HL Deb 21 July 1976 vol 373 cc866-96

3.55 p.m.

Second Reading debate resumed.


My Lords, we must turn from a matter which has united the House back to the Development Land Tax Bill, which I am afraid substantially divides it. The noble Lord, Lord Jacques, has given us a quick and efficient guide to the Bill, but neither he nor I will be able to embark upon many of the technicalities in this debate. Your Lordships need not worry; this is the third time round and there are as many technicalities as there were in 1947 and in 1967. One eminent tax expert told me yesterday that this one was, "The worst of the lot", and it certainly will be among the most expensive, with its massive headquarters in Middles-brough.

To be charitable, my Lords, here there might have been a framework of legislation of which the Opposition could have approved. As your Lordships will recall, we on these Benches are now agreed that there should be some taxation of realised development value, though personally I believe—and I am glad to find that I am not the only one in my Party who does so—that my noble friend Lord Barber overreacted in December 1973. I am not at all sure that the proposals which he then put forward would have survived in that form if they had had to be passed in a legislative form through another place. We shall never know.

But the Bill is unpalatable to me, coming as it does from a Socialist Government. There are three main reasons for this. First, I believe that the rate of tax is unrealistically high and even then is intended to be only a step in the direction of total confiscation. Secondly, the measure marches hand in hand with the much-loathed Community Land Act of last year towards an all-embracing and all-pervading bureaucracy. Not only do we think that the incentive to bring forward land for development has been given a death blow but the method of murder will not even be an efficient one. There will be no rapid humane killer here but slow strangulation at the hesitant hand of a local government committee.

Thirdly, I am afraid I detect a deplorable lack of principle in this Bill: a wriggling about to seek to justify that is nothing more than a collection of political expediencies, or in some cases an inability to find answers to real problems which have been pointed out to the Government. First, let me say a word about the rate of tax. Your Lordships will appreciate that this Bill is only a temporary measure. When it first comes in, development land tax on the first £10,000, as the noble Lord has told us, will be nil. On the next £150,000 it will be two-thirds and it will be 80 per cent. on the rest. Thus for almost everybody, except builders, for the three years until 1979 the tax will be lower than it is at the moment under Development Gains Tax.

This is clever politics, but it is totally unprincipled. There is only one reason for it. As the Minister said on Second Reading in another place, it is to encourage the release of land for development. They have to make these concessions because Her Majesty's Government know well that the tax at its final rate will utterly dry up the release of land and will thereby frustrate the first of the objectives which the noble Lord, Lord Jacques, has just told us about. In order to get the Government past the danger zone of the next General Election they tempt us all with the poisoned lollipop of the reduced tax. Of course people like the concession, but in making it I am afraid that the Government at once betray their reliance upon this political expediency rather than upon any matter of principle, and at the same time they display the fear of the stagnation which will fall when the rate of 80 per cent. Comes in.

On all sides it is said that there is about two or three years' worth of building land now in stock. Under this legislation there will be no more. But that situation will be as nothing to the ultimate conclusion of the Government's intentions. As I have said, this is a temporary measure because Her Majesty's Government, for some strange reason, look forward to the second appointed day under the Community Land Act, when there will be 100 per cent. confiscation of development value achieved by a simple change in the code of compensation for compulsory purchase. Indeed, before that, we are promised 100 per cent. development land tax. I can only suppose that in their sweet innocence the Government imagine that people will readily volunteer to hand over 100 per cent. of the development value to something called the community. It is not even as if the people being invited to do so will see anything tangible in their locality as a reward for their sacrifice.

The financial controls which cocoon the Community Land Fund, and any surplus it may one day produce, are far too stringent to allow anything like that. Nor, it seems, will any other good emerge from the totality of this scheme. Some people may think cheap housing will result, but it will not. There will still be a market in land, with developers bidding for sites from a monopoly seller, the local authority, which has in addition a financial stake in the selling price, and by law they will be required to get the best possible price reasonably obtainable for the land they dispose of.

Of course, the other difficulty is that the Government find they cannot finance the scheme, either. This year there is only £25 million allocated for the whole of England for the community land scheme. One of my honourable friends in another place quoted the figures for a major Midlands county. The whole county this year has an allocation of £450,000, and the county council say that of that, £200,000 will be used up in staff costs. This Bill, therefore, is in bad company, associating, as it does, with the Community Land Act. When the coating of the pill has worn away, people will taste the bitter reality. The supply of land will dry up. It looks as though the community land scheme will not be capable of replacing it and making up the shortfall.

Then I look at the principles that are apparent, or perhaps not so apparent, in this Bill. I have already identified a serious shortcoming in these tax concessions for an initial transitional period. Next, I should like to look at the position of the charities, that I know other noble Lords wish to discuss. Though they will be exempt in relation to any land which they own before White Paper day in September 1974, they will pay tax on land bought since then if it is developed or used for anything other than the charity's own purposes. There will be a deferment if it is used for those purposes, but only a deferment.

My Lords, nobody since Tudor times has attempted to tax charities. The Socialist Party did not do it in 1947; they did not do it under the Land Commission Scheme, and they have not done it for development gains tax. The only person who tried, apparently, was Mr. Gladstone in 1863, and he had to withdraw quickly, and very chastened, from the attempt. Why do the Government wish to do it now? To prevent, they say, a two-tier market. This is nonsense. There will be a two-tier market anyway. There are many other organisations exempt from this tax. Your Lordships will see a list of them in Clause 11 of the Bill. There is a whole page of exempt authorities who will pay no tax. There are also the co-operative housing associations and the self-build housing societies. They can all engage in the market, knowing that there will be no tax payable by them on disposals or starts of development, so why not charities? Those other organisations are exempt because they are the embodiment of the community, so it is said, or in the case of the housing bodies because they are the next best thing to owner-occupiers—the embodiment of the community, which is supposed to have created the betterment. But so are charities. Listen to what the Charity Commission said in their 1975 Report: One of the requirements which must be satisfied by every institution which is a charity is that it exists for the benefit of the community, or of a sufficient section of the community. Any increase in the value of charity land arising from the grant of planning permission for development accordingly in this sense already belongs to the community". So the charities are also an embodiment of the community.

How do they differ from other exempt authorities—the Lea Valley Park Authority, the Scottish Special Housing Association, Letchworth Garden City—so that they have to be given a special and different role, and be made to pay tax for the first time? They have not even been given any roll-over relief. The Minister in another place said in mitigation that the exemptions under the Bill will cover 98 per cent. of land owned by charities. This takes me on to the next point, where I fear there are misgivings in my mind about the principles that have motivated the Government.

My Lords, 98 per cent. of the land owned by charities now, may be, but this is going to be a continuing process. This legislation in other respects is faulty, by admission of the Government. The Government recognise there will be a problem in the long term for charities. They have said so. There are other defects which the Bill leaves unresolved. For instance, there is the question of interaction with other taxes; there is a limit to the time during which one can claim an offset against other taxes, and it is so short that the Government have admitted in another place that it could be unfair. Then there is the ability of local authorities to use their compulsory purchase powers, and the formula deduction under Schedule 7 of so much of the purchase price which represents development land tax, in such a way as to prevent a provisional assessment of that tax by the Revenue and thereby they will deduct more money from the purchase price than they should. In another place, the Minister said that this could be abused.

One day the Government seem to think that they will get round to legislating to cure these defects. I say it is wrong to pass a Bill with this sort of defect in it. It is not good enough to say that the Government will legislate when the trouble has been spotted and the cure seems necessary, because this falls into a double trap. It does not help the cases of unfairness which have already occurred unless the legislation is retrospective. Retrospective legislation in the realm of taxation is a very dangerous policy indeed upon which to embark, and I do not think this Bill ought to contain these defects. There are plenty of others. I should not be at all surprised if my noble friend Lord Kinnoull were to tell us about some of them. I will be content with two, which perhaps show the range.

Under the Bill it is not what is called material development—and so attracts no tax—to rebuild any building so long as you do not increase its cubic content by more than one-tenth, and the one-tenth is measured from external measurements. So if in the Cotswolds you rebuild a building made of stone, which needs thick walls, instead of rebuilding it out of brick, you get less room inside to enjoy. If you wish to replace the full amount, you will either have to pay a little tax, or you will have to build it in brick instead. Did the Government really mean that sort of situation to arise?

Then, at the other end of the range, if your Lordships have penetrated the murky forest of Schedule 8, in paragraph 48 there is something I believe to be the ultimate of all absurdities. Perhaps the noble Lord, Lord Jacques, will tell me whether I am right on my facts. Supposing a developer wishes to build 25 houses on a site and he elects to pay his development land tax in instalments. As each house is sold to the family who wants to live in it, there will have to be a recalculation of the original tax, of the amount that now has to be paid over on a final basis, and on the rest of the instalments. If one looks at the formula for the assessment of the recalculation of these taxes in paragraph 48, one sees that it is no small effort to comply with it. For that development of 25 houses there will have to be 26 different recalculations of the tax. It is little wonder that there will be a massive empire of civil servants doing this in Middlesbrough.

I have not time to go into any more of the defects, but I note in particular the much lamented lack, in this legislation, of roll-over relief which has been a feature of previous Bills and particularly of development gains tax. I want to say a word about the appointed day, 1st August, as the noble Lord, Lord Jacques, has just confirmed. I have a real worry about the practicability of bringing in this legislation in about ten days' time. Originally, I believe the Inland Revenue said that they wanted about two months from the date of Royal Assent before the appointed day was brought in, and I can well understand why. Can the noble Lord, Lord Jacques, tell me this. If a developer starts his development on 2nd August, he will of course be caught by this Bill. He is required under paragraph 36 of Schedule 8 to notify the Inland Revenue of the project within 30 days. The builder will have to use prescribed forms and he will have to provide the information that the Inland Revenue need. Where arc the forms? This is going to happen in ten days' time. What is the information that the Inland Revenue need? Where can the builders and developers get hold of this? This applies nationwide to every corner of the United Kingdom.

Then there are the regulations to be made under subsection (7) of Clause 40 to deal with conveyancing for those who are non-resident in this country. There are to be exceptions; there is going to be small print, and solicitors will need this because they have to deduct tax when it is paid to such a person. Where are the regulations? Will they be made in time for conveyancers to understand them by 1st August? I very much doubt it.

In another place we were told that a booklet is promised on the workings of this tax, and Heaven knows! it will be necessary. When will it be ready? It is said by the Minister to be a major job for the Inland Revenue to produce a proper book. My Lords, is it not just too soon to try to bring it in on 1st August? The time-table of all the Government's business has slipped, and I would suggest to the noble Lord that they really ought seriously to reconsider this. I believe that what will happen is that developers—wanting to calculate, for instance, the instalments that they ought to claim in relation to the tax; trying to decide upon the size of the project they are going to notify as that upon which they are going to embark, and the effect on their cash Flow—will just stop for a month or so to take advice. This Bill was printed in its final form only on 13th July. Nobody's advisers are up to date with it. None of them has attempted to take on board the whole of the contents of this legislation until it emerged from another place. I believe that there will be another period of stagnation in the house-building market simply as a result of bringing in the appointed day too soon.

My Lords, my copy of the Bill—and I think everybody else's—has printed upon its face the words, "Brought from the Lords 13th December 1976". I wish that prophetically this were true. We hardly need any more legislation for the autumn Session, but I think we could gladly do without some that is promised to us. I believe we could have gone carefully through this Bill again and made some substantial improvements to it. I think my noble friends would have been able to continue the process which the noble Lord rightly said has taken place in the House of Commons whereby this new tax has been refined and improved. But this is denied us. Nor can we throw the Bill out. I shall, therefore, suggest to my noble friends on this side of the House that we allow it to pass under protest. As it stands it is a bad Bill. It is insufficiently thought out. It is part of a desperately serious Left Wing community land scheme. When we come to draw the teeth of that scheme, we shall also look very closely at this Bill, and at any period of time it has been in operation, to show us how it works and to ensure that the necessary changes are made, because only then would it be acceptable to us as a proper vehicle for a tax on betterment.


My Lords, before the noble Viscount sits down may I put this to him? He is very persuasive, and he carried me with him with much of what he said, until he reached the point when he said that he was going to advise his friends to allow the Bill to pass under protest. His arguments being so persuasive and so damaging, why does he offer that advice?


My Lords, because it has been certified as a Money Bill. If it had been similar to the Land Commission Bill which we had in this House, which could be divided, Part from Part, and we could look at Part 3 and amend it, I should have been only too glad to take that course. But as it is, this Bill is one and unified, and I am afraid we cannot do that.

4.17 p.m.

Viscount SIMON

My Lords, I think we would all agree that no tax is ever welcome, but, as the noble Viscount said in his speech, the major Parties in Parliament are all agreed on the principle of taxing the betterment in land values that arises from development. So it seems to me that the question to which we have to address ourselves is really how to give effect to that principle. My noble friends and the Liberal Party as a whole have always expressed the hope that we might eventually achieve a tax on the annual site value and that this would be the best way of dealing with the undoubted problems that arise. But we realise that this is unlikely to be possible for some time to come—in fact I think the Layfield Committee threw a good deal of cold water on the idea—and so we have to look at this Bill and the development land tax which is proposed as the method which the Government have thought fit to introduce to us for use, as the noble Viscount said, in harness with the Community Land Act. We did not like the Community Land Bill when it was before us, any more than did noble Lords on my left; but it is now an Act, and it seems to us that we have to accept it as an Act, and that the form the taxation should take should be related to that Act, even though, as the noble Viscount said, the Act has left a nasty taste in many of our mouths and that makes us react almost instinctively against this tax.

My noble friends believe—and I do not hold myself out as a tax expert—that on balance, by perhaps a rather narrow margin, the development land tax is better than the development gains tax introduced by the Conservative Party in 1974.


My Lords, it was introduced by the Socialist Party in the Finance Act 1974. The details belong entirely to the Socialist Party.

Viscount SIMON

My Lords, I beg the noble Viscount's pardon; I had misunderstood this. At any rate, it is marginally better than the development gains tax. This is a highly technical matter, and I would not attempt to give a lecture to your Lordships on the difference in impact of these two taxes, but I think it is reasonable for any Government to re-examine a tax which is basically a tax on development value to see whether they can put forward a better proposition.

So far as my noble friends and I are concerned, we think that this is a marginally better form of tax. Of course there are objections to it, and I entirely agree with the noble Viscount in much of his criticism. The first one related to the level of tax. He suggested to your Lordships that this would, in course of time, be a disincentive to land finding its way into the market for development. But if we accept that there should be a tax on development value, then whatever form that tax takes it will act in that disincentive way. The extent to which it acts will depend upon the rate of tax. The rate of tax has been criticised, but if the noble Viscount turns out to be right and the noble Lord, Lord Jacques, turns out to be wrong, the rate of tax, I would assume, could always be varied from year to year. All the Bill lays down is the initial rate of tax. I stand to be corrected if I am wrong but I should have thought that in any subsequent Finance Bill the Government of the day could vary that rate of tax. I do not think that the level of tax at this stage is really a matter which would justify us in criticising this proposal.

I very much agree with the noble Viscount that it was wrong—and I say "wrong"—for the Government to use this tax to withdraw from charities the exemption they have enjoyed all these years. I am very much disturbed that this should have been done, and I know that efforts were made in another place to get that corrected, but those efforts were unsuccessful. Here again, I take it that the Government can still have second thoughts next year, if they can be so persuaded, and that so far as the charities are concerned it is probably correct that in the first year the effect upon them will be minimal. I think the same applies to the exemption for pension funds, about which some of us feel very strongly.

The noble Viscount also extended his criticism to the timing. I must say that I entirely agree with him. How it is possible to introduce this very complicated tax on 1st August when practically nothing, as he says, has been circulated because there has not been time, passes my comprehension. This is a matter which could be altered by administrative decision, and I do not see why the Government should not have a look at it very seriously between now and 1st August.

As regards the curious point to which the noble Viscount called attention, this reference to the Bill being brought from the Lords on 13th December 1976, I hope that the noble Lord is going to tell us what it means. It is in very small print and I congratulate the noble Viscount on being so observant. I do not wish to speak at length because this is a Money Bill and we have to let it go. In short, we feel that the exemptions for charities, churches and pension funds ought to be looked at again. But we would not, as I am advised, raise objection to the principle of the tax because we believe that it is generally agreed that there should be taxation, and I say substantial taxation, on the windfall gains that arise from development value in land. This Bill in fact gives effect to that principle.

4.25 p.m.

The Lord Bishop of WORCESTER

My Lords, following the comprehensive remarks which have already been made this afternoon, especially by the noble Viscount, Lord Colville of Culross, and indeed those made by the noble Viscount, Lord Simon, I rise briefly to make three points. I do so on behalf of the right reverend Prelate the Bishop of London, who hoped to remain here this afternoon but is now not able to. In his place I find myself speaking for the Churches' Main Committee which, as many of your Lordships know, represents all the leading religious denominations in this country, and acts for them in secular matters of common concern. I believe that what I have to say on behalf of the Churches very much applies to the great body of charities.

As we look together at the representations made by the charities and Churches on the effect of this Bill on their work, I regretfully have to register real sadness at the cavalier treatment that we have received at the hands of Her Majesty's Government. I do not often feel called to speak in such clear terms, but here we have done all we can to point out those things which we wish to place on record, and have believed that our proposals were valid. But even now, although it is too late to expect any changes, we very much hope that certain matters will be taken notice of in the years of working this out.

My first point (following the remarks made by the noble Lord, Lord Jacques) is that for the first time in history Churches and charities are subjected to direct taxation. This Bill makes a most unwelcome and dangerous precedent in this respect. It has already been pointed out that this policy has been established ever since Tudor days, and that Governments at all times and in successive years have been at pains to encourage voluntary giving, to safeguard the property when given, and to ensure that it was applied strictly in accordance with the donor's wishes. For the first time this great concept of charitable giving is being questioned.

The whole subject was gone into in great detail in 1950 and 1952 by the Nathan Committee, who reported unhesitatingly that charitable resources should remain at the disposal of the trustees. Effect was given to their recommendations in the Charities Act 1960, and subsequently Churches and charities have continued to be exempted from direct taxation, including indeed the betterment levy under the Land Commission Act, and the present development gains tax.

Why then this change of heart on behalf of the present Administration? Because, it is said, development land tax is not an ordinary tax at all but a stepping-stone to a new system of land tenure under which all development gains which are created by the community return to the community. But, my Lords, the same could be said of capital gains tax, and many others. What are capital gains but increases of value brought about by the pressures of supply and demand within the community?

Moreover, this argument overlooks the fact that, in the case of the Churches and charities, all their resources, of whatever kind, flow to the community and are used for charitable purposes beneficial to the community. What else are the Charity Commissioners there for but to watch this very thing? None goes into private pockets, and none can if charity law is properly applied. So when the Churches plead for complete exemption, they do so not in order to make money for themselves but simply to have more to devote to the work of the community. The plain fact is that any tax diminishes the resources which the Church can devote to the community. For example, I have more than one redundant church in the denuded populated areas of the centre of the City of Worcester, and now I find myself questioned as to whether I can transfer the assets of that piece of land to meet the needs of Redditch New Town, some 20 miles away.

The Government have said that for the particular purposes of the community land legislation the community is represented by the local authorities. But the Churches are just as much a part of the community as are the local authorities—and, if I may say so, just as worthy. Indeed, as many of your Lordships will know, much of their social work is carried out in partnership with local authorities. Local authorities and local churches, thank God! are working together in an enormous number of spheres. At this time, if cuts in local expenditure are with us, does it not seem strange that there should be any question of taxing the resources which the Churches and charities devote, often in partnership with local authorities, to the community?

Another argument which is put forward by Her Majesty's Government is that if Churches and charities were exempted from this land tax, the result would be to establish a two-tier land market. This point was raised by the noble Viscount, Lord Colville, and I simply wish to point out that such a market already exists, and will continue to exist, in the case of land which the Churches and charities already owned on White Paper day. However, even in the case of land acquired since that day, it is difficult to see that complete exemption for Churches and charities would have done any real damage to the Government's land scheme. This is something I fail to see. As it is, the fact that pre-White Paper day land is free of tax and post-White Paper day land is not, will inevitably make the Churches and charities increasingly chary of giving up one for the other, and so this will tend to result in work continuing in one place which really should be transferred to another. I, as a Bishop, stand as the representative of many of my brothers in realising that one of the principal roles of the Churches and charities these days is to be adaptable with their resources and to meet new situations.

That brings me to my second point, which is that even if Churches and charities cannot be given complete exemption in respect of the land which they acquire or are given since White Paper day, it seems particularly hard in this new situation that they cannot even be exempted on such land which they develop for their own charitable purposes. It means, for example, that a given property belonging to a charity or Church, such as an over-large church, will be severely restricted in developing the site into a hall, school, community centre, hostel or children's or old persons' home. We are being restricted to that extent. It is true that the Churches will not be liable to tax on such developments at the time when they take place, but the tax is not cancelled. It is merely deferred, so that if eventually the land has to be sold—perhaps because the site or buildings become too small, or the need moves elsewhere, or the land is needed by the local authority for other purposes—the tax then becomes payable, just at the time when the Church or charity needs all its resources to rebuild and restart the work in the face of greater need.

Thirdly, it is equally surprising and disappointing that the Government should apparently be contemplating taking away with one hand a concession which they gave with the other; namely, the right to compensation based on prevailing use value, when, after the second appointed day under the Community Land Act, land is acquired which has been in charitable use for at least seven years. This concession was particularly important for Churches and was much welcomed by them because the value of a redundant city centre church for its current use as a church is usually particularly low. I contine to use my example; the land value of a redundant city church is usually low, whereas its value based on the uses prevailing in the neighbourhood—for example, offices or shops—may well be higher. However, as the Bill is drafted, it seems only too likely that the Church would be liable to tax on that difference in value. The Government have said that this is something at which they will look again nearer the time, but we have had such offers before. Churches and charities have to make their plans a good many years ahead, and this they cannot do if there is uncertainty about the tax situation when the time comes to put the plans into effect.

Those are the three points which I would make personally and which would have been made by the right reverend Prelate the Bishop of London had he been able to be present, but I am sure that in a great measure of what I have said I speak on behalf of the charities and Churches. As I said at the outset, nothing can be done about them now in relation to this Bill. But is it too much to hope that they will be borne in mind in relation to any future legislation affecting the Churches and charities, and that the traditional exemption of Churches and charities from direct taxation will be restored as quickly as possible? Otherwise, only the community itself will suffer.

4.37 p.m.

The Earl of KINNOULL

My Lords, I rise to support both my noble friend and the two other speakers and I wish at the outset to congratulate them on the effective piercing of the very tough skin of what my noble friend described as the worst Bill and what I would describe as the most vicious land tax measure that has yet come before Parliament. I believe that not even one's eight year old daughter would believe that a Bill with 47 clauses and eight Schedules has but one sole, simple objective; namely, to tax profits on development land for the benefit of the community. Surely the Bill will win the Oscar of the year for being the most incredible tangle of tax gibberish yet approved by Parliament. Its content is farcical, frightening and odious and shows the appalling mess that our tax system has degenerated into.

I condemn the Bill on three counts. First, I condemn it because of its incomprehensible complexity; secondly, because of the active damage which I believe it will do to our planning system, to our housing programme, in the short term anyway, to our construction industry and, most shameful of all, to our churches and charities, as the right reverend Prelate the Bishop of Worcester pointed out: and, thirdly, because almost certainly it will cause confrontation and friction between the individual and local and central government, something which is very serious. The Bill's complexity is a matter of serious charge on the Government and while I think that few will disagree with its general purpose—of introducing a development land tax; my noble friend said that there was a consensus to that effect—it is the percentage and method which are deeply divisive. Why, one asks, do we need this draconian form of tax law? Is it, as I suspect, designed to soften us up for total land nationalisation? I regret that because this is a Money Bill this House is unable to examine, probe and seek clarification of many of its clauses.

As the House will recall, we did this quite successfully with the Land Commission Bill, but we are reduced to peppering the noble Lord, Lord Jacques, with a series of specific questions which are but a handful of the many we have received. I would, however, say that I look forward with hopeful anticipation to what the noble Lord will be able to tell us on the points we have raised this afternoon.

My first question, which is a simple one and one that my noble friend mentioned, is this: assuming that the Government accept responsibility for ensuring that the tax laws are understood, when will the simple man's guide be published? When will there be a guide written in three letter words and when can we be advised on how we can be taxed under Clause 2 on profits one has not yet made or received but which are anticipated? Where is that money to come from? Where will one borrow the money? What penalties will face a person if he refuses to pay until the profit has been received?

I hope that the guide book will also throw light on Schedule 6, of which a certain professional body has said: We have found the schedule extremely difficult to comprehend … We would stress that valuers will have to understand it as well. I am not surprised that they mentioned that. Lastly, I hope that the guidebook will be able to paraphrase the 30-odd pages that form Schedule 8. That Schedule subtly slips into the Taxes Management Act 1970 numerous new clauses which will confuse those who had mastered that Act.

My noble friend dealt most persuasively, in my view, with his appeal to the Government to rethink their decision on the date of the first appointed day, which they have already said is to be 1st August. I support my noble friend in his plea. Surely, it is not good enough for the Government to say, "But we warned you last February during the Second Reading of the Bill." That was at an early stage in the life of a highly controversial Bill, a Bill, one must recall, which was published months after it had been promised and which was considerably altered in another place. Now, with nine days to go and the first appointed day so very close, the Bill has only just reached this House.

The first appointed day brings with it certain duties on both the developer and on the Inland Revenue—duties of identification and time limits upon those duties. I believe that there is a very strong case for the Government to reconsider this date and to put it back perhaps two months to 1st October. That would be little harm to the Government and it would restore some confidence to those who have to operate the Bill when it becomes an Act. I should like to turn to certain specific questions of which I have given notice to the noble Lord, Lord Jacques. I hope he has received that notice of my questions.


My Lords, I have not received any notice.

The Earl of KINNOULL

My Lords, I regret that this should have happened. The usual channels must have slipped up in some way. Perhaps it may be a little unfair, but I should like to put my questions and, as there is another speaker to follow me, the noble Lord may receive guidance from the Box in time to answer me when he replies.

The first question I should like to ask concerns Clause 4(5). I am glad to see that the noble Lord has completely mastered the Bill. The noble Lord will remember that, under the clause in question, developers faced with development land tax assessments will deal initially with the Board and then, if they disagree, may appeal to the Commissioners. The simple question I want to ask, and to which I am sure the noble Lord will have an answer, is: why is the appeal to go to the Commissioners when it will be a matter of land valuation which is a field for which the Land Tribunal has for years been responsible? Indeed, it is very well respected for its work. Would it not be better if the Land Tribunal took the place of the Special Commissioners on issues of land valuation, particularly under this tax?

My second question concerns Clauses 5 and 19 and the future mobility of industry. Under Clause 19, there was a welcome relief, which was put into the Bill in another place and which gave the companies which were to develop existing sites an exemption from this tax. The point that has been put to me is that there will be no corresponding relief for companies which wish to move, say, to a development area and which wish to sell their factory and build elsewhere. In other words, there are no roll-over provisions. Would the noble Lord consider that sympathetically for the future?

I should like now to turn to Schedule 1, paragraph 5, which deals with the cut-off point on the exemption from the new tax, where planning permission has been granted and a start must be made before the first appointed day. There is some confusion, and here again, I believe that this is a matter where clarification would be of great assistance to those concerned. Where one gets a planning permission conditional on reserved matters such as, say, the colour of facing brick which needs to be approved by the planning committee, will that small, insignificant condition make the planning permission void so far as the exemption is concerned? I hope the noble Lord will be able to give some indication on that.

Next, I turn to Clause 15, which deals with the exemption of a single, owner occupied dwellinghouse. The point which has been made to me and which I think is a good one—and perhaps the noble Lord will advise us why the clause has been drafted in this way—is that the clause gives certain limited categories where the owner occupier can build a single dwellinghouse and not incur the tax, though he will need to have owned the property from 12th September 1974. The point which is obvious is that this is such a small exemption: why cannot the Government abolish the date? Why cannot it be that, so long as the land is owned regardless of 12th September 1974 and so long as it fitted into these small categories, that the exemption would apply?

Under Clause 16, there is an apparent conflict between what was the original White Paper intention and what is in the Bill today. The conflict occurs—and, again, I am afraid it is a rather dry valuation matter—in that under the White Paper the exemption granted was for land held as stock in trade by builders. This was land held before the date of the White Paper and which had planning permission. That land will have created a value, so far as the valuation of development land tax is concerned, and will have been valued according to that permission. If that permission is changed for whatever reason, one understands that the previous value under the White Paper will not apply and that development land tax will apply to the whole amount. I wonder if this is correct.


No, my Lords.

The Earl of KINNOULL

My Lords, my noble friend says, "No", so that may answer my question. However, perhaps the noble Lord, Lord Jacques, will give me some indication on that point. I was going to ask the noble Lord about minerals but, as he has no brief, perhaps I am wasting my time.


My Lords, before my noble friend leaves that point and in case I can assist the noble Lord, Lord Jacques, there is a very interesting concession given on the stock in trade situation which appears on Report at column 1868. My noble friend might like to study that. He will see that the planning permission on the appointed day can be substituted for one which is substantially the same.

The Earl of KINNOULL

My Lords, I am most grateful to my noble friend. Would the noble Lord like to say whether he is going to answer the points which I am now asking about?


My Lords, I am going to answer technical questions of which I had notice. Technical questions of which I have not had notice I shall answer tomorrow, when the Third Reading is moved.

The Earl of KINNOULL

My Lords, I am grateful for that information. I should like to pursue one other clause dealing with minerals, because this is an important matter to a number of people. There is a welcome relief under Clause 17 of the Bill regarding minerals. There is a partial relief, I understand, as regards minerals with planning permission. But for one reason or another there is no relief where minerals are disposed of without planning permission. I am advised that it is not unusual for mineral operators to lease land for mineral extraction before seeking planning permission. It would be quite inequitable for such a case to be treated differently under the DLT if that was the case. I hope that tomorrow the noble Lord will be able to indicate confirmation of this fact.

My Lords, I do not think that anyone wishing to speak on the Bill—other than the spokesman for the Government—could take part without mentioning the way in which the charities and the Churches have been treated. I do not think that any noble Lord could support the Government on what must be described as very shabby treatment to both the Churches and the charities. We now see the full significance of the partial exemption that was granted, I think, under the Community Land Act to the Churches and the charities. We now see that land acquired, donated or given to these bodies after the date of the White Paper will be treated exactly alongside land owned by land speculators. There will be no difference at all. I believe that it is a terrible effrontery by Government to claim that they have a better moral reason for putting into the Bill a quite unprecedented tax on the work and efforts of the Churches and the charities.

I should like to refer to two points which come under Clauses 24 and 25 relating to charities. First, I should like to ask the noble Lord (who can perhaps reply to this tomorrow) what happens if a charity loses ultimately its status as a charity. I am told that under the provisions of the Bill it is possible that those who are operating the charity may find themselves liable for development land tax retrospectively ad infinitum. I am not sure whether this point was raised by my noble friend when he spoke, but I hope that the noble Lord can give some assurance on this because it is a very important point to the management of charities.

The other point which has been put to me is this. If the Government feel that they have to tax charities and Churches, why could there not be some roll-over provision where a church hall is being relocated and the massive costs of building that church hall have to be found? Why should the old church hall, which is to be valued as a very old church hall and all the possible and potential funds for the church, not be utilised in going towards building the new church hall?

The right reverend Prelate spoke very movingly to the House, as did the other two noble Lords in supporting him, on this unhappy Government policy. The Bill has been described in another place in many differing colourful adjectives. I believe that the tax under the Bill is penal. The effect anticipated in many quarters will be traumatic. Gone are the incentives for a natural voluntary supply of development land on the market. Gone is the co-operation of those who previously were prepared to offer this supply of land; and to replace it will mean a desperate attempt by local authorities to provide an involuntary supply of land, no doubt with the ever-increasing aid of the compulsory purchase order.

I believe that the result of the Bill will be very damaging. As I have said, it will be very damaging for the housing programme; very damaging to the construction industry, and indeed it will be to the aggravation of the individual. In my view, the Bill is a dreary, penal, incomprehensible package, all of which leads me to the conclusion that it will prove unworkable. I look forward to the day when either the Government see the light of reason and throw this package away, or when the Opposition have a chance to redress the damage in Government.

4.55 p.m.


My Lords, I hope that the ingenious suggestion by the noble Earl, Lord Kinnoull, that the Minister should spend the occasion of my speech quickly making up his mind about the suggestions which the noble Earl made, will not be fully carried out but that he will lend me one ear. The criticisms of the Bill from the noble Viscount, Lord Colville of Culross, and the right reverend Prelate the Bishop of Worcester, my old and good friend, have done so much in the scientific way to demolish such merits as this Bill may appear to have in relation to the Churches and charities, with which I think my connection is known, that I do not need at this stage to make a scientific diagnosis of the text and its apparent meanings. But perhaps at this stage I can give your Lordships a few impressionistic points which I believe to be relevant and, even if they have been made substantively by others, are perhaps still worth expressing in other terms.

A most traumatic experience if one goes through the text of the Bill is that, looking down the columns to gain some guidance, one comes, at last, on I think page 40, to a figure, 24. Then it says "1972/1634", and a great deal more. It says: Charities: interests in land held on 12th September 1974. What on earth is the 12th September? What that says is: "Charity begins at home but ends on 12th September 1974"; or to put it another way, it says: "Do unto others as you would have them do unto you except as hereinafter provided from 13th September 1974, when the rules that are well known will be modified by Her Majesty's Government".

This is the effect it has—and I apologise for saying this—but it makes it so extraordinary that the noble Lord, Lord Jacques, who is so articulate, so friendly, and so lucid should deal with these few paragraphs here as though they were just another little detail of the hundreds of paragraphs which clutter up the Bill, as though this were just one of the little things which one has to deal with. Possibly it was his brief, or possibly he was wishing to spare us time, but it seemed to me that anybody, even if they are in favour of the Bill, must recognise that there is a qualitative difference, not just a quantitative difference, between the position of Churches and charities and the rest. The point about the community has been sufficiently dealt with. If there is a difference it is the difference between the people who want to give for good purposes and the people who have to give whether or not they like it because they are taxed; and surely the discrimination should not be against the former.

So one is deeply moved by the thought that a good impulse of her late Majesty Queen Elizabeth I should be legislated on in the name of Queen Elizabeth II in the reverse direction, throwing away the good motive that inspired the earlier legislation. I need not develop that point further. However. I should like to develop one point which was alluded to in a very eloquent and practical manner by the right reverend Prelate. It concerns what will happen.

What happens at present—and this time I speak from the point of view of charities rather than Churches—is that various enterprises are undertaken by charities around the country. These may involve relief of handicapped children or the finishing off and rounding up of the facilities for work in a club for young people in a disadvantaged area. One can make a long list of these things. Very often these enterprises are carried out and completed by a combination of the work of a charity and a considerable contribution of money, and then a supplementary grant of help by local or possibly even central Government.

We are coming to a time in respect of Government expenditure when, to our great admiration, the leaders of our Government are trying to desperately, in a difficult situation, cut Government expenditure. Very well; but this will affect the kind of work I have just been describing. The Government will then have to come to the voluntary organisations to say, "We are very sorry indeed, but we are not going to have so much money, and we shall not be able to help you so much". The voluntary organisations will naturally say, "We have not got any more money in present conditions", and the Government will then have to say, "In addition to what we have said we are going to tax your expectations if not your immediate operations". It creates a doubly destructive situation for people spending money on charity work, the second part of the double being totally unnecessary; and when you compare the expense of the Bill with the amount which will come in, at least in the earlier time, there is no sensible comparison.

So what is proposed will result simply in making the work of voluntary organisations more difficult still, and it is really not at all surprising that so little support for this Bill comes from the Government Benches in this House. I find it totally natural that this should be so.

One comes then to wonder for a moment about what can be the inspiration behind these parts of this Bill. I think perhaps one of them is a little archaic. Up to two or three years ago, say, the charities suffered a little in the public relations sense from a curious trendy dislike of charities. There was no reason particularly; it was a fashion of the times which the voluntary organisations have happily survived, but it did exist. It was difficult to deal with, and one had to wait patiently for it to die away. It is disappointing to find traces of it in a Government Bill since—and I would emphasise this again—it is an archaic motivation which one had hoped had died away, and I am sure it is not shared by the Minister.

Secondly—and this, perhaps, is more serious—I think this is one of the cases (and one makes one's own identifications) in which doctrine has got hold of the Government and impelled them into a Bill to do something that the country does not in the least want. Some people would attribute more Government legislation than I would to that particular defect; but there is certainly no demand whatsoever among the broad mass of the people for anything which inhibits the work of voluntary organisations—absolutely none. Only one thing is necessary; that is, some form of supervision, which I think is amply provided and comes through the Charity Commissioners, to ensure that charities are doing what they say with the maximum of efficiency and, perhaps I could add, compassion.

My Lords, I have little to suggest to the Minister. Perhaps I am of an optimistic disposition, and I do not disbelieve in miracles. Therefore, a little unlike the right reverend Prelate, I still say that it is possible that the Government could do something about this section of the Bill, and indeed they should. Whether they will do so, of course, I am less optimistic, but, none the less, I think it is worth saying that it could be done if the Government would listen to your Lordships' House on this question.

I can only convey my sympathy to the Minister who will be answering the debate, with the corollary, in case he should feel instructed or inclined to reject it, that sympathy, like mercy, drops "as the gentle rain from heaven upon the place beneath", and the place beneath has not much ability to return it. So I fear it will remain with him, and I am afraid that the discredit for the negative elements in this Bill will remain with this Government. I myself think this a very great pity, and I hope there may be some way of thinking again. The only alternative, as was said by the noble Earl, Lord Kinnoull, will be for somebody to repeal these parts of this Bill, at least, at some—I hope not too much—later date.

5.5 p.m.


My Lords, I should like to say only a word or two in order to add my voice to the protests which have been made by every noble Lord who has spoken in this debate, and especially to support what the right reverend Prelate said in regard to this wretched Bill, which will serve, as clearly indicated by him and by the noble Lord, Lord Gore-Booth, to choke the fountain of massive communal service which is represented by the Churches and charities. I look forward to hearing what the noble Lord, Lord Jacques, has to say in regard to the queries raised by my noble friend Lord Kinnoull. I realise there is nothing we can do about it now but protest, and that I do with all my strength.

5.6 p.m.


My Lords, first of all the printing error in the front of the Bill. This was done quite inexplicably by the printer. The document that went to him was absolutely correct: it was returned absolutely wrong. I wish that was the easiest of the points with which I have to deal. The suggestion is that the rate of tax is too high. I would point first of all to the very generous way in which the base values for deduction from the gross value are drawn up, and the way in which you can choose the highest of the three. I think that in that part of the Bill there is considerable generosity. I would next point to the exemption for the first £10,000 of development value. The result is that if you get a case where, after deducting the base value, you have £10,000 of development value left, the average rate is nil. If it is just a little higher than that then the balance would be charged at 66⅔ per cent., and the average rate would be very small. I suggest that by the time you take into account the liberality of the base rate, the £10,000 exemption and the fact that the next slice of £150,000 is at only 66⅔ per cent., then the average rate of tax will in most cases be a relatively small rate. I think that the fact that 66⅔ and 80 per cent. are mentioned is unavoidable but misleading. The average rate is going to be substantially less.

There was some criticism that there should be a liability for tax at the start of development. This is a vital anti-avoidance measure. It would be quite possible to sell the development value without actually selling the land. For example, it would be possible for a company to sell its shares at a price which would take into account the development value of land it held—land which, when the development is started, invites tax. We cannot just permit development value to be realised in that way; it would lead to inequity as between different developers. Furthermore, there is an eight-year spread. Where there is a liability at the start of development it can be spread over eight years. In the case of an industry it can be spread over indefinitely until either there is a sale or the land is no longer used for the qualifying purpose. I would point out that most developers will have paid something near development value; and, consequently, the tax liability which arises on the start of development would be relatively small. They have already paid almost the development value when they bought the land. Certainly most would be helped by the £10,000 exemption.

I come now to charities. Can we get the position clear as to what the Bill does in respect of charities? There is no liability in respect of land which was held by the charities before 12th September 1974, no matter how that land may be developed. Regarding land which is purchased by the charity after September 12th 1974, any liability is deferred if the land is developed for the purposes of the charity. In that case, there is interest-free deferment and not just for eight years but on the same lines as the deferment for the industrialist. It is deferred until there is an actual sale or the land ceases to be used for the use for which it had the exemption. There is only one case where there is immediate liability. That is where the charity buys land after September 12th 1974 and either disposes of it or uses the land and develops the land as an investment; for example, develops it into shops and offices.

Our view is quite clear. It is that development value arises because of the activities of the community. It is our intention that an appropriate proportion of the development value created by the community should go back to the community, no matter who owns the land.


My Lords, would the noble Lord tell us why, in that case, a body like the Highlands and Islands Development Board is not treated in the same way?


My Lords, the Highlands and Islands Development Board, like the Scottish and Welsh Development Boards, are part of the community. They are developing for the community. They are not people who have simply got desirable charitable objectives. They are working as part of the community and they are appointed by Parliament for that purpose.

The noble Lord in his speech drew attention to the position of housing associations. Why were charities not treated like housing associations? I was astonished at that suggestion. The only privilege that housing associations have is that if housing associations use the land for the purpose for which they are created—that is, for housing—then there is the same kind of deferment of payment of tax as for the industrialist. The charity has got exactly the same deferment so the charity is, in fact, being treated the same as the housing association.


My Lords, the noble Lord failed to take my point. That is right in the case of most of the housing associations; but there are two sorts which are totally exempt. If the noble Lord looks at Clause 26(1) he will see which they are.


My Lords, I am not aware that there are two sorts. I will look at that and answer the point at Third Reading. On the question of charities, there has been gross exaggeration. For example, the noble Earl, Lord Kinnoull, said that we were for the first time taxing the work and efforts of charities. That is nonsense. What this Bill does is to tax the development value in the land which may be bought by a charity after 12th September 1974 and then sold by the charity.

The Earl of KINNOULL

My Lords, if I said that specifically then I would withdraw the specific words. I was trying to say that the charities, in particular the Churches, are, by nature, often landowners. In the past, they have never been taxed on development land, under Development Gains Tax, under Land Commission Tax; they were never taxed on land. That is the point. This is a precedent that the Government are now setting.


My Lords, I am grateful to the noble Earl for having withdrawn those words. If he looks at Hansard he will see that I was not mistaken. Those are the precise words he used; I took them down.

The noble Viscount, Lord Colville of Culross, was wise enough to give notice of his points. I will try to answer them. First, he asked the question about notices and argued that with the 1st August starting date there would not be time for the forms in which the notices of the start of the project must be given to be distributed and understood by the builders. Copies of the forms will be obtainable from the Development Land Tax office in Middlesbrough and from Somerset House, as from 1st August; and from 1st September onwards they are also available at local district valuer's offices. Immediately after the Royal Assent the Revenue will be issuing a statement drawing attention to the circumstances in which notice is required to be given. The notice will set out the circumstances in which no notice is required. It is considered that these arrangements will give builders and others reasonable time to familiarise themselves with their legal obligations.

The noble Viscount also said that most professional advisers have not yet applied themselves to the details of the Bill. The Revenue experience is quite contrary. During the preparation of the legislation and during its passage through Parliament the Revenue had full consultations with the professional bodies and the builders' representatives. It is evidence from these that the provisions of the Bill had been carefully studied.

The next question was on Clause 40 which relates to the deduction of tax on sales by non-residents. The noble Viscount asked whether the regulations spelling out the purchaser's obligation to deduct tax from consideration on buying land from a non-resident vendor will be made. It is hoped to lay regulations before Parliament by the appointed day. In the course of drafting them, both the Law Society and the Law Society of Scotland have been closely consulted. A practice note giving guidance to professional advisers will be issued at the same time as the regulations are published. This practice note is being prepared jointly with the Law Society. It is hoped that the problems facing solicitors and other advisers have been recognised and catered for.


My Lords, these regulations are subject to Negative Resolution procedure. Parliament will have risen by 1st August for the Recess. There is the difficulty, is there not, that I suppose they will only have a provisional validity because time does not run during the Recess, as I understand it, and the 40 days will not begin until we come back in September; so that at any time subsequently, it is, in theory, possible for these regulations to be annulled by Resolution?


My Lords, that seems to be the position on the face of it. If this House rises on the date on which it is stated that it will rise, we shall not be able to deal with it before 27th September when we come back. As to the legal effect of the regulations in the meantime, I am prepared to leave that to the Table. I do not know what the position is. Since the noble Viscount is a "learned" Lord, I leave it to him.

On the commencement date in general, the noble Viscount claims that the 1st August starting date is too early for the tax to get off to a smooth start. It was however stated so long ago as last February that it was hoped to bring the tax into operation on 1st August, so there has been ample notice of the Government's intentions. Putting it off for a month or two would lead to uncertainty. What people want to know, above all, is where they stand. Concern has been expressed lest the Inland Revenue would expect a developer of a large housing estate to notify them formally of the sale of each house and that on each such occasion the Revenue would call for a part of the tax and revise the instalment arrangements which had previously been made. I am glad to be able to reassure the noble Lord that the Revenue does not operate in this manner. In practice they will ask such a developer shortly before each instalment of tax is due for details of sales made since the previous instalment was paid. On the basis of his reply, they would calculate the amount of tax to be paid in respect of all the sales during the period and collect this from the developer. The amounts of future instalments would then be correspondingly reduced.


My Lords, I am sorry to keep on interrupting the noble Lord, but that is a very useful explanation. So far as I know—and I have combed through all the official reports over this matter—there has never previously been an explanation of that. Will the noble Lord make perfectly certain that the widest publicity is given to this? I happen to know that the house builders are wholly in doubt about how this is going to work and will be very glad indeed to know what the noble Lord has just told this House.


My Lords, I give that assurance. The remainder of the questions which I have not answered I will answer at Third Reading. I am indebted to noble Lords who have taken part, in spite of their gross exaggerations.

On Question, Bill read 2a; Committee negatived.