Clause 163

Finance (No. 2) Bill – in a Public Bill Committee at 12:15 pm on 20th June 2006.

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Raising of thresholds

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

Photo of Celia Barlow Celia Barlow PPS (Ian Pearson, Minister of State), Department for Environment, Food and Rural Affairs

I wholeheartedly support Clause 163, raising the threshold for stamp duty land tax on residential transactions from £120,000 to £125,000. This, of course, follows the welcome doubling of the threshold in March last year and Government initiatives to help young people and key workers to get on the housing ladder.

However, the average price for a residential property in Brighton and Hove has risen to £222,241 in the first quarter. A flat or maisonette costs, on average, £168,236. That implies that the increase will probably not have the desired effect in my part of the world. Although we have made great progress in tackling homelessness, with a 75 per cent. cut in people sleeping rough since 1997, and although tens of thousands of people have been given new life chances, homelessness and overcrowding are still key indicators of child poverty. There are also many young families and public servants in my area who face difficulties in buying their own homes, albeit even the tiniest flat.

I therefore tactfully ask the Minister whether further such increases in the threshold might be considered if that proves to be affordable for the public purse. As house prices nationally rose by 6 per cent. in the year to the first quarter, I presume that could be done in a way that is revenue neutral.

Photo of Julia Goldsworthy Julia Goldsworthy Shadow Chief Secretary To the Treasury, Treasury 12:30 pm, 20th June 2006

I have a very brief question for the Economic Secretary about the changes to stamp duty land tax. I would be interested to hear the rationale behind the increase and to hear what impact he thinks that it will have on home buyers, particularly first-time buyers as mentioned by the hon. Member for  Hove (Ms Barlow). Surely it is the slab-like structure of stamp duty land tax that poses so many problems for first-time buyers, because they have to pay a percentage of the whole value of the property rather than paying on a sliding scale.

In my constituency, where average house prices are above the threshold, the difficulty for first-time buyers is not just stamp duty but the gap between incomes and house prices. Houses are worth many multiples of people’s incomes. Stamp duty is only a tiny proportion of the problem. Only a tiny proportion of houses will fall below the threshold, so I will be interested to hear what impact the Economic Secretary feels that the minor change being made will have on behaviour and on opening up the housing market to more first-time buyers.

Photo of Stewart Hosie Stewart Hosie Shadow Spokesperson (Women), Shadow Spokesperson (Home Affairs), Shadow Spokesperson (Treasury)

I have a similar question. In Scotland, the average price of a first-time buyer’s property is less than the stamp duty threshold, so stamp duty is of little consequence to first-time buyers other than those who are very rich or who can afford to pay many multiples of their income. The real difficulty for us is that the larger family houses now being built are routinely priced by developers at £300,000 at least, and so attract the higher level of stamp duty. What is the Economic Secretary’s thinking on that for the longer term? Families with good incomes are effectively priced out of the larger family homes that they may wish to live in.

Photo of Edward Balls Edward Balls The Economic Secretary to the Treasury

I thank hon. Members for their contributions. To give a bit of background, the clause increases the starting threshold for stamp duty land tax to £125,000. That follows the doubling of the threshold last year. The increase means that an additional 40,000 home buyers a year are taken out of stamp duty. The doubling of the threshold in 2005 and this year’s increase together mean that a total of 400,000 home buyers a year are out of stamp duty entirely; that is about 50 per cent. of all home buyers.

My hon. Friend the Member for Hove makes the good point that there is regional variation in house prices. In London, 26 per cent. of home buyers are exempt. Some 25 per cent. of those in the south-east will be exempt after the changes that we propose, but the figure is 78 per cent. in Wales, 75 per cent. in the north-west, 72 per cent. in Scotland, and 83 per cent. in the north-east. Given that the stamp duty regime is national, and given the regional variation in house prices, at least a quarter of all home buyers across the country will benefit, but that proportion rises to well over three quarters of home buyers in those parts of the country where house prices are lower. That seems a fair and equitable way in which to proceed.

Photo of Julia Goldsworthy Julia Goldsworthy Shadow Chief Secretary To the Treasury, Treasury

I represent a constituency in Cornwall, which is the poorest county in England. In some parts of Cornwall, house prices are up to 10 times average income, which is often 20 per cent. below the national average. In such places, there is real inequality, and great difficulty in getting a foot on the housing ladder. The problem of access to the housing market is not just in the south-east, and does not just affect  people with poorer incomes who live where house prices are lower. The increase does not resolve that issue.

Photo of Edward Balls Edward Balls The Economic Secretary to the Treasury

I completely agree with the hon. Lady. She is pointing to the wider issue of housing policy and to the need to tackle the still substantial deficiency in the supply of new housing, particularly in the south. Despite the substantial extra investment that has gone into social housing and despite the Barker review, we are still not building enough houses, which means that it is much more difficult for a first-time buyer on average or below-average income to get on the housing ladder than it was 20 years ago.

I completely accept the hon. Lady’s point but, frankly, although stamp duty can play a role in dealing with the issue, it will not solve the problem in any way. There are things that we can do to help first-time buyers, and stamp duty is part of that. Stamp duty also plays an important role in raising revenue in our economy and in making the housing market work efficiently. The problem with saying easy things such as, “Why don’t you move from a slab system to a slice system?” or “Why don’t you abolish stamp duty entirely, or raise its limits substantially?” is that that costs billions of pounds that would have to be found somewhere else. Simply doing those things without addressing the fundamental point of housing supply in our country would not meet the challenge in her constituency and constituencies throughout the country.

I was taunted earlier about housing issues by the hon. Member for Fareham, who looked forward to tomorrow’s debate on housing policy on the Floor of the House. Over the breakfast table this morning, I read a quote from the hon. Member for Chipping Barnet (Mrs. Villiers), the shadow Chief Secretary to the Treasury. She said to her constituents last year:

“Suburbs like Barnet are under attack from John Prescott’s excessive targets for new house building.”

She also said:

“Mrs. May has called on our council to fight the Government plans which she believes will turn the royal boroughs into a concrete jungle”—

Photo of John Butterfill John Butterfill Conservative, Bournemouth West

Order. The Economic Secretary is going somewhat wide of the subject under debate.

Photo of Edward Balls Edward Balls The Economic Secretary to the Treasury

One could say the same of the earlier remarks of the hon. Member for Fareham about housing policy. I was asked whether stamp duty would solve the problem, and I was making the point that unless we have a consensus across all parties in the House—not just on stamp duty, REITs and shared equity but on building houses for people to live in—we will never tackle the inefficiencies in our economy and the inequalities to which the hon. Member for Falmouth and Camborne referred. If Members of the House speak words suggesting that they are on the side of working families but spend their time making statements contrary to the interests of first-time buyers by opposing new development and saying that concrete jungles and new houses must be opposed—

Photo of John Butterfill John Butterfill Conservative, Bournemouth West

Order. I cannot have this any longer. We are debating stamp duty in this Committee, not housing policy. I will not allow any further debate on the subject.

Photo of Edward Balls Edward Balls The Economic Secretary to the Treasury

In that case, Sir John, I shall sit down.

Question put and agreed to.

Clause 163 ordered to stand part of the Bill.

Clause 164 ordered to stand part of the Bill.

Schedule 24 agreed to.

Clause 165 ordered to stand part of the Bill.