Clause 55 - Amount of tax chargeable: general

Finance Bill – in a Public Bill Committee at 8:55 am on 10th June 2003.

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Question proposed [5 June], That the clause stand part of the Bill.

Question again proposed.

Photo of Mr Paul Boateng Mr Paul Boateng Chief Secretary, HM Treasury, The Chief Secretary to the Treasury

At the end of the previous sitting, I had begun to address the wide range of points made by hon. Members on clause 55. As I said, the clause sets out the main rate of charge for stamp duty land tax, which will apply from implementation. In all respects, it is the same as existing charge under stamp duty, except that we propose to increase the zero-rated threshold for commercial and mixed-use property from £60,000 to £150,000.

I know that some Members were incredulous that a modernised tax could incorporate the existing slab system for charging stamp duty. Since consultation for a modernised stamp duty was first announced in the Budget 2002, we have always made it clear that changes to the main rate structure should be outside the scope of the consultation. That was a deliberate decision in order to focus discussion on fundamental issues such as scope and administration. In addition, we have held rates at a stable level since March 2000. Once we have implemented a regime that addresses the current level of avoidance in the commercial sector, and once the new system has generally begun to bed down, it may be appropriate to examine the structure of the main charge.

There is a further important point, which is that rates for stamp duty, as for other taxes, are announced in the Budget, with any changes being implemented straight away. As we always planned for the new regime to be implemented at the end of this year, we were concerned about the impact of announcing a change too far in advance. I am far from convinced that continuing with the existing structure is as much at odds with the modernised regime as has been suggested.

I shall consider the charge, which is entirely wrong, that the modernised regime promotes avoidance, which we are trying to tackle. The hon. Member for Hertford and Stortford (Mr. Prisk) referred to

''stories of people who have transferred curtains and carpets for large amounts of money unrelated to their genuine value.''—[Official Report, Standing Committee B, 5 June 2003; c. 391.]

Let me make it plain—hon. Members will appreciate this—that the hon. Gentleman described not avoidance but evasion, which is entirely unacceptable under the current regime, and it will continue to be unacceptable under the new one. The avoidance that we are tackling almost entirely involves transactions for consideration way in excess of the £500,000 top threshold. For such transactions, the choice between a slab, slice or some other system with thresholds no higher than £500,000 would have very little impact.

Photo of Mark Prisk Mark Prisk Shadow Paymaster General

The Chief Secretary raises an aspect that I mentioned when the Committee last met. What does he say to the many outside bodies, particularly the Council of Mortgage

Lenders, which states categorically that the existing slab effect creates incentives for tax avoidance?

Photo of Mr Paul Boateng Mr Paul Boateng Chief Secretary, HM Treasury, The Chief Secretary to the Treasury

I hear what that organisation says but I am unable to accept its argument, because the slab system was also charged with distorting relative house prices and thus influencing the mobility of labour. That is a weighty burden for stamp duty on its own. Many other factors determine relative house prices, both within the same market and across regions throughout the country. Wealthy areas with more expensive properties sit side by side with those with less expensive properties. London and the south-east do not have a monopoly on higher price properties.

To respond to a point made by the hon. Member for Huntingdon (Mr. Djanogly), who is not present—[Interruption.] Oh, there he is. He had his head down. I give him a warm welcome. How could I possibly have overlooked him? He made the interesting point that London has many wards that qualify for disadvantaged area relief—indeed, the whole of Newham and all but one ward in Hackney. Furthermore, since the relief began in November 2001, some 20 per cent. of claims for disadvantaged area relief relate to property in London and the south-east. I do not want to try your patience, Mr. McWilliam, by straying into clause 57, which already stands part of the Bill. Nevertheless, the Committee will take the point.

Photo of Mr John Burnett Mr John Burnett Liberal Democrat, Torridge and West Devon

The Chief Secretary must concede that the slab system distorts prices when you reach a fresh band. He is right to deprecate evasion, as we all do. However, when you get to the first band of £60,000, chattels may be passed to make good what vendors perceive as price losses. Distortion in the housing market is evidenced by the fact that the stamp duty office calls in certain transactions at band levels just to monitor the evasion that probably takes place, which would be eliminated if we had a different system.

Photo of Mr John McWilliam Mr John McWilliam Labour, Blaydon

Order. Before I call the right hon. Gentleman to respond to that intervention, may I remind hon. Members that if they refer to ''you'' they refer to me? I assure the hon. Gentleman that I paid considerably more than £60,000 for the last house that I bought. I should add that I did not pay the top rate of stamp duty.

I also take this opportunity to remind hon. Members that we have a great deal of work to do today. Therefore, can we crack on and try to get through it?

Photo of Mr Paul Boateng Mr Paul Boateng Chief Secretary, HM Treasury, The Chief Secretary to the Treasury

It cannot be denied that the cliff edge that is inherent in the slab system can be somewhat discretionary. I do not wish to dwell on the point. I understand it and shall come back to it later.

The mobility of labour is influenced by many factors, but the actual house price differential is likely to be much more of an influence than the cost of moving. Indeed, a survey in The Economist only last week concluded that the UK has extremely low costs for buying and selling houses of some 4 to 5 per cent.

for estate agents, lawyers and duty, whereas in most of Europe and America the costs are at least 10 per cent.

Even so, in order to ensure that stamp duty does not inhibit an employer from moving key employees, we propose in clause 59 an entirely new relief to eliminate any intermediate charge when the employer facilitates a house sale. I accept the point made by the hon. Member for Torridge and West Devon (Mr. Burnett) that cliff edges inherent in the system can be somewhat discretionary. Our ultimate aim is to reduce such distortions, so we will continue to consider the issue, but that cannot be done before the new system has bedded down.

We have also indicated that we are willing to examine in detail the scope for differential rate structures for the commercial and residential markets, and we have already shown our commitment to supporting smaller businesses investing in commercial premises with our proposal to raise the zero-rate threshold to £150,000 for commercial property and mixed-use property such as live-work units. I am grateful for the welcome given by the hon. Member for Hertford and Stortford. Not surprisingly, the British Property Federation and others echo his support. However, a radical change from the slab system must necessarily result in a dramatic reduction in yield, or in higher rates, hence the silence on that issue from some Members—

Mr. Prisk rose—

Photo of Mr Paul Boateng Mr Paul Boateng Chief Secretary, HM Treasury, The Chief Secretary to the Treasury

I do not mean to provoke. Surely my point is taken. I want to crack on.

Under the slab system, the stamp duty on a purchase of a £200,000 house is £2,000. Under the first proposal of the Council of Mortgage Lenders it would be £4,250, and under the second proposal it would be £2,800. Clearly, there is some interesting arithmetic. However, before the British Property Federation and the Royal Institution of Chartered Surveyors jump up to protest about a 5 per cent. top rate, let me say that that serves only to emphasise that it is entirely sensible for us to put off consideration of a new structure until the new system has bedded down, avoidance has been addressed and we are ready and able to consider differential structures.

Hon. Members have mentioned the report by the Council of Mortgage Lenders. I appreciate the argument contained in that report, which acknowledges a conflict between maintaining revenues and not increasing rates if the stamp system is done away with. It makes a number of proposals, such as a revenue-neutral change of structure including a zero-rate band of £115,000 and a 5 per cent. rate on amounts in excess of that. All those proposals are interesting.

I want to make a number of brief points arising from last Thursday's debate. There was an accusation that people selling their homes would not be interested in the introduction of e-business one way or the other. I really cannot accept that. There is a great deal of interest in the proposal and the benefits that it might bring.

I have also been asked several times about the predicted yield for the new regime. That is set out in the Red Book. For the current year, we forecast a yield of £140 million. That is primarily from the anti-avoidance measures in last year's Finance Bill. For the next year, which is the first full year of the new regime, we forecast a yield of £350 million, of which £210 million will arise from anti-avoidance measures. The remaining £140 million is the net effect of additional yield on leases and the cost of new reliefs in the Bill. In 2005–06, we forecast a yield of £450 million, of which £290 million will arise from anti-avoidance measures.

It has also been suggested that, far from being about modernising, the new regime is about raising revenue. We make no apology for that. We have always stressed that we intend to achieve fairness by addressing avoidance. However, by its very nature, addressing avoidance creates a yield. My right hon. Friend the Paymaster General has made that point time and time again to Committees over many years. I would have thought that the truth should have begun to sink in by now.

I was also asked about the number of businesses benefiting from the differential zero-rate band threshold and the increase from £60,000 to £150,000 for non-residential property. Our estimates are that 18 per cent. of non-residential purchases—about 20,000 annually—and 60 per cent. of non-residential leases—about 15,000 annually—will benefit from the change. I note what has been said about the threshold still not being high enough, but my right hon. Friend the Chancellor noted in his Budget speech that he would continue to consider the proposal of the new threshold. I hope that what I have said about examining structure serves only to support that.

The hon. Member for Hertford and Stortford asked about the number of commercial transactions that will be worse off under stamp duty land tax. Since we are, as I have said, keeping the main rate structure the same, the only freehold transactions that will be worse off will be those that currently avoid paying any stamp duty. Even some of those will not be worse off because business investors in property in any of the 2,000 enterprise areas will benefit, thanks to the change introduced on Budget day of a complete exemption from stamp duty, together with a whole host of other schemes to support enterprise that the Government have introduced. Of course, as the hon. Gentleman has said, the lease duty structure creates higher bills for larger businesses with long and valuable leases, although that is beyond the scope of this clause, within which I am anxious to remain. Even allowing for those paying more in lease duty, in total, gainers outnumber losers by two to one.

All in all, to continue with the existing rates through the implementation period is an entirely sensible proposal. I know that there were some probing questions on lease duty last Thursday. Perhaps those arise more naturally in relation to clause 56 and schedule 5, which have already been ordered to stand part of the Bill, so I do not want to go there, especially given the necessarily lengthy response on clause 50. I hope that, with those assurances and the clarification

that I have been able to give, the clause will find favour with the Committee.

Photo of Mark Prisk Mark Prisk Shadow Paymaster General

I am aware of time, so I shall respond briefly to the Chief Secretary. As I said at the beginning, I welcome the fact that the Government have recognised the distinction between the residential and non-residential markets. However, from this debate we now have the admission, despite what was said in the early consultation document, that the Government make no apology for raising additional revenue, although we were told that the measure was all about reform, not raising revenue. That is an important admission.

We have had from the Chief Secretary a rather vague promise that when the measure has settled down, in due course, at some point in the distant future when he has moved on—to higher things, of course—we will reconsider it. If I may say so, that is rather feeble. After all, the professional bodies in all the submissions that I have seen have said that their feeling is that this is the most antiquated and unfair aspect of the whole duty, which the Chief Secretary claims to seek to reform and modernise, yet there it is, set out in clause 55, unchanged, unmodernised and unreformed. As all professional outside bodies recognise and as the Chief Secretary himself has said, this aspect not only promotes tax avoidance but encourages tax evasion, which my party strongly opposes. We were therefore hoping that the Government would reform it. For those reasons we are deeply disappointed by the structure set out in the clause, and we will oppose it.

Question put, That the clause stand part of the Bill:—

The Committee divided: Ayes 17, Noes 6.

Division number 20 Adults Abused in Childhood — Clause 55 - Amount of tax chargeable: general

Aye: 17 MPs

No: 6 MPs

Ayes: A-Z by last name

Nos: A-Z by last name

Question accordingly agreed to.

Clause 55 ordered to stand part of the Bill.

Photo of Mr John McWilliam Mr John McWilliam Labour, Blaydon

May I ask hon. Members to remain quiet when we are taking the call for the vote because we would not want to do an injustice by getting it wrong unnecessarily.Clause 58 PART-EXCHANGE OF RESIDENTIAL PROPERTY