Council Tax Valuation Bands Bill [HL]

Baroness D'Souza Excerpts

Friday 22nd April 2016 Lords Chamber

[Lord True (Con)]

My Lords, in moving this amendment I should like to make two things absolutely clear. The first is that the question before us is not whether there should be a principle of higher rate bands within the council tax system. There are perfectly legitimate arguments either way on the point, and this Bill specifically does not address it, although it touches on the question. In my submission, any such proposal should be brought forward as part of a wider reform of council and property tax proposed by whoever is in government at the time, so that is not a principle or a reason for either opposing or supporting the Bill.

The second point is one I made clear at Second Reading. It is also not really about the narrow principle of whether the point of sale of a house should be used for upgrading council tax or changing the banding of a property. That is an interesting and ingenious proposal by my noble friend which might or might not be considered, but again it would have to be considered in the light of all the consequences and in the context of reform. My noble friend has perfectly understandably put forward a Bill that touches on those questions, but from my standpoint there is an unfortunate issue. I declare an interest as the leader of a local authority in London with an extremely high number of higher banded properties and higher value properties. I saw in the Evening Standard earlier this week that 400,000 properties in London alone are valued at more than £1 million, but they are not necessarily occupied by wealthy people. I can testify to that in my area, where property is very highly valued.

I have made the point in other debates in your Lordships’ House that at the moment we have a very artificial market in property where, because of the policy of effectively printing money and depressing interest rates, capital values are excessively high, and even more so in London because of a huge inflow of capital from abroad. Therefore a lot of people, particularly in the London area, find themselves trapped in high-rated properties which was not necessarily the case when they moved in. That is another factor in the background.

The question before us is whether it is wise to put on the statute book this Bill and its proposed mechanisms. In my submission, the answer is no, and I shall seek to persuade noble Lords of that, although I am sure that they will be interested to hear what my noble friend has to say. In seeking to remove subsection (1), I am addressing a number of questions that are serious and problematic.

The first is in a sense a minor point, but it has been drawn to the attention of noble Lords by the Delegated Powers and Regulatory Reform Committee. What regulations does my noble friend have in mind? The committee has pointed out that the Secretary of State already has the power to alter valuation bands and proportions. This point needs to be clarified, and I agree with the committee that if orders are laid under this Bill, they should be considered under the affirmative procedure. That is because the way the Bill would work would be strange and very difficult for local authorities to operate.

I know that my noble friend disagrees with me on this, but the introduction of legislation that takes a value from 2000—the worst-case scenario that he cites—to replace a value set in 1991, as under the current system, is retrospective and perpetuates the anomaly. If council tax is based on 1991 values, I am not sure how that issue is addressed by introducing a system based on values at 2000. That was 16 years ago and over that period there have been many changes in housing values both up and down. At the moment we are in a boom. I am therefore unhappy about the idea of enhanced bills plonking through the letterboxes of people who bought a house 16 years ago; some may well be elderly widows. I know that elderly widows always come up in our debates, but they actually exist: property rich but cash poor. I see this proposal as retrospective and potentially very troublesome.

The second point arising from Amendment 1 that I would like my noble friend to explain is this. What does he mean by “bought or sold”? We touched on this briefly at Second Reading. As it is written, the Bill would apply simply to the act of purchase or sale, whereas the Explanatory Notes refer to “changing hands”. Properties can change hands in many ways other than through being bought or sold. They may be inherited. If a spouse or partner dies, a new title of ownership may be issued when, as happens in most cases, the property is transferred to the surviving partner. For inheritance tax purposes, a value of that property would be established and would have to be vetted. Does my noble friend see that sort of transfer or one for inheritance tax purposes being captured by his Bill, or not? As drafted, the Bill simply refers to purchase and sale. This needs to be clarified by amendment on Report if this Bill is to go forward.

It may not be necessary to go through all my amendments because it might be possible to cover several of them in this debate. However, my third point is that the proposition of the Secretary of State setting out the new set of bands in the Bill would sit alongside the existing set of bands, so all local authorities would need to operate two sets of council tax bands, which is an administrative burden in itself. To operate the second band, they would have to access real-time data from the Land Registry. I do not know whether my noble friend has consulted the LGA—it would be interesting to hear in his response—but the technical capacity for scooping those data for every real-time sale from the Land Registry does not currently exist. There would be administrative costs and, potentially, IT costs to make this double system operate.

I have a further point. These are all practical points that need to be addressed—we are making proposals for legislation here; this is not a jolly idea that one discusses over the farm gate. My noble friend’s proposition would produce a system where people living next door to each other could pay wildly disproportionate amounts of council tax at the upper ends of his register. That is not a justifiable or sensible way to go forward.

If we are to reform council tax—I repeat, that is not the subject before the House on this Bill—it surely cannot introduce more anomalies and more perceived injustices, as this would. Personally, I have spoken strongly against the excessive rates of stamp duty we have at the moment. My right honourable friend the Chancellor is going too far in that and it is having a distorting effect on the market. Where people risk going into a much higher rate of council tax simply by moving from one road in one area, from the preserved band into the new band, my noble friend risks creating even further distortions in the property market, which is already absurdly rigged by the many interventions of the Government, and there are obviously risks of fraud, disincentives and all the other things that happen. That can also apply to the transfer of title.

I hope that my noble friend will not proceed with this legislation. I understand the principles, but I had hoped that he would have been persuaded of this after Second Reading. If he wishes to proceed, this will need very radical amendment that will go into much greater detail than I have been able to set down in Committee to enable debate in your Lordships’ House. We would need very substantial amendment on Report after having benefited from advice from the Government and the local government bodies.

I understand where my noble friend is coming from, but this is not a good Bill to put on to the statute book. I do not intend to divide your Lordships’ House—that is not something one would wish to do—but I hope that my noble friend will be able to give a little more clarity and may be prepared to reflect on some of the points I have put forward. As I say, I am not ruling out a debate on higher bands, nor discussion on one of the mechanisms he has put forward. I just think it is difficult in the way he proposes it will operate. I beg to move.

[The Lord Speaker (Baroness D'Souza)]

My Lords, if this amendment is agreed to, I cannot call Amendments 2, 3 and 4 by reason of pre-emption.

[Lord Marlesford (Con)]

My Lords, my noble friend has made it clear that he does not like the Bill and would not wish it to make progress. It is difficult not to make a very brief Second Reading point on why we have the Bill at all. It is because the existing system is totally out of date. It is totally irrelevant. One has only to note the public complaints that there have been about the fact that the difference between the council tax paid by the humblest dwelling and the most expensive, luxurious penthouse in London is only 3:1.

My noble friend spoke about fixing on particular dates. Indeed, it is fixed on the date of the original legislation in the early 1990s. That is not something I seek to perpetuate. I seek very simply to say that we need a change that will be administratively easy, relatively. The argument always used against change has been the need for revaluation. That is precisely the need that I seek to avoid by using the actual prices paid as recorded in the Land Registry and in any subsequent transition, including, of course, in the case of inheritance, where a valuation is made for that purpose for probate, and, indeed, in the case of gift for other tax purposes. There is a rather limited number of valuations. The number of properties that transfer in ownership between inheritance and gift is probably a relatively small proportion of the total transfers. They need evaluation. All the other transfers are recorded, when they are made, in the Land Registry. It is the Land Registry that I seek to use.

Frankly, my noble friend does not think it worth proceeding with this change, which is well overdue. It is the outrage, in a sense, at the present system that caused the invention of the so-called mansion tax, which was not a great success and has far more difficulties. I do not think that it is particularly on anybody’s agenda.

I take the points about the detail. I am not trying for one moment to prescribe the bands, nor am I trying to prescribe the proportional increases. I have illustrated them in the Bill, but as my noble friend said, the committee in your Lordships’ House that scrutinises the legislation said—I read its report—that this would be a matter to be done by statutory instrument, as an order. There will be a long time before it is decided exactly what bands are appropriate, but I certainly suggest something much closer to the bands that I propose. At present, as your Lordships know, band A is up to a value of £40,000 and band H up to £320,000. In the illustrative tables I produced there is no difference between the council tax to be charged for band A and not very much difference for band B. Instead of being 17% more, it will be 33% more. The difference, of course, is that band A will cover anything up to £250,000 and band B, in my suggestion, everything up to £500,000. As for houses worth £1 million or more, again, it is only a relatively small increase, because we are talking about a council tax which, give or take £100 or £200—it varies, of course, throughout the country—is £1,000 for band A and only about £3,000 for band B. Those are the actual figures that people pay, as noble Lords will know. Therefore, in the illustrative tables I have put in the Explanatory Notes, based on what is in the Bill, there is no enormous difference for the lower rates.