Clause 87

Part of Orders of the Day — Finance Bill – in the House of Commons at 6:30 pm on 8th May 1985.

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Photo of Mr Ian Stewart Mr Ian Stewart The Economic Secretary to the Treasury 6:30 pm, 8th May 1985

I am glad to respond to this debate on development land tax, particularly because, as the hon. Member for Birmingham, Hodge Hill (Mr. Davis) reminded us, I was involved in the legislation when it was originally introduced in 1976.

The hon. Member for Hodge Hill rightly said that the measure does not represent the removal of all tax from transactions which, up to now, have been subject to development land tax. The amount concerned will fall to be taxed not only under income tax but under capital gains tax, or corporation tax for companies. However, I must correct one thing that he said. I understood him to say that a small landowner would be worse off because tax would be payable if there were no DLT whereas, had there been DLT, the amount would have fallen within the exempt amount. That is not correct. The exempt amount may exempt the taxpayer from DLT. However, as with the exempt amount on transactions that give rise to DLT, all the remaining part of any profit or gain is taxable in the ordinary way. Therefore, it will not have the adverse effect that the hon. Gentleman suggested.

Several hon. Members reminded us that DLT was part of the community land scheme arrangements of the previous Labour Government. Under Labour, there was the Central Land Board in 1947, the Land Commission and the betterment levy in 1967, and the Community Land Act and development land tax in 1976. The hon. Member for Great Grimsby (Mr. Mitchell) said that he thought that nationalisation of development land was the direction in which we should go. Not only do I disagree with that in principle as a Conservative, but in practice the consequences of all those proposals have not met the expectations of those who introduced them.

Development land tax has caused many problems, many foreseen by my hon. Friends and me when we were considering the proposals nine years ago in Committee. A tax at a rate of 80 per cent. rising to 100 per cent., backed with powers for local authorities to acquire all development land, was more in tune with the theoretical ideas of Socialist planning than with the practical realities of the construction industry, in development and in bringing forward land for building. That is the way in which things have turned out.

I should like to correct another impression that Labour Members give. It is that development land tax is substantially the province of rich landowners and that the windfall gains of which they speak are such a social evil that they should be taxed at penal rates. In fact, less than half of those who pay the tax are individuals. Most of the tax charges are assessed against companies, statutory undertakers, builders and so on. It is because the groups involved in building and development are most subject to the tax that so many problems have been caused.

I was asked by the hon. Member for Hodge Hill to say why the Government were proposing the abolition of the tax when, nine years ago, in Committee on the Development Land Tax Bill, I and other spokesmen for the Conservative Opposition had accepted that there was a case in principle for the taxation of such gains. The simple answer is that there was a case in principle for the taxation of such gains in the circumstances of the 1970s, with high prospects of inflation and substantial speculative gains at that time. However, not only is there no case for such a tax today because inflation is now much reduced—the inflationary conditions that encouraged speculation no longer apply, and so long as the Government have anything to do with it, they will not return—but there is no case in the foreseeable future for such a tax, which has such an adverse effect on development and construction.

I was asked to give proof. Of course one cannot prove the future, but nine years ago we gave projections of what was likely to happen under the tax. They have proved far more accurate than the claims that were made by Labour Members at that time. I can quote some opinions to justify our belief. Several estate agents such as Savills, Knight Frank and Rutley and Grant and Partners have said that abolition of DLT will increase the supply of residential building land. They have said that it will have an entirely beneficial effect by releasing sites for development, enabling industrial companies to move to more suitable sites, and helping housebuilders. The House Builders Federation believes that it will encourage landowners to sell land for development. The Incorporated Society of Valuers and Auctioneers says that it will encourage the building industry and employment". Those comments are on the positive side. The strongest case for the abolition of DLT is the inhibiting effect that it has had on commercial activity and on building and development in recent years. It is expensive and difficult to administer, not only for the Inland Revenue but for the taxpayer. It has provided a significant impediment to the functioning of the market, and has undoubtedly damaged industry and commerce——