HL Deb 18 January 1972 vol 327 cc39-52

4.4 p.m.

LORD MOLSON rose to ask Her Majesty's Government whether they are aware that the rating valuation of any property (representing the estimate by an official of the Board of Inland Revenue of the rent at which the property might reasonably be expected to let) and the fair rent (as assessed by the rent officer on different principles) can, and often do, differ widely; and whether they contemplate any steps to rectify this anomaly. The noble Lord said: My Lords, I wish to avail myself of the flexible machinery of your Lordships' House in order to raise a matter of, I think, considerable longterm importance which it would not be easy to raise when any particular Bill was under discussion. The tenant of a house normally pays rent and he also pays rates. Under present legislation the annual value of his house for the purposes of rent is fixed in one way and for the payment of rates it is fixed in another way. I wish to invite the attention of the Government to this anomaly, which I think should not be allowed indefinitely to continue.

As regards rates, the principle is laid down in a circular which has been issued by the Government, because there is a new valuation of property taking place at the present time. Valuation for rating is based on the letting value of property. Broadly, the valuation of any property represents the assessor's estimate of the rent at which the property may reasonably be expected to let year by year, free of any statutory restrictions on renting and uninfluenced by any form of housing subsidy. The size, quality and locality of a property can have a bearing on the letting value and can therefore be reflected in the assessor's estimate. The learning on the subject of rating valuation goes back to the reign of Queen Elizabeth I and is a matter so complex that many surveyors, barristers and solicitors make an income from understanding its subtleties; but the general principle is correctly stated in that circular issued by the Government.

As regards rents, fair rents were established in the Rent Act of 1965, for which Mr. Crossman was responsible. I welcomed the principle of fair rents when I spoke on the Second Reading of that Bill in this House. I congratulated him upon his courage in introducing it and said that his speeches on the subject were very creditable to him and encouraging for the future. I felt obliged to say that, because the general principles of his measure were those I had vainly urged upon Mr. Harold Macmillan when he was Minister of Housing in 1951. I have always believed that the impartial assessment of fair rents is the best way of dealing with the problem of rents so long as there is a housing shortage. Important as these fair rents have been in the past, they are going to become more important in the future. The Rent Act 1965, in Section 27, laid down the principle in these words: In determining for the purposes of this Act what rent is or would be a fair rent under a regulated tenancy of a dwelling-house regard shall be had, subject to the following provisions of this section, to all the circumstances (other than personal circumstances), and in particular to the age, character and locality of the dwelling-house and to its state of repair. It does not in the least follow that the assessment of the rateable value under the rating legislation and the fair rent assessed by the rent officer and confirmed, if necessary, on appeal by a rent committee will be the same. There are two separate statutory authorities which make these two different assessments. Until 1946 the value for rating purposes of a property was determined by the local authority. The late Aneurin Bevan altered that and made the responsibility for the assessment of rating value that of the Inland Revenue. The simple explanation of that was that the basis on which the various authorities acted was different; and, with that particularly humorous turn of his, I think he said that as Government grants were largely based upon rateable values, it was inappropriate that local authorities should determine the size of the spoon with which the grants were ladled out. So at the present time we have rateable values being calculated in accordance with rating legislation by officials of the Inland Revenue, and fair rents being assessed by rent officers appointed under schemes approved by the Secretary of State for the Environment. Under the Housing Finance Bill now under consideration in another place this is being extended to local authority houses, and therefore the extent of this anomaly will be much greater in the future than it has been in the past.

This is not merely an academic or theoretical difference. In cases that have come to my personal knowledge the difference between the rateable value and the fair rent can be as much as 100 per cent. In the case of one cottage, the gross value under the new assessment that comes into operation in 1973 is £60, and the fair rent, as recently determined by the rent officer, is £150. The same applies in the case of another cottage not far away. In the case of a larger house in the same district, the gross valuation is £137, whereas the house was let for a considerable period of time at £250. Therefore I say that in theory it is completely wrong that the two assessments of the annual value of a property should be determined under different Acts, on different principles, by two different statutory authorities, and it can turn out to be completely wrong in fact. Indeed, the difference in the two valuations can be as much as 100 per cent.

I do not in any way wish, even by implication, to criticise Mr. Crossman or the late Government for the fact that this anomaly should have crept in. It was necessary for them to deal with the question of fair rents, and I am perfectly sure that if any civil servant had asked them to consider altering in the same way the annual value for rating purposes, the Parliamentary draftsman would have said that it would be quite impossible to amend a long-established system of valuation by a side wind in a Bill dealing with only one relatively small part of the whole of the property of the country. I make no complaint either that the present Government, so far as I know, have not drawn attention to this matter. They have, however, issued for discussion a Green Paper called The Future Shape of Local Government Finance. In that Paper they deal at considerable length with the whole rating system. I have read it, and I am bound to say that I think that, with certain amendments, the rating system is, on the whole, a fair, satisfactory and economical way of raising money for local requirements.

I hope that when this matter is under consideration the point I have ventured to raise this afternoon in your Lordships' House will be taken earnestly into consideration. It is a difficult problem, and I am quite sure that it would be wrong that indefinitely for the future there should be two entirely separate assessments of the annual value of every property that is occupied by a tenant. I shall be most grateful if the Parliamentary Under-Secretary of State is able to give some indication of how the Government's mind is working on this matter.

4.16 p.m.

LORD GREENWOOD OF ROSSENDALE

My Lords, with characteristic care the noble Lord, Lord Molson, has drawn our attention to what I think must clearly appear to the public to be a very anomalous situation. This is a particularly appropriate moment to discuss it, because the Government's Green Paper on Local Government Finance is before us and is now being discussed with the local authority associations and also because the Housing Subsidies Bill is at present under consideration in another place. There is no doubt that we shall have opportunities for rather wider debates on this subject in the future, and therefore I should like to confine my remarks this afternoon to the situation as it is at the moment.

In my humble submission, the noble Lord is really trying to compare two essentially different things. I have treated the noble Lord's Unstarred Question as an opportunity to try to clear my own mind on what do appear to be anomalies, and I am grateful to the noble Lord for having prodded me into this form of mental exercise. I should like to check my own assessment of the situation with that of the Under-Secretary of State. If we first of all look at the question of rating, we see that it is governed by the General Rate Act 1967, under which the Minister issues the circulars, to one of which the noble Lord, Lord Molson, referred. The relevant section of that Act is Section 19. I am sure that it is in the minds of every one of your Lordships, but perhaps I can refresh at least my own memory. The section says: 'gross value'… means the rent at which the hereditament might reasonably be expected to let from year to year if the tenant undertook to pay the usual tenant's rates and taxes and the landlord undertook to bear the cost of the repairs and insurance and the other expenses, if any, necessary to maintain the hereditament in a state to command that rent. From that gross value there can be certain deductions, which are specified from time to time by the Minister, and when those deductions are made it produces the net rateable value. As I understand it, when the Inland Revenue are making their assessments, they are making assessments, admittedly very broad assessments, which are altered infrequently. Although they use the hypothetical rent as a guide, they cannot take all the circumstances of the letting into account. To give one example, there may not be a letting at all. The degree of hypotheticality (if that is the right word) is obviously very acute.

I think that there are two further considerations. The first is that the gross value applies not only to lettings of domestic premises but to all classes of hereditaments and it is really intended, if my understanding is right, to establish a basis which will ensure a degree of uniformity among the assessments so that the ratepayers bear a relatively or proportionately equal burden. But it does remain a very rough and ready assessment of a man's wealth for purposes of local taxation. Obviously the rating system is not satisfactory, but it is the best we have, and I have not yet seen any very positive alternative put before us for our consideration. The noble Lord, Lord Molson, I noted accepted that on the whole the rating system works reasonably well.

The second consideration I should like to put forward on rating is that the existing assessments are based on lists which were deposited in 1963, and there will not be any new lists until 1973, the last Government having decided in 1968 to give the existing lists a further five years. Therefore, because of this time lag, there is I think bound to be a difference between the valuation for rating and the fixing of a fair rent worked out under the terms of the Rent Act. I think it is worth adding that when local authorities themselves use gross value as the basis for fixing council house rents it is always done, I suspect, on a multiple of more than one.

May I now turn to rents? Under the original Rent Act 1965, to which the noble Lord referred, and more specifically under Section 46 of the 1968 Act, which was amended by the Housing Act 1969, a fair rent is the likely market rent that a dwelling would command if supply and demand for rented accommodation were broadly in balance in the area concerned. In fact, as the noble Lord has reminded us, the scarcity value is excluded. We have had a most valuable and informative Report from the Francis Committee and also we have had the important Minority Report of Alderman Lyndal Evans; from these I think we do get a fairly good idea of the way in which the Rent Acts have worked. It appears that, overall, registered rents have been about, or slightly above, 20 per cent. lower than the market rents in the same area, and where there are areas of special housing stress the difference has been much wider. That, of course, is the kind of factor which valuation for rating cannot take into account.

The real point—and I say this slightly hesitantly—is that the assessment for rent is a tailor-made assessment for a particular property or group of properties and the rent officer or the rent panel can take into account special factors which do not apply in the case of rating. They can ask, for example, who is responsible for repairs to the premises: in the case of rating it is assumed that the owner carries that responsibility. They can also ask what the state of repair is. They can ask how far the tenant himself has improved the landlord's property, and can take that into account in fixing the rent to be registered. Because of these two completely different approaches in the case of rating and in the fixing of fair rents, I think there are bound to be discrepancies. However, I have the feeling that with the extension of rent regulation, and perhaps with some measure of reform in the field of local government finance, discrepancies will become fewer. I also have the rather unhappy feeling that quite often these discrepancies will become fewer to the disadvantage of tenants and ratepayers. But these are things that we can discuss when the appropriate legislation is before us.

Finally, my Lords, I should like simply to say that I hope that in what we say to-day we shall not give the impression of criticising the officials of the Board of Inland Revenue, the rent officers or the rent panels. I should like personally to pay tribute both to the rent officers and to the rent panels, and to congratulate them on the care with which Sir John Edwards and his colleagues, on the one hand, and Colonel Phillips and his colleagues, on the other, have dealt with this matter, which means so much to so many people in areas of great housing stress.

4.26 p.m.

LORD DOUGLAS OF BARLOCH

My Lords, my noble friend Lord Greenwood of Rossendale was perfectly correct in pointing out that there are differences of definition in the assessment of fair rents and of rateable values, which of course in some cases can result in a considerable apparent discrepancy between the two figures. However, there is another factor in this, and that is that although, broadly speaking, assessments for purposes of local rating are assumed or supposed to be in accordance with the market value, in practice they very seldom are. That is not a new phenomenon: it was, I think, pointed out as long ago as 1899 by the Royal Commission on Local Taxation and it certainly continued long after that time. The late Mr. Aneurin Bevan, when he changed the machinery of valuation from being a local matter to a valuation carried out nationally by officials of the Inland Revenue, took a long step towards securing at any rate a degree of uniformity between one locality and another. Previously there were certainly the greatest disparities, because so much depended upon the opinions of people in the particular area where the valuation was made.

No doubt as a result of a valuation by the Inland Revenue officials, some step has been taken towards bringing rateable values closer to market values, although naturally in the circumstances in which we are at present, when inflation is con- tinually taking place, the rateable values were bound very quickly to fall behind market values, even if they were close to them to begin with. But I doubt very much whether, even at the time when the rateable valuations were made, they approximated very closely to the market value. There is still a very great deal of reluctance to bring them up to the proper figure because it is very well known that this will produce a violent reaction on the part of the public, who naturally anticipate that the amount they will pay in local rates will be increased correspondingly; and so it generally proves to be. So one can well understand that officials, in all good faith, do not desire to make too drastic changes. And this difficulty is increased when, as has now happened, the interval between one valuation and another becomes 10 years instead of the normal five years which it ought to be. There is no doubt a case for trying to approximate the values for one purpose to the values for another, but the circumstances are different. The primary object of a valuation for rating is to ensure uniformity and equality as between one ratepayer and another. But the purpose of the assessment of fair rents is to ensure that there shall be a reasonable economic return to the owner of a property which is let, and that he should not be exploited by the accidents which previously prevailed in the method of fixing controlled rents.

4.32 p.m.

LORD JACQUES

My Lords, may I first apologise for intervening in the debate, since I have not put my name down on the list of speakers? For most of my life I have been intimately concerned with the valuation of property for rating purposes, and in the past decade or so I have served on a rating valuation panel which deals with appeals. It is my experience that the present system of valuation for rating purposes is unsatisfactory, does not give us equity as between one ratepayer and another, and is in need of overhaul.

In practice, the valuers value properties at a rate per square foot, and for that purpose they value only the building. In that way they try to get some standard upon which they can work; but the system has for sonic reason developed in such a way that it is grossly unfa[...] the occupiers of smaller properties. Such things as quantity discounts are given, and there appears to be a practice of almost completely ignoring the environmental value of the site which is part of the property. Both its location and size appear to be ignored. Only yesterday I served on a panel. There was a large house immediately opposite council houses. The large house was surrounded by a private garden belonging to the house. For rating purposes only, the house was valued, and it was valued at ls. 4d. per square foot. The council houses immediately opposite, in the same road, were valued at 2s. ld. per square foot—they were much smaller, of course. That is rather general; it is not something that is outstanding. I find that in the City of Portsmouth, where I live, houses which are in the best sites in the town, on top of Portsdown Hill, have a valuation per square foot which is only marginally different from the houses in the slums of the town. For some reason the system is not giving us equity; the smaller properties are being over-rated as compared with the larger properties. Insufficient attention is given to environment, especially the environment provided by the private garden.

I can see only one way out of this situation. I was pleased to see in the Green Paper that the possibility of valuation on the basis of capital values was not entirely ruled out. It appeared that the Government were keenly interested in using the capital value method. I believe that that would be the best way of tackling the problem. Give us a clean start and make the valuation for rating purposes a percentage of the capital value. That will ensure that both the size and location of the site are taken into account, as well as the building itself; and that is something which is not done at the present time.

4.35 p.m.

LORD CROWTHER

My Lords, as the merest amateur in these matters, I should like to take a little further the points which have been made by noble Lords who have spoken, particularly the noble Lord, Lord Douglas of Barloch. One has to admit that in any superficial and verbal sense it is an anomaly that a rent fixed in accordance with one set of words in accordance with another set of words should so greatly from a rent fixed which, on the whole, is intended to mean the same thing. It is one's experience of life that when one comes across a good anomaly, on the whole it is better to preserve it than to destroy it just because it is an anomaly. I see some grave danger if this brief debate were to create the impression that it is desirable that these two sets of rents should be brought into concordance with each other, because they serve wholly different purposes, as has been illustrated by noble Lords.

The purpose of valuation for rating is to establish equality between different properties in the same place and between different localities in the country. It would not matter in the least if every rating valuation came out at exactly half of what it ought to be, provided they were all exactly half of what they ought to be—or a quarter, or double—because equality would be preserved. On the other hand, it is essential that a fair rent should be absolutely right, for the reason that the noble Lord, Lord Douglas, gave—that the investor, the proprietor, the builder of a new house should get a fair return—and for reasons that I will not attempt to develop this afternoon; but on the Second Reading of the Housing Finance Bill, when it comes before your Lordships, I should hope to have an opportunity of developing reasons which are pertinent to the whole economics of the housing position in the country.

Let me say, in passing, speaking again as an amateur, that it would seem a great improvement in the system of rating valution if it were to go over to being based on capital value, for this reason: in different types of property in many parts of the country there are no rentals, and the attempt to assess one is a pure exercise in hypothesis; whereas it would be—one must not say "always easy"— considerably easier in almost every case to establish what the capital value of a property is. If it were to be established as sound doctrine that rating valuation and fair rental should be the same the danger that I apprehend—I fear I am only repeating what was said by the noble Lord, Lord Douglas—is that as a matter of ordinary practical politics it is unlikely that the rating valuations would be increased by the very substantial proportion that would be necessary to bring them, broadly speaking, into line with what had been established as fair rents. Even if that were done uniformly all over the country, one would have achieved nothing; whereas if a doctrine of equality came to be established it is much more likely that fair rents would be dragged down and we should get back, by indirection, into exactly the same muddle and mess that under Governments of both Parties we have been trying for some years to get out of—that rents are fixed far below their real value. Instead of moving, as would be so valuable in my opinion, to the system of subsidising not buildings but people, we should find ourselves gradually slipping back into the old system of subsidising buildings. I hope that the anomaly to which the noble Lord, Lord Molson, has pointed will be recognised as such and, as all good anomalies should be, will be preserved.

4.40 p.m.

LORD SANDFORD

My Lords, I am grateful to the noble Lord, Lord Molson, for having drawn our attention to this question and to the noble Lords who have taken part in the debate, because this is a topic which is germane to the legislation on housing finance which we shall be considering later. I hope that the noble Lord, Lord Jacques, will excuse me if I do not follow him on the question he raised, which, although it is undoubtedly one of the greatest importance, is not the issue to which my noble friend's Question was chiefly directed; namely, the relationship between fair rent, on the one hand, and gross values, on the other, and not so much to the way in which each one respectively was assessed.

The short answer to the first part of my noble friend's Question is, Yes; Her Majesty's Government are aware that the rating valuation of any property and the fair rent of that property can indeed differ. To the second part of my noble friend's Question the answer is, No; the Government do not contemplate any direct or immediate steps to alter this, because, for reasons I believe I shall be able to make clear (and which I think the noble Lord. Lord Greenwood of Rossendale, and the noble Lord, Lord Douglas of Barloch, have already made clear) this is not so much the anomaly that it appears to be, but rather a necessary distinction arising from the different purposes for which, and the different methods by which, fair rents and gross values are respectively assessed.

Rating assessments of dwellinghouses are made on "gross value". This is, broadly speaking, the rent which it may be reasonably expected (the noble Lord, Lord Greenwood, dealt with it in rather more detail) a willing tenant would pay for the property to a willing landlord, on the assumption that the landlord does all the repairs and the tenant pays the rates. It is arrived at, as the noble Lord said, by an interpretation of actual rents paid in the open market (whether or not influenced by scarcity) at the time of a general revaluation. Until the next revaluation comes along the level of assessment is tied to the level of values determined for the latest revaluation. The assessments of gross values in the current valuation lists which came into operation in 1963 therefore represent valuation officers' estimates of rental values in 1962 based on rent returns made a year or so earlier. That is a point which the noble Lord rightly stressed.

On the other hand, the law—and the noble Lord, Lord Greenwood, reminded us of the legislation—provides that in determining a fair rent regard must be had to all the circumstances of the dwelling, and in particular to the age, character, and locality of the dwelling and its state of repair. The personal circumstances of landlord and tenant and any value attributable to scarcity of comparable accommodation in the area must be ignored. Thus we can already see that there are basic differences between fair rents and gross values. The first obvious point of difference arises from the time of determination. A fair rent determined in 1971 may well be very different from a gross value determined in 1962 because of the changes—

LORD MOLSON

My Lords, may I interrupt my noble friend? The figures that I gave are for the assessment that will come into operation next year, and the fair rents that I mentioned are those that were stated during the last 18 months, so those figures are comparable.

LORD SANDFORD

My Lords, I am coining to that in a moment. I have only just begun to speak on the differences which separate gross values and fair rents. Because even if both assessments were determined at the same time—and those are the figures which my noble friend has been giving us—there could be, and often are, four further differences following four further reasons.

First of all there is the state of repair. In assessing gross value the valuation officer is required to ignore normal disrepair due to the failure of the owner to carry out normal maintenance, although an exceptional state of disrepair involving structural defects might well be taken into account. A fair rent should take into account the actual state of repair of the property at the time it is determined, except disrepair due to the tenant's non-compliance with the terms of his tenancy. The second of the four reasons is scarcity. A fair rent must ignore the fact that higher rents might be paid where there is an excess of demand over supply, but there is no such restriction in determining gross value.

Thirdly, tenant's improvements are ignored in determining a fair rent but are taken into account for gross value which must represent the value of the house as it is in fact with all its advantages and disadvantages, regardless of whether any feature has been provided by landlord or tenant. Fourthly and lastly, tenancy terms are relevant. A fair rent will reflect the various convenants of the two parties to the tenancy. Thus, to sum up, there is I believe a double justification for differences between gross value and fair rent. First, there is the difference in the purposes. Gross value is used for the purposes of equitably distributing the burden of local taxation among occupiers of property on a broadly uniform basis—this, I think, was the main tenor of the remarks of the noble Lord, Lord Douglas, to us. For that purpose it is necessary to make a universal assumption about the landlord's responsibility for repairs and in general to ignore the actual state of repair. On the other hand, when it comes to assessing fair rent in individual cases there is every reason why the landlord who keeps his property in good order should be able, under the fair rent provisions, to receive more rent than one who neglects to maintain his property.

Secondly, there is the difference, which the noble Lord, Lord Greenwood, enlarged upon, in the period for which the two assessments have to last. Rating revaluation should take place under Statute every five years; in fact this has not yet happened since the war and the last revaluation, as he reminded us, due in 1968, had to be postponed for a further five years. The rate assessment of a dwellinghouse can be altered during the quinquennium if. for example, the property is structurally altered, but the assessments for all new and altered properties have to be related to the level appropriate to the period just before the general revaluation. One would hope that revaluations would not be postponed beyond the quinquennium in the future, but it would be very unlikely that they would be made at any shorter interval. It would be inconvenient, and it is arguable that it would be quite contrary to the idea of a "fair rent", if the rent assessment was tied to a date anywhere near as long as five years ago. Under the Rent Act 1968 fair rents can be reviewed every three years, and more often when there is a change in the state of dwellings or in any other relevant circumstances; and this short interval seems proper for the purpose. My Lords, I hope I have been able to explain why gross value and fair rent differ and why, more often than not, as the noble Lord, Lord Crowther, said, they will, at least in this imperfect world, continue to do so.

4.49 p.m.

LORD GREENWOOD OF ROSSENDALE

My Lords, before the noble Lord sits down I wonder whether I might put one point to him. The noble Lord, Lord Molson, referred to the figures for 1973. My advice is that the Chief Valuer's Office of the Inland Revenue has agreed to make this information available in advance, but it must be regarded as purely provisional; and I understood, too, that it was being provided on a confidential basis and not for publication because if there were to be widespread divulging of the figures which are going to be the 1973 figures one can see many difficulties developing.

LORD SANDFORD

Yes, my Lords: I confirm that what the noble Lord says is so.