Clause 10

Finance Bill – in a Public Bill Committee at 1:15 pm on 21st May 2009.

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Thresholds for residential property

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

Photo of Peter Atkinson Peter Atkinson Conservative, Hexham

With this it will be convenient to discuss new clause 3—Thresholds for residential property—

‘(1) A land transaction is exempt from the charge to stamp duty land tax if—

(a) it is a relevant acquisition of land which consists entirely of residential property,

(b) the relevant chargeable consideration for the transaction is not more than £250,000, and

(c) the purchaser is a first time purchaser.

(2) In paragraph (1)(a) a “relevant acquisition of land” means an acquisition of a major interest in land other than—

(a) the grant of a lease for a term of less than 21 years, or

(b) the assignment of a lease which has less than 21 years to run.

(3) In paragraph (1)(b) the “relevant chargeable consideration for the transaction” means—

(a) the chargeable consideration for the transaction, or

(b) where the transaction is one of a number of linked transactions, the total of the chargeable consideration for all those transactions.

(4) The Treasury shall by regulation define the meaning of “first time purchaser.”’.

Photo of Ian Pearson Ian Pearson Parliamentary Under-Secretary (Economic and Business), Department for Business, Enterprise & Regulatory Reform, Economic Secretary (Economic and Business), HM Treasury

It is a pleasure to serve under your chairmanship this afternoon, Mr. Atkinson, and to make my first contribution to the Committee stage of the 2009 Finance Bill.

On 2 September last year, the Government introduced a one-year stamp duty land tax holiday applicable to all residential purchases worth £175,000 or less. The holiday was introduced at a time of falling house prices and a volume of transactions far below that seen in recent times. The holiday is a short-term measure to support home buyers many of whom, despite falling prices, are finding it harder to enter the housing market. The holiday ensures that more than 60 per cent. of all residential purchases in the UK are currently exempt from stamp duty. Approximately 90,000 transactions have already been exempted from stamp duty over and above those falling below the original £125,000 starting threshold. We expect that a total of 210,000 transactions will be exempted from stamp duty because of the holiday.

Budget 2009 announced an extension of the holiday to 31 December 2009, to coincide with the end of the temporary VAT reduction and provide further support for home buyers. We expect that approximately an extra 60,000 transactions will be exempted from stamp duty as a result of the extension of the holiday. The decision to extend the holiday reflects the continued difficulties facing the housing market since it was introduced in September 2008. For example, transaction volumes are down by two thirds from their peak in mid-2007 and prices have fallen considerably in the last year.

Clause 10 provides for the extension, which should be seen in the context of the other action taken in the Budget to support home owners, home buyers and the housing supply. Those measures include continued support for home owners in difficulty, through maintaining the standard interest rate for support for mortgage interest  at 6.08 per cent. for a further six months; support for housing supply through a £600 million fund to stimulate or kick-start development in the short-term and boost capacity in the house building industry for the recovery; and support for home buyers with the extension of HomeBuy Direct and the launch of a guarantee scheme for residential mortgage-backed securities.

Against that, new clause 3 appears to exempt first-time buyers from stamp duty land tax when they purchase a residential property worth £250,000 or less. The Government do not believe that raising the stamp duty land tax starting threshold to £250,000 for first-time buyers would be an effective use of public money. The new clause does not indicate an effective date or give an indication of whether the measure is intended to be permanent. A permanent increase, which I understand is Conservative policy, would cost the Exchequer approximately £290 million in 2010-11, rising to £430 million in 2012-13. A temporary increase in the threshold for first-time buyers, extending only until the end of December this year, would cost £50 million on top of the £340 million cost of the existing holiday.

The Government also estimate that, as a result of the existing stamp duty holiday applying to transactions worth less than £175,000, some 75 per cent. of first-time buyers are already exempt from stamp duty land tax. In addition, on 2 September 2008 we launched HomeBuy Direct, which offers first-time buyers an equity loan of up to 30 per cent. of the value of a new home to assist them in getting on the housing ladder. Budget 2009 announced an expansion in the provision of HomeBuy Direct as part of the wider kick-start housing delivery programme to unlock sites that have stalled. We estimate that the shared equity and shared ownership products being offered as part of that delivery programme, including HomeBuy Direct, will provide approximately 5,000 properties to help first-time buyers get on the property ladder. Given the action that we are already taking, we do not see a need to raise the threshold further specifically for first-time buyers. Existing measures, including the holiday at its current threshold, are a more appropriate and targeted use of public funds.

I should add that new clause 3 does not provide a definition of a first-time buyer. That introduces problems that themselves mean that we cannot accept the amendment. Defining a first-time buyer is not straightforward, and an exemption explicitly for first-time buyers may give rise to new avoidance opportunities. For example, is an individual who has previously purchased a property overseas to be considered a first-time buyer? If such individuals are not to be treated as first-time buyers, the definition of a first-time buyer could be difficult to enforce or open to exploitation.

In light of the difficulties of defining a first-time buyer, the potential avoidance risks and the help that the Government are already offering first-time buyers, raising the stamp duty land tax threshold to £250,000 would not be an effective use of public money. The action that we are taking, as reflected in clause 10, is important.

Photo of David Gauke David Gauke Shadow Minister (Treasury) 1:30 pm, 21st May 2009

I welcome the Economic Secretary to his first participation in this year’s Finance Bill. As he has stated, clause 10 raises the stamp duty threshold from  £125,000 to £175,000. More precisely, it extends the existing holiday to 1 January 2010, rather than 2 September 2009. It is not a dishonourable action for the Government to try to help the housing market, so our criticisms are not of the proposal’s intention. However, I wish to voice a number of concerns before discussing new clause 3.

We must highlight how the policy of a stamp duty holiday emerged. The Sun headline on 5 August read, “Brown to scrap stamp duty”. It was very clear that the proposal was a personal initiative of the Prime Minister’s, and I am sure that the story caused much delight in No. 10 Downing street, if not in No. 11 too. One suspects that Mr. Damian McBride may have been involved in the story’s publication, as it was written in a way that reflected well on the Prime Minister. Unfortunately, however, the policy had a disastrous effect on the housing market that August; a number of transactions collapsed throughout the country. An estate agent in Berkhamsted in my constituency told me of a number of transactions that had collapsed. Why would people have wanted to enter into a transaction when house prices were already falling and when they knew that a more beneficial stamp duty regime was just around the corner?

The details were not very clear at that point. The Sun headline, as I have said, read, “Brown to scrap stamp duty”, which seems exaggerated to say the least. I did not buy a copy of The Sun that day, but I recall listening to the Chancellor of the Exchequer being interviewed by James Naughtie on the “Today” programme on the proposal for a stamp duty holiday of some sort. The Chancellor, for understandable reasons, gave a non-committal answer and, as a consequence, there were criticisms of the confusion within the Government.

Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury)

On the logic of what the hon. Gentleman has just said, should people who anticipate the Conservatives winning the next general election delay buying a house valued at between £175,000 and £250,000? If the Committee does not agree on it this afternoon, will new clause 3 be introduced if the Conservatives win the general election?

Photo of David Gauke David Gauke Shadow Minister (Treasury)

We would hope to be able to move quickly in addressing that and we will be clear as to our intentions. It was unhelpful for the Prime Minister to indicate at that point that a policy to raise thresholds, or even to scrap stamp duty, was about to be implemented, when the Chancellor appeared to give a different message. When the housing market was as fragile as it was in August 2008, there was not only confusion but an indication that there was going to be a change in the regime. That created a number of difficulties that I experienced as a constituency MP, and at a national level I know that concerns were raised by the Council of Mortgage Lenders and so on.

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

Obviously, it is flattering that the hon. Member for Taunton is so assured that the Conservatives are going to win the next election that he is looking forward to it as a possibility. Ultimately, there is an understanding that a change of Government will bring a change of tax regime in a range of different ways, whether in a manifesto or in some of the small print of the first Finance Bill. That is a fundamentally different  situation to the one that we experienced last August, when the Government were making grandstand headlines that had an effect on a fragile housing market.

Photo of David Gauke David Gauke Shadow Minister (Treasury)

My hon. Friend makes a good point. Governments can immediately implement their policies, but in opposition it is a question of arguing for ideas. I will argue for the best parts of our policy this afternoon.

There is no doubt that the Treasury was deeply wounded by what happened on 5 August. I raised that concern with the Economic Secretary when we debated the orders that are being repealed as part of the clause. On 22 October, he referred to, “Unhelpful press speculation”, and added:

“The speculation in August was unhelpful, and we worked hard to discourage it.”

He went on:

“Speculation in the press did not help our deliberations, and we worked actively to discourage it.”

I put it to him that the speculation was started by an article in The Sun that was clearly informed by a briefing from the Prime Minister’s office. The Economic Secretary responded

“I repeat that that speculation was unhelpful.”—[Official Report, Third Delegated Legislation Committee, 22 October 2008; c. 7.]

It is worth noting that the Economic Secretary has a mild manner, but can be quite gutsy when he needs to in standing up to No. 10 Downing street. I commend him for doing that in a rather subtle way during our debate of 22 October.

My second area of concern is that when this measure was finally announced on 3 September last year, the Prime Minister stated that it was going to save taxpayers £600 million. At the time, that number was questioned significantly. Robert Chote of the Institute for Fiscal Studies questioned its plausibility and said:

“It would be interesting to see why the Treasury thinks it is going to be as expensive as this.”

He went on to say that he thought that the figure would be nearer £200 million. Indeed, the sums suggest that if the cost to the Exchequer is going to be £600 million, it would need to involve 400,000 house transactions of £150,000 on average.

We have heard the numbers from the Economic Secretary. He has updated the Committee as to the number of transactions and said that there have been 90,000 so far. He gave a figure of 210,000 transactions in total, but 60,000 of those are as a consequence of the extension from September to January. The number has actually turned out to be 150,000 transactions. I think that £270 million is the cost of the overall package, including the extension. The Economic Secretary will correct me if I am wrong, but the estimate given by the Treasury at the time was clearly wide of the mark. The figures given by the likes of the IFS appear to be much closer to reality—they may be slightly exaggerated, but the IFS has pretty much got them right. I return to the question asked by Robert Chote last September: why did the Treasury think it was going to be as expensive as it was? It clearly got the number significantly wrong, and it would be helpful for the Committee to know how that mistake happened.

It is also worth considering how effective the policy has been. When the Prime Minister announced the measure in September, he told the BBC:

“Home owners need to know that we will do everything we can to keep the housing market moving”.

It is worth taking a moment for a small amount of textual analysis. It was not that it was important to keep the housing market moving or to do everything to keep it moving; rather, the important thing was that home owners needed to know that the Government would do everything to keep the housing market moving.

The consequences have not, it is fair to say, been a dramatic success in terms of turning the housing market around. To be fair, by way of a test, we could ask what the policy would have been otherwise. However, Nationwide says that, following the announcement, house prices fell by 1.7 per cent in September., by 1.5 per cent. in October, by 0.5 per cent. in November, by 2.6 per cent. in December, which was a record fall, level with that of May last year, by 1.3 per cent. in January and by 1.9 per cent. in February.

Halifax’s numbers show a similar pattern: a fall of 1.3 per cent. in September, of 2.4 per cent. in October, of 2.7 per cent. in November, and of 1.6 per cent. in December. January appears to be the outlier here—there was an increase of 2 per cent.—but that was followed by a fall of 2.3 per cent. in February, of 1.9 per cent. in March and of 1.7 per cent. in April. As I said, it would be unfair to say that the policy is therefore a bleak, dismal failure, but if the intention was to turn the housing market around—given the Government’s assumptions on how much the measure would cost, that seems to be what they anticipated—it has failed to deliver.

I wish to return to a technical issue on the stamp duty provisions that I have raised before with the Economic Secretary—we debated it in October—on disadvantaged areas. For some time, certain parts of the country have been designated “disadvantaged”. In those areas, there was a higher stamp duty threshold of £150,000 as opposed to £125,000. Presumably, the intention is that the higher threshold in those areas will encourage and provoke more economic activity. My point to the Economic Secretary in October was that Her Majesty’s Revenue and Customs website stated that the stamp duty threshold was £175,000 except in disadvantaged areas, where it was £150,000. He provided assurances that that was a mistake and, indeed, the HMRC website has been updated and my point has been addressed. The website currently states that disadvantaged areas relief will not apply for residential-only property purchases between

“3 September 2008 to 31 December 2009 inclusive”.

I am grateful for that clarification. It appears to address the concern that I raised last October. However, I would be grateful if the Minister could explain why that is the case. Why does the legislation on disadvantaged areas relief not apply? There does not appear to be any instrument that disapplies it. Is this merely something that can be done at the discretion of the Government and HMRC? I do not argue that there should be a different regime for disadvantaged areas and that disadvantaged areas should have a lower stamp duty threshold, but it would be helpful to have the legal justification. Why have we not seen an order? Why is there is no reference in clause 10 to that point?

New clause 3 represents our proposal to increase the stamp duty threshold for first-time buyers to £250,000. As I am sure the Committee will recall, this was part of  the announcement made by my hon. Friend the shadow Chancellor in his 2007 party conference speech. He set out the argument for raising the threshold to take nine out of 10 first-time buyers out of stamp duty. The anticipated cost was £400 million, which was going to be paid for by a charge on non-doms. I note the comments from the Minister and I anticipated that he would be able to provide the figure. The cost of the policy has since diminished to £290 million, but it is fully funded. I also suspect, and the Minister did not give these figures, that the proportion of first-time buyers who will be taken out of stamp duty will be greater than nine out of 10, given the changes in house markets. It would be fair to say that the economic situation has changed substantially since October 2007, but the argument for this policy remains valid.

The concern that my hon. Friend the Shadow Chancellor expressed in October 2007 was about how difficult it was for first-time buyers to get on to the housing market because house prices were very high. They are lower now, but it has continued to be difficult for many first-time buyers. As a result of the credit crunch, it is generally necessary to have a much larger deposit and the up-front costs of acquiring property can deter many potential first-time buyers. One of those up-front costs is stamp duty. An attempt to address that is a well-targeted policy to assist first-time buyers and also to get the house market moving. I come back to the intention behind the policy, which we do not criticise. At a time when the housing market has been very slow and when stabilisation in the housing market may well be a pre-cursor to increased confidence in the economy as a whole, we think this remains a timely, appropriate and beneficial policy.

I note the Minister’s comments about there being no definition of a first-time buyer in the new clause. We accept that this is a complicated matter, but we do not accept that it cannot be addressed within regulations. The Treasury could and should look at ways in which first-time buyers can be helped through use of the stamp duty regime. It is not included in the clause, but nor would one expect it to if the Government were proposing it. It is the sort of matter routinely dealt with in regulations.

In conclusion, we will not oppose clause 10. We have concerns about the way it has been presented as a policy by the Government. We rightly question how effective it has been. We are doubtful about the way the Government have made projections as to the cost of it, but its purpose is admirable. However, it is not as effective and beneficial as our proposal in new clause 3, which could provide an opportunity for a first step on the housing ladder for hundreds of thousands of first-time buyers. I commend new clause 3 to the Committee.

Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury) 1:45 pm, 21st May 2009

Before I talk about clause 10 as a whole, I will address a few comments to new clause 3, which has just been introduced by the hon. Member for South-West Hertfordshire. We all wish to help people who aspire to own a property, as so many in this country do. It is a great rite of passage for many people; they regard it as important not only as a financial investment but as a way to establish themselves and their families in society as a whole.

There are genuine anxieties about how we define a first-time buyer. At the moment, public finances are extremely stretched, to put it mildly. We are borrowing  roughly half a billion pounds every single day. Although the Conservative party says that the policy is funded, it is reasonable to consider whether we are achieving value for money with any tax proposals. Without a definition of a first-time buyer, there is a concern that people will exploit the opportunity entirely legally. I do not mean that they will exploit in a bad way, but they will exploit it in a way that is not beneficial to the taxpayer. The Minister gave a possible scenario in which the beneficiaries were not those for whom the clause was intended.

I also fear that there might be couples—in middle age, for example—who bought a house in the man’s name and who then buy a second house in the woman’s name, and she is a first-time buyer. Unless I misunderstand the clause, she would be eligible to buy a house under those criteria and, having never bought a house before, would benefit. The couple could use the opportunity to buy a second property, which might supplement a large first property that was in the husband’s name, in the scenario I have just outlined. It is not clear that the beneficiaries would be people trying to get on the housing ladder for the first time. They might, for example, be people who live in multi-million pound houses for which the mortgage is paid off but who fancy a second property—perhaps a holiday home—and would benefit from the clause. That might be a desirable way to spend public money in the view of other members of the Committee, but I am not sure that it is the political pitch that is being used to sell the clause to the wider public.

Photo of Graham Stuart Graham Stuart Conservative, Beverley and Holderness

The hon. Gentleman is a resourceful and intelligent man. It is not beyond him to conceive of rules that would ensure limitations on this proposal in order to target it more precisely at—as he would say—those for whom we would most like to see that benefit. If he acted more constructively, he would not oppose efforts to help first-time buyers. He would help those of us who wish to help them in the best possible way.

Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury)

I am grateful for the hon. Gentleman’s flattering comments. Even with all my wisdom, I do not think it is my task to try to plug the holes in a Conservative party policy that was dreamt up to try to put off the general election and win a round of applause from an audience which was never invited to think how this measure might work in practice. It is entirely reasonable to ask whether the beneficiaries will be the people this policy is being pitched at. It may well be that a large number of them are not. I do not know whether there is an age threshold. If I, for example, had five children, would I be able to buy each of them a new property at just under £250,000 each? Or does the person buying the property have to be of a certain age? Would it be appropriate if they were adult children? There are questions.

Photo of Greg Hands Greg Hands Shadow Minister (Treasury)

Will the hon. Gentleman at least concede that there are international precedents for discount on stamp duty for first-time buyers? I cannot recall whether it is on a  federal basis in Australia, but some of the states certainly operate or have operated that system. If it can work in Australia in terms of the definitional questions that he raised, it should work here.

Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury)

I suggest that the lesson to be drawn is that, before he announces policy, the Conservative shadow Chancellor should do his homework and speak to people in Australia and then we would not be in the difficulties that we have talked about. This is all extremely vague. I will move on to clause 10 in a moment.

We know—because the leader of the Conservative party tells us—that the 50p tax change is low in the list of priorities if the Conservatives win the general election. What we have yet to find out is where this item is in the list. It may be even further back in the queue than the reversal of the 50p rate. I earlier asked a serious question of the hon. Member for South-West Hertfordshire about someone anticipating a Conservative win at the next general election—Conservative party members seem to think and behave as if it were in the bag already. As there is only a year to go, someone looking to buy property—of course calculating whether the property would change in value in the interim—may delay the purchase on the basis that they expect new clause 3 to be introduced very soon after the general election. There is now uncertainty about whether it will be so because these schemes and policies seem to be revisited depending on how much scrutiny they are subjected to. It is laudable for the Conservative party to try to help people in these circumstances, but I fear that a little more rigour is required before the party is judged worthy of office.

In terms of clause 10 as a whole, the hon. Member for South-West Hertfordshire made the reasonable point, though with a generous caveat, that the policy has not been a spectacular success if its purpose was to encourage more people to buy properties for the first time at the lower end of the market and so stimulate the housing market as a whole. One could argue, in the shoes of a Government Minister, that the fall in house prices would have been worse still had this measure not been introduced last summer. Certainly, some very bold claims were made for it. After that disastrous period when every estate agent in the country suffered severe cash-flow problems while people waited for the Government to introduce the policy which had been flagged up, there was still a period when it was claimed that the policy was likely to be successful; it was not.

There is one big question we have to ask ourselves. There may be many people on this Committee who own houses—dare I say, more than one—but is it in the country’s interests to keep an overheated housing market overheated? The ratio of average salaries to average house prices is big by any historical precedent. There is a strong case to be made in the interests of people who do not own property but aspire to do so and in the interests of the economy as a whole for that ratio to be brought closer to traditional historical levels. We are a lot closer now than we were seven or eight months ago. Is it good use of taxpayers’ money to keep those ratios higher than they have been historically and to encourage people to invest in property rather than, for example, in innovative new businesses?

Photo of Graham Stuart Graham Stuart Conservative, Beverley and Holderness 2:00 pm, 21st May 2009

I am grateful to the hon. Gentleman for being so clear, because he has laid out, as we approach a general election, whenever it is, two policies that will obviously form part of the Liberal Democrats’ manifesto. One is that they oppose support for first-time buyers to get on the housing ladder and, secondly, that they support measures that will lead to a collapse in the already fallen state of the property market, in order to close the ratios to something that better fits the hon. Gentleman’s ideal of the right mathematical calculation.

Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury)

Oh dear—if that is the best that the Conservative party can do, I fear that they are even further from office than I had anticipated when I read new clause 3. I believe in free market economics—a shocking concept for Conservatives. I break the news to the hon. Gentleman that the reason that house prices are where they are is not that there is a man in an office in Whitehall who comes up with all the prices; it is because of supply and demand, and people deciding how much they will pay for a house. The person who owns the house typically sells it to the person offering the most money. That is how the system works. It is not decided by the Liberal Democrats. We decide lots of things in this country—

Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury)

For example, the status of Gurkhas in the United Kingdom—many things. We set the pace in politics, as all members of the Committee know.

My point—a serious one—is whether the policy of Government should be to spend money on protecting the value of one type of asset over another type of asset. Should money be taken from people who do not own a house at all, in order to put an artificial floor under an asset belonging to people who are in many cases far more prosperous? I do not say that as Liberal Democrat policy. It is a reasonable question for anyone to ask, and without asking it, proper consideration of the clause seems impossible.

Photo of Graham Stuart Graham Stuart Conservative, Beverley and Holderness

I put it gently to the hon. Gentleman that not taxing someone who is trying to get on the housing ladder for the first is not the same as spending taxpayers’ money. Perhaps the Liberal Democrats need to recognise that it is the people’s money that the Government tax and not the other way around.

Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury)

I take that point and understand what the hon. Gentleman is saying. Equally, however, one could make the same point about abolishing VAT on cars for people buying their first car—an aspiration that many young people have. In rural areas, such as I represent, many people regard owning a car not just as an aspiration, but as a social and economic necessity—I shall not go too far down this track, Mr. Atkinson—after they pass their test when they are 17 years old. One could say that that would be a legitimate forfeiture of tax revenue. On the other hand, the duty of people who cannot afford to own a car at all is not to subsidise the cost of someone who is buying their first car. That was my only point.

My wider point was why first-time buyers are not buying property in the numbers that clause 10 induces them to do—new clause 3 seeks a similar inducement. Is it because they are deterred by stamp duty levels? My answer is: perhaps, to some extent. Clearly there is a marginal effect, although in the overall scheme of things, when buying a new property, it is not, I would contend, the biggest factor. I think that there are three factors that cause more problems for people seeking to enter the housing market than the deterrent effect of paying stamp duty at the levels that we are talking about.

The first factor is the unwillingness of banks to lend money to people, particularly those who do not already have a big asset. Under new clause 3, the bank might be quite generous in its lending terms to a person who has never bought a house and wishes to buy a holiday cottage, but whose spouse owns outright a house worth £1 million. However, what about first-time buyers, say, in their twenties, who have managed to save up a bit of money? It is hard for people who have left university and who are trying to establish themselves in a place of work to accrue more than a few thousand pounds, unless they inherit money or are given it as a gift. If they are looking to buy a property for, say, £150,000, they might need a deposit of about 20 per cent. of that sum—£30,000. I venture that the inability of a person on typical wages or perhaps even double typical wages to raise a £30,000 deposit would be a much greater deterrent to that person entering the housing market than a saving on stamp duty. That is one reason why I fear that the provision will not have the impact for which some might have hoped.

I think that I said I wanted to outline three factors that cause problems, but I actually want to mention four. The second factor is that the market is falling. Many people say that they aspire to get on the property ladder—they regard it as a rite of passage and something that would be economically and socially beneficial to them—but that now is not a good time to buy because the properly market is falling on average by the figures given by the hon. Member for South-West Hertfordshire. The fall in the prices of some types of property, such as one-bedroom or studio flats that might be particularly attractive to first-time buyers, might often be greater than the average.

Quite a few people are choosing to rent until the market has picked up or at least turned a corner, or they could be trying to save up a bit more of a deposit. They would not be induced to buy a property because of the stamp duty holiday. In fact, we could ask ourselves an interesting moral question: should we want them be? I was citing the example of a £150,000 property. When the policy came into effect in the late summer last year, the Government were trying to induce people to buy that £150,000 property. What is that property worth today? Perhaps £135,000. People were given a nominal incentive to buy the house and their losses far outweigh the inducement they were given by the Government to buy the house. I am not claiming that that is a false prospectus, but if I had been lured into the housing market just as it was falling rapidly, I might consider that the Government had not done me such a big favour as they claimed to be doing at the time.

Photo of David Gauke David Gauke Shadow Minister (Treasury)

I am tempted to dwell on the hon. Gentleman’s point about the influence of the Liberal Democrats, which suggests that they might be almost as  influential as Joanna Lumley—but by no means as pretty. He is making an interesting observation, but it is very much a paternalistic one, given his early remarks about belief in the free market. He now seems to be arguing against individual responsibility for people making house purchases.

Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury)

I am not doing anything of the sort. Anyone who has the money to buy property should be entirely free to do so. If they judge for themselves that now is the time to make the purchase, that is their decision. The question is whether our taxes should be used to induce people to buy property, when we know with almost complete certainty, as we did in late summer last year, that the value of their asset would fall. People may think that it is up to the individual to make that calculation, and it is. I was not saying that people should be prevented from buying houses in those circumstances. They might take a longer view and think that, in a 10 or 20-year scheme of things, that is an intelligent purchase.

To return to my original point, I do not think that people were necessarily deterred from buying houses primarily because of the level of stamp duty. They were deterred, first, because they could not borrow enough money to cover the mortgage costs and, secondly, because they were wary of a falling housing market. I have two more reasons.

Photo of Graham Stuart Graham Stuart Conservative, Beverley and Holderness

No one is suggesting that stamp duty is the key component of anyone’s decision not to buy a house at the moment. As my hon. Friend the Member for South-West Hertfordshire pointed out, the hon. Gentleman contradicted himself by talking one minute about the free market, and the next about inducements owing to the removal of tax. If he were to accept that the forgoing of tax from first-time buyers is a suitable policy instrument, would he not agree that the time to implement it is when the housing market is in the doldrums, in order to help to turn it around and to minimise the barriers to getting on the housing market, rather than when prices are rising? Would he introduce such an instrument then to further inflate a bubble?

Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury)

I apologise for my lack of clarity, Mr. Atkinson. I was saying that I thought that the volume of sales and the price of property are determined by supply and demand, not by the state. The state can nibble away at the edges by giving tax inducements, but primarily the factors governing price and turnover are not in the gift of the state. Anyone can buy a house if they meet the legal criteria and have the money. However, is the highest priority for the taxpayer, at a time when the nation is borrowing £20 million every hour, to try to induce individuals to stretch themselves to buy a property when the market is falling? Is that the best use of taxpayers’ money?

That is a reasonable question, because someone is likely to have stretched themselves a lot if the inducement of this stamp duty measure makes the difference between making the purchase and not. We are talking right on the margins—those for whom that marginal benefit is sufficient to make that decision. We are talking not about people putting down a 65 per cent. deposit and  who are pretty secure in the housing market, but about people who might have been lured into the market in late summer last year and now might be facing repossession. That is a perfectly plausible scenario. Those facing repossession might wonder why their money, as taxpayers, was spent on luring them into those circumstances. My point was not about the free market.

My third reason is this: quite a lot of people are not only fearful about the direction of the housing market—indeed, some think that it is beginning to turn a corner, although it is difficult to make that judgment. One wants to be just ahead of the pack when coming to that conclusion. However, there is a wider concern about the economy as a whole and, specifically, about unemployment. Historically, there has been a correlation between confidence in the housing market and levels of unemployment. That correlation is stronger than the actual percentage of the work force in unemployment would suggest.

Of course, the unemployed are not normally in a position to contemplate buying a new property. However, people’s fear of unemployment is often disproportionate to the statistical likelihood of their becoming unemployed. For example, if one worked in a company with 100 employees and it became evident that it was about to shed 10 per cent. of its work force, all 100 employees might modify their behaviour accordingly and hold back until they found out whether they were one of the lucky 90 or one of the unlucky 10. Of course, the reason that the Government have temporarily reduced VAT is to try to give some sort of inducement to people not to hold back because they are fearful of their future economic prospects. In an earlier clause, the Government recognised that there is that fear of the future in the population as a whole. I contend that that fear is more likely to deter people from buying a property, particularly at this level, than any inducement on stamp duty that may or may not be given is likely to persuade them to buy.

My final argument is more contentious, because it relates to what MPs often say in their constituencies. They often say that, if we wish to see property prices that are more affordable for more people who are trying to get on the housing ladder, we need to see whether or not prices will return closer to their historical ratio to average earnings. However, in many parts of the country there is a shortage of supply of housing. The reason why I say that this argument is controversial is that a lot of MPs, of all parties, accept it in broad terms, but then rush back to their constituencies to have their photograph taken next to the site of any proposed housing development on their patch, saying how hostile they are to any changes in their constituency.

Photo of Mark Todd Mark Todd Labour, South Derbyshire 2:15 pm, 21st May 2009

I was just wondering if the hon. Gentleman would expand on what he said to his constituents in Taunton, because he recognises the difficulty that exists.

Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury)

I shall not turn this into a very long speech about Taunton—unless people wish me to do so. However, Taunton is quite a good case study, because the town is on a motorway and an inter-city train line, with a population measured at 63,000 in the last census. [Interruption.] Stick with me. Taunton has been identified  by the Government as an area for potential extra development, because it has some of those key transport infrastructure requirements.

I think that there is scope for extra development in Taunton. What I am uncomfortable about is the type of top-down command view of housing development. Because of the free market instincts that I talked about earlier, I am not sure that what we need is not something a bit more organic and incremental than an imposed target of 20,000 houses. However, I do not doubt that there is a shortage of housing supply in my constituency. People come to see me frequently to say that they would like to see what we now call social housing, that they feel that there is not enough of that type of housing and that they would like to get on the housing ladder for the first time.

The ratio of wages to property values is particularly big in the south-west. Although property values are quite a lot lower than those in London, wages are a lot lower too. I think that the south-west may even have the worst ratio of any region in the UK, in terms of the ability of people who on typical pay to afford a typical property. Some people may think that it is politically unwise of me to do so, but I often say to residents in my constituency that I support some extra housing development, which should be mixed; it should not consist of one type of property. There also needs to be an emphasis on property that is realistically affordable for people who are seeking to get on the housing ladder for the first time.

Apart from in some marginal cases, stamp duty is not a consideration that is the determining factor for those people when deciding whether or not to acquire a property. In many cases, it may be that the sheer shortage of supply means that there are very few of those affordable properties on display in the estate agent’s window in the first place.

Photo of Greg Hands Greg Hands Shadow Minister (Treasury)

I think that the statistic that the hon. Gentleman cited is quite right, and that the south-west does have the widest disparity between house prices and income levels. Does he therefore agree with many of his parliamentary colleagues who campaign on banning people from owning second homes in the south-west? Does he think that such a ban might be a solution?

Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury)

I am not in favour of the state telling people where they can live. I suppose that the only caveat that I may add to that statement is that there are some particularly unusual circumstances, for example in national parks—

Photo of Peter Atkinson Peter Atkinson Conservative, Hexham

Order. We are going a little wide of the clause.

Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury)

I shall not do a tour of national parks, Mr. Atkinson. My central point is that in towns such as Taunton many people seeking to become home owners for the first time face the problem of a severe shortage of the types of property they might regard as being in their price range, and that overrides any considerations about stamp duty.

Those are my four concerns: the difficulty of borrowing enough money; the falling value of property, which means that the decision not to buy property being taken  by many people is quite rational; the uncertainty about the future of the economy, specifically with regard to unemployment, which deters some people from buying property, and; the shortage of supply in many parts of this country, particularly of the type of housing that is attractive to first-time buyers. I maintain that those reasons weigh more heavily with people trying to decide whether to buy than any stamp duty holiday, be it that envisaged in clause 10 or that in new clause 3. We are having a perfectly interesting and worthwhile discussion, but I fear we are labouring under the delusion that all those considerations across the population as a whole can be influenced heavily by tweaking a few of the knobs and pulling a few of the levers available to the Government.

My view is that entirely rational decisions being made by millions of people, combined with a free market in housing, are much more likely to make a difference, and that is why I fear that some of the claims being made by both Labour and Conservative politicians in that debate are rather exaggerated.

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

That was an interesting contribution from the hon. Gentleman. I, too, shall be a little more candid than perhaps is entirely wise. I hope that no one on this side of the Committee will be too hard on me.

Luckily, some of us do not have second homes—well, actually, I do have a second home, but it was paid for entirely out of my own resources rather than anyone else’s. About eight years after becoming a Member of Parliament, I have discovered that there are some benefits in representing an inner-London constituency that were not immediately apparent when a variety of scams were being operated outside the public gaze.

I agreed with much of the hon. Gentleman’s contribution, and if the under-30s were twice as likely to vote as the over-55s, rather than the other way round, I would bet that all Governments would do a lot more to tackle the problems of housing supply. The reality is that it has been a political issue, as much as anything else, to maintain a relatively buoyant housing market, not least because those who are twice as likely to vote—the over-55s, rather than the youngsters—also tend to be home owners and their wishes have to be considered to a large degree.

I also agree with the main thrust of the hon. Gentleman’s argument: realistically, there is not much that most Governments can do. We have a ludicrously complicated system of property in this country, and adding layer upon layer of complication does not make things any easier. I agree with our new clause 3 and think that it is fine, but it would work only slightly, at the margins.

We already have in this country a capital gains tax exemption for main homes. That ludicrous distortion has a knock-on effect, as the hon. Gentleman rightly pointed out, in relation to investment for small business, and it is in great contrast to the regime in many European countries. Many elements of stamp duty land tax further distort the distortion, and that is regrettable in many ways. For many people, property has become the most important asset. I do not want to see peoples’ aspirations cast aside, but let us be absolutely honest about it: home ownership, given the chaotic lifestyles and earning patterns of many people, should not necessarily be regarded as a right.

Photo of Mark Todd Mark Todd Labour, South Derbyshire

The hon. Gentleman is making an extremely interesting speech, which I have to assume does not reflect current Conservative policy. I am sure that he has read about extraordinarily advanced societies in western Europe where home ownership is far less prevalent and less sought after—for example, Germany and Switzerland—and of very poor societies where home ownership in is sought after but to no effect. We seem to have an unusual fixation.

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

We do have that fixation. Let us be honest, home ownership provides stability and, potentially, collateral for doing other things—or it has done in the past. The crux of some of the present financial problems is in the sub-prime market and the idea from the mid-90s in Clinton Democrat America that home ownership should be encouraged. The financial services industry in the United States created products for people who should never have owned property, given their chaotic earning patterns, and I sense that we risk the same happening here.

An Englishman’s home is his castle—a great aspiration. As someone who bought their first property at the earliest opportunity, at 23, I would not say that people should not aspire to it, but we have to realise that for many people it can be a mirage. They go down a path to property ownership and quickly find that it is more of a shackle than a benefit. Part of the difficulty has been that miss-selling and poor returns has shattered the savings and pensions industry’s reputation, so it was logical for many people—

Photo of Peter Atkinson Peter Atkinson Conservative, Hexham

Order. I apologise for interrupting the hon. Gentleman. He is making a very interesting speech, but it is meant to be about stamp duty land tax.

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

It is fair enough that you pulled me up, Mr. Atkinson, but the point I was trying to make was that there has been a herd-like mentality—a logical one, particularly for those in their 20s and 30s—to aspire to own property. I am not apportioning blame—this is about the political establishment, although probably not as far back as the last Liberal Government. Even the hon. Member for Taunton will acknowledge that successive Governments have found ways to complicate the system ever more. I am not suggesting that we can start with a blank sheet of paper, because that, inevitably, is difficult. We have a crazily complicated system for housing. The notion that a main home is a capital gains tax-free investment is not prevalent around the world and is perhaps peculiar to this country. It has been a huge distortion, which has, obviously, led to tinkering with stamp duty land tax.

I wanted to make only a brief contribution. I am comfortable agreeing to new clause 3, but ideally we, the whole political class, would have the benefit of a more open and broad debate which considered the distortions, the public’s aspirations and why our system is different. I suspect that historical reasons surround the disparity between the situation here and that which pertains in other European countries, as the hon. Member for South Derbyshire points out.

Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury)

The hon. Gentleman is making an interesting speech about not assuming that owning a house is a right and about downsides as well as upsides to property ownership. However, I would not wish anyone to infer from what I said that I was hostile to  people’s aspirations. I observe only that those who say how desirable it would be for more people to rent rather than own property almost invariably own property themselves.

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

I agree, and I am not downplaying people’s aspirations. If one reads The Sunday Times money pages, as we all do, every week people say that their best investment has been property, and over a 30 or 40-year period that seemed to be the case. With lower interest rates and political pressures, which make bringing supply and demand together difficult, that may not be the case for years to come. For the first seven of the 20 years that I have owned property, between 1988 and 1995, there was no capital gain, and of course since 1995 up until the last year or two, property has been a terrifically good investment.

We are tinkering at the edges and there needs to be a more sensible debate, beyond a slanging match between political parties that suggests that one side does not look to help first-time or aspiring buyers. Such a slanging match takes out some of the real problems that we all face with planning applications in our constituencies—well, I probably do not. Many more properties need to be built, but ideally some five or 10 miles outside my constituency, from where we will reap the benefits but not get any of the downside. I hope that we can have sensible debates on the matter in the future, and that sense will prevail and new clause 3 will be added to the Bill. However, I suspect that that will be another hope and aspiration that will not be fulfilled, at least not now.

Photo of Ian Pearson Ian Pearson Parliamentary Under-Secretary (Economic and Business), Department for Business, Enterprise & Regulatory Reform, Economic Secretary (Economic and Business), HM Treasury 2:30 pm, 21st May 2009

I shall respond briefly and try to focus my remarks precisely on new clause 3 and clause 10. I do not want to go over old ground with the hon. Member for South-West Hertfordshire, regarding some of the comments that appeared in the press last August. However, I want to emphasise that, although the press speculate daily on many aspects of Government policy, that does not make them right. As I said at the time, the press comments were unhelpful. I do not feel the need to say anything more on the matter, but I would like to respond to some of the hon. Gentleman more substantive points.

I confirm that the estimated impact of the holiday on the Exchequer is £340 million, which includes the cost of the extension announced in the Budget. It is right to say that we have looked closely at the costs. It is not possible to estimate precisely the impact on transactions because we are dealing with a counter-factual situation—what would have happened in the absence of a stamp duty land tax holiday. In the pre-Budget report we said that the figure was £280 million and we revised that down in the Budget to £250 million plus the extra £90 million for the September to December 2009 extension. On the hon. Gentleman’s comments on disadvantaged areas, there is no need to disapply the £150,000 figure because the £175,000 threshold makes that unnecessary. However, once the holiday ends, policy will go back to what it was, and the limits will be £125,000 generally and £150,000 in disadvantaged areas.

The hon. Gentleman also made some significant play of saying that it was simple to define first-time buyers in regulation. That is not the experience in Ireland, where  we have been told that rules defining a first-time buyer run to more than seven pages. There are some complex issues here, a number of which were pointed out by the hon. Member for Taunton. There are issues regarding divorcing couples, there is the overseas example that I gave in my initial remarks, and there are issues regarding the administrative burdens of potentially implementing this as a policy.

Photo of Greg Hands Greg Hands Shadow Minister (Treasury)

Has the Economic Secretary looked at the example of Australia? He mentioned Ireland, but I understand that Australia successfully introduced a similar scheme.

Photo of Ian Pearson Ian Pearson Parliamentary Under-Secretary (Economic and Business), Department for Business, Enterprise & Regulatory Reform, Economic Secretary (Economic and Business), HM Treasury

I am not saying that it is impossible to do so, but I am pointing out that it is not as simple and straightforward as was perhaps suggested by the hon. Member for South-West Hertfordshire when he moved the new clause.

Photo of Greg Hands Greg Hands Shadow Minister (Treasury)

I thank the Economic Secretary for giving way again; he is being most generous. He says that his officials looked at the Australian example extensively. Surely after such a considerable look, they must have come up with some conclusions or lessons that could be learned.

Photo of Ian Pearson Ian Pearson Parliamentary Under-Secretary (Economic and Business), Department for Business, Enterprise & Regulatory Reform, Economic Secretary (Economic and Business), HM Treasury

We believe that the policy of the holiday that we introduced on 2 September is targeted, temporary and timely. It was right in the circumstances not to favour first-time buyers over other buyers of properties with a value lower than £175,000.

The hon. Member for Taunton’s interesting speech covered many areas and not just his concerns over first-time buyers. He spoke of other factors that people take account of when buying a home. Everybody recognises that people take many circumstances into account when considering a house purchase. Even following his lengthy speech, I am not sure whether he is in favour of the principle of a stamp duty holiday or even of a stamp duty threshold. The Government have made it clear that we see this measure as temporary and targeted.

I will respond briefly to the hon. Member for Cities of London and Westminster. I do not wish to speak about his comments on capital gains tax, but I do want to rebut his implied criticism of Government policy. It has not been an instrument of Government policy, as he seemed to suggest, to keep house prices high to help over-50s because they are more likely to vote than under-30s. On the contrary, the Government have set extremely ambitious house building targets, which have been alluded to. We want those targets to be met. We want people to be able to rent or buy the roof over their heads. That is Government policy.

Photo of Graham Stuart Graham Stuart Conservative, Beverley and Holderness

I am surprised that the Liberal Democrat spokesman did not leap to his feet. Just for the elimination of doubt, it was clear to me from what he said that he  was utterly opposed to special relief for first-time buyers. He thought that it was impracticable and we seem to be opposed to it in principle.

Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury)

For the avoidance of doubt, if the Conservative party comes up with coherent, well-researched, thought-through and practical policies that would be of benefit to my constituents, I will be sympathetic to them. However, it would be embarrassing for the Conservative party and the country if policies such as new clause 3 were included in the Finance Bill.

Photo of Ian Pearson Ian Pearson Parliamentary Under-Secretary (Economic and Business), Department for Business, Enterprise & Regulatory Reform, Economic Secretary (Economic and Business), HM Treasury

For the reasons I explained in my introductory remarks, I do not believe that new clause 3 should be supported. It would not be effective. If the hon. Member for South-West Hertfordshire presses it to a vote, I invite my colleagues to oppose it and to support clause 10.

Photo of David Gauke David Gauke Shadow Minister (Treasury)

I do not intend to go over the debate again. I appreciate that we will not vote immediately on the new clause. I am not persuaded by the Minister’s comments. I note he said that it is not impossible for first-time buyers to be defined. When there is an opportunity, we will press new clause 3 to a vote.

Question put and agreed to.

Clause 10 accordingly ordered to stand part of the Bill.