I want to know a little more about the Schedule. Am I right in supposing that this Schedule, which lays down the basis for the ascertainment of annual value, produces a basis of valuation similar to that which used to exist both for Schedule A purposes and for arriving at gross valuations for rating purposes? It looks to me to be exactly the same thing. If that is the case, the Government should tell us that the Schedule A basis of assessment is being kept in the cases to which this Schedule refers, which include, for instance, the estate eases that we considered so carefully under the Fourth Schedule
The rules laid down in this Schedule are the same as those for ascertaining gross value for the purposes of valuation for rating in England and Wales. The Schedule lays down the rules for the ascertainment of annual value for Income Tax purposes under Schedule B as it applies to commercial woodlands to which we have just been referring; under Schedule E as it applies to the value of accommodation provided for the holder of an office of employment; and to claims for maintenance relief under Schedule A for 1963–64 or to Case VIII for 1964–65 and subsequent years where the annual value of an owner-occupied property has to be brought into the computation as a condition of allowing relief for the maintenance expenses against the rents of the surrounding estate. These are the circumstances which are dealt with in Clause 20 and Schedule 4.
The hon. and learned Gentleman is quite right in thinking that, with commercial woodlands in general, the new method of ascertaining annual values under Schedule B is not expected to result in any material change of actual amounts of Schedule B assessments.
On reading Schedule 7, it looks very much as if annual values under certain parts of this Bill will be the same as rateable values. If that is the case, it is rather shocking, because the results will be about three and a half times to four times as much as the present annual values. Where this is to apply, particularly where there must be an election under Schedule 4, I wonder what the point will be if the amount which can be set against it is the new annual value.
Another point is that the recent revaluation for rating purposes is putting rating values extremely high. Part of the purpose of doing this was to reduce the rate poundage so that the rates paid by the ratepayer would not be so excessive compared with previous rates. We know, however, that it is excessive —greatly excessive in many cases—compared with what the ratepayer has hitherto paid. If that basis is to be taken for the value of an hereditament, particularly under Clause 45, in cases where the occupier is in the house or hereditament by virtue of employment, it seems to me that the greater burden on the taxpayer under the present rateable values will be considerable.
Obviously I cannot anticipate Clause 45. But I made it clear earlier that Schedule 7 applies not only to Schedule B but to Schedule E, since it applies to the value of accommodation provided for the holder by reason of his office or employment. It may well be, in certain circumstances, that the value as determined by Schedule 7 is higher than the existing, out-dated Schedule A valuation, and it may be argued whether this is right or wrong in relation to the charge under Clause 45.
The hon. Member for Glasgow, Craigton (Mr. Millan) expressed doubt about the conclusions I have drawn con- cerning the valuation of commercial woodlands under Schedule B. He suggested that if the new valuation is different as laid down in Schedule 7, then the valuation of woodlands under Schedule B will be higher than in the past.
The answer is that annual values on the old basis have not kept pace with the general increase in property values of woodlands, and that these assessments in respect of commercial woodlands will normally be left undisturbed, certainly while conditions remain as they are. It was for this reason that when I moved the Second Reading of the Bill I pointed out that in general the change was not expected to result in any material difference in the actual amounts of Schedule B assessments of commercial woodlands.
I am sorry to press my hon. Friend again on this, but it is serious. If an owner is to be entitled to make an election as to whether he goes on a five-year basis for maintenance or takes the actual right away, he will be left in doubt about what is to be the figure against which he can set his maintenance and repairs claim. Apparently, the net annual value figure is to alter at the moment of the passing of the Bill. The valuation for Schedule A will go and Schedule 7 will be substituted, but the owner will not know what that figure will be.
In the margin to Schedule 7 it is said that Schedule 7 applies to Schedule 4. In Schedule 4 there is the machinery for the election, particularly in paragraph 7. If my hon. Friend tells me that the Schedule does not apply at all to the question of election to carry on on the five-year basis, I am happy, but I think that the reference to Schedule 4 should then be deleted from the margin of Schedule 7.
As I understand it, Schedule 4(7) gives an option to claim maintenance on a five-year average for this transitional period. I do not think that there is any doubt or misunderstanding about that. However, in Schedule 7 we are concerned only with how the annual value is ascertained for the various purposes to which I have been referring. I cannot see that there is any inconsistency in the two provisions. All I can tell my hon. Friend is that when I looked at paragraph (7) originally, which was some time ago, it seemed to me that there was an advantage in having an option to claim maintenance on a five-year average for the transitional period. I think that this is so.
The Committee is right to pause for a moment in its consideration of Schedule 7. I am not so much concerned with the theoretical and marginal arguments about commercial woodlands, but I am concerned with the much more important impact of the Rating and Valuation Act, 1961, on house property. Millions of people are now finding that rateable values have been increased by very large amounts, 250 to 500 per cent. in some cases.
Does the Financial Secretary remember that when the Rating and Valuation Act was being considered in Standing Committee, a Committee of which I was a member, so that I can speak with some knowledge of what took place, we strongly pressed the Minister then in charge about what would be the likely outcome of bringing property valuations, including house property, up to what were called present-day values in view of the grave housing shortage and the collapse of control under the Rent Act? Those are factors which the Treasury likes to brush aside. Until the reform of the law 10 or 15 years ago, rating and valuation matters were for local decision. They were fixed by valuation courts which functioned in the localities.
Now the whole of the valuation machinery is under the control of the Treasury. When the Minister was challenged on the possible impact of the new Rating and Valuation Act, under pressure from my hon. Friends and myself, he took certain powers to protect himself and his Government against the political repercussions of millions of people finding themselves faced with greatly increased assessments. He took powers to give a remission if the valuations produced hardship. There are powers in that Act under which the Minister can grant a partial remission of the full impact of the rateable value.
So far the Minister has not seen fit to avail himself of these powers. No doubt as we get nearer the General Election and the public begin to realise more intensely than they do now just what has hit them the Minister may be forced to use these powers. In other words, he may be forced to reduce the assessable basis for a temporary period up to five years to assauge and mollify the public criticism which will be hurled at his head.
The Financial Secretary is no doubt aware of this, and I do not wish to be unfair to him or to bore the Committee with a recital of what has happened, but perhaps I might direct his attention to another aspect of the problem, and I hope that I shall not be off beam in raising these general considerations. This fixes not only the basis of the rates to be levied by the local authority on the basis of the new valuations, but the basis of the tax payable under Schedules B and E.
I am not much concerned about the type of things that fall under that, but I remind the hon. Gentleman and the Committee that when we say,
The annual value shall be taken to be the rent which might reasonably be expected to be obtained on a letting from year to year.
this is the theoretical notion behind the Schedule A tax which I had the honour of criticising in the House, perhaps to the discomfort of some of my hon. Friends who have purist views on this, and this theoretical notion goes haywire while there is a shortage of houses. It is not possible to apply theoretical considerations to valuations if there is no free market in housing.
This is the sort of thing that is being built into the new legislation to give effect to the impact of the 1961 Act without giving any consideration to the fact that there may be a sitting tenancy, with the result that the valuation of the house, as decided by the Ministry's officials, will not be a true valuation, because a true valuation can be arrived at only if there is a free market and there is no control over the tenancy.
I think that we are entitled to a fuller explanation of what is behind this and how the Minister proposes to deal with the situation that will arise now that Schedule A is to he discarded under the proposals of this Budget. How will the Minister apply the new valuations to people who were hitherto subject to Schedule A? How will the Minister apply the new valuations to Schedules B and E without taking into account some of the things that I have mentioned?
I think that the hon. Member for Westhoughton (Mr. J. T. Price) has, with respect, misunderstood the way in which this Clause will operate, and also the extent of its operation. The Clause is concerned with the ascertainment of annual values, first, for the purposes of Schedule B as it applies to commercial woodlands. I have already said that, as far as we can see, this is not expected to result in a material change in the annual amounts of Schedule B assessments on commercial woodlands. I assume that the hon. Member is not particularly concerned about that.
The next matter concerns claims for maintenance relief under Schedule A where the annual value of an owner-occupied property has to be brought into the computation as a condition of allowing relief for the maintenance expenditure against rents of the surrounding estate. I do not believe that the hon. Member was in the Chamber when we discussed this sort of case earlier this afternoon. An example is the case of a mansion house and surrounding property, all of which has been assessed as a single unit. If we did not make provision for dealing with that case the owner of the house, provided that it, together with the surrounding land, is in his occupation, would suffer a significant loss—in other words, a tax increase—unless we had taken steps to deal with the situation.
Knowing the hon. Member—with whom I once spent a night in the desert a few years ago—I do not suppose that he is specially concerned with the taxation of mansion houses. All that remains are the provisions, of considerable importance, which are contained in Clause 45, and which deal with Schedule E, concerning the valuation of accommodation provided for the holder of an office of employment. In other words, Clause 45 deals with the case where a house is provided for, say, a director, a senior executive or an ordinary workman, either rent-free or at a rent less than the annual value.
In those circumstances, bearing in mind that the tenant who lived in his house rent-free or at an uneconomic rent in the past was liable to tax under Schedule A, and had to pay tax under that Schedule, he has to be assessed to tax in some way, as Schedule A is being abolished.
When we deal with Clause 45 we can consider whether the new basis of taxation under Schedule E, replacing the Schedule A basis, is reasonable. I cannot anticipate Clause 45 to a greater extent than that.
Will the hon. Gentleman explain paragraph (2), which reads as follows:
Section 6 of the Rating and Valuation Act, 1961 (adjustment of gross value by reference to provision of or payment for services etc.) shall apply for the purposes of the foregoing paragraph, and in relation to land in Scotland …
and so on? Scotland has a different rating and valuation system. It is under a different Act of Parliament. Will the Financial Secretary explain why properties in Scotland should be assessed under an English law? As I understand it, the assessors for rating and valuation purposes in England and Wales are the Commissioners of Inland Revenue, whereas Scotland has county assessors on the advisory council to the Secretary of State for Scotland.
We do not have the Lord Advocate here, but I have no doubt that the hon. Member has been briefed from the Lord Advocate's Office in Edinburgh, and have no doubt that he can give the Committee—and also the electors of Scotland—an assurance that as a result of the operation of this paragraph Scottish property owners will not have to pay far more tax under the new valuation than under the Scottish Rating and Valuation Act. We who represent Scottish constituencies—at least on this side of the Committee—are entitled to know the answers to these questions.
I agree with what has been said by my hon. Friend the Member for Dunbartonshire, East (Mr. Bence). This is a case of applying English legislation to Scotland by a side wind. If we had a Scots Law Officer in the Committee he could have seen to the matter. It is applying the provisions of what will be a Section of an English Act to land in Scotland as if the legislation extended to the whole of the United Kingdom. That is a very sloppy way of doing things. It required at least one Act of Union to bring the two countries together. For the Treasury now to suppose that English legislation can be applied to Scotland in this manner is not only an insult to that country but it will be a fruitful source of confusion when the legislation comes to be worked out. For some purposes we shall have to look at the English Act and for others we shall have to look at the Scottish Act, and the only safe place to live will be on the Border when one will be able to hop about from one side to the other without much difficulty. That is a situation which ought to be attended to.
There is a serious point which arises here, and I have put this matter to the Government once or twice before. I will put it again. It seems to me that what the Government are trying to do is value land for the purposes which the Financial Secretary explained to us on the same basis as valuations for rating purposes. I am getting more and more obstinate and it will now require a lot to convince me that that is right. If it be the position, one must remember a little of the history. What has happened is that until rating valuation was changed from what I think we might call the pre-war hypothetical value to the present current value basis—I am talking about dwelling houses—the Schedule A valuation and the valuation for rating more or less went hand-in-hand in practice though possibly not technically so.
Then the assessment for rating was raised to the current value, and that has been a bit of a shock to some people, largely because they got their assessments before they knew what the poundage Was to be. But it has caused a lot of feeling and a great deal of indignation. Poujadists have popped up and objected to both local and central Government in any and every form, and we do not want to encourage them too much. When the change was made in rating the Government for the time being froze the Schedule A values and if I get the figure right the freezing is now thawing out, and they are to be valued at a proper percentage value on the same basis as for rating. This makes for some difference.
I refused to be pushed into commercial woodlands like this, to wander about in a jungle of profit-making spinneys and thickets and so on. I am more interested in the Schedule E taxpayer who is taxed on the house which he occupies for the purposes of his job and who knows the position. He has to pay whatever the tax is and, therefore, it seems to me that in his case where the valuation is an actual taxable item and not, as in some other cases, a deduction one has to look rather carefully at the matter. He is to have that part of his assumed income pushed up sharply. After all, this man is in some ways like the Schedule A owner-occupier. We have been told that here is a man who has had to pay on the value of a house without actually getting the money on which he is assessed for tax purposes.
I hope I am right; I shall be corrected if I am wrong. I am thinking of the Schedule E taxpayer who has to pay in respect of a house. One does not wish to invite too many nasty comparisons between the man now losing his Schedule A liability and the one who finds that his house, the same object from the taxation point of view, is being increased in value. So far as valuation is concerned, this has had some practical effect. The Government put into the Rating and Valuation Act provisions for softening the wind to the house occupant. Power was given to ease off during the first five years the additional burden it was expected that he would have to carry.
Taken over the whole country it is arguable how serious the additional burden has finally proved, but one must admit that there have been hard cases. One wonders whether as this additional burden is put on in this way on the Schedule E employee there ought to be something to help him on the same sort of lines as help might have been given—and power was taken to give it—in respect of rating valuations. My hon. Friend was quite right in pointing out this difference and the Government ought to consider it.
The present position is that the Schedule A valuations are frozen and new rating valuations have actually been made by the Inland Revenue so that we get these two parallel but very different figures. No doubt if the Inland Revenue were called upon to value the same thing twice on the same basis it might arrive at the same result. All the more ridiculous is it that we should not recognise that in the statutes and make it clear that the same valuation will serve for both purposes. If we do not do so we might get into trouble.
I must not anticipate what comes later in the Bill, but there are provisions about appeal. Those provisions relating to Income Tax in this case, are quite different from the provisions relating to appeal in connection with rating valuations. Therefore, unless the Inland Revenue valuers take some rather arbitrary line we shall get a great deal of divergence owing to the human divergencies between the views of the appeal tribunals concerned in the one case with tax and in the other with valuation. This muddle is unnecessary. We are trying to arrive at the same figure for the same thing. There is no reason whatever to do it twice and make things worse by providing an opportunity for a divergence year by year, which is sure to arise in a number of cases. I do not like this jungle of possibilities. The Government ought to think about this question as partly one of justice to the taxapayer and partly one of not unnecessarily overburdening an administration which has quite enough to do already.
The election in the Fourth Schedule is not a general election but a collection of local elections. I am afraid I misled the hon. Member for Crosby (Mr. Graham Page), who was on his feet at the time, by referring to the wrong election. The right election is not the one in paragraph 7, but the one in the preceding paragraph, in line 9 on page 71. If we insist on having local elections all over the place we must abide by the confused result which sometimes comes from them.
May I try to deal with the three or four points which have been raised since I was last on my feet?
In the first place, the hon. and learned Member for Kettering (Mr. Mitchison) said that he was concerned about the person who had to live in a house because that was necessary for his job. Before you came into the Chair. Sir William, I explained at least twice that I could deal with the point satisfactorily only by anticipating Clause 45, which is concerned with the Schedule E taxpayer—the very limited number of Schedule E taxpayers who live rent-free or in houses at rents below the actual value.
In respect of the person about whom the hon. and learned Member is concerned, the charge will extend only to people who are in law occupiers, and this term excludes an employee such as a bank manager who must live on bank premises or a farmworker in a tied cottage. These are the people about whom the hon. and learned Member is particularly concerned.
The hon. Member for Dunbartonshire, East (Mr. Bence) said that he was concerned with the possibility of a further increase in taxation for house owners in Scotland. The only house owners to whom this Schedule applies are the owners of mansion houses. Nobody else in Scotland is involved. It concerns only the owners of mansion houses who live on an estate which is assessed, and has been assessed in the past, for Schedule A tax as a unit. In view of the way in which we are dealing with these individuals, I think that on the whole we have dealt with the matter fairly. I think that if the hon. Member looks at the debate on this matter which we had previously and reconsiders the point, he will feel that we have dealt with it fairly.
The hon. and learned Member asked whether the valuation for the purposes of these various Clauses as laid down in Schedule 7 would be the same as for rating purposes. He thought that it would be rather odd if we had people going round valuing for the purposes of this Schedule and also for rating, and that there might be natural human divergencies, because valuation is not an exact science, as I have learned from a number of letters which I have received from hon. Members recently.
In determining annual values for the purposes of the Bill the inspector of taxes and the general commissioner for the division in which the land is situated, who under Clause 30 constitute the appellate body in the case of an appeal, will apply the principles laid down by English law for the determination of rating assessments, but they will not be bound by the figure in the rating valuation list, which will necessarily have been arrived at on the facts of a year earlier than the year to which the Income Tax assessments relate. I see the hon. Member for Sowerby (Mr. Houghton) nodding his head in assent. He knows that in practice the rating assessment would normally be followed unless before the next revaluation it fell out of line with current values. There is that minor difference.
Which it could easily do. If the rating revaluation is five years back and the valuation in the quinquennial year is two years old to start with, obviously there could be substantial changes in the years between the fixing of the valuation for rating purposes and the true valuation for the purpose of determining the amount of payment in kind in a number of cases to be assessed under Schedule E. Part of our difficulty is that we are looking at Schedule 7 without realising that Clause 45 is as much an anti-avoidance Clause as anything else.
I do not know whether I will go as far as that. I did not wish to anticipate the discussion which we shall have on Clause 45 or to be provocative to any section of the Committee.
The last question I was asked, by two hon. Members, concerned the change in the law as it applies to Scotland in paragraph 2 of the Schedule. Although rating law, as I understand it, in Scotland and in Northern Ireland, which is also referred to, differs in certain respects from rating law in England, the principles for determining income values will be the same throughout the United Kingdom. This is a departure from the law and the practice which has hitherto prevailed under Schedule A, because in Scotland the figure in the valuation roll was normally regarded as conclusive for Schedule A purposes and in Ireland, I am told, the rating assesement was conclusive by Statute. Under Section 19 of the Finance Act, 1957, the figures were frozen at those in force before the Scottish revaluation of 1961 and the Northern Irish rating revaluation of 1957, pending a decision on the future of Schedule A generally.
The definition of gross annual value in Section 6 of the Rating and Valuation Act, 1961, referred to in paragraph 2 of the Schedule is, I can assure the hon. Member for Dunbartonshire, East, not very different from the English definition.
With that assurance, I hope that I have answered the various points which have been raised in a debate which has been quite a long one and which started with a minor reference to the taxation of commercial woodlands. If the Committee will not think that I am being too corny, I hope that I have done something to enable us to see the wood for the trees.