CAB129-53 — Page 192

Page 192 must, therefore, stick to the principle underlying the present system, that comper sation shall be limited to development values created in the past, and that the shall be no compensation for development values which accrue in the future. That is my reason for limiting the compensation payable on any piece of land to the 1947 Act claim; but it would be the full amount of the claim as assessed, not the expected 80 per cent. (Assessment of claims is now virtually completed.) I am confident that landowners in general would accept this.

6. Of course, if we limit compensation in this way to the owner who is not allowed to develop his land, while allowing the owner who is given permission to reap the full value (which will be the effect of the further proposal to abolish development charge), some owners will fare better than others. I am not perturbed at this prospect. It happens now, it always has happened, and anyway we want to encourage development, provided that it is in the right place. Some of my colleagues fear, I think, that the jealousy felt by those owners who are not allowed to develop, for their more fortunate neighbours who are, would become unmanageable. I can only say that this has never been suggested in the talks which my officials have had with representatives of landowners.

Development Charge

7. The crucial question is what we are going to do about development charge a concept for which, we must remember, the Conservative Party are partly responsible (see the Coalition Government White Paper of 1944, Cmd. 6537). In principle there is a lot to be said for it as a means of securing betterment for the State, and of holding the balance between those who are allowed to develop their land and those who are not: but in practice it does not work. The charge, in theory, is part of the price of the land; the owner should get only the existing use value, the charge is the balance due to development value. But in practice, the charge is regarded as a tax-a penal tax on development. This feeling would remain even if land for development were generally available at existing use value. As it is, the landowner either takes his land off the market or continues to get the best price that he can; and the charge, coming on top of the cost of the land, is in very many cases a real addition to the cost of development. This is particularly serious where private house-building is concerned.

8. It is sometimes suggested that the remedy lies in a reduction of the rate of development charge. But to make much difference either to the land market or to developers the reduction would have to be so substantial as to undermine the whole system. In any event, people hate charge; and they will continue to hate it whatever its level. In my view there is no satisfactory alternative to complete abolition of development charge.

9. There would be considerable advantage in such a course, and it is widely expected that we will at least, abolish charge for private houses. But it is not possible to abolish charge on housing and keep it for other forms of development. Housing accounts for 70 per cent. of all charge.

10. If, however, we do abolish charge, and abandon the theory that develop- ment value in land is vested in the State, we shall be faced with the old cry about "unearned increment" and attacked for enabling private persons to make a profit out of land values which may in part be due to the efforts of the community. We have to consider what our answer is going to be. Public improvements a new road or railway perhaps may cause a steep rise in values, though in such cases we might consider securing the profit for the community by enabling local and other public authorities to buy the land concerned. Our main defence would be to point to the fact that development charge is not an efficient instrument for this purpose and that, like so many imposts, it is borne in the end by the final consumer the man who wants to build himself a house. We can also point out that taxation and death duties at present rates do reap much of the harvest for the Exchequer. And, if we adopt the Limited Compensation Scheme we shall be able to point to the fact that no landowner will receive in compensation more than the 1947 development value of his land, and that some planning restrictions-e.g., those imposed on “good-neighbour" grounds will attract no compensation at all.

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11. None the less the attack would be most damaging if the private owner were able to make public authorities pay for values that the community had helped to create. That is one reason why I think it most important that compulsory purchase should continue to be on the basis of its existing use value at the date of Page 192 of 253

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yeaquisonfpr the claim for the 1947 development value.

claim

Eldin? in these Page 1:23:0€ 253 Zases would be paid by the acquiring authority.) This is not just political expediency: it is essential in order to avoid an unjustifiable increase in the cost of land for public development, e.g., housing, caused by the plan or by public improve- ments. By tying the price to be paid to existing use value plus the claim we avoid these difficulties. Inevitably, of course, the owner whose land is compulsorily acquired will sometimes get a lower price, perhaps a much lower price, than if he sold privately, but this happens under the present system. Under my scheme, the man who is bought out will get as much as or more than he paid for the land (unless he is a speculator or was badly advised), as much as or more than he has expected to get since 1947. All he will lose will be the chance of making a profit. The power of compulsory purchase could also be used to prevent necessary private develop- ment from being held up by land-owners holding out for extortionate prices.

12. The abolition of charge would leave the Exchequer to meet the burden of compensation without any off-setting contribution. There are various points here:

(i) The cost to the Exchequer. Charge is coming in at the rate of £7 to £8 million a year. Though this is expected to increase, it will be decades before this comes anywhere near balancing an immediate pay- out of £300 million; and indeed it was never intended to. My scheme will cost a great deal less than £300 million, since nothing will be paid to owners allowed to develop, or whose claims for compensation will be excluded, and much of what does have to be paid will be deferred. I believe that, even in the long run, this scheme may cost less than the present Act under which successive Governments will always be exposed to demands for abolition or reduction of charge. It will certainly cost a great deal less in the next few years.

It may be argued that the cheapest thing of all would be to defer payment of claims as I propose, but still to keep charge or a proportion of charge. But I maintain that charge in any degree is obnoxious. (ii) The notion that there ought to be a self-balancing scheme. As I have explained the present Act is not self-balancing, and there is no reason why the owners of land which is developed should meet the compensa- tion for the owners of land which is not even if they could be made to, which I do not think they could. The whole community benefits, e.g., from the preservation of agricultural land.

(iii) The old " unearned increment" argument which I have dealt with above. (iv) Planning is a local authority service, and my scheme entails payment by the Treasury on decisions by local authorities. I propose to provide some check on this; but the real safeguard of the Treasury will be the limitation of payments to the claims already settled.

The Balance of Advantage

13. Weighing up the political advantages and disadvantages of the Limited Compensation Scheme, the balance seems to me decisively in its favour. The Opposition are unlikely to attack the decision not to pay out the £300 million; and if they decide to attack the decision to abolish development charge (which I am not at all sure that they will) we should have a pretty complete answer. Even the cry of "unearned increment" will not find us without an answer. A Bill on these lines would be presented not as overthrowing the whole structure of the 1947 Act, but as keeping the essential provisions while easing the difficulties which have been found in practice. In introducing it we would emphasise that we stand by the central feature of the Act-the control of land use and that we are determined that effective use shall continue to be made of the powers which it contains to conserve the nation's land resources, and generally to improve the environment in which people live.

14. If my colleagues agree that we should amend on the lines of the Limited Compensation Scheme I would propose that a White Paper be published setting out the Government's intentions in general terms, and I would submit a draft to the Cabinet as soon as possible. This would form the basis of consultation with the local authority associations and other interested bodies on the many points of detail which have yet to be worked out.