, if my noble friend will put it down on the Order Paper, we will consider it.
§ On Question, Bill read 2a, and committed to a Committee of the Whole House.