I beg to move, That the Bill be now read a Second time.
I am most grateful for the all-party support that I have received. As hon. Members will see from the Bill, at is a lawyer's dream and I am a lawyer. As such, it gives me great pleasure to move the Second Reading.
This is more than merely a technical Bill. It is intended to be, and I hope will be, of importance to secure the position of farm tenants. Farm tenancies are a scarce commodity. They are vital in our agricultural system because they enable young people to gain a foothold on the farming ladder. They enable people to become farmers who cannot raise capital from inheritance or financial institutions—the sort of capital needed to start a farming business these days if one has to buy land. Many successful tenant farmers go on to succeed as owners of farms.
To succeed, tenants need reasonable security of tenure. There are many tenant farmers in my constituency and tenant farmers there have brought home to me the importance of this modest measure.
I acknowledge a considerable debt to the National Farmers Union—nationally and in my constituency—as it has assisted me with the Bill. I also acknowledge my gratitude to the Minister and to Baroness Trumpington who sent me my only Valentine on 14 February, but a welcome one none the less. She told me—I hope that we shall hear the same from the Minister—that the Government regard the Bill as a sensible precaution for the benefit of farm tenants.
I must touch on some technical issues to explain the Bill. Case B of schedule 3 to the Agricultural Holdings Act 1986 states that a landlord can give notice to quit if the land is required for non-agricultual use, either where planning permission has been granted, or where it is not required other than by virtue of the town and country planning legislation.
Until July last year the consensus of legal opinion was that that second provision referred only to the Crown as being exempt from the requirement of planning consent, and that any private landlord wishing to resume possession of tenanted land for normal agricultural use could not do so without having first obtained planning permission. The case of Bell v. McCubbin, however, turned 40 years of legal thinking on its head. Any hon. Member can read about the case if he pops into the Library and looks up page 54 of (1990) I All England Reports, which, I am sure, is everyday reading for us all: I have a copy with me. Bell v. McCubbin, heard in the Court of Appeal, altered the understanding of those who deal in agricultural holdings law, and in doing so altered—dramatically—the circumstances of tenants.
The court held that a landlord could serve a valid notice to quit all or part of a tenancy under case B of schedule 3 to the Act if the land or buildings in question were already being used for a non-agricultural purpose, and the landlord wished to resume possession for the same purpose. In Bell v. McCubbin, the landlord wanted to resume possession of a farmhouse that was being sublet as a residential dwelling. He also wished to let it as a residential dwelling; thus no change of use was involved, and planning permission was not required.
Many tenants have taken advantage of Government-encouraged schemes for their farms. A number have diversified and set aside land, using parts of it for non-agricultural purposes that bring them a portion of their income. Although a landlord's ability to serve a notice to quit part of the land is limited for technical reasons, most modern tenancy agreements contain a clause enabling him to do so. If, for instance, a tenant is using a building for holiday letting, and his tenancy agreement contains a clause specifying that the landlord can resume possession of part of the holding for non-agricultural use, the landlord can serve a valid notice to quit, provided that he does not wish to change the use of the building. Once he has regained possession, however, he may change its use at a later date.
The knock-on effect of Bell v. McCubbin is that landlords may use the precedent as a technical mechanism for dispossessing tenants. That may not be confined to cases in which only part of the land is required. It could provide carte blanche for unscrupulous landlords and, above all, to the minority of estate and land agents—I emphasise that they are a minority—who are sharks, and could help an unscrupulous landlord to get a tenant out at any cost and on a technicality if possible. Such agents smile wryly when they find a new technicality, however much injustice it will cause.
Tenants could be dispossessed of their entire holdings if the landlord wished to resume possession—for example, for shooting purposes. Shooting rights generally cover all the land. If a landlord purported to wish to use all the land for that purpose, no change of use would arise. Therefore, no planning consent would be necessary and the tenant would be out. One can think of many other examples whereby a landlord might, on entirely spurious grounds, obtain the land, although his intentions may be disingenuously expressed.
Where a tenant is dispossessed of land under case B, statutory compensation is currently payable. However, it is only a maximum of five to six years' rent. That is wholly inadequate, given the drastic reduction in the availability of tenanted land in recent years and bearing in mind current land values.
In my constituency—which I believe is, statistically, the one with the most agricultural land in the United Kingdom, with a higher proportion of its work force employed in agriculture—it is almost impossible to find a tenanted farm. Whenever such a farm becomes available, there is a long list of applicants. Shortlists are drawn up and the interviewing procedures are harsh. They are not unfairly harsh, bearing in mind the scarcity, but they are harsh for the many able people who fail to acquire a tenancy. If a dispossessed tenant receives only statutory compensation, it is almost certain that he will not have sufficient capital to buy another holding. He will face financial disaster and unemployment and misery for his family.
There is a call from certain sections of the farming industry for a reduction in security of tenure for tenants. There is a call from some quarters for fixed-term tenancies. There is undoubtedly room for genuine debate about the future of the agricultural holdings law. I do not want for one moment to discourage that debate, which has only recently started to gather momentum. I hope that we shall review carefully the agricultural holdings law. Our aim should be to start from the status quo as it was understood before Bell v. McCubbin and try to create agricultural holdings law that will ensure that tenancies are a vital and living part of an industry that allows farmers to develop at all stages of their lives, and at all levels. The Bill in no way prejudices the longer-term view of the agricultural tenancy law. As I have implied, I should like to take part in that review, if such an opportunity presents itself in the House.
As my proposal in no way prejudices future reviews, I should be unable to understand any opposition to the Bill. I believe that it will do perhaps more than it deserves, to be honest, to boost confidence among tenants. It would give me a great deal of pleasure if, with the support of right hon. and hon. Members, the Bill reached the statute book.
I thank the hon. and learned Member for Montgomery (Mr. Carlile) for introducing this excellent measure. I was appalled when I read the Appeal Court's decision. It upset all that we had previously believed. I very much hope that the Government will fully support it.
I support the measure.
I hark back to my days at the royal agricultural college, before Argentina. In those days—some time ago now, I am afraid—our studies revolved around the Agricultural Holdings Act 1948. I well remember our lecturer dinning it into our ears time and again that there were seven deadly sins whereby a tenant could be dispossessed of his land. One was the death of the tenant and there was no argument about that, but another was using land or buildings for non-agricultural use.
The importance of the tenanted sector in agriculture is not sufficiently realised. It has been the backbone of British agriculture for centuries. Many people thought that the 1948 Act would establish the structure and framework for British agriculture in the post-war period and indefinitely thereafter. But the 1948 Act created its own problems. It was very narrow and restrictive and had the effect that people who might have let their land decided not to do so, for many good reasons, the major reason being that if a tenant has security for life, the landlord has no prospect whatever of getting the land back.
As a result of that Act, well-intentioned though it was, the tenancy sector has continued to decline. Today, with agriculture under great pressure, all too often tenants do not have assets to fall back on. All too often tenants' assets consist of machinery, much of which is probably old and outdated and would not fetch very much, and livestock, which would have some value, but as the tenant does not own the land he does not have that capital base to fall back on. In these difficult times, some landlords may well find that their tenants have failed. That is not a happy position for the landlord, let alone the tenant. The landlord may find that a farm which has come back to him unexpectedly because his tenant has failed is in bad heart. There may be a list of dilapidations as long as his arm and he may have to spend more capital on putting them right and on returning the land to good heart.
Of course, ingenious people are always trying to dream up schemes to keep the tenanted sector going. Of course, there are such options as share farming and farming for fixed periods. The future probably lies in such schemes. Nevertheless the tenanted sector remains under great pressure.
One of the results of that pressure is that tenants are having to seek diversification. Indeed, they are being urged to diversify and that is one answer to their problems. I am sure that we can all think of examples where a tenant may have a range of redundant farm buildings that were constructed some time ago. The buildings tend to have low eaves and perhaps brick pillars at intervals—the type of building which in the old days one would back one's Fergie 35 into or where one could dump one's little two-furrow plough, but that is not the case today as farmers tend to have rather larger machines and the old ranges of buildings fall into disuse and disrepair.
Sometimes the tenant may decide to diversify and to put such buildings to a non-agricultural use. The tenant may well be able to set up small business units to accommodate people who may be setting up a business for the first time and are desperate to find premises—perhaps they come from the nearest town five miles away. The accommodation may be pretty basic; nevertheless they have a roof over their head and as long as there is a supply of running water and electricity, those buildings can be put to some use. The income that the tenant gets from those buildings means that he can repair and improve them and perhaps he can build up a thriving business. But of course it is not agricultural use. That comes back to the point made by the hon. and learned Member for Montgomery (Mr. Carlile). No one thought that the court could reach the decision to which the hon. and learned Gentleman referred. Nevertheless, it happened. It was not a welcome decision, and as a result the hon. and learned Gentleman introduced the Bill.
That decision is not welcome for tenant farmers, who are under pressure and are seeking to boost their income. An unscrupulous landlord will see a great opportunity to divest the tenant of part of his holding.
Planning laws have been relaxed. The grade of agricultural land is no longer taken into account when assessing planning applications. There is more pressure for alternative land use, such as the set-aside scheme and the idea of environmentally sensitive areas, which were originally introduced to reduce overall agricultural output and to attain certain environmental objectives.
That is all very well, but in practice such schemes are not available to all classes of farmers. Many diversification schemes involve proposals that fall outside the legal definition of agriculture, which means that they are subject to the landlord's consent. I do not want to give the impression that all landlords are wicked—far from it, there are many good and supportive landlords—but some have refused consent to otherwise reasonable propositions that would not have affected their long-term interests. The tenant has no power to challenge such a refusal. Some tenants feel too vulnerable even to consider such a scheme, and some landlords' agents—we all know about landlords' agents—have been known to send threatening letters when a tenant has gone only as far as registering his eligibility for set-aside.
The Bill should find a welcome among hon. Members. The court decision that I mentioned was unwelcome, but I hope that the Bill will correct that anomaly.
It was amusing, given that the hon. and learned Member for Montgomery (Mr. Carlile) referred to the Valentine that he had received in the form of a message of support from the Minister, that we heard a speech in support of the Bill from the hon. Member for Walthamstow (Mr. Summerson) who. as all hon. Members know, is an incurable romantic.
In addition to being an incurable romantic, the hon. Member for Walthamstow is a chartered surveyor. I am sure that the hon. and learned Member for Montgomery will have appreciated the support that he received from the hon. Gentleman.
I congratulate the hon. and learned Member for Montgomery on winning a reasonable position in the ballot for Bills and on his good sense in introducing a measure that has broad, cross-party support. By introducing the Bill, he is doing a particular service not only to his constituents but to farmers in Wales and throughout Britain. That is reflected in the fact that the National Farmers Union has written to many hon. Members urging their support for the Bill.
I am pleased to say that, without reservation, the Labour party will support the Bill, which the hon. and learned Member for Montgomery referred to as a technical but an important measure.
The hon. and learned Gentleman made a lucid and compelling case in support of the Bill. It is supported by my hon. Friends the Members for Clwyd, South-West (Mr. Jones), for Western Isles (Mr. Macdonald) and for Wentworth (Mr. Hardy). Therefore, representatives of England, Scotland and Wales support it.
I, too, congratulate the hon. and learned Member for Montgomery (Mr. Carlile) on being successful in the ballot and on bringing forward the Bill. Not only has he all-party support in the sponsorship of the Bill, but support today from both sides of the House.
I shall take this opportunity to set the Bill in its historical context. I shall speak about the development of the tenanted sector and the prospects for the future, as well as explaining the Government's attitude to the Bill. I shall do so because the hon. and learned Gentleman said that he would welcome a good, broad debate on the future of the tenanted sector. I cannot supply that wide-ranging debate today, but I can set out some of our thoughts.
As the House will know, at the end of the last century about 90 per cent. of agricultural land was tenanted. Since then there has been a steady decline, and it now accounts for no more than 37 per cent. The main reasons for the decline have been socio-economic factors such as the redistribution of wealth, economic depression and changes in the class structure of our society. They were also due to the effects of capital taxation, the value of vacant land and legislation giving increased security of tenure to the tenant and making it less popular to let land.
The effects of the socio-economic changes are the province of the historian, but they are relevant and must he considered. In the 19th century most land was owned by private landlords who let it to tenant farmers. However, the loss of capital and income following the Wall Street crash in 1929, and the great depression of the early 1930s, forced a number of traditional land-owning families to sell land to cover their losses. That, coupled with the social changes following both world wars, led to major changes in the structure of our rural society, with a surge of relatively small owner-occupiers farming their own land. Some of them were former tenants.
Successive Governments' fiscal policies and, particularly, capital taxation have also had a significant effect on the structure of estates. As the name implies, capital tax was imposed on the value of the estate rather than its ability to produce income. Land is a low revenue-earning, long-term investment. Estates comprising let land are particularly vulnerable because the owner's asset is not easily realisable and the income derived is low in relation to its taxable value. With marginal rates of taxation of capital assets rising as high as 75 per cent. under capital transfer tax, landlords have had to sell land to meet a large liability.
Changes in capital taxation introduced by this Government have been warmly welcomed by the agricultural industry. A major reform of capital gains tax has been instituted and the severity of inheritance tax has been considerably reduced by increasing its threshold and replacing the previous four rates of tax by a flat rate of 40 per cent.
Throughout the century, land sold with vacant possession has attracted a premium, fetching up to twice as much as tenanted land. In addition, agricultural land with vacant possession attracts 50 per cent. relief from inheritance tax on a land transfer, whereas tenanted land attracts only 30 per cent. relief. Those factors are obviously important to a landowner who is contemplating a sale. He may decide to keep land in hand to keep his options open.
We must consider the effects of legislative changes. It must be admitted that the progressive increase in the protection of tenants has brought about a change in owners' attitudes to letting land. Compensation for eviction without just cause was introduced in 1923. The Agricultural Holdings Act 1948 gave tenants security of tenure for life and the Agricultural (Miscellaneous Provisions) Act 1976 gave successive rights to two eligible and suitable successors. As a result of the 1976 Act, any landowner letting land risked abdicating effective control for more than 100 years.
It is difficult to say to what extent each of these factors—social, fiscal or legislative—has directly affected the tenanted sector. The fact is that there has been an increase in the size of the owner-occupied sector. A change in that direction was probably inevitable and it echoes the pattern of the residential sector. However, some landowners who do not want to farm the land themselves have been disinclined to let and have looked for other forms of contractual arrangements to maintain value and income. Partnership and share farming agreements have gained in popularity. Not only do they preserve the capital value of the land, but they offer a higher potential return with a more favourable income tax statement.
The latest figures in the Central Association of Agricultural Valuers' annual tenant farms survey show that although the provision in the Agricultural Holdings Act 1948, which disapplied the succession provisions in respect of new tenancies created after that date, has encouraged more private landlords to relet land that falls vacant on short-term arrangements, it has not stopped the downward trend in the amount of land held on a full tenancy. One can conclude only that to many land owners, letting land on a full tenancy is not a sufficiently attractive option.
I shall look briefly at one or two aspects of the landlord-tenant system from the tenant's point of view. We recognise that farming is going through a difficult period of rapid change. I shall consider what has happened to the tenanted sector historically when farming has gone through bleak spells.
With steadily increasing security of tenure since the early part of this century the established competent tenant has been able to weather the various depressions of the past 70 years. During the agricultural depression of the 1920s the Government imposed restrictions on the rents that landlords could charge, which led to a large number of landlords selling farms to sitting tenants. Subsequently, that trend has continued, particularly when further constraints have been placed on landlords. In effect, provided that a tenant is not too heavily in debt, he is often in a better position than owner-occupiers who have recently purchased farms and face interest payments in excess of the rents paid by the tenants. When a tenant farmer is highly geared his lack of collateral may encourage the banks to recall funds, whereas an owner-occupier may be given more time to restructure his business. Apart from that disadvantage, the system has generally served the competent tenant fairly well.
Rents are always a vexed question. Therefore, it is worth asking whether rental levels have mirrored the fortunes of farming. Historically, the prosperity of the industry has been influenced by technological advances and by Government or now, European Community policy. In the past two centuries, the agricultural revolution and the Corn Laws had as profound an effect on the fortunes of agriculture as modern advances have had in recent years.
As one or two colleagues may remember, 30 years ago the Agriculture Act 1958 introduced a rent formula under which the holding might reasonably be expected to be let on the open market by a willing landlord to a willing tenant. There was a risk that that would emphasise key money value and scarcity value rather than reflect solely the true productive and earning capacity of the holding, if the supply of tenancies did not keep pace with the demand. Many would argue that that happened in the 1970s and that rents were out of step with farmers' incomes. It was also the period of accession to the Common Market. Some take the contrary view, arguing that the high levels of tender rents being offered then were partly a reflection of farmers' perception of the returns that they could make, rather than key money. If one accepts that argument, rents followed the fortunes of the industry during the 1970s, but I suspect that the answer lies somewhere between the two extremes.
Certainly in the early 1980s when farm incomes began to fall back, rents continued to rise by between 30 and 40 per cent. at each review. Although to some extent that could be explained by the inevitable time lag, because rents cannot be changed overnight while the cost of labour and capital can, it suggested that the old formula was unsatisfactory.
All hon. Members will know that a new rent formula, based on a proposal put forward by the National Farmers Union and the Country Landowners Association, was introduced by the Agricultural Holdings Act 1984. It required arbitrators to take account of all relevant factors, including the productive capacity of the holding and its related earning capacity.
Does the Minister agree that as a result of the declining profitability of farming systems, landlords have decided to sell assets such as houses of high value? That means that the holdings have been split up. That is an undesirable state of affairs and one reason for the Bill. If farming was more profitable the need for landlords to sell their assets would be reduced.
The hon. Gentleman makes a good point. Now that we have price restraint in the EC, I recognise that a farmer might not get a better return from farming than if he sold his land for a golf course, hotels or housing.
First, the landlord must get the land back to split up the holding. I do not believe that the great danger is posed by landlords reclaiming their land to split up their holdings, but by what happens when farms in owner-occupation come to the end of their lives. When a farmer dies and he has no sons or daughters who want to continue that farm, it is split up. Land agents would be the first to suggest to the heirs and successors that the farm should be sold off in lots—the house to someone from the City and the buildings converted into flats. The next-door farmer might tut-tut about the land being split up, but he will be the first to put in the highest bid for the fields adjoining his boundary.
I accept that, but I do not see how one can stop that inevitable trend. The solution would be to introduce legislation to say that someone cannot sell his land in lots or to introduce punitive taxation against someone owning more than X acres of land. I do not believe that that would be acceptable to the House or to the EC.
The new formula that was introduced in the 1984 Act has been in operation for about five years. Information from the Ministry's survey into farm rents in 1988 showed that rent settlements are responding not only to the general decline in the profitability of the industry, but to the profitability of different sectors within agriculture. On a national basis, in 1988 more rents stood still or fell than rose. Comparing cereal areas and dairying areas shows that in the east midlands and East Anglia 78·37 per cent. and 71·75 per cent. of rents were static or fell compared with 44 per cent. in the south-west.
The average rent increases show the same picture. In Cambridgeshire, Norfolk and Lincolnshire the average increase was 1 per cent. compared with Cheshire, a noted dairying area, where the increase averaged 6·3 per cent. The national average was 3·6 per cent. Although it may come as a surprise to some hon. Members, those figures show how the new rental formula is having the desired effect of fine-tuning rents. That is certainly good news. The 1989 survey will be published soon.
Despite its imperfections, the landlord-tenant system has served tenants well. It is still a basically good system for those who are fortunate enough to rent a holding. The problem lies in the future, because the system is not sufficiently attractive to landlords. The continued decline in the agricultural tenanted sector is disappointing in view of the legislative changes introduced after much effort in 1984. I suspect that there is still insufficient flexibility in the system to encourage the letting of land and further changes would seem to be necessary.
The issues are extremely complex and conflicting views have been expressed by various sections of agriculture. I am the first to recognise that it may be difficult for landowners, aspiring young farmers and existing tenants to reach a consensus on any proposals and I appreciate that it may not be possible to reach a consensus at all. My colleagues and I will be looking for some signs of agreement on the measures to be taken as the debate unfolds in the coming months.
Even more important is a proposal that genuinely addresses the problem and is likely to be effective in increasing the amount of tenanted land.
Before the Minister leaves that point, can he tell us how he intends to proceed with the consultations? Will he produce a consultative document or will he consult the National Farmers Union and the other farmers' unions in the normal way? I ask that because I want to take the opportunity of letting the Minister know that the Opposition share the concern about the point that he has just made and, if at all possible, we should like a cross-party solution to the problem.
I welcome what the hon. Gentleman has said. A cross-party solution to the problem would be ideal. I have no intention of publishing a consultative document, a White Paper or a Green Paper at this stage, but I know that the Country Landowners Association has certain proposals and that the National Farmers Union has certain concerns about them. The union is to consult with us and to give us its opinion. I am also keen to hear the views of the National Federation of Young Farmers Clubs, which has some sensible ideas. I am always impressed when I hear what it has to say about the future of agriculture. We shall also want the Tenant Farmers Association to say what it thinks. Everyone in agriculture has seen that the 1984 Act has settled down. They know that there is still insufficient land coming forward in the tenanted sector and they all have some ideas about how the matter should be approached. They know that we are keen to hear their views and I am happy to put it on record today that we are doubly keen to hear what they have to say. We shall take all their views into account.
I also want to make it clear that on this occasion, as opposed to the early 1980s, we shall not let the lack of total consensus stop us. I know that in the early 1980s, before we came forward with the Agricultural Holdings Act 1984. my predecessors took the view that unless there was complete unanimity in agriculture and all the unions could agree on a proposal, we should not legislate. Now we shall not let the lack of total consensus stop us from legislating. The difficulty would be to find a legislative slot if we came up with a solution that was acceptable to many in agriculture and to the House. It would, of course, be helpful if we had all-party agreement on what needed to be done.
I have no intention of undermining the status quo. The argument must proceed from where we are now and there would be no question of obtaining all-party support if one were to try to unscramble any of the previous legislation. If we are looking for modest improvements in allowing more land to come forward for letting, we must start from our present position.
Apart from the major issue of finding more flexibility to persuade landlords to enter into agreements with tenants and to make a bit more land available under arrangements different from those that we have now, individual cases occasionally arise which provoke criticism of the existing legislation. The current legislation is intended to balance the interests of landlords and tenants. It will never be wholly satisfactory to one side or the other and there will always be some exceptional cases.
As the House knows, legislation on agricultural holdings is an extremely complex area. Nowhere is that more true than in the case of notices to quit. Schedule 3 to the Agricultural Holdings Act 1986 deals with notices to quit where the consent of the agricultural land tribunal is not required, which are known as incontestable notices to quit. There are eight categories. The agricultural holdings legislation aims to strike a fair balance between the often conflicting interests of landlords and tenants. The satisfactory tenant farmer is given security of tenure, but the legislation recognises that there are circumstances in which the landlord should be able to regain possession.
Case B in the schedule is where a notice to quit is given on the ground that the landlord needs the land for a use other than in agriculture. Case B(a) covers the situation where the landlord has obtained planning permission to use the land for a non-agricultural purpose. This is not always an easy concept, but it should be remembered that the landlord is the owner of the capital asset and should, in common with other owners of property, be entitled to any increase in value that may accrue from possible development. He has elected to enter the land market with all the risks that that involves, which in some cases can mean a low return and falling land values, where there is no development potential, or the land is of poor quality.
Case B(b) deals with the position where no planning permission is required. This is the aspect of the Agricultural Holdings Act 1986 with which the hon. and learned Member's Bill deals. It was always widely held that case B(b) related only to the Crown. It was available, for example, to the Foresty Commission if it needed to obtain possession of land for the purposes of afforestation.
On 13 July 1989, in Bell v. McCubbin, the Court of Appeal ruled that under case B(b) a private landlord could recover possession of a farmhouse which had been sublet by the tenant for residential purposes to persons employed outside agriculture and was required by the landlord for his own, non-agricultural use. The extent of this loophole has not been tested in the courts, but the ruling has caused considerable concern to tenants. They fear that it could have widespread implications and reduce their security of tenure. The hon. and learned Member has ably explained the reasons for those fears and there is no reason to repeat them. We think that the repercussions of the ruling are likely to be much more limited than has been suggested. Nevertheless we understand tenants' worries, and we consider the hon. and learned Member's approach to removing them sensible.
The hon. and learned Gentleman has seen this morning the all-party support for his Bill, and I am pleased to add my support to it. He will appreciate that the drafting of the Bill needs to be looked at carefully. I hope that he will be willing to accept assistance from the parliamentary draftsmen in my Department so that the Bill achieves his objective, and I hope that the House will give it a Second Reading today.