VALUATION (STATUTORY DEDUCTIONS) ORDER, 1962

HL Deb 09 April 1962 vol 239 cc331-42

2.36 p.m.

THE JOINT PARLIAMENTARY SECRETARY, MINISTRY OF HOUSING AND LOCAL GOVERNMENT (EARL JELLICOE)

My Lords. I beg to move that the Order standing in my name on the Order Paper be now approved. The reasons for this Order are set out on pages 2 and 3 of the White Paper (Cmnd. 1663) on Revaluation of Rates in 1963, but although I think the White Paper is pretty clear, perhaps I should say a word or two in further explanation for the benefit of those of your Lordships who have not "brushed up" on their rating recently.

First, what are the statutory deductions? Your Lordships will recall that "gross value" is the rent which a hypothetical tenant would be willing to pay for a property if the landlord were to bear the cost of repairs, maintenance, and insurance. "Net annual value" is the rent which the tenant would pay if he had to meet these outgoings himself. For some classes of rateable property—for example, factories, public utilities, and land—assessment is made direct to net annual value; but most other rateable properties, such as houses, shops, offices, and other non-industrial buildings, are required to have a gross value. For these classes, the valuation officer starts off by determining a gross value, and then reduces that gross value to a net annual value by making a deduction for the cost of maintenance, et cetera. That deduction is the statutory deduction. It is not calculated individually for each property, but it is taken from a table embodied in the rating Statutes. It has been argued that all property should be assessed to net annual value straight away, and that we should do away with this whole business of gross values and statutory deductions. There are, I think, fairly weighty objections to this, but perhaps your Lordship. will not wish me to argue the pros and cons this afternoon, since the question whether or not a gross value must be found is determined by Statute, which my right honourable friend the Minister of Housing and Local Government has no power to alter by Order. So much for the background.

The second question which arises is why my right honourable friend is now seeking powers to amend the present scales of statutory deductions. These scales have remained substantially unaltered since 1928. Since then, the cost of repairs to property has, of course, risen sharply. Your Lordships might well think that the scales should already have been amended to take account of these increased repair costs; but you will recall that the gross value of dwellings in the 1956 Lists, which are still in force, are assessed at 1939 rental values. Since the gross values are themselves at prewar levels, it may not be unfair that the repairs allowances should also be at prewar levels. But the scale would obviously be unfair to ratepayers in 1963, when everyone is to pay rates on the full current value of their property. In addition, the statutory scale is a sliding one. As the value of property rises, the percentage statutory deduction falls. This means that if we made no amendment to the statutory scales, in 1963 low-value properties would be receiving the lower Percentage of statutory deduction applicable, say, to medium-value dwellings in 1956. The basic reason for the new statutory scale is, therefore, a conjunction of higher gross values, brought about by the current revaluation, together with rising repair costs.

I hope your Lordships are with me thus far in agreeing that some change in the scale for statutory deduction is necessary. I hope now to justify the proposed new scale which is set out in Appendix I of the White Paper, to which I have already referred. Paragraph 5 of that White Paper makes clear that the purpose of the new scale is to ensure that houses whose gross values have increased fourfold since before the war should in 1963 have a statutory deduction four and a half times that of 1939. Sometimes the proposed deduction is a little different from four and a half times: generally, a little more than four and a half times, to the benefit of the ratepayer. Of course, we have taken the opportunity to produce a scale which gives a steady rise in deductions, instead of a rise by fits and starts, as in the old one.

The explanation for these multiplications is, I think, quite simple. As the headnote to Appendix II to the White Paper shows, the Board of Inland Revenue calculate that the gross value of dwellings in the 1963 Lists should be approximately four times the value in force in the Lists before the war—that is to say, the 1934–35 Lists; four times the value in the Lists as they were in 1939, not four times the 1939 values in the present Lists, which are expected to treble in 1963.

The reason for multiplying four and a half times the pre-war statutory deduction is also, I think, quite straightforward. The year 1939 is the basic starting point. In a memorandum in May, 1951, the Royal Institution of Chartered Surveyors, after an exhaustive survey, declared themselves satisfied that, in 1939, the actual expenditure on repairs, and so on, was, on the average, about equal to, or slightly in excess of, the appropriate statutory deduction. In 1953, the Girdwood Committee estimated, again after a pretty thoroughgoing examination, that if the full cost of maintaining a house was 100 in 1939, the cost of doing the same amount of work to the same house in 1953 was 316. Latterly, this whole matter has again been looked at, using precisely the same methods and same scale as did the Girdwood Committee, and the result of that has been the extension of this index figure to 452. An independent projection by the journal which is entitled The Rating and Valuation Reporter has produced a figure of just about the same order—459. Hence the reason why we have opted for 4½ times.

As your Lordships will see from Appendix I of the White Paper, the new scale is a fairly simple one. It contains only three steps. I should like to draw your Lordships' attention, if I may, particularly to the first one. For property up to a gross value of £55, the allowance is 45 per cent. of the gross value. This will give a very substantial deduction for the smallest class of property.

The only other point which I feel I should perhaps mention concerns London. In the past, the County of London has had a different and a rather higher scale of statutory deductions than the rest of the country has. We have not been able to ascertain the original reason for this difference. It may be due to no more than historical accident. In any event, as time has gone on, London has been absorbed more and more into the general law of rating and valuation and any positive step to perpetuate what seem to be anomalies needs strong justification. After careful thought, my right honourable friend has come to the conclusion that there is no good reason to continue with a separate scale for London. In this context I should perhaps add that the London County Council and the Metropolitan Boroughs Standing Joint Committee have been consulted and have agreed to the proposal for a single scale. This scale has been constructed to give an allowance rather more generous at critical points than 4½ times the old provincial deduction.

To summarise, the purpose of the Order is to modernise the repairs allowance so that the gross valuations which will become effective in 1963 can be properly reduced to take into account contemporary repair and maintenance costs. The object is simply to provide a convenient, practical and, we believe, fair instrument by which to determine rateable value in future. I beg to move that the Order be now approved.

Moved, That the Valuation (Statutory Deductions) Order, 1962, be approved.—(Earl Jellicoe.)

2.47 p.m.

LORD SILKIN

My Lords, I am sure that we are all grateful to the noble Earl for the very clear way in which he has explained this rather complicated Order. I suppose that it would be ungracious to look a gift horse in the mouth. This is a benefit which apparently comes into operation within fourteen days after the passing of the Order, and I should like to ask the noble Earl whether he can explain what actually happens about those rates which are payable on April 1 and payable in advance, and where, if people are prompt payers, as I am afraid I am, they have already paid their rate bill for the coming half-year. Are we entitled to a deduction, or proportionate deduction, as from the fourteenth day after the coming into operation of this Order? Perhaps he can tell us that and what we can do about it.

More seriously, this Order pinpoints something which I think is not generally recognised—namely, that in 1963 gross values are going to rise very steeply indeed, and that means that Schedule A tax will rise very steeply indeed. The Chancellor of the Exchequer (it is appropriate to say this to-day) is, in my view, in for an un covenanted benefit of something like £100 million a year on Schedule A. We should be grateful if the noble Earl could tell us what he is going to do with that £100 million, because this money is coming from the taxpayer and the taxpayer is surely entitled to some relief in respect of this £100 million or thereabouts which he is going to pay by way of Schedule A.

As regards the statutory deductions, I suppose that the figures which the noble Earl gave us are average figures. Hitherto, where repairs have exceeded the statutory allowance over a period of five years a person has been able to claim an additional allowance in respect of the excess. Can the noble Earl tell us whether that will continue to be the case? In spite of the researches which the noble Earl has made. I doubt very much whether this scale of deductions really is adequate. I think that it is rather on the mean side. I do not think that it takes fully into account the extra cost of repairs, as compared, not with 1939, but with 1925 when the original table was first enacted. I think the cost of repairs has gone up by more than 41 times since that date. I do not think the ratepayer is really getting generous treatment. But it is an advantage as compared with the present position, and if we can be quite certain that any excess of cost of expenditure over this figure will continue to be allowable, then at least it will not put the ratepayer in a worse position than he is to-day.

The only other thing I want to mention is the difference between London and the Provinces. I think that difference has been rather more than historic. There is, of course, a difference in wages; and the difference between the cost of repairs in London and the Provinces has always been, and still continues. I should have thought there was some justification for there being two scales of deduction. I should be grateful if the noble Earl could tell us whether in fact the deduction which is now provided in the Order is based upon the London costs or the costs in the country, or whether the advice he has been given applies to the country as a whole. If the latter, then I think the London ratepayer is getting a raw deal. His cost of repairs is normally going to be somewhat higher than the average for the country, as a whole, and he ought to continue to get different treatment. Of course, if the whole country is getting a deduction based on London costs, then I suppose there would be nothing to complain about; but I imagine that is not the case, from the figure given by the noble Earl—namely, some 452 per cent., which is a little more than the 450 per cent. he is giving us. If that is an average for the whole country, then I think for London there ought to be a somewhat higher figure still. However, we must be grateful for small mercies, and while as a matter of courtesy I say, "Thank you very much for doing this", I do not think the Government have been in the least generous and they might have gone a little further.

2.53 p.m.

LORD DOUGLAS OF BARLOCH

My Lords, I do not quarrel with the arithmetic of the noble Earl in making the calculations by which he has justified this Statutory Order, but I want to point out that this whole system of statutory deductions to arrive at rateable value is quite arbitrary and quite unfair. It assumes, to start with, that the cost of repairing houses of equal value is the same; but, in fact, there are great variations. In the case of an old house the cost of repairs may he very high, whereas in the case of a recently built one they may be quite low, although the gross value of the houses is identical. This must inevitably be the case, because houses by their nature are of long duration and many years have to go by before the time comes when they are pulled down and rebuilt. Therefore, although it may be perfectly true that the average figure is more or less correct, it is not true that the individual figure is correct; and it is the individual figure which concerns the owner of a house.

Secondly, this system, which I agree has existed for a long time, contains another fallacy—namely, the assumption that the relative cost of repair is less if the property has a greater gross value. It does not at all follow that the percentage cost of repairing a house or a block of flats which has a gross value of £500 a year is less than that of repairing a house which has a gross value of £50 a year, but this Order provides that in the one case the percentage to be deducted will be only half as much as in the other. That also is inherently unfair.

Thirdly, the deduction is calculated upon the gross value, and the gross value is made up in part of the annual value of the structure itself and in part of the value of the site upon which it stands. But the site, of course, requires no repair, whereas the structure does. Consequently, if you compare the position of a house in the suburbs, where the site value makes up perhaps one-tenth of the gross value, with a house or flat in the centre of London, where the site value may make up perhaps nearly one half of the gross value, you find that the central property gets a higher allowance for repairs than the other, although the proportion of structure in it is less. On all those grounds this system deserves to be reconsidered. I admit that it is right, in view of the increase in the rateable value of houses which is about to take place, to make the alteration which is proposed in the Order, but it is far from making the thing satisfactory.

LORD DERWENT

My Lords, I agree with much of what the noble Lord, Lord Douglas of Barloch, has said, and I would make only one comment about repairs. The noble Lord, Lord Silkin, says that, on the whole, similar repairs cost more in London than outside London. I pay rates and I also pay for repairs both in London and in the country. Whatever the position was in the past, I do not think it is wise to-day to take the view that repairs are necessarily more expensive in London. I think it is much better, if you are going to have a rough and ready yardstick, to assume that they are much the same all over the country, for this reason. If you live in a provincial town where there is plenty of labour, then it is probably true that repairs will cost less than in London; but if you live in a rural area—and I do not mean in the depths of the country, but near only a small town—where skilled labour of certain kinds is difficult to obtain, then it may well be that repairs in that area will be considerably more expensive than in London, because there are all the transport difficulties. Although possibly that was not the case in the past, it is now.

LORD SILKIN

Will the noble Lord agree that about 80 per cent. of the population to-day live in urban areas?

LORD DERWENT

We go back to the question of what is an urban area. In many urban areas, where there is a shortage of particular kinds of labour, repairs can be more expensive than they are in London. Therefore, in this modern age it becomes extremely difficult to say that London is more expensive: very often it is not.

EARL HOWE

My Lords, may I say a word on this question of rates? When the rates for London were fixed, there was no question of parking meters or anything like that. Since the introduction of parking meters, it has become absolutely impossible to get near one's own front door. I speak from personal experience. I have never been able to get near my front door owing to the presence of cars parked just outside by a parking meter. Could not some arrangement be made to give a slight preference to the people who have these parking meters outside their houses by a slight reduction in rates?

EARL JELLICOE

My Lords, I do not think my noble friend's suggestion comes quite within the scope of the Order before your Lordships' House, admirable though it might be on its own merits. I wonder whether I might first of all turn to the criticisms of the present Order made generously and fairly by the noble Lord, Lord Silkin. First of all, he was worried about when this Order would come into force, and whether possibly he might have overpaid his rates for the coming half year. I can assure him that he is not in credit in that respect, if that is a reassurance, because if he will glance at Article 3 of the Order he will see these words: Article 4 shall apply for the purposes of every valuation list made under Part III of the Local Government Act 1948 coming into force after the coming into operation hereof". That means that the new scale will apply only to the 1963 and subsequent lists. It does not apply to the existing list.

Secondly, the noble Lord referred to Schedule A and the possible linkage between this Order and Schedule A. I feel a little inhibited in talking about Schedule A, or anything which might come within the scope of a Budget at this particular moment of time. But I have an easy way out, because I can assure the noble Lord that this Order does not affect Schedule A in any way at all. Schedule A has its own scale of statutory deductions, which is in fact different from the rating scale at present, and there is no direct link between the two scales, let alone between the two scales of statutory deductions.

The third point which the noble Lord made was whether this statutory scale of deductions made in respect of repairs was a fair one. I think he expressed the view that it was not a very generous one. I would not dissent from that view. This Order is made to introduce a fair, but not a generous, scale of deductions. I would submit to your Lordships that the scale is, in fact, fair. So far as the past is concerned, it has, as I hope to show, been gone into very thoroughly, not only by the Royal Institution of Chartered Surveyors, but also by the Girdwood Committee. There was a very thorough re-examination of the scales in 1939, projected forward to the present cost of repairs. I am assured that the four-and-a-half times assessment is, broadly speaking, right.

So much for the past. As to the future, I am not certain that I quite grasped the noble Lord's question in that respect. I think what he was asking me was whether, if there are rises in the future in the cost of repairs, they will be reflected in the scale of statutory deductions.

LORD SILKIN

That is not quite right. At the present time, as I understand it, if over a period of five years the actual cost of repairs exceeds the statutory deduction, the owner may make a claim in respect of the excess and that will be allowed. What I wanted to know was whether if he actually spends more than the statutory deduction, that will continue.

EARL JELLICOE

I must apologise to the noble Lord: I now have his question quite right. What he is saying applies to Schedule A, but does not apply to the statutory deduction for rating. It is a set level. There is not this floating element upwards which there is with Schedule A.

So far as London is concerned, the noble Lord asked me whether the figures which the Girdwood Committee and the Royal Institution of Chartered Surveyors were working on were those which applied to London or to the country as a whole. I am speaking "without the book" on this point, but it is certainly my impression that they apply to the country as a whole, and not only to London. Nevertheless. I would submit that there are strong reasons why, as from the present Order, there should be one statutory scale of deductions for the whole country, without exceptions made for London. I agree that one could argue that in London, because of the higher cost of labour, repairs may cost more than, for example, in a country district in the North of England. But I think the same argument would apply to any other big city in this country, such as Birmingham or Manchester.

It seems to me anomalous to keep a differentiation which applies only to the administrative County of London and does not apply to Greater London as a whole. I do not see why somebody living in Westminster should have a special scale of deduction, and somebody living in Croydon, for example, should not. To have that differentiation can lead to sharp anomalies at the border of the administrative County of London. I would suggest that to base a differentiation mainly on locality is wrong. Repair costs in London may be high, but they may also be high in, say, Brighton, because of the effects of salt air.

The final reason why I would argue that differentiation, so far as London is concerned, is not valid for the future is that there is a great deal to be said for getting all classes of ratepayers everywhere on the same basis. That was the purpose behind the Rating and Valuation Act. 1961, and I would submit that, other things being equal, there is a great deal to be said for it.

So far as the strictures of the noble Lord, Lord Douglas of Barloch, are concerned, a great deal of what he was saying was an attack upon the present rating system as a whole, rather than upon this Order. He may be quite right in attacking our present system of rating as a whole, but I would suggest that it is not perhaps relevant to this Order to base a general attack upon the general rating system.

His specific criticisms, I think, were mainly twofold. The first was that the present system gives only very rough justice. For example, old houses, to which he referred, may be much more expensive to keep in repair than modern houses. I would entirely agree. But I would submit that the age of a house, as I have just mentioned, is only one of the criteria which can be held to apply so far as statutory deduction is concerned. There are many other factors which might well be applicable: whether the house is in an exposed position, and thus more likely to have its tiles blown away by strong winds; whether it stands by the sea, and is thus more exposed to salt air. But I would agree wholeheartedly with the noble Lord that this rating scale gives only rough justice. In a general scale, that is all it can possibly seek to do.

The noble Lord also criticised the fact that, for the higher-value property, the rating deduction was inadequate. I am not certain that the noble Lord is right on that point, because the value of the site is one of the factors which the valuation officer, and quite naturally, takes into account, and with a high-value property the site value is a bigger element in the gross value.

LORD DOUGLAS OF BARLOCH

My Lords, will the noble Earl allow me to interrupt him? I made two separate points about this, one about site value, the other about graduation of the scale. It is quite possible that on sites of equal value there might be a very different gross value.

EARL JELLICOE

I take the noble Lord's point. But my understanding was that, generally speaking, he was criticising the fact that higher-rated houses had a lower-percentage statutory deduction applicable to them, and with those I would submit that, because the site content is high, therefore it is quite natural that the statutory deduction, which is mainly in respect of repairs, should be proportionately lower. I would not attempt to bandy words with the noble Lord on a subject on which he is an acknowledged expert, but that is certainly my understanding of the narrower point which he made.

I hope that I have more or less, perhaps less, adequately covered at least some of the points which noble Lords have made on this Order. Despite their criticisms, I would submit that it does rough justice; and not only rough justice, but reasonable justice.

On Question, Motion agreed to.