Clause 10
Finance Bill
1:15 pm
Ian Pearson (Parliamentary Under-Secretary (Economic and Business), Department for Business, Enterprise & Regulatory Reform; Dudley South, Labour)
It is a pleasure to serve under your chairmanship this afternoon, Mr. Atkinson, and to make my first contribution to the Committee stage of the 2009 Finance Bill.
On 2 September last year, the Government introduced a one-year stamp duty land tax holiday applicable to all residential purchases worth £175,000 or less. The holiday was introduced at a time of falling house prices and a volume of transactions far below that seen in recent times. The holiday is a short-term measure to support home buyers many of whom, despite falling prices, are finding it harder to enter the housing market. The holiday ensures that more than 60 per cent. of all residential purchases in the UK are currently exempt from stamp duty. Approximately 90,000 transactions have already been exempted from stamp duty over and above those falling below the original £125,000 starting threshold. We expect that a total of 210,000 transactions will be exempted from stamp duty because of the holiday.
Budget 2009 announced an extension of the holiday to 31 December 2009, to coincide with the end of the temporary VAT reduction and provide further support for home buyers. We expect that approximately an extra 60,000 transactions will be exempted from stamp duty as a result of the extension of the holiday. The decision to extend the holiday reflects the continued difficulties facing the housing market since it was introduced in September 2008. For example, transaction volumes are down by two thirds from their peak in mid-2007 and prices have fallen considerably in the last year.
Clause 10 provides for the extension, which should be seen in the context of the other action taken in the Budget to support home owners, home buyers and the housing supply. Those measures include continued support for home owners in difficulty, through maintaining the standard interest rate for support for mortgage interest at 6.08 per cent. for a further six months; support for housing supply through a £600 million fund to stimulate or kick-start development in the short-term and boost capacity in the house building industry for the recovery; and support for home buyers with the extension of HomeBuy Direct and the launch of a guarantee scheme for residential mortgage-backed securities.
Against that, new clause 3 appears to exempt first-time buyers from stamp duty land tax when they purchase a residential property worth £250,000 or less. The Government do not believe that raising the stamp duty land tax starting threshold to £250,000 for first-time buyers would be an effective use of public money. The new clause does not indicate an effective date or give an indication of whether the measure is intended to be permanent. A permanent increase, which I understand is Conservative policy, would cost the Exchequer approximately £290 million in 2010-11, rising to £430 million in 2012-13. A temporary increase in the threshold for first-time buyers, extending only until the end of December this year, would cost £50 million on top of the £340 million cost of the existing holiday.
The Government also estimate that, as a result of the existing stamp duty holiday applying to transactions worth less than £175,000, some 75 per cent. of first-time buyers are already exempt from stamp duty land tax. In addition, on 2 September 2008 we launched HomeBuy Direct, which offers first-time buyers an equity loan of up to 30 per cent. of the value of a new home to assist them in getting on the housing ladder. Budget 2009 announced an expansion in the provision of HomeBuy Direct as part of the wider kick-start housing delivery programme to unlock sites that have stalled. We estimate that the shared equity and shared ownership products being offered as part of that delivery programme, including HomeBuy Direct, will provide approximately 5,000 properties to help first-time buyers get on the property ladder. Given the action that we are already taking, we do not see a need to raise the threshold further specifically for first-time buyers. Existing measures, including the holiday at its current threshold, are a more appropriate and targeted use of public funds.
I should add that new clause 3 does not provide a definition of a first-time buyer. That introduces problems that themselves mean that we cannot accept the amendment. Defining a first-time buyer is not straightforward, and an exemption explicitly for first-time buyers may give rise to new avoidance opportunities. For example, is an individual who has previously purchased a property overseas to be considered a first-time buyer? If such individuals are not to be treated as first-time buyers, the definition of a first-time buyer could be difficult to enforce or open to exploitation.
In light of the difficulties of defining a first-time buyer, the potential avoidance risks and the help that the Government are already offering first-time buyers, raising the stamp duty land tax threshold to £250,000 would not be an effective use of public money. The action that we are taking, as reflected in clause 10, is important.