Select Committee on the Crossrail Bill First Special Report


APPENDIX 5: NOTE FROM THE PROMOTER TO THE COMMITTEE ON HOME LOSS PAYMENTS

Under the statutory Land Compensation Rules (Section 5 of the Land Compensation Act 1961) no allowance is to be made in assessing land compensation for compulsory purchase on account of the compulsory nature of the acquisition. Essentially, land compensation is determined by reference to the price which the market would pay for the property to be acquired disregarding the existence of the scheme for the purpose of which the acquiring authority requires to purchase that property.

The statutory disregard of the compulsory nature of the acquisition was first introduced in the Acquisition of Land (Assessment of Compensation) Act 1919 on the recommendation of the Scott Committee. Its purpose was to abolish the then universal practice of awarding the owner of land compulsorily acquired a sum over and above the open market value of his land, in acknowledgement of the compulsory nature of the acquisition. In 1919, it was felt that this practice was misplaced in the climate of national reconstruction which followed the First World War.

By the end of the 1960s, a more generous approach had gained ground. Both the Report of the Commission on the Third London Airport (HMSO 1971) and the Report of the Urban Motorways Committee (HMSO 1972) recognised that when a person's home is acquired compulsorily for public projects, he is displaced and suffers a loss over and above that represented by the open market value of his interest in land plus disturbance. That further loss embraces personal upset and inconvenience, loss of social ties and having to leave his home at a time not of his own choosing. Such losses are difficult to quantify or value in money terms.

Parliament enacted Part III (sections 29-33) of the Land Compensation Act 1973 for the purpose of providing a remedy for such losses—the "Home Loss Payment". The legislative intention was to provide some limited monetary compensation to a qualifying person who was displaced from his home as a result of the compulsory purchase of his interest in the dwelling in question, such monetary compensation being in addition to the land compensation payable to him as landowner for the acquisition of his interest in the dwelling (which compensation continues to be determined in accordance with the statutory rules under the Land Compensation Act 1961).

Under Section 30 of the 1973 Act as enacted, the amount of a Home Loss Payment was calculated by a specified multiplier of the rateable value of the dwelling, subject to specified minimum and maximum amounts. For a qualifying person displaced after 1 April 1973, the amount of Home Loss Payment was 3 x rateable value, subject to specified minimum and maximum amounts of £150 and £1,500 respectively.

Provision was made for the Secretary of State by order from time to time to alter both the multipliers and the specified minimum and maximum levels of Home Loss Payment.

There is no evidence that the rules for determining the amount of a Home Loss Payment (including the specified maximum payment) were intended to represent 10% or any particular percentage of the capital value of the dwelling. It was introduced as a multiplier of rateable value, which value was a measure of the estimated annual letting value of the dwelling rather than a capital value.

In 1989, in the light of the response to the consultation paper "Land Compensation and Compulsory Purchase", the Government made the Home Loss Payments Order 1989 (SI 1989/ 24) which increased the multiplier from 3 to 10 x rateable value and minimum amount payable to £1,200. The maximum amount payable was not increased from £1,500.

Following the abolition of domestic rating with effect from 1 April 1990, the Planning and Compensation Act 1991 substituted the current statutory rules for determining the amount payable by way of Home Loss Payment under Section 30 of the 1973 Act. In the case of a qualifying owner-occupier displaced from his home, the amount of Home Loss Payment payable was to be 10% of the market value of his interest in the dwelling, subject to a minimum payment of £1,500 and a maximum payment of £15,000. In the case of a qualifying tenant, the amount of the Home Loss Payment was a flat rate of £1,500. Provision was made for the Secretary of State by regulations from time to time to prescribe a different minimum and maximum level of Home Loss Payment; and a different amount payable to tenants. Section 29, which specifies the qualifying conditions that must be met in order for a payment to be made, was also substituted by the Planning and Compensation Act 1991. This introduced a new discretionary payment for displaced persons who did not meet the qualifying conditions. Any discretionary payment must not exceed the amount available to a qualifying person.

In 2003, both the Deputy Prime Minister and the Welsh Assembly Government accepted the recommendation of the Compulsory Purchase Policy Review Advisory Group (CPPRAG) that "the current amounts payable for home-loss payments should be reviewed as soon as possible and, thereafter, annually to ensure that they are revised as necessary to reflect relative changes in property values". The Office of the Deputy Prime Minister and the Welsh Assembly Government jointly consulted on options for giving effect to CPPRAG's recommendation.

Following that consultation, the Deputy Prime Minister made the Home Loss Payments (England) Regulations 2003 (SI 2003/1706). Those regulations resulted from the first annual review for England of the amounts payable for Home Loss Payments. In the case of a qualifying owner-occupier displaced from his home, the minimum amount payable was increased to £3,100 and the maximum amount payable increased to £31,000. In the case of a qualifying tenant, the flat rate was increased to £3,100.

Subsequent annual reviews have resulted in further annual increases in both minimum and maximum amounts payable to a qualifying displaced owner-occupier and the flat rate amount payable to a qualifying displaced tenant. For England, responsibility for undertaking the review each year of the amounts payable for Home Loss Payments and, in the light of that review, making appropriate revisions to those amounts by regulations now rests with the Secretary of State for Communities & Local Government.

The maximum and minimums amounts of Home Loss Payment payable to a qualifying displaced owner-occupier, as prescribed by regulations for 2003 and subsequent years (with effect from 1 September of each year), are as follows:—

2003
-
Maximum
£31,000
Minimum
£3,100

2004
-
Maximum
£34,000
Minimum
£3,400

2005
-
Maximum
£38,000
Minimum
£3,800

2006
-
Maximum
£40,000
Minimum
£4,000

2007
-
Maximum
£44,000
Minimum
£4,400

Maximum Amount of Home Loss Payment as a percentage of average house prices:

Year
Max Home Loss
£
Average House Price
£
%

1973
1,500
9,942
15.09

1989
1,500
54,846
2.73

1991
15,000
62,455
24.02

2003
31.000
155,627
19.91

2004
34,000
180,248
18.86

2005
38,000
190,760
19.92

2006
40,000
204,813
19.53

2007
44,000
221,580
19.86

Note

  • From 1996-2003 average UK house prices are based on the 5% survey from building societies.
  • From 2003 average house prices are based upon a significantly larger sample size from the Survey of Mortgage Lenders.
  • Data from 2005 is collected from the Regulated Mortgage Survey.

As can be seen from the table of maximum amounts of Home Loss Payment and average house prices, the maximum amount originally enacted in the 1973 Act was in effect 15% of the then average house price. This is merely an analysis and, as noted in paragraph 7 above, there is no evidence that the intention was to link the maximum amount payable to the capital value of dwellings.

The Planning and Compensation Act 1991introduced the substituted approach of calculating the amount of a Home Loss Payment payable to a qualifying displaced owner by reference to a percentage of market value, but retaining the concept of nationally applicable, specified minimum and maximum amounts of Home Loss Payments, which has been and remains a consistent feature of the statutory scheme of the 1973 Act. A different approach to calculating the amount of Home Loss Payment, within the limits set by the specified minimum and maximum amounts payable, was necessitated by the abolition of the domestic rating regime with effect from 1 April 1990. The change to a calculation based upon 10% of the value of the dwelling was then subject to a maximum of £15,000, which was 24% of the average house price.

From 2003 onwards the calculation remained at 10% of the value of the dwelling but subject to maximum payments just below 20% of the average UK house price.

Mr Pritchett raised the point that London house prices were higher that the average UK house prices. It may be of interest to the Committee to compare the current maximum Home Loss Payment with the average London house price:—

Year: 2007

Average London house price  £342,122

Maximum Home Loss Payment  £44,000

Maximum Home Loss compared to average London house price 12.86%

Parliament has recognised that when a person's home is acquired compulsorily for public projects, he is displaced and suffers a loss over and above that represented by the open market value of his interest in land plus disturbance. That further loss embraces personal upset and inconvenience, loss of social ties and having to leave his home at a time not of his own choosing. Such losses are difficult to quantify or value in money terms. Parliament enacted Part III (sections 29-33) of the Land Compensation Act 1973 for the purpose of providing a remedy for such losses—the "Home Loss Payment". The legislative intention, therefore, was to provide some limited monetary compensation to a qualifying person, such monetary compensation being in addition to the land compensation payable to him as landowner for the acquisition of his interest in the dwelling (which compensation continues to be determined in accordance with the statutory rules under the Land Compensation Act 1961).

The amount of a Home Loss Payment currently payable to a qualifying displaced owner-occupier is 10% of the market value of his interest in his dwelling subject to a minimum amount payable of £4,400 and a maximum amount payable of £44,000. This maximum payment is 19.86% of the average UK house price and 12.86% of the average London house price. There does not appear to have been any erosion in the real value of the maximum amount of Home Loss Payment compared with the average UK house price in the period since the Home Loss Payment was introduced in 1973. It has, in fact, increased over that period from about 15% to about 20%. The Government undertakes a review of both the minimum and the maximum amounts payable for England on an annual basis and promotes revisions to those amounts, as appropriate, by Regulations which are laid before Parliament. The most recent regulations (the Home Loss Payments (Prescribed Amounts)(England) Regulations 2007 (SI 2007/1750)) increased both the minimum and maximum amounts payable for England by reference to the Department for Communities and Local Government's house price index, which varies in line with changes to house prices.


 
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