§ Order of the Day for the Second Reading read.484
§ THE LORD CHANCELLOR (VISCOUNT SIMON)
My Lords, I rise to move the Second Reading of the War Damage (Amendment) Bill which, as your Lord' ships will see if you examine it, is a Bill mainly to amend Section 4 (1) of the principal Act, which was the War Damage Act of 1941. That subsection deals with the important question whether a value payment or a cost-of-works payment should be made in the case of premises that have suffered war damage. Your Lordships no doubt will recall that a cost-of-works payment is made where the property can best be repaired or rebuilt and the payment is made when the work is done. A value payment, on the other hand, is normally made where the property is a total loss and it is a compensation for depreciation in value caused by the war damage because the case is one in which the particular property is not worth repairing. The question, therefore, under that section is whether a particular property is worth repairing or not. That is a matter which the War Damage Commission from time to time has to decide. But it has been found in experience that there is this very great difficulty in working out the scheme. Section 4 (1) of the principal Act requires the Commission to decide whether the particular case is a case of total loss by reference to levels of costs and values at some future indeterminate date. Your Lordships will see that, that being so, the Commission really is set an almost impossible task, for it would either have to delay making its estimates almost indefinitely, which would be most unfortunate, or else to make what is little more than a guess as to future changes in costs or values. In fact, up to the present the Commission, having that choice before it, has had to delay its decision in a large number of cases. I should emphasize that the only cases in which any difficulty arises are border-line cases where a very narrow margin separates the situation which would call for a cost-of-works payment from the situation which would call for a value payment.
What, therefore, we propose to do by this amending Bill is to make this change: to authorize the taking of values and of costs as at March 31, 1939; that is to say, a past date instead of some indefinite future date. I may point out that this same date is that on which value pay- 485 meats are already assessed for certain collateral purposes such as for calculating depreciation. It is impossible to be quite confident in advance how it will work out, but there is no reason to think it will produce a very substantial change. The question, of course, is whether the costs will rise more than the values, and there are obviously arguments either way. It may be that the result is likely to be, in the border-line cases, slightly to increase the proportion of cost-of-works payments. But there is no other course that can be taken as a practical matter. I hope your Lordships will give this Bill a Second Reading. It has already been carried without dissent in the House of Commons. I beg to move that the Bill be now read 2a.
§ Moved, That the Bill be now read 2a.—(The Lord Chancellor.)
§ LORD BARNBY
My Lords, I am sure that you will be indebted to the Lord Chancellor for having reminded us, in relation to this very intricate Bill, of the difference between cost-of-works and value payments. By so doing he has made it easier for the House to understand what is intended by this amending Bill, the Second Reading of which he has just moved, and what Clause 1 of it aims to do. I merely would seize the opportunity of endorsing, if I may be permitted to do so, what the Lord Chancellor has said as to the desirability of what is aimed at in this Bill, and the possibility of the injustice and perplexity which it may well, and should, remove. But there is another point on which, I am informed, some perplexity remains in connexion with this Bill, and it is with that belief that I take the opportunity of asking the Lord Chancellor if he can, just by a simple statement, to allay that perplexity. In the case of a leasehold building which has been entirely destroyed, it was assumed that a value payment would be made instead of a cost-of-works payment. Under that belief leaseholders disclaimed leases. It is now not clear from this Bill whether, in substituting a proposal of a cost-of-works payment for any such destroyed building in place of a value payment, the leaseholder who has disclaimed would, as now appears, be entirely dispossessed. I cannot believe that that is the intention of those administering the Acts. So, I would suggest that it would set doubts at rest if the Lord Chancellor would give us an interpretation on the point at this or some subsequent stage of the Bill.
486 This is an amending Bill to an Act which is, obviously, of supreme importance to the community as a whole, in a situation created by the war. In the course of its passage through your Lordships' House there were criticisms as to alleged injustices between different classes of those concerned. I will not refer to that now, except to remind your Lordships that it does inescapably establish the fact that this Bill, now an Amending Bill to so important a measure, is intricately connected with the original Act. It will be within your Lordships' memory, that property owners were obliged to pay a very substantial contribution; in fact it is thought by some to be a discrimination against property owners as compared with other classes of the community. It does, in fact, require them to make a contribution which must come out of capital, not out of revenue, and therefore means of course, that on the lowest income Tax scale a contribution of £1 must involve a minimum of £2 income. In the case of trading companies of course that is not a charge on trade.
With regard to the actual contributions to date, I will just quote round figures. I understand that the two contributions so far have each brought in an amount in the neighbourhood of £40,000,000, or, roughly, £80,000,000 in all. A third contribution is due on July 1 of this year which should bring the total contributed up to approximately £120,000,000. Now that sum has been contributed by the property owners of this country. It was stated in Parliament that the damage actually incurred, or the payments actually made, totalled £86,000,000. It is believed that the liabilities which have accumulated since then will not be in the neighbourhood of the additional £40,000,000. Therefore, it would seem that the original aim of this measure, according to the Prime Minister's words, that the burden should fall in the same proportions on the community and on the Treasury, will, perhaps, not be implemented. The actual figures, I think, as given in the Lord Chancellor's own words in this House, were that as the original contemplation was about £400,000,000 a burden of £200,000,000 would be assumed by the property owners and the other £200,000,000 would come from the Treasury. Now, in fact, it does look as though, if the damage should not be more than the £86,000,000 plus an 487 amount within an additional £20,000,000, the contributions by the Treasury will have been small and the property owners, by their contributions, will have borne the burden of the larger proportion of the payment.
It is for this reason that in a matter so important to so large a class of citizens, which necessarily includes numerous members of this House—at least it is believed that there are many of your Lordships who are property owners—who fall within this category, some relief is suggested. With the projected 2s. contribution coming due on July 1, it would mean that a further heavy burden will fall on the property owners who, it may well be, should be given some relief. It may he, of course, that some relief, in this respect, is in contemplation. Because it is so inescapably connected with the parent Act and with the announcements made by the noble and learned Lord Chancellor at different times as to the intention of giving information to the House, I hope that at some stage in the progress of this Bill it may be possible to throw some light on that point, and I earnestly hope that some prospect may be held out of a reduction in the contribution which would otherwise become due from property owners.
§ VISCOUNT HAILSHAM
My Lords, I do not rise to object to the Second Reading of this Bill, but to call attention to what I think is a very serious defect in the War Damage Act, which has not been corrected, but which in fact has been aggravated, by this Bill. As your Lordships are aware, the bulk of urban property in this country, both residential and business, is held on what are called ground leases, and those ground leases have in many cases been granted or changed hands for a substantial premium. Both the tenant and the landlord are compelled to pay a contribution under the War Damage Act by way of insurance. When the property is damaged, your Lordships are aware that, under the original Act, the tenant has a right to intimate to his landlord that he must disclaim his lease, because the cost of repair would be too heavy, and the landlord has the right to give a counter-notice to say that he will undertake the repair; but, if he does not give that counter-notice, the lease is surrendered and the landlord acquires the property 488 freed from the leasehold interest. Under the War Damage Act, and under this Bill, if the War Damage Commission decide there is a total loss, the tenant and the landlord divide the compensation in proportion to their respective interests in the property, which is as it should be; but if the Commission decide that there is not a total loss—in other words, that the property is worth repairing—then the War Damage Commission pay the cost of repairing the house and the landlord gets the building freed from the tenant's interest, while the tenant loses the value of his lease, the landlord making a profit in proportion to the value of the tenant's lease. I think that that is a flagrant injustice.
I ought to tell your Lordships that I have a personal interest in this matter, because, unfortunately, my house was damaged. It cost me several thousand pounds when I acquired it, and it was worth several thousand pounds at the time when it was practically destroyed by enemy action. I surrendered the lease, and my landlord accepted the surrender. I filed my claim on the basis of the value of the leasehold interest at the time of the damage. If the Commission decide that the house has been totally destroyed, well and good; on the other hand, if the Commission decide that it is worth repairing—and I was advised by the architect that it was not possible to say whether it was worth repairing or not until extensive investigation had been made—then the landlord, I gather, has the cost of the repair borne by the Government, and keeps the house, freed from the lease, while the leaseholder loses the value of the leasehold and gets nothing. I do not think that that can be justified in fairness; I think that it is a serious defect in the legislation. I should like the noble and learned Lord Chancellor to be good enough to look into it, and to consult those advising him in order to see whether there cannot be some mitigation of that position; because, after all, the tenants and the landlords have both contributed, and they are both equally entitled to be compensated for war damage. That was the original intention of the Act, and it does not seem equitable to say that if a house has been totally destroyed that intention will be carried out, but that if the house is worth repairing the tenant will lose everything and the landlord will make a profit.
§ LORD MARLEY
My Lords, there is another aspect of this problem which is not dealt with in this Bill, but which was referred to obliquely by the noble Lord, Lord Barnby. I refer to the fact that the contributions which are paid towards the aggregate or global sum are based on the Schedule A value of the property on September 1, 1939, and there is no means of modifying the 2s. in the pound contribution which is levied in that way, despite the fact that the Schedule A value of the property may have varied very considerably up or down subsequently. For example, there may be a property which, having been let for a period at a high rent, carried a high Schedule A value, and therefore pays a high contribution, but which subsequently, by reason of its position or from other causes, has diminished in value, and has a much lower Schedule A value; yet the contribution remains at the higher rate The opposite of course may also happen. This may not be fair on the one hand to the scheme itself, because less money is paid than should be paid, or on the other hand to the landlord, who has to pay the contribution. I hope that if the points raised by the two noble Lords who have just spoken are being considered, this further point may also be considered in dealing with this or future amending legislation.
§ THE LORD CHANCELLOR
My Lords, you will expect me to say a word or two on the criticisms which have been made. They fall into two classes. The second of the two points made by my noble friend Lord Barnby, and the point just now made by the noble Lord, Lord Marley, are observations on the general scheme and layout of war damage compensation, and they shall certainly be properly considered; but your Lordships will appreciate that they do not come within the very limited scope of this Bill, which is merely designed to arrange for calculations on a different date. The point raised by my noble and learned friend Lord Hailsham, on the other hand, is, of course, strictly relevant to the present Bill, as is, I think, the first point raised by my noble friend Lord Barnby. I shall not deal with it at length, at any rate at this stage, because it is a highly technical subject; but perhaps I may be allowed to make two or three observations of a general nature with regard to it.
490 In the first place, the only possible change as between value payments and cost-of-works payments in relation to any particular property which can happen under this amending Bill is in regard to strictly marginal cases. It is impossible to say that there will not be any such cases, but the matter depends on whether it is costs or whether it is values which change most in the future, and it will affect only the marginal case. A case which is plainly on one side of the line will remain on that side of the line, and will not be affected at all. Incidentally, I should like to say to my noble friend Lord Barnby that I do not think it is right to assume that necessarily because a house is levelled to the ground it will attract a value payment. That is not so at all. If the expenditure necessary to build the house up again provided a house which was worth that expenditure because of the value it would have, there would not be a value payment but a cost-of-works payment, as he will agree. That is really not the distinction at all. The distinction is that there may be a limited number of marginal cases where undoubtedly this new formula will make a little difference.
My noble friend Lord Hailsham put the matter with the clearness which we know from old days he completely commands, and I am sure that it must have been a pleasure to your Lordships to hear him. He told us with his usual candour that he had a particular case in mind, which was the case of a property of his own, though, of course, that was not the reason—certainly not the sole reason—why he raised the matter. May I just say in respect of that case that if I am correctly informed the surrender to the landlord took place before there ever was any War Damage Act, 1941, or any War Damage Act at all. It was done under an earlier Statute which permitted the tenants, if they thought well, to surrender the lease of their house to the landlord if the house had been damaged as a result of the war. They might so wish or they might riot. I myself think it would not be very prudent advice for a surveyor to advise a lessee to surrender a valuable lease to his landlord unless indeed he was quite certain that it had become a damnosa hereditas, and if I have the opportunity of communicating with my noble friend I think I can assure him 491 how in his particular case those considerations apply.
But on the general matter my noble friend is of course quite right when he says that, in so far as an individual property would before this present Bill have been dealt with on one basis, and as a result of this present Bill will be dealt with on a slightly different basis, you can imagine a case where some complaint might arise. But it is absolutely necessary that we should get the operations of the War Damage Commission on a practical basis so that they may really do the work that they are authorized to do, and I was glad to hear my noble friend Lord Barnby recognize that manifest truth. There is no way of doing it unless we make a certain assumption—namely, that it would be fair to take the values and the costs as at the date I have mentioned. I am assured by those who have looked into the matter that if there be any case at all which is going to be affected it will be a purely marginal case. The sort of instance that Lord Hailsham had in mind is not going to be affected one way or the other. I think that if your Lordships will study this technical matter carefully, as it has been my melancholy fate to do, you will come to the conclusion, as the House of Commons did, that while admitting that we are making a certain change it is a change which, in the circumstances, is incapable of being avoided and is really necessary in order that the machine may work in a practical manner. However, this does not arise on the Second Reading as I think Lord Hailsham indicated, and I hope that I may now have this stage of the Bill.
§ On question, Bill read 2a, and committed to a Committee of the Whole House.