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 Terry Davis Mr Terry Davis , Birmingham, Hodge Hill 7:45 pm, 8th May 1985

It is always difficult to discuss individual cases when they are not identified, but the hon. Gentleman cannot have appreciated the impact of development land tax. It does not apply to developers. It applies to people who own land and sell that land after planning permission has been given. There is a difference between a developer and a landowner. In one of those previous debates the hon. Member for Rutland and Melton (Mr. Latham) referred to the people who would pay the tax as land vendors. There is a great difference between a land vendor and a developer.

The Economic Secretary has said today that development land tax is justified only if there is inflation or speculation. I regard that as merely an excuse. Conservative Members made no reference to inflation or speculation when they supported the introduction of a special tax on these development gains in 1976.

The hon. Member for Mid-Staffordshire has described the tax as vindictive. My experience of debates on Finance Bills has been that Conservatives always claim that taxes on the rich are vindictive.

The hon. Member for Mid-Staffordshire also said that a tax of 60 per cent. on these unearned, windfall gains increased the price of land. If that is so, why was that rate suggested by Conservative Members in 1976? The Labour Government introduced a rate of 80 per cent. The Conservatives did not argue about the principle of the tax, although they might have done things a little differently and allowed more exemptions, but they urged that the correct rate was exactly the rate that is now being abolished.

Further, as my hon. Friend the hon. Member for Workington (Mr. Campbell-Savours) has pointed out, the price of land and of houses is determined not by the tax but by the market. Contrary to the claims of the hon. Member for Mid-Staffordshire, development land tax has not been responsible for the increase in house prices.

The hon. Member for Bournemouth, West (Mr. Butterfill) offered a much more sophisticated explanation of the economics of development. He said that, if the tax is removed, landowners will put land on the market, which will reduce the price. But when the rate was reduced from 80 per cent. to 60 per cent. and the exemption was increased from £10,000 per year to £50,000 per year and then to £75,000 per year, no evidence emerged—and the Economic Secretary has produced none today—to suggest that those changes resulted in any extra land coming forward. When the Labour Government introduced the tax at 80 per cent., Conservative Members claimed that if only the rate could be reduced to 60 per cent., land would be put on the market. The rate was reduced to 60 per cent. six years ago, but we are still waiting to see all that land being released for development.

Then the hon. Member for Mid-Staffordshire says that the supply of land will increase only if there is free operation of market forces. I prefer the words used by the hon Member for Wolverhampton, South-West when he pointed out on a previous occasion that the granting of planning permission was a distortion of the free market. It is disappointing that there has been no contribution on this from the Liberals on this issue today. I understand that they were much more forthcoming some years ago. When John Pardoe represented the constituency of Cornwall, North, he pointed out that there was no such thing as a free market in development land and that the supply was limited by definition to what the planning officials were prepared to draw their pencils round. In other words, the supply is artificial. The supply is created by planning decisions, and the value of the land is created by those planning decisions. It is thus right that a proportion of that value should return to the community.

If there were any validity in the argument that a change in the fiscal arrangements would release land for building, why did the report on land for housing produced by the Select Committee on the Environment in the Session 1983–84 fail to mention this point? That three-volume report identified a whole list of obstacles to the release of land for housing, but there was not one reference to the effect of development land tax. There is no valid evidence to suggest that the tax is preventing land from becoming available for house building.

The other argument adduced by the Economic Secretary in his attempt to justify the abolition of development land tax was that the tax was paid not by individuals but by companies. I believe that he is wrong. I have studied the assessments for the calendar year ending 31 December 1983 by status of taxpayer set out in the Inland Revenue statistics for 1984. Those figures show that over a period of four years, disposals of land by individuals and trustees were greater than those made by companies and builders, that the value of the land involved was greater, and that the tax paid by individuals and trustees was more than double that paid by land companies and builders. I think that the Economic Secretary has got his figures wrong. If there is a fault in my research, no doubt he will write to me to explain why his statistics do not match those of the Inland Revenue.

The Economic Secretary also told us that the tax should be abolished because it is expensive to collect. He informed us that collection cost 7 per cent. of revenue, and he also referred to the calculation—it is the same figure put differently—that it cost £1 for every £13 of revenue. Those figures were valid in 1983. In the Finance Act 1984, this Conservative Government increased exemption from £50,000 to £75,000, and when asked to justify it, they told the Committee that it would remove no less than one third of the transactions from liability to tax—the transactions which produced the least revenue. Therefore, I suggest that the Economic Secretary has got his figures wrong. He referred to the figures for 1983, but the position was changed by the Finance Act 1984. He voted for that provision, whereas the Labour party voted against it. The hon. Gentleman was there, but obviously was not listening to the Chief Secretary.

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The Economic Secretary was most unfair to the Committee when he referred to two companies—which understandably he did not and could not name—which would not move from their factories because they feared the imposition of development land tax. The hon. Gentleman knows that there are exemptions for companies which use premises for their own manufacturing activity, and that if they were in those premises for 12 years or more, they were not liable for tax.

I do not accuse the Minister of breaking faith as a Treasury Minister in referring to them because he was given the information by his hon. Friends. However, such evidence should be placed before the Committee so that the Opposition can know who these companies are. We need to know much more about those companies and their circumstances before the Minister can reasonably expect the Opposition to accept his argument.

The hon. Gentleman referred to a list of organisations which welcomed the abolition of DLT. I did not write the names down, but I was left with the thought, "They would, wouldn't they?" He said that they claimed that abolition would lead to more land being made available. We do not believe it. That is an excuse to justify the giveaway, just like the excuse to justify the reduction of tax paid by people on the highest incomes. This Government always say that a reduction in the tax paid by people on the highest incomes will lead to more jobs for the unemployed, but after six years we are still waiting for the evidence.

Not only Socialists support the idea of taxing unearned gains from the development value of land; as my hon. Friend the Member for Great Grimsby (Mr. Mitchell) said, this cause has been advocated by Liberals and radicals for years. Past and, I hope, present Liberals believe that this tax should be levied. Only a few years ago, the Conservatives also joined us in a great consensus on this issue, but they have now changed their minds. When the tax was introduced, Conservatives accepted the argument for a special tax on these windfall gains. That was when they were in opposition. Now they are in government, and they are using the opportunity to give away £73 million to wealthy landowners.