House of Commons Hansard Debates for 9 Feb 1993

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debate, so I will only repeat that we have an opportunity tonight to free the many people who have lavished not only money but love, dedication and time on their homes. We are sometimes in danger of examining the proposals in the Bill solely in terms of bricks and mortar, but it should not be forgotten that what we are discussing are family homes. It should be part of the duty of the House to preserve them.

Mr. Fishburn : The early part of today's debate was very much taken over by a number of my right hon. Friends who are truly the heavyweights of our party--but now they have left, leaving the Floor to the true voice of those who believe in leasehold reform. Gone are the august but distant Members for the shires ; left in the House are those of us who live in the heart of London and other areas such as Eastbourne where we know all too well the problems of leasehold law. I begin by contratulating Ministers on holding the line so well during the first part of this debate. I should not like the absent Secretary of State to think that the relative silence of those of us who have campaigned for so long for leasehold reform meant that we agreed with the august heavyweights. The Minister knows as well as I do that the rules of the House make it difficult for junior Members to speak early in a debate.

Ministers have stuck to their manifesto commitment. they have stuck by the Second Reading vote ; most importantly, they have stuck by the Standing Committee that deliberated over the Bill for the past three months. In that Standing Committee the Government first realised that the overwhelming majority of us were in favour of abolishing the low rent test and that is why we tabled the amendment--not least because the Government promised to tell us their view of its abolition at this stage.

Let there be no misunderstanding : a majority of the Standing Committee were in favour of doing away with the test altogether, which is not surprising. Nor is it surprising that the Lord Chancellor--who has much to his credit, not least that he is a Scot and has not been used to the absurdities of leasehold law--echoed that opinion in his paper on commonhold, saying that there is no locus or purpose in a low rent test and that it is inherently bogus. My right hon. and learned Friend the Secretary of State knows as well as the Lord Chancellor and the Standing Committee that the provisions of the low rent test are bogus. They are a fig leaf to hide the private parts of a few estates and are truly without any tradition in English law. They have been inserted in the Bill artificially, to restrict the number of people who can benefit from leasehold enfranchisement.

The Secretary of State's most legitimate defence is, "We've got to get this Bill through Parliament." I wholly understand that. A political balancing act is taking place. The low rent test has no real significance or legal purpose and it is a case of, "You understand, Dudley, we have to get this through, we must restrict the number of people who can enfranchise so as to buy off those who oppose the Bill." That is politics and it is why the Secretary of State is such an august politician.

The Secretary of State is right that he has to make that balance, but he would be wrong to reject amendments that do away with the low rent test. As my right hon. Friend the Member for Westminster, North (Sir J. Wheeler) said, unless we get this right tonight it will come back to haunt us when commonhold returns to the House and when the

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next manifestos of the Conservative party and the Opposition are written. I am sure that my hon. Friend the Minister does not wish to find himself going through these arguments again in 1994, 1995 and 1996 and nor do I.

The Secretary of State would also be wrong politically to hold on to the low rent test, because although he would perhaps reduce the criticism from certain quarters, whose absence we have noted, he would disfranchise tens of thousands of people--articulate, middle-class Tories who have paid mightily for long leases, usually in the heart of London and in many towns and cities on the south coast. I see my hon. Friend the Member for Eastbourne (Mr. Waterson) in his place. Those people will feel increased resentment that a Bill has gone out of its way to disfranchise them and that much effort has gone into saying, "You can't enjoy the enfranchisement proposals that we are offering to others."

That is not the Conservative way. Those of us who have been fighting for leasehold reform for a long time--many people have fought for it far longer than I--have been doing so because we believe that leasehold as a form of tenure is wrong.

9.15 pm

We have seen it not as a form of tenancy, but as a form of ownership. People who are disbarred from enfranchising themselves by the low rent test are as fully owners of their long leases as anybody else in the land. We run the risk in classless Britain of listening to the very rich in order to disfranchise those who are middle class.

The low rent test is wrong for another reason. It is a bogus formula based on rateable value. Rateable value when were those words last heard in the House? I can recall the Secretary of State coming to my by-election in 1988 and saying, "We will do away with all these rates ; rateable value is a thing of the past ; an unsatisfactory way of raising local taxes." And he produced out of the hat the poll tax. Three years later, he produced out of the hat the council tax. That is fine and good, but rateable value, with each and every new local tax, recedes into the dim distance of London's history.

Yet this Bill has written throughout it a number of clauses which refer to rateable values as far back as 30 years ago, and does that specifically to disfranchise a number of people, principally in London, but also throughout the country. It cannot, and does not, make sense.

As if the reference to rateable value were not enough, we are told that certain leases that have ground rents of over £1,000 a year should not be able to qualify for enfranchisement. Yet, for an enormously expensive flat costing, say, £1 million, a ground rent of £1,000 stands in the same proportion as does a ground rent of £100 for a flat worth £100,000. Unless we are careful, under this Government it will be the rule that the more one pays, the fewer rights one has. That is not a good principle on which to go forward. The low rent test is perhaps most pernicious for the reason that my right hon. Friend the Member for Westminster, North gave--its knock-on effect, or multiplier. Take a block of flats, disfranchise two or three people, and is it really possible to imagine that the rest of the leaseholders in that block will be able to get the two thirds that is necessary to qualify for leasehold enfranchisement?

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Those who will feel resentment at this exclusion will not just be those who are excluded, but the much wider pool that is why I number them in tens of thousands--who will not be able to enfranchise themselves because certain flats in their block are disregarded by the law since they fail the low rent test.

In effect, whole swathes of London will be disfranchised and whole armies of Tory voters will feel let down. Worse than that, as the years advance it will open up a two-tier market in London and the towns in the south, which rely so heavily on leasehold reform. Some properties will be enfranchised and will then perhaps convert to commonhold. They can be sold in perpetuity and their owners can raise money on them from building societies and can afford to invest in and improve their premises, to give them that new lick of paint, or put in those new rolled steel joists which are so necessary. Those that are enfranchised will be able to market at a premium ; those that are disfranchised by this provision and its knock-on effect will be unable to do so. Their properties, as their leases dwindle in years, will become less saleable. The blight that was so apparent in my constituency 15 to 20 years ago before the Leasehold Reform Act 1967 began to motor will again be apparent in the centre of our capital city. It is that which will come back to haunt us.

The low rent provision is wrong because it is intellectually dishonest. A long lease is a long lease, a rental agreement is a rental agreement, and never the twain shall meet. They do not meet because of some reference to a rateable value or because of an arbitrary figure plucked out of the sky. They are two different animals and there is no cross-over point. That is the joy and clarity of English law. A leasehold of over 21 years has been held under English law to be equal in many aspects to a freehold. It was held in the 1967 Act to be the trigger point at which people could enfranchise. No one--not some people, but no one--in the capital city can be found who undertakes a 21-year rental agreement for which he is also prepared to pay a capital sum in advance.

As my right hon. Friend the Member for Westminster, North said, the provision addresses a problem which does not exist, but we know why it is in the Bill. It is there because it addresses a problem that does exist-- the need for the Front Bench and the Government to do a balancing act betwen the restrictions demanded by certain interests and the full enfranchisement measure that is demanded by the people of London and those who live under the misery of leasehold law. I end with a warning. There is an indication of which the party should be aware : the Labour party is slowly letting loose its old chains to the established interests that bound it to electoral disaster time after time. The block vote is going ; trade union influence is going ; clause IV is going. Yet the Government, after a radical decade, risk slipping back through this legislation into the arms of established interests rather than going forward with radical reform. For that reason and for the reasons which I have outlined I shall join my right hon. Friend the Member for Westminster, North in pushing the amendment to a Division.

Mr. John Denham (Southampton, Itchen) : That was an excellent speech by the hon. Member for Kensington (Mr. Fishburn). I doubt whether I can follow its quality. He spoke so persuasively about the impact of the low- rent test on Conservative voters that I am slightly undecided about

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whether I wish to see success or failure in the Division Lobby. Perhaps it would be better if some of us from the Opposition Benches absented ourselves.

Obviously the House should do what is right and not what is to party advantage. What I heard in the excellent speeches of the three hon. Members who preceded me was hon. Members speaking genuinely in the interests of their constituents whom they have taken the time and trouble to meet and correspond with ; they have studied the cases put in front of them and have realised that the low-rent test must go if the interests of their constituents are to be met. The Government should conclude from the comments already made that they can only emerge with credit if they listen to the voice of the House on the issue.

It is agreed across the Chamber, as it was in Committee, that to seek to extend a right such as leasehold enfranchisement is good and proper. We have debated whether the mechanism of commonhold is the better way of doing it, but it was agreed that the right should be extended.

It was also accepted in principle by both sides in Committee that if the right were to be extended, there would be some circumstances in which restrictions would have to be applied. There was no suggestion by either side in Committee that tenants should simply be able to confiscate their landlords' property, although we had debates about the appropriate valuation to be put on enfranchisement. There was no disagreement about the principle that some limit on qualifying tenancies was necessary, although there was a debate on the number and the types of properties. It was accepted that some restrictions would be necessary to make enfranchisement workable and fair. But if the Government are to impose a restriction, it is essential that it is seen to be just, fair and easily understandable by those to whom it will apply.

We are talking about people's homes, in which they have invested thousands of pounds on their own behalf and been required to invest thousands on their landlord's behalf. They read press reports and the Government's earlier statements and expected and hoped to be able to free themselves from neglectful landlords. A leaseholder whose right to enfranchisement is to be restricted has a right to an assurance that those restrictions are fair, just and understandable. The problem with the low rent test is that people will not regard it as fair, just or understandable. They will see it as an arbitrary measure which the Government introduced for no intellectually honest or good reason but which has enormous implications for their lives and futures as leaseholders and, as they regard themselves, the real owners of their property. They will find three entirely different bases for calculating low rent in the Bill, which apparently are arbitrarily set according to the date on which they took on their lease. Experts in housing law will be able to identify exactly why there is one test before 1963, another test after 1963 and another more recent test, but to any ordinary person those different tests will seem quite arbitrary. As the right hon. Member for Westminster, North (Sir J. Wheeler) said, the Bill is an opportunity not to reaffirm previous housing legislation but to establish a fairer basis for enfranchisement. That is what we should be doing.

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I well remember our debates in Committee and the Lord Chancellor's arguments against a low rent test. I do not recall a convincing case being advanced that the low rent test would operate in the interests of people seeking the right of enfranchisement. I understand the argument hangs on the issue of needing a distinction between renting and genuine leasehold, where people are, to all intents and purposes and in their own minds, purchasing their own property.

Is there really any practical possibility of someone who thought that they were renting a property finding out that they have a right to enfranchisement and then demanding to exercise it? I simply do not believe that. We could search the streets of London and knock on the doors of leasehold properties but fail to find anyone who thought that they were renting property only to find that under this law they had the right to enfranchisement. I do not believe that that problem exists. Even if it did, it could exist only in a tiny number of cases. If there were some unfairness in those people getting a right to enfranchisement, the injustice that might be done would be nothing compared with the injustice that will be done to thousands of people by the low rent test.

I fear that the low rent test is included in the Bill as a result of the concerted lobbying which was widely reported outside the House, although it was not especially evident in Committee. We rarely heard the views of the landlords' lobby in Committee, but I believe that the low rent test is included as a result of lobbying by big interests against the interests of ordinary people who happen to be leaseholders. It is a crucial test of the willingness of the House to stand up to such a lobbying exercise, such backroom or corridor lobbying and influence peddling, and to stand up for the interests of leaseholders who want the right to enfranchisement.

I hope that before too long the House will remove the low rent test from the legislation.

9.30 pm

Mr. Waterson : My starting point is that the Bill is bold and far- sighted. It will benefit thousands of leaseholders not only in my constituency but throughout England and Wales. It is precisely because I take such an enthusiastic view of this aspect of the Government's legislative programme that I want as many people as possible to benefit from it.

I echo the two excellent and memorable speeches made by my right hon. Friend the Member for Westminster, North (Sir J. Wheeler) and my hon. Friend the Member for Kensington (Mr. Fishburn). I mean no disrespect to Opposition Members by paying particular attention to my right hon. and hon. Friends' remarks.

I strongly support the amendments that I and my hon. Friends have tabled. Like many colleagues who were members of the Committee, I was unconvinced by the justification for the low rent test, and I remain unconvinced. We have heard how pressure was put on the Government during the Committee to reconsider the problem, and I share the feeling of disappointment that we are still discussing this version of clause 7. Certainly, nothing has been said today or in Committee to convince me that we need a low rent test. There is no practical reason for it.

As we have heard, the test is not needed to distinguish between long and short leases. The test for that is the

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number of years of the lease--if it is more than 21 years, it is by definition a long lease, and if it is fewer than 21, it is a short lease. The test is not needed to differentiate between premium long leases, which have a token ground rent, and long leases with a market rent. It is not needed because, simply, there are no properties with long leases and market rents.

I shall not weary the House by being the third or fourth hon. Member to quote the Lord Chancellor's now memorable report of November 1990, save to repeat that it underlines the argument, with which I agree, that the low rent test seems to be aiming at a non-existent problem.

The effect of the low rent test is to give freeholders--present and future- -a simple means of circumnavigating the legislation. It is so easy. The proposed low rent threshold is so low, and there are numerous examples of ground rents being set by freeholders at just a few pounds above that level. We have heard some examples of that today.

What are the results? The freeholder wins in two ways. First, the leaseholder, having paid a premium for his lease, discovers that the smart freeholder has set the ground rent that little bit higher and that he is therefore disfranchised. We know that that will happen because history tells us so. We need only consider the leasehold houses in Hackney and Islington where the leaseholders cannot enfranchise under the Leasehold Reform Act 1967 because the freeholder has set the ground rent just a couple of pounds higher than the official low rent level. That has been done deliberately to get around the Act. All that the low rent test will do is to produce anomalous results, especially in London. We have all had letters from leaseholders, especially in central London, who are deeply concerned about the effect of the test.

Even better from the freeholder's point of view is the fact that he can use the loophole to disenfranchise whole blocks at one go. He has only to apply a rent slightly above the low rent level in a small proportion of flats in a block and he has effectively made it impossible for the others to enfranchise. They will simply not be able to meet the two-thirds hurdle which is necessary to be able to enfranchise under the Bill. That is a wonderful loophole for a landlord. Having seen the extent to which landlords have been prepared to go to scupper the Bill in Parliament, who can doubt that they will seize on the low rent test as a simple way in which to get round the legislation?

Ideally, I should like the whole concept of a low rent test to go. It serves no practical purpose except to give landlords a way out. If for some reason it is left and we have to have a low rent test of some sort, we should at least make it a realistic test. For many leasehold properties, the low rent test is a factor of their rateable values. Surely it is wrong to pass new legislation that is based on historic and outdated rating levels when the rates themselves have already been abolished. There is deep concern that the low rent test will lead to the exclusion of genuine leasehold flats which have low rateable values which date back to 1973, but whose ground rents rose dramatically in the late 1980s as a result of the property boom. The Bill gives us the opportunity to clear up that anachronism if the new clause is accepted. By linking the low rent test to current market levels, we shall have a system that satisfies the Government because it retains a low rent test and satisfies everyone else because it blocks the obvious loopholes. I very much hope that the

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Government will accept the amendments. I regret to say that if they do not, they are unlikely to enjoy my support in the Lobby this evening.

Mr. Raynsford : This has been a fascinating debate, because there has been unanimity among speakers of all parties so far. That unanimity should give a clear warning to the Government that they would be foolish to proceed on the basis of trying to get the low rent test incorporated in the Bill.

The case is strong, and it has been argued persuasively and forcefully by a number of hon. Members this evening. There is no need for the low rent test and if it is imposed, it will create serious anomalies. Those anomalies will be exploited by people who seek to obstruct leaseholders who would otherwise be entitled to enfranchise and will thus deny the opportunity of enfranchisement to a substantial number of leaseholders. The test would therefore effectively wreck the impact of the Bill.

The hon. Member for Kensington (Mr. Fishburn) put the argument forcefully and effectively when he said that a failure to get it right on this occasion would come back to haunt us. I took part in the discussions on the Landlord and Tenant Act 1987. The Act was an attempt to tackle the problem of freeholders maltreating leaseholders and abusing their position. It was an attempt to rectify some of the problems. The warnings that we voiced then--that, because the legislation was not right, we should have to come back and deal with the matter again--were true. Such a warning is even more true this evening.

My first observation concerns the lack of any need for the low rent test. We have heard frequent references to the Lord Chancellor's Department's view in the consultation paper on commonhold. It would be an absurd anomaly if, were commonhold to come back to the House perhaps in the next Session or perhaps in the subsequent Session, we were to debate the issue simply because the Government had insisted and managed to obtain a majority in favour of the low rent test in this legislation, when, in the commonhold legislation, there was seen to be no need for it. The whole issue would have to be dealt with again, and there would be obvious anomalies.

The Leasehold Enfranchisement Association has provided valuable information through the indefatigable Joan South and others and assisted hon. Members to consider all the issues. The association makes it clear that it is not a problem and that it is a spectre which the Government have conjured up but have not been able to substantiate.

The Consumers Association, in its response, makes exactly the same point. In its survey of leaseholders throughout the country--we are not talking about a purely London problem ; we are talking about a problem which affects more than 750,000 leaseholders throughout the country, including many constituencies outside London--it could not find one person in respect of whom the Government suspect that the anomaly might arise, who could be construed as a long leaseholder when in fact he or she was a tenant. It is a non-existent problem, and the Government should recognise that.

The anomalies that will be created have been referred to frequently. I do no more than quote one example involving a leaseholder in Hackney, London, who very persuasively writes : "I own a long lease on a house in Hackney which I purchased in 1982 for £47,000. The lease has about 30 years to run. I paid £230 per annum ground rent and the rateable

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value at the start of my lease was around £340 per annum. It is clear that my lease, like many others, has been deliberately manipulated to make me unenfranchiseable. Obviously, that odious qualification will be exploited by landlords to make flats unenfranchiseable."

That could not be put more effectively. Thousands of leaseholders in that position are already debarred.

As sure as can be, if the low rent test remains in the legislation, freeholders seeking to prevent the will of Parliament and to prevent their leaseholders from enfranchising will, in all future lettings, engineer ground rent figures to ensure that they are above the figure of £1,000 in London or £250 elsewhere, and thereby ensure that leaseholders are disfranchised.

The low rent test is a charter for the freeholder who seeks to frustrate the wishes of Parliament. It is a charter for the person who does not want to allow the Bill to proceed. It would be a disastrous mistake if we were to give comfort to the enemies of the Bill--people who have been seeking to frustrate it, people who represent vested interests, and people who represent the old privileges--if they were to achieve a victory by the back door when the argument has gone so forcefully against them.

The Government have failed entirely to produce any evidence to support their case that there is a need for the test. In Committee, on other issues we heard the Minister argue that it was necessary to produce evidence to justify amendments and changes that the Opposition sought. In the absence of convincing, solid evidence of a real problem--the Minister has so far failed to produce it, and I doubt whether he will do so tonight, but I shall listen attentively--it would be very foolish indeed to allow the low rent test to remain in the Bill and thereby create anomalies and the opportunity for people to frustrate the wishes of Parliament. The case has been made overwhelmingly by many hon. Members. I sincerely hope that, at this late hour, the Minister will heed them and will respond positively and make it unnecessary for a Division to occur. If there is a Division, I sincerely hope that Conservative Members who, for whatever reason, were hesitant to support us in Committee, will not feel inhibited tonight and will vote in favour of getting rid of the low rent test. That would be a vote in favour of leasehold enfranchisement and in favour of people exercising their right.

We know that it is proper for people to have the right to control their own homes and not to depend on the interests of freeholders and landed interests who will seek to exploit their traditional ownership in order to frustrate the opportunities, wishes and aspirations of leaseholders.

Sir George Young : This has been a debate of the highest quality. The quality has been in no way diminished by the fact that all the arguments have been on one side.

I begin by referring to a point made by the hon. Member for Burnley (Mr. Pike) when he urged the Government to adopt the same attitude as they had adopted in earlier debates--to resist the freeholder case. There is a distinction between this debate and earlier ones, in that the new clauses and amendments which were tabled in the earlier ones sought to take rights away from those who will have rights granted to them under the Bill. The Government resisted that.

This debate is slightly different in that it seeks to add to the Bill additional rights for those who do not have them

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at present. It would be consistent for the Government to resist the arguments in the earlier debates and resist those which have been raised this evening, as I propose to do.

First, I commend the consistency of my hon. Friends. Having made their points, they voted as they propose to vote tomorrow : they will vote for Third Reading. It would be somewhat perverse for Opposition Members to vote today to abolish the low rent test and then vote tomorrow to abolish enfranchisement. That is wholly inconsistent but we have been told that tomorrow evening Labour Members plan to vote against Third Reading.

9.45 pm

Mr. Straw : Labour Members listen to the arguments on the merits. I give the Minister an absolute guarantee that, if he accepts the argument for that amendment--which comes from the Conservative as well as the Labour side--we will support the Bill on Third Reading. What will happen if the Minister does not accept the amendments remains to be seen.

Sir George Young : I am not quite sure if the hon. Gentleman realises what he said. In Standing Committee, Labour Members made it clear that they would support the Bill if it did not contain simply enfranchisement provisions. They voted against the Bill on Second Reading and in Committee--and I am sure that they plan to vote against it tomorrow- -because it contains provisions for compulsory competitive tendering and the tenants' veto on housing management.

The hon. Member for Blackburn (Mr. Straw) said that his is prepared to trade the principal objections which his hon. Friends deployed hourly and daily in Committee if the Government concede the amendment. I see a look of gloom on some of his hon. Friends' faces. In Committee, they defended the past daily. As a result of one flippant intervention from the shadow Secretary of State, their principles are simply waived aside.

Mr. Straw : The intervention was far from flippant. I should like the Minister to address the merits of the case which have been powerfully put by my hon. Friend the Member for Burnley and some of my hon. Friends. It is no good the Minister waffling on about what he fantasises are the possible decisions made by the Labour party to which we are party and he is not. He needs to get down to the merits of the case. What possible justification is there for ruling out a large number of tenants on the basis of the so-called low rent test?

Sir George Young : The hon. Gentleman knows perfectly well that I will address the merits of the argument shortly. He said that the Labour party's objection to our proposals on compulsive competitive tendering are negotiable. They are not principles at all ; they are negotiable. He said that they will support the Bill on Third Reading if the Government concede the amendment. That is trading the objections of principle which his hon. Friends made in the Standing Committee. Labour Members must get their act together.

My hon. Friends the Members for Kensington (Mr. Fishburn) and for Eastbourne (Mr. Waterson) and my right hon. Friend the Member for Westminster, North (Sir J. Wheeler) made some moving speeches. My hon. Friend the Member for Kensington chided the Government for not being radical enough. If he had listened to the earlier debate, as I did, I am sure that he would agree that many

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of our right hon. and hon. Friends think that we have embarked on a radical reform. It seems to be something of a paradox that an hour ago we were accused of betraying the freeholder and now we are accused of betraying the leaseholder. I shall address the merits of the case put by my hon. Friends, the hon. Member for Burnley (Mr. Pike) and others.

We debated the matter at some length in Committee and undertook to look again at the issues surrounding the test and to return to it on Report. Let me make it clear that it has been one of the most difficult decisions that we have had to take. We have consulted, discussed and debated the matter. We have seen hon. Members and representatives of leaseholders. We understand just how complex it is and that there are extremely strong arguments for retaining the test as well as for abolishing it. That said, I have to tell the House that the Government have decided that the low rent test should be retained in its current form. Let me explain to the House why we have reached that conclusion.

The comparison of the annual ground rent to the rateable value--or, in the case of pre-1963 leases, the letting value--is a simple test used to distinguish what are, in theory, renting tenancies from "ownership" tenancies. It appears in roughly the same form in several pieces of important landlord and tenant legislation--including the Landlord and Tenant Act 1954, the Leasehold Reform Act 1967, the precedent for the Bill, and the Rent Act 1977. It has had quite an impact on the residential property market over several decades and we should not therefore relinquish or alter it lightly.

We have already provided that the test for flats be applied to the ground rent and rateable or letting value during the first year of the lease, rather than the date of the claim, as a concession to bringing within the scope of the Bill leases with rent reveiw clauses. Many leases are subject to such clauses which have effect periodically, typically every five, 10 or 20 years. The reviews are often linked to an inflation index or similar provisions in an Act and are included to maintain the level of ground rent payments by periodic adjustment. However, rent review clauses vary in many ways and can produce vastly different results.

When the leases are first granted, the ground rent is low--less than two- thirds of the rateable or letting value. But a review will often push the ground rent up beyond the low rent threshold--something which most leaseholders cannot be expected to predict. With the old-style test which took account of the rent and rateable value on either a fixed date--March 1965 in the 1967 Act--or the first day of the term, some leaseholders would have found themselves unable to satisfy the low rent test--and unable to enfranchise. The new-style test is designed to help them.

We propose also to amend the Leasehold Reform Act to give leaseholders in houses the choice between the original low rent test and this new one for flats. For leases granted since 1 April 1990 when rental equivalent values were first employed, a different test applies.

The argument has been put several times that the requirement that a qualifying tenant be a long leaseholder is a sufficient test of ownership. That is not the case. Leases which are not at a low rent would fall within the rent and housing Acts unless the property has a rateable value in excess of the prescribed limits. These are by definition renting tenancies.

The Government believe that the low rent test provides an important distinction between the rental and the long lease market and marks the extent of the transfer of equity

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between landlord and tenant. It is important to enfranchise only those interests where the freeholder has given up all but a residual interest in the property. We do not wish to extend enfranchisement or the right to buy to the private rented sector and the low rent test is a means of achieving this. We know that there are long leases with rents of £5,000 or £10,000 a year, so we cannot rely on the long lease test alone.

The hon. Member for Greenwich (Mr. Raynsford) challenged me to see whether we had any evidence that there were such leases and I have in front of me a letter from one of the major estates in London, which says :

"We have well over 50 properties defined in statute as long' but where the rent is in excess of £5,000 pa and many of these are over £10,000 pa."

So there is a need for a distinction between leases and rented property.

Sir John Wheeler : As a baronet, my hon. Friend is generous to give way, but he is skating on thin ice. Not one Member on either side of the Chamber has spoken in support of the Government in this debate. Will he allow that when the debate goes to their Lordships' House, their Lordships may take the voice of this House as the authentic voice on the issue?

Sir George Young : It is not for me, albeit as a baronet, to guess what will happen at the other end of the Palace. In the preceding debate, there was unanimity on this side of the House on requiring leaseholders to pay far more than my right hon. Friend would like. Not one Conservative Member made the case that I am sure that my right hon. Friend would have wished. None the less, the Government resisted those arguments, and we had to endure some criticism for doing so. So my right hon. Friend cannot rely too much on the weight of opinion among Conservative Members. He may find that the argument works to his disadvantage in later debates.

Sir Jerry Wiggin : Will my hon. Friend allow me to place it on record that the fact that a contrary voice was not heard was due to the certain knowledge that he would be robust on the subject?

Sir George Young : I am grateful to my hon. Friend, albeit at this late stage in the debate, for a voice in support of the case which the Government are deploying.

The low rent test ensures that long leases granted at a high rent, perhaps- -in the case of houses--at a premium which reflected the non- enfranchiseable nature of the lease, or where the landlord continues to have a high financial interest in the block, cannot be enfranchised. There is evidence--I have deployed it--that there is some blurring of these lines which makes a division important, particularly in London where there is some overlap of ground rents of long leases and market rents.

Amendment No. 124 refers to "annual letting values". While I acknowledge their inclusion for pre-1963 leases in the Leasehold Reform Act 1967 and the Bill under discussion today, I dispute that they are the appropriate means to determine whether a lease is at a low rent or not.

The reason for their inclusion in 1967 was to take account of the delay in a rating revaluation after the second world war. This meant that after the war the incompatibility between genuine ground rents and any test based on pre-war rateable values was sufficient to justify the use of letting or rental values instead. As all residential

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rents were statutorily controlled at that time, there was a single market in rents which made the test effective and easy to apply. That approach simply would not work today, with leases granted since the introduction of enfranchisement for houses and since the deregulation of rents in the letting market because of the wide gulf that exists between regulated rents and market rents. I acknowledge that in a few cases some landlords have been granting new leases on houses at high rents to avoid enfranchisement. But in those cases the price of the house and that paid for the lease should have reflected the status of the lease and the fact that it was not enfranchiseable.

The precedent for this Bill, the Leasehold Reform Act 1967, has been on the statute book for 25 years and leaseholders should have known when purchasing their leases that they would not be able to enfranchise. I know that some may not have been aware of this, but we cannot legislate for that reason alone. Nor should we forget that these tenants are already outside the scope of the Leasehold Reform Act. This evening we are not taking away any rights that people already have.

Leases have been created and arrangements have been built around the existing framework. Different legislative regimes apply to high and low ground rents, although in different contexts to enfranchisement, and leases have been drafted in full knowledge of this. It would be wrong to move the goal posts now.

In the case of flats, it is far less likely that ground rents have been manipulated in any way. Enfranchisement for flats is a recent development-- first announced to the House in July 1991. As I said earlier, different statutory limits apply for leases granted since April 1990, these being £1,000 in Greater London and £250 elsewhere. I realise that the announcement that the Government have made will cause disappointment to many interests in the House. Nonetheless, we decided that there are valid arguments for retaining the low rent test in its present form and I invite the House to resist the new clause.

Mr. Pike : The Minister claimed to know how Labour Members would vote tomorrow. He was mistaken, because, even if he had been a fly on the wall at our meeting earlier, he would have found that we made no decision on our vote on Third Reading tomorrow--

It being Ten o'clock, further consideration of the Bill stood adjourned.

Motion made, and Question put forthwith, pursuant to Standing Order No. 14 (Exempted business),

That, at this day's sitting, the Housing and Urban Development Bill may be proceeded with, though opposed, until any hour.-- [Mr. Arbuthnot.]

Question agreed to.

Question again proposed, That the clause be read a Second time.

Mr. Pike : It was our intention to see how we progressed today and during the debate on important parts of the Bill that we shall discuss before Third Reading tomorrow. I was disappointed at the Minister's response. Perhaps the reason why his voice is affected is that he has no confidence in the points that he is having to make. I do not believe that he believes the things he was telling us ; he has been leaned on--whether by the Secretary of State or someone else, I do not know. I do not believe that he was convinced by the

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argument and the case that he made. I am convinced that he believes that what we have been arguing for is the right course and that what he has been saying weakens the objectives that the Government have been stating for the Bill.

In response to the intervention by the right hon. Member for Westminster, North (Sir J. Wheeler), the Minister made the valid point that every contribution from both sides was solid in the view that this low rent test was wrong and should be either changed or abolished. The comparison that the Minister chose was false, and a red herring, because he referred to unanimity on the Conservative side on the previous clause. In this debate the unanimity has been across the floor of the House.

The arguments have been well made, but it is right to refer to the speech of the hon. Member for Kensington (Mr. Fishburn). He made two important points, which I believe Conservative Members need to take into account when they decide which way to vote in a couple of minutes.

The hon. Gentleman's first point was that if a Division had been pressed on this in Committee there would have been a majority opposed to the Government's view. Government Members chose not to press the Government on that occasion because of assurances that they would look again at the issue and come back, probably with a new proposal, at Report stage. Those hon. Members must be disappointed that the Government have failed them tonight and failed the people who have leasehold properties. Secondly, it is not just the individual who is affected by the low rent test ; it can have an effect on the whole of a property because of the voting numbers necessary. The effect can therefore be extended to people who are not themselves directly disqualified by the test.

The Government have got it wrong and I hope that Conservative Members will vote with us on new clause 18 and stand by the people who want to enfranchise and get the opportunity that the Government claim to offer them --from which they will be barred unless we win new clause 18.

Question put, That the clause be read a Second time :

The House divided : Ayes 252, Noes 294.

Division No. 146] [10.04 pm

AYES

Abbott, Ms Diane

Adams, Mrs Irene

Ainger, Nick

Ainsworth, Robert (Cov'try NE)

Allen, Graham

Alton, David

Anderson, Ms Janet (Ros'dale)

Armstrong, Hilary

Ashby, David

Austin-Walker, John

Banks, Tony (Newham NW)

Barnes, Harry

Barron, Kevin

Battle, John

Bayley, Hugh

Beckett, Margaret

Beith, Rt Hon A. J.

Bell, Stuart

Benn, Rt Hon Tony

Bennett, Andrew F.

Benton, Joe

Bermingham, Gerald

Berry, Dr. Roger

Betts, Clive

Blunkett, David

Boateng, Paul

Boyce, Jimmy

Boyes, Roland

Bradley, Keith

Bray, Dr Jeremy

Brown, Gordon (Dunfermline E)

Brown, N. (N'c'tle upon Tyne E)

Bruce, Malcolm (Gordon)

Burden, Richard

Byers, Stephen

Caborn, Richard

Campbell, Mrs Anne (C'bridge)

Campbell, Menzies (Fife NE)

Campbell, Ronnie (Blyth V)

Campbell-Savours, D. N.

Cann, Jamie

Carlile, Alexander (Montgomry)

Chisholm, Malcolm

Clapham, Michael

Clark, Dr David (South Shields)

Clarke, Tom (Monklands W)

Clelland, David

Clwyd, Mrs Ann

Coffey, Ann

Cohen, Harry

Connarty, Michael

Cook, Robin (Livingston)

Corbett, Robin

Corbyn, Jeremy

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