11.00 am

The effect of the amendment is to remove the figures of 12 years and 8% from the face of the Bill, leaving it to the Department’s Order-making power to fix the relevant number of years and the appropriate discount rate. As these figures may change over time, it is proposed that the primary legislation remain neutral in regard to the actual figures to be used. The Department’s Order-making power will be subject to scrutiny by the Assembly Committee, and further consultation and consideration will occur when such rules are drawn up. These remarks relate to the Committee’s rationale in putting forward this amendment.

I want to make some personal remarks on the structure and some of the implications of schedule 1 in relation to how the multiplier is set. I had intended to put down an amendment, reflecting my comments, to give the Minister and his staff an opportunity to focus on those matters, but, because I was indisposed, I regret that I was unable to do so in time. I apologise to the Minister that he did not get as much warning of this issue as he, and I, would have preferred. We do, however, have a further Consideration Stage available.

I will set the scene on this issue. Clause 3 exempts from the Bill any ground rent with an unexpired residue of a term of 50 years or less. The owner of a ground rent with, for example, 40 years to run will not be able to use the provisions of the Bill, nor will the payer of the ground rent be able to use the provisions to redeem that ground rent. The ground rent will therefore continue to be paid for the balance of the term.

As I indicated at the Second Stage, it could be argued that that would imply that the multiplier could be anything up to 50 times — although I agree with the Minister that that would be excessively generous. It emerged in discussion with the Minister that the basis on which he set the multiplier at nine times was the received wisdom on the state of the market in the sale and purchase of ground rents. That implied a field of between nine and 12 times for the multiplier.

During the hearings I expressed concern that no notice seemed to have been taken, in deciding the correct level of the multiplier, to the replacement value of the asset in financial terms. I would automatically seek to calculate the multiplier by reference to an equivalent interest rate, and this is perhaps a reflection of my professional background. As a ground rent is usually undated or very long-dated, this would entail looking at the yields prevailing on undated or very long-dated Government securities to obtain a benchmark.

On one hand, somebody could own a ground rent that entitled them to £5 per year for the life of the lease — and many of these leases extend for very long periods. On the other hand, at current interest rates, somebody could deposit £100, and also receive £5 per year. So, prima facie, it could be argued that the value of the ground rent should be the same, if one were to sustain the payment of £5 per year. That would therefore imply a multiplier, at a 5% interest rate, of 20 times. That figure would change according to current interest rates. Had we been discussing the issue around 10 years ago, when interest rates were over 10%, by the same calculation one would have devised a multiplier of 10 times rather than the current 20 — that reflects the change in interest rates. We need to bear in mind that interest rates change over time. I felt that the Minister should take this into account when setting the multiplier and that he should be prepared to consider it in the future when revising the multiplier.

I concede that, for two reasons, a ground rent is not precisely analogous to a Government. First, the cost of collection needs to be taken into account. Secondly, there is the risk of non-payment and the tiresomeness of pursuing payment. It would therefore be entirely justifiable to discount the yield deemed to be appropriate. The issue is how much that discount should be — that is a matter of opinion, and many opinions could be expressed. In my view a discount of about one third would probably be appropriate, given those two factors. However, the multiplier of nine times that has been set implies a discount of slightly over 50%, which is a quite harsh level.

The calculations that I have used are based on the fact that the current yield on war loan — which is undated — is 4·6%. To replicate that would require a multiplier of 21·7 times. I agree that that could be discounted. If it were discounted by one third, the multiplier would decrease to 14 times. If it were discounted by a half, the multiplier would be reduced to 10.8 times. Both these figures are higher than the nine times that has been proposed by the Minister.

I have also been led to consider whether the limited use that has been made hitherto of the existing section 35 procedure for redeeming ground rents might partly reflect the fact that the amount being offered for a ground rent was not, in most cases, very tempting. It might well be that more ground rents would have been extinguished had a higher price been offered. I therefore invite the Minister to consider taking the factors that I have outlined into account when setting the multiplier.

I am aware that this matter is dealt with by Order and is subject to the scrutiny of the Committee, and there will therefore be an opportunity to discuss the matter. It is particularly pertinent to schedule 1, paragraph 4, to which amendment 11 relates. There are certain cases, for which paragraph 4 was devised, in which the person framing the ground rent has deliberately set out to protect its future value by including a provision for an increase of the ground rent. This could, for example, be linked to some measure of inflation to preserve its real value. I was concerned that the original wording of paragraph 4 would confiscate a provision which somebody had prudently made to protect the value of a ground rent and offer a compensation that, in my view, does not reflect the financial value of that ground rent.

There is a considerable view — certainly in the legal profession — that this Bill will be very helpful in tidying up part of the land law and will, in due course, make conveyancing easier. However, we have to be conscious that it does, at the compulsory level, involve a measure of confiscation. The Government should always be cautious about proceeding in that manner. That is why I have raised these concerns. I invite the Minister to reflect upon them and revisit them, possibly at the next Consideration Stage, or, alternatively, through the Rules.

As I indicated earlier, I am content with these amendments to the provisions in schedule 1 to the Bill. They deal with the calculation of the redemption money payable to a rent owner. They give my Department a greater degree of flexibility when determining the period after redemption to be applied when calculating the redemption money and the rate at which future increases should be discounted. My Department’s power to make orders under schedule 1 will be subject to scrutiny by the Assembly.

Mr Leslie has gone further than this on behalf of himself rather than of the Committee. He has asked me to consider a further amendment, which would require me and future Ministers of Finance and Personnel to have regard to the average dated yields on Government securities when fixing the multiplier under schedule 1 to the Bill.

Notwithstanding Mr Leslie’s points, and the professional credentials that he cited, I am unable to give any commitment on this matter now. I am not inclined to move in that direction, but I shall carefully consider the issue with my officials.

Mr Leslie pointed out that we will have a further Consideration Stage. If I were minded to agree an amendment, I would have to clear it with the Executive Committee, which will not be meeting before the Further Consideration Stage. I accept Mr Leslie’s mitigating point that, although this is not the most appropriate form in which to advance the matter, his recent ill health did not allow him to table this as an amendment in the normal manner. Although I sympathise with him in that regard, I am still not minded to move in the direction that he suggested.

As I said at the Second Stage debate on this Bill, while I intend to fix the multiplier at nine times the annual ground rent, I will obviously keep the matter under review, and I have no doubt that future Ministers of Finance and Personnel will also do so.

The decision to fix the multiplier at nine times the annual ground rent was based on the advice of expert valuers, who said that that rate reflects current market value. Those who wanted to be less precise cited eight to 10 years. In my opinion, therefore, nine is a reasonable rate at which to fix the multiplier in this instance.

Mr Leslie contended that nine is a low and punitive figure, but our expert valuers from the Valuation and Lands Agency have indicated that the purchase price of a ground rent for certain properties in a state of disrepair would be just five times the ground rent. Such considerations must also be borne in mind. Notwithstanding Mr Leslie’s observations, the Committee, when it looked at these issues, took account of a broader range of factors and interests, as have I. The proposals contained in the legislation and schedule 1 are reasonable, and I certainly believe that they were acceptable to the Committee.

I thank the Minister for his response to the remarks I made in parentheses about the calculation of the multiplier. Neither of us is wholly persuaded by the other’s view. While I am well aware of the evidence and of the advice that the Minister has received about transactions over ground rents which have taken place in recent years, we must nonetheless bear in mind that those were commercial transactions between willing buyers and willing sellers. On the other hand, what is being instituted here is a compulsory transaction, and I suspect that quite a number of owners of ground rents are not fully aware of this proposed change.