Clause 108 - Land in disadvantaged areas

Finance Bill – in a Public Bill Committee at 11:45 am on 18th June 2002.

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Photo of Mr Howard Flight Mr Howard Flight Conservative, Arundel and South Downs 11:45 am, 18th June 2002

I beg to move amendment No. 168, in page 85, line 6, after 'dwelling', insert—

'without significant expenditure being incurred on it'.

I wish to make a number of points, most of which I shall confine to the second part of the debate, on

clause 108 stand part. I shall initially deal explicitly with amendment No. 168, although its context is wider than that. The clause seeks to exempt from stamp duty commercial properties and certain other defined properties in disadvantaged areas if the proceeds of their sale are less than £150,000—the threshold for all other property is £60,000. That could lead to distortion on the borders of disadvantaged areas. The Law Society suggested the amendment because, under the clause as drafted, a building—the example often quoted is a church—could be adapted to residential use and, because it would be treated as a residential building, it would not qualify for stamp duty relief. The amendment would make it clear that it should so qualify.

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

In responding to the amendment and putting the intention of the relief clearly on the record, I hope that the hon. Gentleman may decide that he need not press it to a vote. I appreciate what he said about the wider debate that he wants on new clause 16 and will confine myself to the points that he made.

Let me start by saying that stamp duty relief for land in disadvantaged areas is clearly destined to be an important part of the current and future stamp duty regime. The level of representations and inquiries made to the Inland Revenue already suggests that our proposal to abolish stamp duty for non-resident transactions in these areas is of great interest. I well understand why the definition of what will be and, more importantly, what will not be treated as a residential property is exciting much interest and is the reason for the amendment.

I remind the Committee that, in the vast majority of cases, there will be no doubt whatever about whether a building is a residential property. However, a minority of cases will inevitably fall into a grey area. I suggest that practitioners and lawyers who considered the legislation in detail seem to be trying in the amendment to make the grey area much wider. I hope that the clarity with which I explain the definition will persuade the Committee to agree to leave the clause unamended.

The argument has been made that an office block or church might be suitable for use as a dwelling. I can state categorically that that argument is not acceptable for the purposes of the relief. However, to put people's minds at rest, the Inland Revenue will produce a statement of practice with key stakeholders, including representative organisations. The aim is for the statement of practice to be ready for publication when the differential regimes are implemented.

It may help the Committee's understanding still further if I explain why we thought it necessary to include a

''building . . . suitable for use as a dwelling''

as well as a building used as a dwelling within the definition of residential property. Quite simply, the intention is to ensure that existing dwellings that are unoccupied when sold or that are dilapidated or even semi-derelict are within the definition of residential property. For example, in London in recent years, a number of former squats have been sold by local

councils and have been in a poor state of repair. It is not my intention to exempt such properties from stamp duty if they exceed the £150,000 limit. They are fundamentally the shell of a desirable home, and that is reflected in the purchase price. No additional stamp duty incentive is needed if such a property is worth more than £150,000. A less extreme example is the need to ensure that a vendor could not remove a bathroom suite from an otherwise perfectly kitted-out home to help the purchaser secure a stamp duty saving. Perish the thought of that happening, but experience teaches us that it could unless we ensure that it cannot.

In the consultative document on the clause, published at the end of last year, our approach was further explained by reference to the level of expenditure necessary on a former dwelling to make it habitable again. That is perhaps the reason why the amendment alights on expenditure as a guiding factor. The level of expenditure, however, will not always be the key. To introduce, as the amendment does, the concept of significant expenditure without any further definition will merely continue uncertainty. A detailed statement of practice is a far more sensible way in which to add clarity to the issue.

I reiterate that there is no intention to interpret ''dwelling'' in the phrase,

''suitable for use as a dwelling'',

as a church, an office block or similar commercial buildings. Nor is it intended to stretch the phrase to include land without any building on it but for which planning permission to build dwellings exists. That query has been raised since the Budget so it is best that I clarify it.

The amendment would not greatly assist the interpretation of the clause, and could unintentionally make the clause more difficult to interpret. I am confident that the proposed statement of practice will be more effective than the amendment in helping developers, and those involved in proposals in the inner city, clarify what is and is not included. However, I entirely accept the good intentions of the hon. Member for Arundel and South Downs; he is trying to ensure that the relief works well. On that basis, I hope that the hon. Gentleman will not press the amendment. If he has a particular interest in the area, I invite him to see the draft statement of practice—I shall rope him in as an unofficial adviser. He has been rather accurate in some of his comments. With that little bit of flattery, I hope that he agrees to withdraw the amendment.

Photo of Mr Howard Flight Mr Howard Flight Conservative, Arundel and South Downs 12:00 pm, 18th June 2002

I shall not prolong things more than necessary. I am delighted to hear that a statement of practice will address the problem and other issues. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That the clause stand part of the Bill.

Photo of Joe Benton Joe Benton Labour, Bootle

With this it will be convenient to discuss new clause 16—Rate of stamp duty on commercial property—

'.—(1) In Schedule 13 to the Finance Act 1999 (instruments chargeable and rates of duty) after paragraph 3 of that Schedule insert a new paragraph 3A—

''3A In the case of a conveyance or transfer of land which is not residential property within the meaning of section 92A of the Finance Act 2001 the rates of duty are as follows—

1. Where the amount or value of the consideration is £60,000 or under and the instrument is certified at £60,0000 Nil

2. Where the amount of the consideration is £250,000 or under and the instrument is certified at £250,0001%

3. Any other case2%''

(2) This section applies to instruments executed on or after 1st August 2002.'.

Photo of Mr Howard Flight Mr Howard Flight Conservative, Arundel and South Downs

The proposals under clause 108 raise many issues. As in the debate on film incentives, I have reservations about tax measures designed to have specific beneficial economic effects; they are often used—or, as the Paymaster General said, abused—for other purposes, or they can cause unfairness in other directions. Of course, everybody wants to see disadvantaged areas prosper, and as I recollect, the definition of the territories is determined so that almost all MPs have one on their patch. Therefore, there is an apparent mutuality of interest. I just want to put down a marker that I anticipate many problems being raised. The obvious issue is that in a relatively defined region, if one gives attractive things to one territory, it is like giving unattractive things to another. My big worry is that one might succeed in rejuvenating the most disadvantaged areas, but leave the lesser disadvantaged areas to become the most disadvantaged fairly quickly. However, that is a wider issue of principle.

The second issue is that we have had four stamp duty increases since 1997. Stamp duty has become the window tax of our times: a nice easy way of raising lots of money. Given that the efficiency of tax raising is always top of the list of Government arguments, the implications have not necessarily been thought through. About 70 per cent. of the extra tax revenue has fallen on commercial property, due to what the Government have viewed as the operation of avoidance schemes. A series of blocking measures in the later clauses mean that revenue will fall on commercial property even more.

For a business, premises are really no different—depending on what one is doing—from the computers, equipment and so on. They are part of the productive process. High taxes on commercial property could turn out to be bad economic news. They restrict mobility when businesses are growing or contracting, and I do not see that there is a particular logic for having an increased turnover tax.

New clause 16 is designed to reduce the level of stamp duty on commercial property. It would amend the provisions setting the rates of stamp duty and reduce the maximum rate of duty on commercial property to 2 per cent. It would introduce a new paragraph into the Finance Act 1999, which sets out the rates of duty and the maximum rate of 2 per cent. applicable to transfers over £250,000 in value. The definition of residential property is taken from the

current Finance Bill, which amends the Finance Act 2000 and provides an exemption from duty on land in disadvantaged areas.

That is what the new clause is about. Part of the reason why it has been put under this clause is that, when we raised the issue before as to whether commercial and residential property should be treated the same way for stamp duty purposes, the Government argued that that was not possible because it was too difficult to make the distinctions between the two. However, in clause 108, the distinction is made between land and buildings in disadvantaged areas and commercial property. I think that the Government have rather undercut their previous argument that the issue was too complicated to consider on principle.

Our first big point on the clause is to say that it is a nice easy earner, but have the Government really thought through the economic consequences? They are almost admitting that they have concerns, because if they deem it correct to give a commercial property and certain other properties in disadvantaged areas a big stamp duty advantage—in fact, no stamp duty at all—they perceive the economic difference between commercial and residential property.

A number of amendments were not, I am afraid, in time on Friday to be tabled and are starred. They are broadly probing amendments only. They raise some other issues relating to clause 108. If I may, I shall raise those issues briefly now.

The first point is a technical one about the definition of ''residential property''. I think that the original drafting was taken from the Value Added Tax Act 1994. Surely it would be sensible to ensure an identical definition of the same thing as it applies across different taxes. The most obvious definition to copy is the VAT definition, which is likely to be most relevant to commercial development. The list that the Government have set out in the Bill appears to be taken from the VAT Act list, but has been modified to obtain an acceptable result. If the Bill has the correct list, does that mean that the VAT Act should be amended? That point, as the Government know, has been made by the Chartered Institute of Taxation.

The second big issue is that clause 108 contains a list of properties that are clearly not commercial but that are exempted, for unprescribed reasons. I am again reminded of the list of assets relative to enterprise investment scheme and venture capital trust investments, which is now substantially out of date. That is one of the problems with having such lists. Our thinking is, ''What is the logic of the items on that list?'' Other properties that one could think of are not commercial but are just as important and worthy of exemption economically.

Hospices are included, but why not include accommodation provided for nurses in connection with their services at a hospital or hospice? That is a major issue in connection with getting enough nurses into the health service. We have other charitable ends in mind. A suggestion made to me was to ask about accommodation for staff working at such places as animal sanctuaries. More particularly, what about

including accommodation made available for key essential workers in public services, where they have a problem, especially in the south-east? One could go on with a list of deserving cases, but we have such a list at present and it does not necessarily include all the most deserving. There may be some technical logic to the list but in terms of economic logic, which is what clause 108 is all about—fiscal incentives for economic improvement—it raises quite a big issue.

The final point is that, as hon. Members are aware, clause 108 requires state aid approval from the EU. I understand that the UK wrote to the EC on 21 December about its proposal to abolish the £150,000 limit on exemptions on transfers of non-residential property in disadvantaged areas. The UK has been invited by the EC to present its case, but the view has been expressed to me that, as when the Government last approached the EC over a lower rate of VAT for church repairs, there are indications that the EC is unlikely to be persuaded. That would completely scupper the clause. Does the Paymaster General have something to say on why the Government are apparently confident that the EC will give its approval?

Photo of John Pugh John Pugh Shadow Spokesperson (Education)

In rising, I am aware that you know that there are many disadvantaged areas in the country that badly need aid, Mr. Benton. Your constituency is certainly one of them, which has received a good amount of aid over time. No one doubts that many constituencies and areas within constituencies require some Government help to achieve economic and residential development.

The issue is not whether that is a desirable objective but whether the measure will go some way towards achieving it. The Government's intentions are entirely laudable, and I support them. There is a roll-out of benefits, particularly on stamp duty for disadvantaged areas. However, as hon. Members have indicated, there are problems with the definition of a disadvantaged area. Let me read from the memoranda submitted to the Empty Homes inquiry. In discussing property transactions in Britain's most disadvantaged communities and the abolition of stamp duty—precisely the issue dealt with in clause 108—the Council of Mortgage Lenders said in its evidence:

''It needs to be recognised that definitions are a problem though. How are 'disadvantaged communities' identified? And does labelling a community 'disadvantaged' create its own problems?''

A problem that has been highlighted is that of areas at the margins. There was a city challenge project in your constituency, Mr. Benton, many years ago. One of the issues was to get assistance to the right areas rather than only to the areas that were in a tightly drawn geographical map, and much leeway was needed to ensure that the effects of the project were as the Government intended. No one doubts that the alleviation of stamp duty will do no harm; the question is how much good it will do. Obviously, stamp duty alleviation is not the only factor that prompts economic development, which I assume is the Government's intention. Offsetting economic development are the people at the margins who feel that they are in some sense disadvantaged by not being

classed as disadvantaged. Clearly, there are also problems of administrative cost and loss of revenue. Set against that, there must be some appreciable gain.

I am not entirely certain what new clause 16 would do to improve matters. A typographical feature of the new clause confuses me, perhaps because of my inexperience or inability to understand some arcane phrasing. Paragraph 1 of proposed new paragraph 3A states:

''Where the amount or value of the consideration is £60,000 or under and the instrument is certified at £60,0000''.

Should that be £600,000?

Photo of Mr Howard Flight Mr Howard Flight Conservative, Arundel and South Downs 12:15 pm, 18th June 2002

I thank the hon. Gentleman for giving way. I did not want to interrupt him in midstream. The Chairman, not I, selected new clause 16 for inclusion here. I sought to explain how it related to the clause. It is tangential, but the essential point that clause 108 establishes is that if the Government want to, they can separate commercial and residential property for the purposes of stamp duty. If there is an economic argument much wider than disadvantaged areas for commercial property not paying such high rates of stamp duty—for economic mobility, for example—the old argument for not taking that approach, which was that it could not be done, has been undermined by what the Government are doing.

Photo of John Pugh John Pugh Shadow Spokesperson (Education)

My question to the hon. Gentleman deals with a typographic, textual and extremely narrow topic. I simply do not recognise the figure consisting of £60 and four noughts. It could be that I am innumerate or that it is an error. If someone assures me that that is the way it ought to be written and that it is common parliamentary practice, I shall be much the wiser. As it stands, it is not a figure that I recognise. Is it a misprint of £600,000 or £60,000?

Photo of John Pugh John Pugh Shadow Spokesperson (Education)

That is the clarification I sought. It is meant to be £60,000.

Let me conclude by saying that I have no objection to what the Government intend to do. I wish them every success in achieving economic development in disadvantaged areas, as do we all. However, what assessment has been made of what has already been done in the 2001 Budget? What assessment have the Government made of the success of prior initiatives in this direction, and what assessment will they make of this initiative? We can do things, but our efforts must be effective.

Photo of Chris Grayling Chris Grayling Shadow Minister (Health)

I rise to address the clause, which strengthens the Government's intention to provide stamp duty reliefs in designated areas. It is a wholly inadequate way in which to generate growth and development in deprived areas. The Government's approach to stamp duty adds to problems rather than solving them, and is not the solution to problems in disadvantaged areas.

The hon. Member for Southport and I both served on the Select Committee that carried out the Empty Homes inquiry, and we know that the measure will have no impact on our most deprived areas because sales of properties in those areas are not subject to stamp duty. It is a fallacy to believe that the measure

will make a major contribution to the revival of many of those areas. The Government's approach is completely inconsistent in addressing stamp duty while failing to address the fact that VAT is payable in full on renovations in deprived areas. How can we possibly support the regeneration of areas that are beset by empty housing in the north of England, where there are big empty terrace homes that desperately need to be revived and brought back into economic use, while the Government continue to discriminate against renovations through the VAT system? The clause will not address that issue.

It also concerns me that the Government seem to believe that the measure will make a big difference in that area although they have completely failed to deliver a proper GAAP generally accepted accounting practice funding scheme because they caved in to pressure from the European Union, which has prevented GAAP funding being used in a number of areas. My hon. Friend the Member for Arundel and South Downs rightly made the point that many provisions in the clause will be vetted in Europe. Why do we not stand up more robustly to the European Union when it seeks to intervene and take decisions on matters of urban regeneration that are fundamental to the development of this country? That should not happen, but it seems to happen again and again. I am waiting in vain to see the Government take action to solve those matters. They cannot seek to use stamp duty as a major vehicle of urban regeneration while failing completely in other areas.

Photo of Tom Harris Tom Harris Labour, Glasgow Cathcart

I thank the hon. Gentleman for giving way. Although I agree with his assertion that the measure will not alleviate at a stroke some of the areas of deepest deprivation in the country, does he accept that it is at least part of a larger strategy? In my constituency, which is one of the most deprived parts of Glasgow, the first ever sale of a house costing more than £100,000 took place in the past six months. Surely the measure is having an effect, albeit a modest one, that he should welcome.

Photo of Chris Grayling Chris Grayling Shadow Minister (Health)

The point that the hon. Gentleman misses is that we should provide support for regeneration across the housing scale, and not simply for the very small number of houses in his constituency and other areas with problems that fall into the category covered by the clause. Tackling the tax system in other ways would have a far greater impact than the clause, which will have a relatively limited impact on the most deprived areas and will create distortions within the market.

We shall create a Gruyère cheese in which pockets of reliefs are available in major cities and in which the housing market on the fringes of those areas will be distorted. Indeed, that is already happening. It is totally the wrong way in which to use stamp duty. My hon. Friend the Member for Arundel and South Downs rightly pointed out that the Government seem to believe that stamp duty is a cash cow. They believe that, where there are holes in the cheese, they will have a few pockets where they will get rid of stamp duty. They do not seem to understand that the impact of

using stamp duty as a cash cow will be to generate problems in areas where housing costs are particularly high and it is increasingly difficult for key workers people in public services, manufacturing industry, and bus and train drivers to get on to the housing ladder.

The focus on using stamp duty in the majority of the country as a vehicle for raising tax while providing reliefs in a small number of deprived areas is totally wrong. It places a huge burden on those buying houses for the first time in areas where house prices are high. Young couples, teachers and policemen who are trying to get on to the housing ladder are subject to bills for thousands of pounds. The Government say that, in small areas within the inner cities, a relatively small number of properties can benefit from stamp duty relief. Such a policy is upside down.

Photo of Ann McKechin Ann McKechin Labour, Glasgow Maryhill

Does the hon. Gentleman accept that a decrease in stamp duty in areas of high demand is likely to cause prices to go up even higher because of further demand in those areas? The whole point of the strategy is to encourage those in middle-income groups to move into areas of urban deprivation. It is a small, but important, measure. As my hon. Friend the Member for Glasgow, Cathcart (Mr. Harris) said, people are now moving into the areas of Glasgow that we serve, where previously there was no private housing whatever. As a result of the measures, people are being encouraged to consider moving into inner cities that have suffered from depopulation and consequently from a lowering of the tax base. When we lower stamp duty, property prices in the highest-demand areas simply rise further because of greater competition.

Photo of Chris Grayling Chris Grayling Shadow Minister (Health)

The point that the hon. Lady misses is that people will not be attracted back into urban or inner-city areas unless the quality of the housing stock is raised. The clause will not do that; it will provide a small distortion in the housing market that will cause problems on the fringes.

If one says that stamp duty will no longer be charged in a deprived area—the Paymaster General said that she intends to scrap stamp duty altogether in such areas—distortions will be created on the fringes so that stamp duty will have to be paid in one street but not in the next. That will also restructure the tax system so that in the more prosperous areas where house prices are higher, the increased burden of stamp duty will make it more difficult for key workers, whom we need in such areas, to get on to the housing ladder. The Government have their priorities completely wrong: stamp duty is being used as a cash cow to fill the Treasury's coffers. That will have a distorting effect on the housing market for those who need to get on to the property ladder and will not deliver real solutions for the problems that undoubtedly exist in inner-city areas. We should take tax steps that encourage the regeneration of the sorts of areas that we saw in the Empty Homes inquiry. The Government's strategy will go no way to achieving that.

Photo of Mark Field Mark Field Conservative, Cities of London and Westminster

I am inclined to respond to my hon. Friend's comment that stamp duty is being used as a cash cow by saying, ''You ain't seen nothing yet.'' There is no doubt that the Chancellor of the

Exchequer and the Government will use stamp duty on residential and commercial property as a vehicle to introduce a largely redistributive agenda. The Government have every right to do that, but I would be happier if they did it honestly and in an up-front way by projecting an entirely redistributive agenda. Let us have an open debate. I appreciate that now is not the time to have a major debate, but the Government's intentions should be clear.

Photo of Mr Howard Flight Mr Howard Flight Conservative, Arundel and South Downs

I understand my hon. Friend's redistributive reference, but surely in commercial property the level of stamp duty is a major economic issue and not about redistribution. The real question relates to the impact it has on the success of businesses, jobs and so on.

Photo of Mark Field Mark Field Conservative, Cities of London and Westminster

My hon. Friend is absolutely right. Business is regarded somewhat differently by each side of the House, and he rightly says that stamp duty has a major economic part to play.

Greater concern will arise over a free market. It is valid for Labour Members to point out that we do not have a free market at the moment. The existence of local authority property and a large number of housing associations, and the fact that a significant number of key workers work in monopolistic public services, ensure that we do not. I know as a London Member—as, I am sure, does the hon. Member for Enfield, North (Joan Ryan), who is silent in her role as a Whip—that great concerns exist in the London market; they exist not only in London, but in other hotspots of the national economy. Key workers in both the private and public sectors are consequently unable to get on the residential housing ladder. The Government's meddling with the commercial property area in clause 108 and others—I know that it is an initiative extended from previous years—is a starting point for further meddling in what is an imperfect property market. However, we should not be at all surprised that it will have, as is always the case with Government interventions, some unintended consequences, particularly I fear on the general economy.

I would just point out that one of my concerns about the nature of my constituency appreciate that my constituency is very unusual is that there are some very deep pockets of poverty. Whenever I point out that I represent an inner-city seat, it always gets one or two wry smiles from those on the Government Benches. It is the most inner-city seat of the lot, but it has some very real pockets of poverty.

I do not think that there is any easy way out, and my basic thesis is that there is too much Government meddling. However, if they are to meddle and say that areas will be considered as disadvantaged for the purposes of such provisions, in parts of London—and Glasgow as well—one needs to draw tight areas, not necessarily in wards, but perhaps within polling districts. The great worry is that there are genuine pockets, perhaps even of a handful of roads, of poverty that will find themselves outside the context of a disadvantaged area, simply because they are surrounded by some relatively affluent areas. By

being lumped together, it gives rise to the view that there is no longer such a sense of disadvantage.

I can understand that this sort of meddling plays to a very profitable gallery. It is perhaps not entirely coincidental that the two Members who have previously intervened were both Scottish Members, and I suspect that they will welcome the intervention of their right hon. Friend the Member for Dunfermline, East (Mr. Brown). It strikes me that we shall see much more of such meddling, but Conservatives cannot support it, as a matter of principle.

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury) 12:30 pm, 18th June 2002

The debate on new clause 1 has been very wide-ranging. If I may say so, Conservative Members seemed a little confused about what they wanted to complain about. I think that I got the gist of it by the end: they hate stamp duty and want to get rid of it. The main legislation governing stamp duty was put in place in 1891, I think. The only consolidation that was carried out took place in the Finance Act 1999. For a party that now advocates such strong views on stamp duty, it is somewhat interesting that, given the amount of time it managed to be in Government, it did not actually address some of the passionately and deeply held views that Conservative Members are now expressing.

It is true that stamp duty raises considerable revenue: about £4 billion a year. Some 60 per cent. of that figure comes from residential property, and during the debate on the next clause we shall be considering whether commercial property actually pays the level of stamp duty that is set. The new clause concerned the setting of new rates. It is an interesting approach; having complained about the structure of stamp duty, the Conservatives advance a new clause to change the rates without offering any contribution on whether the structure is right in the first place. That is the huge gulf between the Government and the Opposition on the issue.

I shall consider the groups of points in the order in which they were raised. I turn first to whether the relief will work. In response to the idea that the Government are doing nothing in disadvantaged areas except making some changes to VAT and stamp duty, I say, hang on. Hon. Members are missing a few points there. There is a national strategy for neighbourhood renewal that concentrates, in a range of areas, on regeneration and on narrowing the gap between the most deprived areas and the rest of the country. Key to that strategy is the mainstreaming of Government Department resources into the neighbourhood renewal fund and the introduction of arrangements such as stamp duty and the changes to VAT to support that basic principle.

In terms of success, the measure currently in place was turned on on 30 November 2001. By the end of this April, the number of claims from those disadvantaged areas was running at 15,870. When one looks at the breakdown, one finds that the largest number of claims comes from precisely the areas that one would expect—for example, east London accounted for 1,300 applications, in that short period of time, of all the applications made for London,

which were running at some 3,300. The relief is being targeted very specifically on areas that need support.

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

I shall give way to the hon. Gentleman before I quote all those in the property industry who support the stamp duty measure, because, in sites like the old Hither Green hospital in Lewisham, it provides precisely the mechanisms that hon. Members have claimed it will not.

Photo of Mark Hoban Mark Hoban Opposition Whip (Commons)

The Paymaster General referred to success following the turning on of the tap of the lower rate of stamp duty in such areas. Can she tell us what the transaction volumes were before that tap was turned on? I consider that we can call that a success only if it is one relative to what was happening before that date.

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

I agree with the hon. Gentleman's point about measuring the success of the policy. I do not have the figures to hand right now, but I can tell him that the Government have commissioned independent research on the effectiveness of such measures, and on that measure in particular, to examine the policy objectives and whether the measures are working. Although other things may also influence the rate of transactions before and after the turning on of the measure, the hon. Gentleman's essential questions, which I believe are behind his intervention, of whether the measure is working and will work and how the Government will monitor it, are important. We are addressing those points by having that research undertaken on our behalf. It is right that the research measuring the objectives in such a case should be independent.

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

Yes, although—forgive me—I am trying not to lose my way. Having ordered my thoughts in a sequence to respond to hon. Members, I am in danger of not maintaining them.

Photo of Chris Grayling Chris Grayling Shadow Minister (Health)

My point is important, and I am grateful to the Paymaster General for giving way. What she is saying, therefore, is that we do not yet know whether the measure has had an impact.

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

No, I am not. I was trying to be generous to the Committee. I think that the measure has had an impact, but it is perfectly reasonable to make the point that its impact should be considered over a longer period than the first year. I am not saying that it has not worked. Consider what those in the industry say. For instance, Andrew Hume, associate director at property consultants Jones Lang Lasalle, said:

''This is very good news. Bigger commercial schemes act as catalysts for the regeneration of areas. This will reduce the entry costs for developers in these areas.''

That was reported in The Independent.

If we look at the question of the old Hither Green hospital site in Lewisham, the Evening Standard reported:

''A redevelopment at Hither Green Lewisham—a self-contained site, formerly a Victorian hospital of 7.5 acres—has been conceived to deliver homes below the £150,000 threshold . . . Bellway's chief executive, John Watson, said the stamp duty relaxation has 'given us encouragement to take on the project'''.

I could go on through the press quoting those in the industry who are operating the scheme.

I understand that the hon. Gentleman might be sceptical about the scheme. However, in one debate the Opposition state that we should listen to the industry because it knows best, but when what it says does not suit the Opposition, they claim that it is not worth anything and should therefore be ignored. I do not take that view because I try to be consistent in listening to what is being said.

Photo of Mr Iain Luke Mr Iain Luke Labour, Dundee East

My hon. Friend the Paymaster General gave examples of English redevelopment. Will she accept from me that in Scotland changes in areas such as Dundee and Glasgow, which was mentioned earlier, have made a significant difference to the most deprived areas? In both the inner cities and on the periphery, areas have been created in which people are happy and proud to live. That new step will take those areas of redevelopment further. Places such as Ardler in Dundee, West and Whitfield in Dundee, East are deprived areas that have seen significant changes. Whitfield is still changing, and some time ago it received a United Nations award for urban settlement as part of that policy. Hopefully my hon. Friend will acknowledge the changes both north and south of the border.

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

Indeed. I hope that my hon. Friend will forgive me because the two examples that I read from the top of the pile came from England. Because we are using a deprivation index that provides a national comparison between Scotland, England, Wales and Northern Ireland, all those communities are benefiting. My hon. Friend made another important point that measuring economic regeneration in disadvantaged areas concerns more than whether or not houses have been purchased. Each purchaser at the time of purchase will have another £1,500 to assist with their family's budget at a time at which it will be stretched, and they will spend that money in the local area. The policy will not only help people on to the housing ladder, but improve quality of life and have a knock-on effect.

That leads me to the next point made by Opposition Members—that the measure will displace economic activity. With respect, it is just as likely that the exemption will have a beneficial effect across neighbouring and non-qualifying areas as areas are improved and investment continues. As I have said, we have used the national index of deprivation. Of course, such measures are never perfect because a line must be drawn somewhere, but it is the most accurate and up-to-date information that we have.

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

I was just about to answer one of the hon. Gentleman's points, but I shall gave way first in case there is another one.

Photo of Chris Grayling Chris Grayling Shadow Minister (Health)

The Paymaster General keeps referring to the national index of deprivation and has made several references to Hither Green hospital. I doubt that there is a single polluted brownfield site in the whole of Greater London for which there would be a shortage of willing developers. Does the hon. Lady accept that in many parts of the country there are real problems in the housing market that simply will not be touched by the measure?

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury) 12:45 pm, 18th June 2002

No, I do not accept the hon. Gentleman's central proposition. For instance, if we look at the activity in Liverpool, Manchester and other areas that equally need investment, we see the same levels of activity. The problem with the hon. Gentleman's approach is that instead of looking at the breadth of Government support and intervention in areas of deprivation, he tries to look at each initiative on its own and then undermine the general principle. That goes back to the point that I made to the hon. Member for Fareham about the difficulty in but, none the less, importance of trying to measure the effectiveness of the policy in the economic regeneration of those areas and in narrowing the gap. Of course, several policies are already in place.

A further argument made by the hon. Member for Epsom and Ewell was that the poorest areas would not be helped, because house prices in those areas were below £60,000. I do not know what poorest areas in the United Kingdom the hon. Gentleman has recently visited, but I assure him that all parts of the country contain a broad range of residential and commercial property types and prices. Any extra incentive to invest in a disadvantaged area to encourage and help regeneration seems to draw wide agreement, except from Conservative Members.

Photo of Chris Grayling Chris Grayling Shadow Minister (Health)

As the hon. Lady does not know what areas of deprivation I visited with the Select Committee, I may tell her that we visited a number in Burnley, Manchester and Liverpool. The areas that we visited would in no way fall within the ambit of the measure. I commend the report to her.

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

I live in Bristol, a city that has a wide range of property prices. Several areas—some in my constituency—are in wards that meet the deprivation indices used for absolute poverty. I am sure that if the hon. Gentleman had visited Bristol on his varied trip, he would have understood my point about properties ranging dramatically in price, particularly in inner-city areas where people would prefer to live, given the proximity to other regeneration projects that are in place in cities, but cannot because of shortage of accommodation. The hon. Gentleman and I will simply have to disagree on whether the mechanism is suitable but, being generous to him, I presume that he is not suggesting for a minute that there should be no action to deal with regeneration of the housing stock and commercial activities in such areas.

I was also asked about state aid approval. We are progressing matters with the Commission and confidently expect a satisfactory outcome. We believe that careful targeting of the measure on the most

disadvantaged areas of the country will not adversely affect trading conditions to the extent that they are contrary to the common interest. When Conservative Members ask why we allowed the situation, I reply that it was for the same reason that the Conservative Government did: the state aid rules are in the treaty—a treaty agreed by the Conservative Government—and Commission agreements contain long-standing considerations.

The hon. Member for Arundel and South Downs also asked why we do not use the VAT definition. We had a debate on the previous amendment concerning how complex it is to resolve the dividing line between residential and non-residential property. We are trying to do slightly different things in the two arrangements. Our intention is to afford more favourable treatment to the purchase of non-residential property, whereas for VAT purposes it is the residential property that is viewed as receiving the more beneficial treatment. That is why we cannot take one from the other. We aim to be consistent while applying underlying principles.

The final thrust of the contributions of the hon. Member for Arundel and South Downs settled on the wider issue of what the correct rate of stamp duty should be for commercial and residential property. He put that in isolation without considering the wider question of whether it was time to examine the structure of stamp duty. I agree that there are wider economic interests to consider, such as issues of fairness. Recognition of the current levels of avoidance of stamp duty and the overwhelming need to modernise and reform the tax is the way forward. We do not believe that it is the right time to consider decoupling the rates. We want to look at structure and consider the rates.

There are further reasons for rejecting new clause 16. It cuts the top rate of stamp duty to 2 per cent. on purchases of commercial property. It would cost £740 million in a full year. The hon. Gentleman has not suggested how the Government would make up the shortfall, or what they should not invest in. His party continues to argue that public services should be extended, but it has not suggested which should be cut. It is widely acknowledged that some purchasers—I put this delicately, I do not know why—of commercial property are actively avoiding stamp duty. Estimates of value vary tremendously, but we believe that about £10 billion of property value is currently escaping the charge due to such activity. It seems the right approach to look first at the structure and then consider the rates, not throw away the revenue and be left with a system underpinning it that is not working. Against that background, are the Opposition seriously suggesting that we should sanction a tax cut of £740 million to commercial properties? Surely that is not the right way to reform stamp duty and stop avoidance.

The Government have announced the intention to fundamentally reform and modernise stamp duty on UK land and buildings from late 2003–04, and we are now consulting on stamp duty modernisation. We are currently consulting the industry and various Departments, taking forward discussion on how the regime can best be introduced and implemented. To table proposals at this stage to dramatically reduce the

income from stamp duty without dealing with what has been clearly said by all those concerned—the need for underlying reform—would be folly, to put it mildly.

I hope that the hon. Gentlemen feel that they have had a good debate on why they do not agree with the Government's proposals to invest in disadvantaged areas to encourage that regeneration, even though the Government do not accept their points, and that they have had a good debate on the question of rates of stamp duty but will not press the matter to a vote. Perhaps they will return to it when the review and the reform have been completed. If they do, I shall ask my hon. Friends to oppose it on the basis that it is nothing more than a tax cut for those who do not need one, paid for by disadvantaged areas that desperately need the investment.

Photo of Ann McKechin Ann McKechin Labour, Glasgow Maryhill

I rise to support the Government on the measure. Following some 18 years' experience in the property market in Scotland as a solicitor, the old adage ''Location, location, location'' springs to mind for today's debate. It is ironic that we have been speaking today about Glasgow house prices but that Thorntonhall, just outside Glasgow, has now been declared the wealthiest suburb in the United Kingdom. Average house prices there are in the region of £500,000.

That information shows the vast range of land values in the United Kingdom and, in particular, the range in rates of increase in land value on a year-by-year basis. In certain parts of the city that I represent, residential and commercial property prices are increasing by only 2 per cent. per annum and in many cases the increase is below the rate of inflation. In other parts of the country—in the south-east of England, as we well know, but also in hotspots such as Edinburgh, as was pointed out earlier—house and commercial property price increases can run at 20 per cent. plus per annum.

The measure is a modest one that must be seen as part of a package of ways in which we are trying to regenerate our urban communities. Its aim is to achieve a better mix of social and private housing in many areas and to encourage a better quality of private housing in certain areas that suffer from a severe lack of it.

The problems mentioned today about overheating in the London market are perfectly understandable but any decrease in stamp duty simply fuels price increases in areas already undergoing a rapid rate of

increase. I recall that the previous Administration, the Conservative Government, actually increased exemption from stamp duty, over a period of time, to try to alleviate the problems that occurred because of the collapse of prices in the south-east of England. However, that problem was unique to that part of the country and was not occurring in other areas. We could perhaps argue that the exemption should have been targeted at one area only, rather than applied to every postcode in the United Kingdom.

The lack of affordable housing must also be related to the quality and availability of social and rented housing. The problems raised must be seen in that context. If there is poor quality private property, the question is raised of whether improvement and repair grants should be made available to deal with that, rather than using the blunt instrument of stamp duty.

The measure is useful but, as my hon. Friend the Paymaster General correctly pointed out, we require a longer time scale to discover the real benefits. Property turnover is not exactly rapid in areas of slower growth. It will take a little time for the measure to get going, but it is very welcome. As I have said before, I am seeing in parts of Glasgow where I would never have anticipated it—in areas of multiple deprivation—private housing now being built at prices of more than £60,000, and selling quickly. As a result, those areas are being regenerated much more quickly than previously.

Photo of Mr Howard Flight Mr Howard Flight Conservative, Arundel and South Downs

First, I feel that the Paymaster General slightly misrepresented what I was seeking to say. We all support and want to see the regeneration of deprived urban areas. Leeds, Bristol and parts of London have been a marked success. I made the point that almost every MP has a deprived area in their constituency, so there is widespread support for that. I was just saying that using very focused engineering measures such as this can present problems. The Government must think about what those problems might be.

I specifically raised an issue to which the Minister did not reply—that in the list in clause 108 that chooses to define certain categories as not residential, I could find other equally deserving categories in the inner cities that should be given exemptions. Once we start trying to fine tune, issues and problems are created that need to be solved.

It being One o'clock, The Chairman adjourned the Committee without Question put, pursuant to the Standing Order.

Adjourned till this day at half-past Four o'clock.