Evening post MONDAY, SEPTEMBER 21, 1936 OPEN TO SPECULATION

Evening Post, Volume CXXII, Issue 71, 21 September 1936, Page 8

Evening post MONDAY, SEPTEMBER 21, 1936 OPEN TO SPECULATION

Both the Prime Minister and the Minister of finance have been emphatic in stating that, having freed the farmer and house owner from excessive debt, they will not permit speculation that would renew the trouble. But the practical measures by which restraint will be imposed are not disclosed. The graduated land tax is not effective for this purpose, despite the Budget references, for, in so far as the tax reduces selling value and thus removes the temptation to sell, it also reduces the return from farming. The new clauses in the Mortgagors and Lessees Rehabilitation Bill are almost equally ineffective. A provision has been inserted forbidding sales of land in respect of which an adjustment has been made until January 1, 1941, except by special leave of the Court of Review. The Court, when granting such leave, may require the mortgagor to pay into Court such portion of the 9ale price as the Court thinks equitable, having specially in view improvements made to the land since the date of the adjustment, and this money is to go to the creditors. This clause is permissive, not mandatory, but it may stop speculation for four years, as under it the Court may take the whole of the difference (less an allowance for actual improvements) between the adjusted value and the sale price. But after four years this deterrent disappears. The Rural Mortgagors Final Adjustment Act contains a provision, based on the same idea, but differing in two points: the Court may .apply only half of the excess sale proceeds to the satisfaction of creditors, but this power remains for five years after the mortgage debts are reduced. In effect this checks sales for ten years—five years of the stay order period and five years thereafter. Neither this nor the present Government's proposal (to operate for four years) meets the needs of the case adequately. Neither promises full satisfaction to the mortgagee whose mortgage has been written down and neither imposes a permanent check |on speculation. Another question arises from these proposals to check speculation: at what rate is net.income to be capitalised in order to fix the basic value for adjustment purposes? The Rehabilitation Bill leaves the rate to be fixed by Order in Council. We believe it should be stated in the legislation because it goes to the heart of the proposals. For illustration: if the net income (after paying all expenses including the farmer's remuneration) is found to be £100, the rate of capitalisation may convert this into various basic values: at 3 per cent., £3333; at 4 per cent, £2500; at 5 per cent., £2000; at 6 per cent., £1666. A Government which apparently considers about 3 per cent, a sufficient return for the private investor (asit favours loans by large financial institutions at 3$ per cent.), should logically decide that a similar rate should be adopted for capitalising land returns. But if it does so, the basic value will1 be twice what it would be with 6 per cent, capitalisation, and the amount written off the mortgage will be so much less. Again, if a high capitalisation rate is fixed, the mortgagor will have greater mortgage relief, but the excess value in any sale within four years will also be greater —and that excess value is liable to be taken for creditors. But again, after four years, this deterrent will be inoperative and the mortgagor will be able to sell and pocket the difference between the sale price and the basic value fixed according to the theories of the relief legislation and the arbitrary capitalisation rate. In view of these possibilities Parliament is fully entitled to ask that the capitalisation rate, as a most important factor in adjustment, should be fixed in the legislation. . In its present form the Rehabilitation Bill, as critics have pointed out, does not go so far as the Labour Party led mortgagors to expect. Its specific provisions for carrying out its general purposes are vague in the extreme. The general purposes are stated in the Bill to be to retain farmers in the use and occupation of their farms as efficient producers and to adjust their liabilities so that they may reasonably be expected to meet them, and to retain home applicants in the occupation of their homes on similar terms. But no one, reading the Bill, can say exactly how this is to be done or on what conditions. The capitalisation rate is not stated in the Bill, and there has been a reference to directions being given to adjustment commissions. It is quite wrong that there should be this vagueness and elasticity in a measure of such importance. Contracts are to be reviewed and altered. To this extent the basic principle of financial dealings is to be changed. That is serious enough, and at least the lines within which the change may be made should be clearly marked in the legislation. It should not be left lo adjustment commissions, or even to the Government, to give an'interpretation of what is permissible and advisable under tho widely written general purpose clause.