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 have given the Committee a number of comments from those who are more expert than I am to judge the impact on building land. Examples could be produced from many constituencies where shortages of development land have made difficulties for house building. This tax goes far wider than house building because it affects commerce and industry. Many hon. Members have been pointing out in the past few years the difficulties that development land tax has created for them. The fact that such examples are put to Ministers by Labour Members should show that the tax that the Labour party introduced is doing the damage that we had the foresight to see at that time.

This is an inefficient tax because it is extremely complicated and at a punitive rate. The cost of collecting this tax is higher than that of any other tax on the statute book. It is more than three times as expensive as capital gains tax to collect, more than twice as expensive as capital transfer tax and seven times as expensive as stamp duty. That is the gross cost against the gross yield. The gross yield of development land tax is, in part, offset against other taxes that would be payable in the normal course of events if development land tax did not apply. The cost against yield tends to be significantly higher than 7 per cent.

Over the nine years in which it has been in operation, the gross yield before the cost of collection and the offset against other taxes that would have been paid has only been, on average, about £40 million a year. The latest year for which we have figures, two years ago, shows that the cost of collecting it gross is £1 to every £13 of tax, so it is extremely inefficient and expensive for the Revenue to administer the tax.

The tax is also burdensome to the taxpayer. One case has come to the notice of the Inland Revenue recently in which the taxpayer, assessed for liability of £1,800, could demonstrate that the incidental costs of dealing with that transaction to the taxpayer were £10,000—more than five times the amount of the cost itself.