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I draw the hon. Gentleman's attention to the fact—I invite him to check the figures for himself in the Library—that interest rates reached an historic peak on 15 September 1992. That date may be in the hon. Gentleman's mind. The tendency thereafter was for the rates to be reduced, which has produced conclusively the lowest historic rate for more than 30 years. Interest rates were down during that period. 1 strongly advise the hon. Gentleman—to whom I have given way three times on this point—to consider the distribution of incomes and mortgages.
The broad and level pattern of mortgages is established roughly at an income level of £10,000 per annum. It is well to remind the House that there are about 1.5 million beneficiaries of mortgage interest relief below that level, 1 million of whom are not taxpayers. Above the £10,000 figure, the curve rises relatively smoothly to a lower income limit of about £40,000 a year. The curve for the size of mortgage is broadly stable along that line. Therefore, given that there is a £30,000 limit, the amount of relief is very stable.
Another way of putting it is that, of 10.4 million home buyers, 45 per cent. had household income not exceeding £20,000 a year, yet they received 39 per cent. of the value of the mortgage interest tax relief; so the situation is pretty balanced. This analysis, suggesting an even distribution of the benefits of mortgage interest tax relief to home owners, is broadly confirmed by the Institute for Fiscal Studies.
It is worth adding that benefit relief is evenly spread regionally. In Wales, where house prices are lower, two thirds of the relief and 40 per cent. of the relief in Scotland go to those with mortgages under £30,000. The broad pattern of relief according to incomes and population is fairly stable across the country. Therefore, in its current form, the benefit is not a fat cats' or a home counties' benefit. Although the figures diverge in the south-east of England, that reflects the high cost of housing as a percentage of total disposable income. Any change in the level of tax relief makes the least proportionate difference to people in the south of England because they pay more anyway.
The scene, therefore, is of a widely spread benefit which is available to 10 million households all over the country and spread evenly among all income groups and regions. So what has happened since 1 May? This matter obviously concerns the hon. Member for Workington (Mr. Campbell-Savours). First and foremost, there have been three successive quarter point rises in interest rates—the last occurred only last week. Now that the Chancellor has remitted control of monetary policy to the Bank of England, there may be more increases to come.
Home owners need interest rate increases like a hole in the head. The cost of those interest rate rises alone—remembering that they are paid for by the great bulk of the 10 million householders—is £21.85 a month on average. We might object if the Chancellor tried to portray that increase as a law of nature. Nevertheless, it is created by the operation of interest rates.
What does the Chancellor do? He makes matters worse by imposing a staged cut in tax relief, which takes out another £8.95 a month for those mortgage holders who benefit from the full £30,000 relief. That makes a total loss to the individual householder of about £30 a month as a result of Labour's double whammy. There is the whammy of mortgage rate changes and that of the withdrawal, or partial withdrawal, of mortgage interest benefit.
The Labour Government claim that they are concerned to listen to others. That being so, surely they should have listened to those like the deputy director general of the Council of Mortgage Lenders, Peter Williams, who, commenting on the issue of retaining mortgage interest relief, said:
The Government should understand that further cuts in mortgage interest tax relief do not represent a zero-cost option. I11-considered actions on MITR, based on the short-term expediency of releasing funds for other programme priorities, are likely to damage home owners and the housing market indiscriminately, and to call into question Labour's commitment to sustainable home ownership.
Mr. Williams added:
The CML is keen to work with the Government on a range of issues affecting the housing and mortgage markets, and is prepared to have discussions on the future of mortgage interest tax relief.
It is clear, however, that the Chancellor's proposals are entirely within the framework of the policies that I have explained to the Committee, with the consequences that I have set out.
I pause on three points of my own in the analysis. First—in this instance, the Chancellor and his Treasury team have been entirely consistent—a move has been slipped into the Budget that is completely in accord with the message of the Budget, which is, "Clap today and pay tomorrow." It is inevitable that the costs of the proposals have not yet fully sunk in, and that is because most people receive an annual statement of their mortgage liability in the spring. Their repayment period is adjusted accordingly. That does not apply to every mortgage, but there are many people who do not yet know what has hit them.
Secondly, Labour is claiming, and the Chancellor is calculating and betting on, a benefit of £950 million in a full year. The Chancellor should reflect on the implications of the three hikes in interest rates on the cost of MIRAS itself. By increasing the interest rate three times, there has been a rise in the cost of MIRAS. My personal calculation is that it has amounted to a loss of £225 million to the Exchequer. The Chancellor has already given away about a quarter of the benefit that he is claiming.
Thirdly, we have not taken into account all the changes that will bear on the ordinary person or ordinary householder, to use the Government's terms. In addition, there is the indirect impact of the changes in advance corporation tax on pensions and the need to contribute to pensions. There is also an indirect impact on local authorities and council tax. In some instances, there will be an impact on stamp duty. There are other changes that will take place indirectly in the second round.