Clause 87

Part of Orders of the Day — Finance Bill – in the House of Commons at 7:45 pm on 8th May 1985.

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Photo of Mr Ian Stewart Mr Ian Stewart The Economic Secretary to the Treasury 7:45 pm, 8th May 1985

Payment is phased over a 10-year period as a result of a Conservative amendment that somewhat alleviated the burden of the tax. However, despite the improvements that we have made since we have been in office, such as the increase in threshold and the improvement in instalments, there are inherent problems in a tax where so much of the liability is deferred. The number of cases in which tax on deferred liability has been collected is still in single figures, although there are probably several hundred, if not thousands, of cases where this is being stored up, and continuing to produce problems for the future. Only one in 10 of the inquiries made about the potential charges of development land tax by the Inland Revenue results in a charge to tax.

However, a great deal of Revenue staff and taxpayers' time is taken up in dealing with the necessary inquiries and investigations. Not surprisingly, this tax has acted as a drag on the market, has discouraged development and caused congestion in the building and property markets.

The circumstances of inflation, speculation in the 1970s and so on have changed the markets. However, there is another important change that has come about recently and made it untenable to continue with this tax. That is the change in the rate of corporation tax. While it was at a rate of 52 per cent. against 60 per cent. for development land tax, the latter charge was higher than that of the corporation charge, but not catastrophically so. Various allowances could not be offset against it, so it was a more demanding tax than corporation tax.

When corporation tax is reduced to 35 per cent., as it will be next year, the gap between the rate of corporation tax and the rate of development land tax will be so wide that there will be a significant difference to the taxpayer according to which he is assessed. Therefore, the exact valuation of how much profit or gain should fall on development land tax and how much on corporation tax will be a more significant factor that taxpayers will have to take into account. That will increase the burden both to the taxpayer and the Revenue and to the problems of valuation, adjustment and so on.

Under current circumstances, all the practical arguments are against keeping this tax on the statute book. It is the most inefficient and expensive tax and it has done increasing damage as years have gone by and more and more cases have become liable, either through deferment of liability or through locking in cases that could otherwise be treated in the normal way in the market. The tax has produced little revenue and done a great deal of harm to development. I am glad that tonight we have the opportunity to remove it for good and all.