8.55 p.m. Mrs. Margaret Thatcher (Finchley)
I do not wish to get embroiled in this debate on Scottish matters. They are not normally the subject of debates at which I am frequently an attender. It had been today a lively debate, albeit attended by comparatively few Members, a debate in which Hon. Members on each side have been trying to convince others that theirs was the right course to pursue.
I start with some comments on the White Paper on the Land Commission. I am sorry J. Willeythe Minister of Land and Natural Resources is not back yet to hear them. I would say at the outset that had I sat on that side of the House for nearly 12 months and had had to prepare a White Paper I would have been very ashamed indeed if I had had to present such a sketchy one as this, and even more ashamed if, having come down to the House to debate it, I had not been able to give more details on things which need to be explained or not been able to give more answers to questions asked. I hope Richard Crossmanthe Minister of Housing and Local Government in his winding-up speech will give us answers to many of the questions we have asked.
I wish to refer to a number of points and to put a number of questions. It is quite clear that the whole idea of a Land Commission and a land levy arose because of the high price of land. Indeed, today a large number of hon. Members have dwelt upon the high price of land. However, the Land Commission and capital levy will do nothing to reduce the price of land. What they really do is to get the Government in as well on some of the spoils. This is, of course, a classic example of if you cannot beat something you join it. The question is whether the part of the spoils which the Government will take will also be added on to the price of land. It is ironic indeed that the mischief which the measures set out to cure is the high price of land but that the remedy which is proposed will undoubtedly result in an even higher price for land being paid.
I do not know that anyone or any organisation seriously contests this except right hon. Gentlemen on the Front Bench who, I understand, were shaking their heads vigorously at one moment when we suggested the levy would put [column 480]up the price of land. If the right hon. Gentleman believes that it will put up the price of land I withdraw the remark, but I understand that he thought it would not. Certainly the Minister of Land and Natural Resources thinks it would not put up the price of land. Nevertheless, the House Builder believes it will put up the price of land. An article in the Local Government Chronicle believes the levy will put up the price of land. The National Federation of Building Trades Employers believes the levy will put up the price of land. The journal of the Rating and Valuation Association also provides articles which believes likewise.
Let us be quite clear, therefore, that although many of us can make an interesting debating speech any time upon the evils of the high price of land, this Government are not proposing a remedy for those evils, but proposing only to take a share in the spoils.
I turn for a moment to the justification for the levy. It has been variously described, and on occasions rather speciously described. It is said that there should be a justification for a development levy where the development value is created by the community and consequently, the reasoning runs, the value should return to the community. It is almost becoming known as the “betterment” theory, that if a betterment in value is created by the community the value should return to the community. This would have various strange logical conclusions. Surely the betterment value in a Premium Bond from £1 to £25,000 can be created only by other members of the community buying Premium Bonds? Where else would the prize money come from? It is not proposed in any way to tax this enormous increase in value, which is far higher than any percentage increase on any land transaction.
I prefer the interpretation given by my hon. Friend the Member for Gloucestershire, South (Mr. Corfield), who said quite openly, “A levy will put up the price of land, but we believe that it is justified on other grounds.” Where there has been a very great accretion in value, then throughout centuries of government there has been a Treasury which will very shortly get its fingers into the till. One says, therefore, that if there is a great increase in actual value, there is a source [column 481]which sooner or later will become liable to tax. This is the sort of theory which does not get one into anything like so much trouble as a kind of “betterment by the community” theory.
It has been suggested in some quarters that a levy should be payable because a betterment would arise from the grant of planning permission. If that were the only betterment doctrine, I could understand that as well, because the grant of planning permission concentrates the potential of land on one particular plot, and it would, therefore, give rise to a substantial potential increase in value. But that is not the only occasion upon which the White Paper is proposing to impose a development levy. There are occasions—
Notice taken that 40 Members were not present;
House counted, and, 40 Members being present——
I note that an hon. Member of the Liberal Party, which has been almost totally absent except for one attempt to interrupt my right hon. Friend the Member for Kingston-upon-Thames (Mr. Boyd-Carpenter) at the beginning, comes in only to remark that other hon. Members are not present in sufficient numbers.
I was saying that the levy is payable not only on the grant of planning permission but purely on a straight increase in value. This is apparent from paragraph 26, which gives an example of agricultural land worth £300, sold for £1,000 without planning permission, but with the hope that it might get planning permission if it has been zoned within a plan. If this land is sold without planning permission for £1,000, there will be a development charge on the £700 and a levy of 40 per cent. will be payable. That would seem to be not so much an example of betterment by the community but just a straight increase in value, and it is the increase in value which attracts tax.
Therefore, I would put my personal belief in a levy not upon a rather sophisticated theory of betterment value but upon the view that this is something that has increased so rapidly that it would be proper to take a part of it in tax for the Revenue. [column 482]
One thing upon which the White Paper is very quiet is the inter-action of the levy with Capital Gains Tax. It is vital to know how the levy will dovetail with the Capital Gains Tax. The White Paper makes only one reference to it.
Let us consider the extent to which increases in land value are already taxed under existing law. They are taxed to a very considerable extent without any need for a special extra tax of this kind. For example, builders, estate developers and land dealers who purchase land and develop it are subject to tax on their profits—Corporation Tax if a company and, in so far as these profits are distributed, to Income Tax at the standard rate. If a person deals in land he is taxed at the full personal rate. Thus, ordinary dealings in land are and always have been caught under the ordinary taxation legislation. They are already liable to very heavy tax because the standard rate of tax is high and the proposed rate of Corporation Tax is fairly high.
Since the Budget, landowners who dispose of their land at an increased value over and above that which they paid for it, or over and above the value on Budget Day, also have to pay a Capital Gains Tax of 30 per cent. if a person or possibly up to 40 per cent.—if taxation should go that high—if a company. The vast majority of increases in land value are therefore already taxable. There are very few which are not. The only ones that are not, I believe, and which will be caught by the new proposals, are cases where the land does not change ownership but which is taxed when it is developed by the owner for the purposes of his business or his own farm.
So if the moral which has given rise to the need for the White Paper is that increases in land values should be taxed, they are already taxed very heavily. It is said that the gross yield from the levy will be £80 million a year. That figure is gross. How much do we have to deduct from the gross to get the net figure? Obviously, what would have been levied by Capital Gains Tax would have to be deducted, that is, the great majority of the increases in value, as the Capital Gains Tax is already very high and, with Corporation Tax, may be as high as the [column 483]development levy. There would also have to be deducted the enormous expense of running a fresh new big machine which would have to extend up and down the country to assess values and to know which land to acquire compulsorily.
I doubt very much whether there will be a very large increase in revenue, if any. It might be found that the administrative costs of running the machine will more than mop up any development levy which comes in and which would not otherwise have come in in the form of Capital Gains Tax. We are going to a bureaucrat's paradise in order to do something which can already be done under the existing Revenue law, and is already done to a considerable extent.
It used to be said that a tax should be certain in its incidence, cheap to collect, and simple. This is certainly not certain in its incidence, as I shall show shortly, because of the enormous gaps in the White Paper. It certainly will not be cheap to collect, because there is to be set up a whole new machine especially to collect a tax most of which would have been collected otherwise. It certainly is not a simple tax in any way.
I deal now with those cases which under the White Paper would attract a levy and would not be liable to Capital Gains Tax. No one has dealt with them yet, except my hon. Friend the Member for Folkestone and Hythe (Mr. Costain). They become apparent from the paragraphs in the White Paper which deal with examples of how the levy would work. It is said in paragraph 26 that a development levy would be payable when realised by a transaction or by development.
A development levy might be payable if a manufacturer had around his factory a large area of land upon which he wished to put an extension to his factory. In order to do that he would have to apply for planning permission and possibly an I.D.C. When he put up the building he would have developed the land. The development would probably be a “material development” . It would be required to extend his business and, in certain cases, to modernise his business. It would rank as development attracting a development levy. Thus, under the White Paper a manufacturer who modernised or expanded would not only [column 484]have to finance the modernisation or expansion but pay a levy because he had expanded. That seems to be very silly. Indeed, it seems to be nonsense.
One could get a similar position with farming land on which a farmer wanted to build cottages for his farm workers. He would apply for planning permission and then not only have to finance the cottages, itself a big enough requirement, but have to find the money to pay a levy because he had provided cottages. That is no recommendation for the kind of levy which the White Paper proposes.
I do not know whether the right hon. Gentleman will think that such developments should be exempted from the levy. If they are not exempted, the Treasury will probably have to recommend changes in the Finance Acts because, if a levy has to be paid, the next thing will be to increase capital allowances to negative the effect of the levy. One will have put on a charge which manufacturers have to finance and then one will have to amend taxation provisions on the capital allowances in order to nullify the effect of the levy which one has put on. I have dwelt on this because I think it is an important and significant point. This is the only kind of case, as far as I can make out, of a development which is caught by the White Paper which would not be caught by Capital Gains Tax.
It looks as if right hon. Gentlemen are not particularly au fait with this situation. This is the kind of thing which I would have gone into thoroughly before I dared to come to this House, and I would have expected anyone who comes here with a proposal to put on a tax to have gone into it thoroughly. If the right hon. Gentleman has not, he does not know his job. I feel very strongly about this. There should be a whole section in the White Paper explaining the inter-action of the Capital Gains Tax, long-term and short-term. An example has already been given of how, if one has the short term Capital Gains Tax and development levy, one will get taxes up to 26s. in the £. This, too, is nonsense. Before I leave the taxation part of what I have to say, I want to point out that difficult as it is to arrive at a hypothetical value at any time—and we know that it is very difficult from the arguments we have had on Capital Gains Tax and the arguments [column 485]raised sometimes on Estate Duty valuation—it is even more difficult to have to apportion that value between a liability for a levy and a liability for a capital gain. When one has arrived at the increase in value which is taxable one has to apportion that increase between the amount attributable to increased development value and the amount attributable to the increased underlying use value.
This is going to be one of the most complicated sums ever. Is it really worth having a Land Commission? Is it worth having this kind of levy when the whole thing could have been done much more simply, and is done much more simply, by plain, straight Capital Gains Tax? If one thinks that the Capital Gains Tax is not enough on land transactions, which is clearly what hon. and right hon. Gentlemen do think, then it would surely have been simpler to have a differential rate for land transactions. But I very much doubt the wisdom of setting up a very complicated machine to bring in the tax which must be difficult to collect, assess and must be very uncertain.
The other points about the White Paper upon which there is all too little information is when the levy is to apply. It is said in paragraph 25 that it is payable at the time of development. Is that when the development starts or when it is completed? We do not know, and I hope that the right hon. Gentleman will know.
A point has been raised relating to the powers of the Commission to acquire land, almost any land ultimately, for development by compulsory purchase, and to acquire land in advance of use. My hon. and learned Friend the Member for Kensington, South (Mr. Roots) inquired particularly how the powers of the Commission and the view which it took upon how land needed for development would interact with the views of the local planning authority. At the moment the local planning authorities, of whom I understand there are approximately 215, have powers to acquire land compulsorily. If the Commission is to have more extensive powers to acquire land, then it obviously has to take a view about future development needs. Whether that view will be the same as the local authority, we do not know. But it will have to make an assessment, and it seems that if the Land Commission provisions [column 486]go through they will, sooner or later, result in very considerable changes in who is the planning authority. As things are at the moment, it would seem that there could be a considerable conflict between a view about future development needs taken by the Land Commission and the view taken by the local planning authority.
F. WilleyThe Minister of Land and Natural Resources quoted a speech by my right hon. Friend the Member for Leeds, North-East (Sir K. Joseph) and, I think, attempted to quote it in support of the idea of a Land Commission. One of the things which my right hon. Friend condemned in almost every speech that he made on this subject was the very idea of a Land Commission. The fact that at some time or other he proposed new machinery, or thought that new machinery might be necessary for compulsory acquisition in certain circumstances, should not be taken in any way to mean that he supported the idea of a Land Commission. He most certainly did not.
Another point of interest in the White Paper is this hybrid child of Crownhold. Some would call it perhaps by a rather less flattering term. I still do not know quite what it means from the Minister's explanation, and I would like to know whether it will apply only to housing or whether it will apply to land leased for other development purposes.
I must refer to the contents of paragraph 20. This seems to me to be a very dangerous paragraph indeed, as does paragraph 19. The latter attempts to vest land quickly in the Commission by a vesting declaration. In other words, if the Land Commission is going to acquire something compulsorily it wants to do it quickly and then be able to do so before the compensation has been calculated. The land may well have been passed on to another purchaser and the evidence required for the calculation of compensation destroyed before that compensation has been decided. This seems to me to be quite wrong.
Paragraph 20 says that the Bill will enable the Minister
“to invoke temporarily … some modification of the requirements relating to the services of notices and the holding of inquiries into objections” .
[column 487]This seems to me designed to cut down the rights of the individual, or to try to get something through before he has had time to object.
I leave for a moment the White Paper on the Land Commission. I hope that the right hon. Gentleman will give us some of these answers tonight, or will undertake to write to us and give us some of the answers, particularly about the Capital Gains Tax and the way it interacts.
I turn from that for a moment to various other problems which have been raised. On the question of leasehold enfranchisement, the right hon. Gentleman made a statement on 8th December last year, but he did not tell people what they really need to know, and he has not told us yet. I hope that he will do so. From the wording of the Gracious Speech there seems to be considerable modification now in the intention to grant leasehold enfranchisement. From the former Gracious Speech it would seem that everyone would have been entitled to leasehold enfranchisement, but now the emphasis is put, not on enfranchisement, but on reform of leasehold. This seems to be different.
What people really want to know is how much they will have to pay or how much they will get, and under what circumstances. Undoubtedly the majority of interest has been evinced in this by people who want to purchase the freehold reversion. They want to know how much they will have to pay under the Bill, and it will not be an easy formula to decide, because obviously it will depend on the amount of ground rent payable, and when that amount was fixed.
The other point they really want to know is whether, if the lease is held by a charity, or by the Crown, or by the Church Commissioners, they will also have the opportunity to purchase it. At the moment Ministerial announcements with regard to residential property seem to imply that the leasehold system is rather wicked except when it is created by the Crown. Obviously people want to know whether everyone who holds a lease for residential property will be entitled to purchase the reversion, and roughly for how much. [column 488]
I turn for a moment to a number of comments which have been made about the future of the building industry. Undoubtedly there is a good deal of uncertainty at the moment, and for a Government who said that they did not believe in stop-go this Government have created an extraordinary amount of stop—perhaps more than any other Government. As J. Boyd-Carpentermy right hon. Friend said in his opening speech, already, in one quarter, between July and September, about £546 million worth of work has been withdrawn from architects' offices, and the licensing system which the Minister of Public Building and Works announced will apply to £180 million worth of work each year.
The very worst thing for any industry is uncertainty about the future. The one thing that an industry must do is to plan the continuity of work in the coming year. This is needed in any industry. I am not in the building industry, although my husband supplies certain goods to it so I may be said to have an interest in it by marriage. But we all need to plan for continuity, and this is the one thing that cannot be done at the moment. Many firms are having to stand off their most highly skilled architects. They want to know how long the building licensing system will last, and when they can expect to take those people on again.
Finally—and I must point out that my time has been artifically cut down by the unconstructive intervention of the Liberal Party—I hope that the right hon. Gentleman will be able to give us a few more details about his system of relief for those who are suffering hardship because of the rates and, in particular, can he say whether the amount of rates of which he will relieve those people will be borne either by other ratepayers or by taxpayers. I hope that the right hon. Gentleman will answer the points that have been raised.