I am grateful for the opportunity to raise the matter of stamp duty land tax. It is an important issue because, in the short time since implementation, it has had a significant impact on buyers of residential and commercial properties and on conveyancing solicitors.
In April 2002, the Government decided that the existing stamp duty regime for United Kingdom land and properties, which had been in place for some 300 years, should be modernised. If ever a word were open to interpretation, "modernisation" is it. If it were synonymous with improvement, it might inspire some confidence, but unfortunately it is not.
One of the main objectives of the change was to introduce electronic conveyancing, which would make the house-buying process simpler, quicker and more efficient, surely a desirable aim in view of the emotional and financial stress attached to the process of buying and selling property.
Stamp duty land tax replaced stamp duty on
Longer business leases of 15 to 35 years will be hardest hit, because the new tax is based on the full lease term. Shops, pubs, bars, clubs, restaurants and hotels all take out such leases to recoup their fitting-out and setting-up costs. Many cannot switch to shorter leases and face tax hikes of four and 10 times the present level. Marks & Spencer faces an eightfold tax rise and B&Q a rise of £250,000 for each new store. A typical pub with a rent of £30,000 and a lease of 20 years will see the old stamp duty charge of £600 become a new tax liability of £6,000, a draconian tenfold increase.
The Government plan a 24 per cent. increase in stamp duty land tax revenues over this year, a £1.8 billion increase from £7.5 billion to £9.3 billion. Given that the predicted increase in the property market and securities is only 10 per cent., many wonder where the extra money will come from.
The new procedure is far from being simpler. The old one-page form has been replaced by a six-page land transaction return—SDLT1—plus eight further pages of forms and 43 pages of guidance notes. Is this an example of Government modernisation? Far from being suitable for electronic conveyancing, as promised, the new forms must be completed by hand in black ink, handwriting must be neat, and a capital letter must appear in each box. As one solicitor put it, will we be expected to return to quill pens next? The change has caused unnecessary expense and inconvenience to many larger firms that had installed software in preparation, but had to revert to writing the forms by hand. The forms also require information beyond that needed to fulfil the transaction—for example, the national insurance number of the purchaser and the gazetteer number of the property. Why on earth should buyers suffer the additional inconvenience of providing this information?
As a result of these longer forms, the Law Society has advised its member firms to charge a minimum of £40 extra on residential transactions and £70 extra on commercial transactions. In practice, the costs are even greater. With about 1.1 million transactions in the residential market every year, that represents £44 million in additional costs from Government bureaucracy to the home-buying public every year.
The Government were warned during the passage of the Finance Bill that the implementation of this new tax would need more time. For example, in the House of Lords Economic Affairs Committee report on
I am grateful to my hon. Friend for giving way; she is making a powerful and articulate case about the problems of implementing stamp duty land tax. Is she aware that the Chief Secretary to the Treasury, in a response and in correspondence, admitted that it would take at least two years for the implementation of stamp duty land tax to work its way through the system?
I will be referring to that point shortly.
"would lead to the loss of yield of about £250 million".
In other words, the reformed tax was no longer to do with simplifying the system, or enabling e-conveyancing, but was driven by a desperate need to reduce the £37 billion black hole in borrowing. Even the Chief Secretary, in that letter, admitted that the tax was unfinished and would need a couple of years for refining. How can it be right to introduce a major new tax when the details remain unclear? How are taxpayers meant to plan when the rules could be altered immediately after introduction?
This muddling-through approach was confirmed by the slipshod way the detailed rules were presented to the House in the statutory instruments on how commercial leases were to be taxed, affecting seven out of 10 business leases and producing £170 million extra tax in the first year alone. First of all, the debate was scheduled just two weeks before implementation, leaving businesses little time to get organised. Secondly, the statutory instruments contained drafting errors and had to be reprinted and re-issued, leaving just five days for scrutiny. The Financial Secretary then failed to give answers to 12 key questions during the debate. With implementation looming, she promised to write with the answers straight away, but nothing was forthcoming, so on
The introduction was shambolic and left businesses and their advisers in the dark. Key definitions were overlooked. The delegated legislation passed by the House on
The introduction of the new tax was badly organised. Insufficient forms were printed for
Delays with certificates of payment occurred. The promised five-day turnaround period is, in reality, nearly two weeks, and without a certificate the Land Registry can reject an application to register the buyer's title to the property. Are sufficient staff dealing with this now, how many and what training have they received? The helpline collapsed in the first week, leaving many solicitors having to make repeated calls, only to be left without any information at all. What resources have gone into rectifying this, and how many calls to the helpline were expected during that first month? The electronic calculator for business leases, which the Chief Secretary told us would be ready in time, failed to be put online in time. May we be told why? The Law Society and its members are very unhappy about the implementation. The shadow Paymaster General has received dozens of letters citing complaints about these points. Has the Minister had an opportunity to meet with the society, to discuss such complaints?
I have one particular example in front of me, from a solicitor in Leicestershire, who says that at the beginning of November his firm wrote to the Stationery Office of the Inland Revenue to obtain the appropriate SDLT1 forms, together with associated documentation. No documents arrived at their office in time for when the stamp duty legislation came into force. Indeed, in the intervening period, which was approximately three weeks, his firm made 12 telephone calls and wrote again requesting the appropriate documentation. The Inland Revenue helpline was unable to contact St. Austell to find out why there was a delay and said that St. Austell had taken the phones off the hook and were not responding to the e-mails that the supervisor at the helpline sent them. The solicitor's office made two calls to the Inland Revenue helpline and, during the course of one conversation, the telephone was slammed down, while they were in the course of indicating the nature of the problems that they were encountering. I would like to have been a fly on that wall.
Problems were encountered and compounded by the news that early in December the Inland Revenue computer, which was designed to scan the handwritten forms and input the data, had broken down. Several professional firms were told that the forms are being bundled up, driven to a different office and inputted manually. Would the Minister tell us whether that is the case, what went wrong with the computer and what steps she is taking to rectify the problem?
This issue of stamp duty is also causing concern among mortgage lenders. The economics of house purchase are compelling. Mortgage payments tend, broadly, to be equivalent to rental payments. The possibility of making a capital gain when house prices rise means that owning your own home makes financial sense to most people. There are other distinct advantages to home ownership, such as the discretion to make improvements and to decorate according to personal taste, and location, which is not available to some people who are in rented accommodation. It is hardly surprising that most people aspire to home ownership by the time they settle down and start a family. Of course, this is also a time of life that incurs other great financial pressures, such as having children, paying off student debts and starting to make provision for pensions. Stamp duty comes as a significant extra hurdle for first-time buyers already faced with raising a sizeable deposit and rising house prices.
Four years ago, just 40 per cent. of first-time buyers paid stamp duty, and of those who did nearly all paid at the lowest 1 per cent. levy. Now only 25 per cent. of first-time buyers purchase property below the £60,000 threshold. Strikingly, in London and the south-east the figure is only 2 per cent. of first-time buyers, and in my own constituency a first-time buyer would be hard pressed to find any property under £150,000, and that would be a flat over a shop.
The typical amount of stamp duty paid by first-time buyers is £1,040, equating to 5.6 per cent. of annual take-home pay. It would take a year to save this amount at £85 per month. This typical duty of £1,040 also represents 8.6 per cent. of the typical deposit raised by a first-time buyer. It would not be surprising to see a downward trend in deposits in the future, given the difficulty in funding stamp duty, and this would be a worrying development as borrowers would be reducing their equity buffer in the unlikely event that house prices fall in their area. In extreme circumstances some borrowers may be enticed to put down no deposit at all. The proportion of first-time buyers paying no deposit has increased from 1.5 per cent. to 3 per cent. in the last four years. At a time when levels of personal debt in this country, excluding mortgages, are at record levels, this would be a very undesirable trend.
The number of first-time buyers is at its lowest point since the early 1980s, a clear indication that affordability is stretched to the limit. Wide-scale home ownership is one of the cornerstones of the British economy, and is one of the factors that make our economy different from the rest of Europe. For most people, buying a house is their major lifetime purchase, or at least an aspiration that offers independence and freedom from the feudal ties of a landlord. Stamp duty land tax has turned homeowners and mortgage borrowers into a milch cow for the Treasury, rivalling even the beleaguered motorist. I hope that the Government will see that it is not working and reconsider, and that they will consult all interested parties including businesses, mortgage lenders, conveyancing solicitors and estate agents.
I draw Members' attention to the declaration in the Register of Members' Interests of my chairmanship of two chartered surveying companies, which is relevant to this particular debate.
I congratulate my hon. Friend Angela Watkinson on securing this important debate and on the way in which she has assimilated an enormous amount of detail and made the relevant points so articulately.
I also congratulate my hon. Friend Mr. Prisk on his particular tenacity on this issue, throughout consideration of the Finance Bill on the Floor of the House and in Committee, because the measure is having such a detrimental impact, both on residential house conveyancing, as articulated by my hon. Friend the Member for Upminster, and on the commercial property market. He and others are absolutely right to continue to raise this particular issue.
It is no surprise to me that implementation of the stamp duty as set out in the Finance Act 2003 has turned out as it has. The Government and the various Treasury Ministers who took part in the debate were warned, not just by my hon. Friend the Member for Hertford and Stortford and myself and others who spoke from the Conservative Back Benches, but by hon. Members from all political parties. Mr. Laws put some very salient and pertinent points that were never answered in the Chamber or in Committee. I am not surprised that the Government, in trying to implement this new tax, are in this mess.
I was aware of that fact. Caution was urged not only in this House and in the other place, but, almost unanimously, by outside bodies such as the CBI, the Royal Institution of Chartered Surveyors and the British Retail Consortium. Those bodies got together in an unprecedented way to write to the Treasury suggesting that the implementation of this new taxation should be delayed so that the detail could be worked through properly, and to suggest how the proposals could be changed to make implementation easier and perhaps fairer.
The word "modernisation" gives rise to the suspicion that the Government are trying to force through Parliament something that will be detrimental to one or another section of society, and this measure is no exception. It has nothing to do with modernisation; it is a new tax. As far as the Government are concerned, it must be put into place as quickly as possible to try to close the enormous funding gap that has resulted from the disparity between public expenditure and the drop in revenue coming into the Chancellor of the Exchequer's pot.
There are many specifics that I do not have time to go into this morning with regard to why the measure is becoming problematic. My hon. Friend the Member for Upminster said that the Chief Secretary has admitted in correspondence—certainly by implication if not by a specific statement—that this has not been properly thought through and that the matter will resolve itself in the next two years. As far as I am concerned, it is totally unacceptable that a Government should introduce new taxation without having considered the detail and thought through the implications that this new tax will have on the economy as a whole.
There are four or five specifics with regard to the problems of implementing the stamp duty that I would like the Minister to address. The previous simplistic forms have been replaced by much lengthier and more complex ones, with explanatory notes that are longer than the form. That is not necessarily a Government innovation, but it is certainly unwelcome. Previously automated, the conveyancing forms now have to be written out, as my hon. Friend said, in black ink and with a capital letter in each box, adding to the bureaucracy and taking much more time than before. Incorrect documents were sent out; there have been unanswered questions, both verbal and written, from solicitors trying to deal with these matters; and there is the seemingly inevitable computer break down.
On Report, I specifically asked about the electronic calculator for businesses and the Chief Secretary assured me that all was in train and that other methods were in train for those who could not access the electronic calculator—as in my own constituency, not all businesses have access to broadband, so they cannot get it. Subsequently, I have come to understand that everything was not in train, and many businesses have yet to receive information and detail about it. When will that be fully addressed, because many businesses are deeply concerned?
When a highly professional and respected organisation such as the Law Society—which is deeply concerned, collectively as well as individually—writes to Opposition spokesmen, expressing its displeasure at the implementation of this new taxation, it is time that the Government took stock and listened to what others are saying.
Confusion still surrounds the implementation of the lease duty. Many businesses do not have a detailed understanding of how that applies to turnover leases, where it is not just a straightforward matter of multiplying the market rent—or the estimated rental value, as it is called in professional circles. Clearly, many on turnover leases pay 70 or 80 per cent. of the rental value. Is that the number that is capitalised? What happens when turnover varies and therefore rents go up and down on an annual basis? They are not predictable over a five-year or 10-year lease term, or even longer in some cases.
The other main area of confusion, with regard to the lease duty—nobody has been able to give me an answer to this, even though I have raised it in previous debates on the Floor of the House—is how break clauses will be operated. It is common practice in the commercial property market for a 10-year lease to have inserted into it a three-year or five-year break clause. Does that mean that stamp duty is taken at the break, at three years? Does the break have to be mutual, or can it be only on the part of the tenant or landlord for it to be classified as a break for the purposes of stamp duty?
The other point, which again does not seem clear and which I hope the Government are considering carefully—the hon. Member for Yeovil has also raised this point in previous debates—is that it seems totally iniquitous that some areas are exempt from stamp duty in totality, to use a topical word, because of the socio-economic deprivation of the residential areas, without any regard to the commercial activity that takes place there. Therefore, places such as Canary Wharf, Meadowhall shopping centre just outside Sheffield, all the centre of Birmingham, as far as I am aware, and all the commercial centre of Leeds and Manchester are exempt from stamp duty taxation. It simply means—I am looking at it particularly from the point of view of the commercial property market, but it must be true for the residential property market too—that the value of those properties is increased by the percentage that is not being paid in stamp duty. Therefore, the value of the Meadowhall shopping centre, for example, is increased by £50 million with the brush of a pen. That cannot be a sensible use of taxpayers' money.
With regard to the commercial aspects, a number of experts have told me that the complexity of dealing with commercial leases causes problems. One solicitor told me that when he is acting for eight lessees in buying the freehold, he has to complete one return for the freehold and eight separate returns to cover the eight leases to which the freehold is subject. Does my hon. Friend agree that this is a bizarre form of bureaucracy gone mad?
I agree. My hon. Friend makes a good point. It goes back to the crux of the debate, which was so articulately put by my hon. Friend the Member for Upminster: the Government did not think through the implications of the tax before they implemented it on
I want to give the Paymaster General an opportunity to assure the Chamber that there will be no extension of stamp duty in the foreseeable future and certainly no imposition of stamp duty on local authorities to enable them to raise further funds for their services. Boston council faces terrible problems at the moment because, as we all know, the Government are moving funds away from rural areas. Because its budgets are being cut, it must cut services or increase council tax by unacceptable amounts. I hope that the Paymaster General will be able to assure me that there will be no increases in stamp duty this year over and above those set out in the Finance Act and no extension to it to enable local authorities to raise specific stamp duty to spend in their areas.
It is clear from this morning's debate that the Government tried to push the proposals through. They were ill thought through and ill considered. The consultation process that was supposed to take place was guillotined and curtailed. I suspect that the responses that the Govt received from professional bodies and business, which were not prepared to roll over and agree with them, were not what they wanted to hear. I hope that they will continue to look at the matter closely and make the necessary changes to ensure that everybody has full information and that the system works properly and is simplified and clarified so that business knows what taxes it must pay and when it must pay them.
It might be advisable to remind hon. Members that it is customary in a 90-minute Adjournment debate to commence the first of the three wind-up speeches 30 minutes before termination. However, there have been occasions in the past when spokesmen or spokeswomen from the main Opposition parties have exceeded their portion of time, which is usually split into equal thirds. On one occasion they not only went excessively over, but shortened the usual time allocated to a Minister. Some Ministers might welcome such a tactic because it prevents them from having time to answer all of the questions that have been posed, but it is not fair on the Chamber, on the issue or on other Members. I appeal to all Front-Bench spokespeople to examine the time that is available and to seek to apportion it equally, or to terminate early.
Thank you, Mr. Cook, for your guidance on that point. I intend to give full time to the Paymaster General to respond to the many points that have been raised. I agree that it is a serious problem when Ministers are not given full time to address all the issues.
I add my congratulations to those of other hon. Members to Angela Watkinson on the clear way that she set out the issues that are relevant to this debate. I also congratulate her on raising a matter that is of great importance to many people—including many businesses—throughout the UK, and that will benefit from the airing that it is given today. She started her speech by setting out what the new tax represents and how it will be applied. She went on to describe many of the fundamental concerns that have been expressed about it, not least during proceedings on the Finance Bill, in the debate in the House on
The hon. Lady also did a good job in updating us on many of the practical concerns that have arisen since the new tax was introduced—some of which I was aware of and some of which I was not. I welcome the Paymaster General, and it is of great benefit that she is present to respond to some of those specific points. The previous debate on this issue on the Floor of the House was with the Financial Secretary. Recently, I have spent quite a lot of time with the Financial Secretary in the Standing Committee on the Child Trust Funds Bill, and I am pleased to see a fresh Treasury face this morning.
The hon. Member for Upminster will probably agree that the Paymaster General has had a lot of practical experience over recent months of the difficulties in implementing new Government policies, particularly on tax credits. The Paymaster General is familiar with the gap that can exist between Government intention and delivery. I hope that she will respond not only to some of the long-standing concerns about the new tax, but to some of the practical issues that were set out by the hon. Member for Upminster. They are separate concerns that are worthy of a detailed response.
I am pleased that the hon. Member for Upminster also set out her concerns about the development of the stamp duty regime in relation to residential property transactions. There is increasing concern about the lack of fairness and rationale in the stamp duty system as it applies to residential properties. Over the years, that regime has increasingly caught large numbers of first-time buyers because of the Government's failure to index the starting threshold for payments of the duty. In addition, there is the illogical structure of rates, which means that people have a particularly high tax burden when they exceed the specific thresholds. There is growing momentum behind the case for fundamental reform of the stamp duty regime as it applies to residential properties. I hope that, at some stage, the Government will consider consulting on that issue and introducing proposals to reform it and to ensure that the thresholds are indexed.
The hon. Lady began her speech by teasing the Minister a bit about the stated purpose of the stamp duty land tax, and Mr. Simmonds made similar comments in the introduction to his speech. The hon. Lady referred to modernisation as one of the stated intentions of the new tax. I think that the three stated intentions were modernisation, promoting e-business and promoting fairness. We are entitled to ask whether the new tax meets any of those criteria.
I share the hon. Lady's suspicion of the word modernisation. In fact, I can remember that my predecessor, Lord Ashdown of Norton-sub-Hamdon, got into difficulty in my party's federal policy committee prior to the 1997 election: he wanted to put the word "modernisation" into our manifesto and he was firmly told that he could not because it was meaningless new Labour jargon that signalled nothing clear about the intent of a policy. The debate about the stamp duty land tax probably shows that the members of that committee were correct to pull my predecessor up on that point.
The hon. Lady questioned whether the new tax is fair in the way in which it applies to different sectors. That point has frequently been made. The hon. Member for Boston and Skegness referred to the stamp duty land tax interacting with the deprived area relief in a way that has bizarre effects.
The hon. Lady also mentioned e-business and the extent to which there might be a gap with regard to the Government's stated intention of creating a streamlined tax system in which many transactions take place on the internet. She gave examples of the backward mechanisms that are in place in some cases for people to submit paper-based returns and the practical difficulties that have arisen out of that.
The Government have failed to persuade people about the benefits of the new tax reform. They have not convinced people that the stated Government intention of addressing long-standing distortions and loopholes is what the new tax is about. If that is what it is about, people fail to comprehend why its introduction has corresponded with a £200 million increase in the tax yield from this measure. The hon. Lady referred to that.
In the original consultation document, the Government foresaw that the costs to the public and professionals would not only be held level, but that they might fall. Given what has happened, does the hon. Gentleman share my concern about that?
The hon. Gentleman is right. The impression was created that this would be a tax-neutral reform designed merely to introduce a more rational system and to clamp down on tax avoidance, and that it might reduce some transaction and processing costs. If the points made by the hon. Lady are correct—I have no doubt that they are—one must question that part of the equation as well.
The hon. Lady referred to the increase in property taxation in the United Kingdom in the past few years and to the high transport taxes that many UK businesses pay. The CBI made that point in its representations to the Government about the implementation of this tax. It said that although UK corporate tax rates, and to some extent social costs, are lower than in many of our competitor countries, it is not often understood that that is offset by high property and transport taxes. The reform of this tax is resulting in increased taxation on business and increased yields to the Exchequer.
It must be of concern to the Paymaster General and the Government that, in all the consultation that there has been about the introduction of the new tax—in all the representations that there have been since the details of the new tax were confirmed—there has been a universal thumbs-down from business lobbies, particularly in relation to the leasehold aspects of the tax. When we last debated the issue with the Financial Secretary to the Treasury in the House on
The implementation issues that I want to focus on are not only the practical issues. The hon. Member for Upminster explained those issues clearly, and we must ensure that the Paymaster General has sufficient time to respond to them. Fairness issues were referred to in earlier debates, particularly in relation to how particular sectors will be hit by the implementation of the tax, as was the point made by the hon. Member for Boston and Skegness about the interaction of the leasehold aspect of stamp duty land tax with the deprived area relief. A number of business bodies have made representations on those points.
In the debate of
Business organisations expressed another strong concern that came out in the
It seems bizarre that a measure that, according to the Government, will promote fairness should hit particular sectors in that way, merely because of the typical structure of long leases that prevail in them. It seems odd that the Government should wish to frame measures that, in attempting to tackle tax avoidance, should penalise sectors involved in long leases of up to 20 or 25 years, often because of the capital investment involved in maintaining properties. In our earlier debate, the Financial Secretary said that some 60 per cent. of businesses would be exempt from the increase, because of the Government threshold. However, other business organisations have made representations that, in some areas, as few as 30 per cent. of companies would be exempt because of their sector's leasehold structures.
The other unfairness of the tax's implementation was raised by the hon. Member for Boston and Skegness. We have been critical of the new tax reliefs and loopholes consistently introduced by the Chancellor in each pre-Budget report and Budget statement. All, no doubt, are well intentioned, but they have bizarre effects when the Government seek to implement them. The famous example was the film industry tax relief, designed to incentivise the British film industry. Initially, it was estimated that it would cost £30 million or £40 million per year, but it ended up costing £400 million or £450 million per year, because of the tax avoidance opportunities that it opened up.
The House of Lords Committee that considered the issue, and other groups that have made representations, have pointed out that the stamp duty land tax with the deprived area relief will have the bizarre effect of giving exemption and relief to a pub in an area such as Canary Wharf that serves the interests of rich investment bankers working nearby, or to the Harvey Nichols department store in Leeds, which the hon. Gentleman said would be affected. Such areas will get exemption and relief from the stamp duty land tax, whereas many other businesses will be operating in genuinely deprived parts of the country, including wards in my constituency that are among the 25 per cent. most deprived in the country. Those businesses will receive no exemption, which is odd and raises the question of whether the Government should revisit the subject of deprived area relief, as well as the fundamental basis for the stamp duty land tax.
There are many issues for the Paymaster General to respond to. Some have been raised before in the consultation process, during the passage of the Finance Bill and in the debate that preceded the introduction of this measure. No doubt, she will be unwilling to reverse the course in the short term on some of those matters. However, I hope that she will respond to particular issues that have been raised today and will plot a course to deal with these concerns in future.
I hope that the Paymaster General will respond first to the practical matter raised by the hon. Member for Upminster of the many real problems arising as a result of the introduction of this tax since
This is a new issue for us—it has not been debated in detail since the new tax came in. I hope that the Paymaster General will tell us how the Government intend to deal with those problems. Although they do not affect the fundamental introduction of the tax, she must be concerned about them. I also hope that she will undertake to reconsider some of the issues about which businesses are concerned. Perhaps she can tell us whether, by the next Budget statement, or at worse the next pre-Budget report, there will be a review of how many businesses have been affected by the leasehold reform in particular and whether the Government's initial estimate is being realised in practice. I hope that they will do some work to assess whether the introduction of the stamp duty land tax for leaseholds has had an unfavourable effect on some sectors, and whether that can be justified.
I think that the business community accepts that the tax has arrived and that it has lost its opportunity to halt the principle of this new tax. However, it wants the Government to respond in future to problems that emerge when the evidence demonstrates that their initial assessment was incorrect. It also wants the Government to show their willingness to respond to problems when they arise. I hope that as part of any review of this tax in the Budget, or in the pre-Budget report, there will not only be consideration about the fundamental nature of the tax and the interaction with the deprived area relief, but a review of whether the existing thresholds are set at the right level. Business organisations are asking for the threshold to be reviewed if the evidence shows that the Treasury got the initial assumptions wrong.
This debate has been a great benefit. Once again, I congratulate the hon. Member for Upminster on securing it. I now intend to give the hon. Member for Hertford and Stortford full time to develop his case, and the Paymaster General time to respond in great detail.
I, too, congratulate my hon. Friend Angela Watkinson on securing this debate and on a thorough and excellent speech. She has shown on a number of occasions that she is able to get to the heart of the issue in a way that everyone can relate to, and I genuinely wish to commend her opening remarks.
I also congratulate my hon. Friend Mr. Simmonds. As always on this issue, he brings a professional insight that adds to our debate, as all hon. Members could hear.
The original objectives for reforming stamp duty were set out in the consultation document of April 2002 "Modernising Stamp Duty". In that, the Minister and the Financial Secretary—then the Economic Secretary—stated that the Government's reforms would be based on the principles of fairness and modernisation, and would enable electronic conveyancing. In short, the new taxation regime would
"make the house-buying process simpler, quicker and more efficient".
I wish that were true, but sadly those worthy statements have been overcome by not only the Government's desperate need to fill the Chancellor's financial black hole, but the actions of Inland Revenue officials. After all, if electronic conveyancing does not begin until 2006, why the rush to implement the tax by
From the botched consultation on lease duty, through the heavily guillotined considerations on the Finance Bill, to the shambles in implementation described by my hon. Friends, the tax is the story of an ill-conceived, ill-prepared measure that is hugely bureaucratic, technologically regressive, and has increased costs to home buyers and property professionals. My hon. Friends highlighted a number of problems that people face. The old one-page form is replaced by a six-page land transaction return, plus another eight pages of forms, just in case the first six were insufficient, and should one's attention wander, there are an additional 43 pages of guidance notes.
One reason why the forms are so long is that a requirement has been inserted into the new process for a raft of information that has nothing to do with the tax being paid. Thus, for example, people are asked to put down their client's national insurance number. Why? Also, as hon. Members have described, there is the nonsense that the new forms, designed to enable electronic conveyancing, have to be completed by hand in black ink, there must be a capital letter in each of the key boxes and, of course, one's handwriting needs to be neat. Quill pen or no, clearly modernisation means something entirely different to the Government on the one hand and the rest of us on the other.
The result is that it is takes far longer to complete the new forms than the old. Most professionals tell me that instead of taking five minutes, it now takes 30 to 40 minutes. As all good lawyers will say, the Law Society has costed the tax. It has advised its firms to charge a minimum £40 extra for each residential conveyance, and £70 for commercial deals, in order to cover the increased costs. In most years there are about 1.5 million transactions in the residential market; that means £60 million of extra cost for home buyers and property professionals from Labour's new tax.
What went wrong, given that we have heard that the original consultation said that costs would be kept to a minimum—indeed, might even be reduced? Before the Bill came before the House, we were told by a raft of experts that the Government should treat the matter carefully, and that implementation should be delayed. Indeed, even the cross-party House of Lords Economic Affairs Committee, which considered the issue with care, urged delay. Having listened to that advice, on several occasions the Conservative party offered to support the Government if they delayed implementation in order to get the details right. All that was rejected because, in the opinion of the Chief Secretary, it would lead to a loss of tax revenue. We could see that, even by last summer, those halcyon ideals of a simpler, cheaper efficient tax were long gone; the agenda had changed.
The perils of ignoring the warnings became clear when, on
I am rather persistent so I continued to press the point. I even hinted that I might make a fuss on the big day of the Chancellor's pre-Budget report, which would have been warmly received by the occupant of that particular job. Suddenly and miraculously however, at 8 am on the morning of the pre-Budget report on
Believe it or not—I do not want to stretch your credulity too far, Mr. Cook—there was another error in the statutory instruments. Several solicitors have since advised me that the orders passed by this House on
Since the tax came into force on
Despite the Financial Secretary's promises, insufficient forms were printed in time for
The education and information provision for solicitors in conveyancing was also late and inadequate. Many of the revenue seminars for professionals to explain how it would all work took place just days before implementation, leaving little time for professionals to prepare. Why did the process start so late, given that the main legislation was enacted last summer? If the answer is that the Government did not have the final details, why do they refuse our offer of more time to obtain those details?
We have heard about the problems with the helpline—where is the Inland Revenue these days without problems with its helpline? It collapsed in the first week, leaving many solicitors having to make repeated calls, and we have heard about one especially pertinent story during today's debate. Often, solicitors were left with no information whatever, and were faced with the embarrassment of having to explain to their clients that they could not fulfil the tax requirements on which people's move to their new home depended.
Lastly, there have been serious delays with the certificates of payments. As has been described, those are essential, because the Land Registry can reject an application to register a buyer's title to property without such a certificate. We were promised a five-day turnaround, yet for many people it takes two weeks. Are there sufficient people dealing with that, and what is the reason for the delays, given that this is probably the quietist period of the year for home buying?
Solicitors have genuine frustrations. Andrew Almond of Messrs Halsall and Co. of the Wirral says:
"It is clear that the implementation of this tax has been brought about too quickly, with too little thought being given to the practicalities for administering the tax, and with the forms that we are required to complete having been prepared by people who can have no conception whatsoever of the difficulties they are creating and the time they are wasting for professional people, who are trying to serve their clients' best interests in a competitive commercial world, and where the method of imposition of such a bureaucratic tax has reached the point of sheer lunacy."
Those are the words of a professional trying to deal with the issue. Given the bitter experience of such professionals in the first month, when the housing market has been at its quietest, many people now fear that things will take a turn for the worse.
It is welcome to see the Paymaster General. She will be able to clarify whether she is dealing with the issue, or whether it is the Financial Secretary again. Will she confirm that the Minister responsible will meet me and the concerned professionals and their representatives to hear their concerns about what can be described only as gross incompetence?
What a wasted opportunity the tax has proved to be. Its implementation has been shoddy and haphazard, with error heaped upon error. Where we were promised simplicity, we have bureaucracy; where we were offered speed, we have delay; and where we were promised fairness, we find hidden costs. In 2002, the Government's stated aims for the tax were to be commended. Yet today, as so often with this Government, the results deserve only to be condemned.
I congratulate the speakers in the debate, and Angela Watkinson on securing it. I want to return to the questions that she posed and dispel some of the myths that are circulating about what happened on the introduction of stamp duty land tax.
As has been mentioned, in the Government's view, stamp duty land tax creates a fairer, more modern and more robust tax regime for transactions involving United Kingdom land and buildings. It successfully addresses the long-standing distortions and loopholes in the previous charge, which were being increasingly exploited by big commercial players at the expense of the majority of taxpayers.
Yesterday I was in Scotland meeting various groups and considering questions surrounding the introduction of new technology and the importance of using new communication forms. We considered how difficult it is to introduce such new methods, and how vital they are to smooth communication in society, and today's debate caused me to reflect on the fact that we are talking about a system that was in place for something like 300 years, which hon. Members would apparently prefer to have kept. The serious problem that needs to be addressed is how to move to the new systems.
Out of respect for the hon. Member for Upminster, and given that everyone has implored me to answer her questions, perhaps I should try to make some progress. The hon. Gentleman has many opportunities to debate the matter. As he said, he does so assiduously.
In achieving the objectives, my right hon. Friend the Chancellor was determined to introduce a new regime that would cause as little disruption as possible—a point to which I shall return, along with the points that the hon. Lady raised—to all those involved in land transactions, be they purchasers, sellers or those who assist them. The Inland Revenue officials worked with interested parties, including the Land Registry, the valuation office and practitioners to achieve that. Both during proceedings last year on the Finance Bill and elsewhere, there were calls for implementation to be put back, perhaps by a whole year, to which the hon. Gentleman referred. The Government believed that it was right to act in 2003 to prevent further avoidance of duty under the old regime and an increase in the distortions, and we stand by that.
We continue to consult on how we can have a fairer system that reflects commercial practice, not tax distortions, and takes account of moves towards e-conveyancing. Consultation on the processes commenced in the summer of 2002, and on some of the more complex areas, such as large developments and leases, it continued until the summer of 2003. That consultation was worth while. It produced worthwhile changes on the lease duty. For example, it resulted in the whole amount of the net present value below the thresholds for residential and commercial properties being exempt from the charge for commercial land. That means that every time a lease is chargeable, the duty will be £1,500 less than under the original proposals.
We recognise that the changes did not give everyone the outcome that they wanted. How could it for those who were taking advantage of the distortion? We have tried to help small and medium-sized businesses and business start-ups particularly. The consultation took place not only on how the legislation should be operated, but on the administration and implementation of SDLT. In that context, I recognise and pay tribute to the important roles played by all the representative bodies that we consulted, including the Law Society of England and Wales, the Law Society of Scotland and the Law Society of Northern Ireland. They robustly represented the interests of their members and it is the duty of the Government to listen to those interests, but to make decisions on behalf of all of us. They also worked with Inland Revenue officials to prepare for implementation. Working together, more than 55 events were organised, which more than 5,000 solicitors and conveyancers attended. It is unquestionable that the move to the new regime was much smoother as a result of that work and benefited from it.
One of the messages that came across loud and clear was that practitioners wanted some flexibility in how SDLT was introduced. The interested parties are urging the Government to adopt a light-touch approach and provide such flexibility as to allow various ways to support their documents, as well as the move to e-conveyancing. The hon. Gentleman sought this morning to use the Government's willingness to adopt such a light touch approach and to implement such flexibility to criticise the system as a whole. This is a matter for the Government—Ministers' shoulders are broad—and this is what we must do. It will allow the Inland Revenue to adopt a light touch approach for a limited period to accept returns that do not include all the information that is required in the longer term. That light touch, which has been well publicised, also extended the time before which the Inland Revenue will seek to charge interest and penalties because of late delivery of forms.
All those initiatives require a high degree of manual intervention and a manually run office was established at Kenton Bar in Newcastle. That office has issued more than 58,000 certificates and has collected more than £99 million in revenue. It is currently receiving between 7,000 and 8,000 completed returns a day and processing those returns within three to four working days. The Inland Revenue's stamp offices expect to be able to maintain that service commitment of turning returns around with five days of receipt.
The hon. Member for Upminster asked a number of questions about implementation, and before making further more general points about the system I shall return to some of her questions. She said that the six-page form, plus the supplementaries, is a backward step. Moving away from stamping documents is a necessary first step to e-conveyancing. It is impossible to send documents down the internet. Little additional information has been requested. The national insurance number, which has been mentioned by several hon. Members, is one example of additional information, but it is the common currency that the Inland Revenue uses to deal with all its taxpayers and contacts. However, if the national insurance number cannot be provided, that by itself will not prevent a certificate from being introduced. Again, the question is when we will introduce the steps that allow us to move towards an e-conveyancing system while at the same time allowing flexibility. I believe that the right balance has been struck.
The hon. Lady and other hon. Members made the sweeping statement—it is open season on computers, particularly the Inland Revenue's system—that the computer went wrong. The computer did not go wrong. Best practice requires that IT is phased in when implementing a new system, and I hope that everyone finally understands that. It was always the plan to start up with the manual processes, which is something that some hon. Members have implored the Government to do in this debate.
No. The hon. Lady asked many questions and, Mr. Cook, you made it clear that you expect me, quite rightly, to address her questions. If time permits, I shall happily give way to the hon. Gentleman later.
Running the manual process at the start also helps with the light-touch approach that I described previously. Again, the Government were implored to adopt that process in moving from one system to another, to assist practitioners.
The hon. Lady also discussed lease duties on pubs and restaurants and the charge for shorter leases. The change applies only to new leases; existing leases are not affected. As for Marks & Spencer, it has publicly stated that SDLT will not affect its expansion plans. The tax is in line with the Government's policy to encourage shorter leases.
The hon. Lady made a great deal in her speech about first-time buyers who cannot purchase because of rising stamp duty. I would like very gently to remind her that the Government have not increased stamp duty for the past three years, that transaction costs in the United Kingdom are lower than in most European countries and that the introduction of SDLT did not affect residential rates. She then went on to make the general proposition that is always made, that SDLT—and, it seems, anything else that the Government introduce—is a stealth tax. The changes to lease duty charge will remove the distortions between freehold and leasehold transactions. Hon. Members have mentioned the independent property research organisation that estimated that 60 per cent. of new commercial leases will be exempt from SDLT.
No, it is important, in terms of protocol, that I answer the hon. Lady's questions. The hon. Gentleman is using up time by repeatedly asking me to give way. I still have a large number of questions to answer, and I shall do her the courtesy of answering them. That is what I am expected to do as a Minister.
The hon. Lady asked why the forms were so long. She said that they take longer to complete than under the old system and that they will increase the cost of buying a house. The forms seem longer because they had to be made IT compatible. In fact, they ask for virtually the same information that the stamp duty office asked for under the old stamp duty regime. We have taken steps to assist practitioners in implementation, such as the light touch approach, manual working and educational discussions on duty, and although we accept that it will take time for practitioners to become familiar with the form, we do not see any reason why in the long run the time taken to complete it should be significantly more than under the old regime.
I would also say that more than 98 per cent. of transactions will need only the basic form. The supplementary forms will be required only in a small proportion of transactions, primarily commercial ones, which is exactly the area where the distortion and the problems were occurring.
It was said by the hon. Lady, and in several of this morning's contributions, that the Inland Revenue ran out of forms in December. The Inland Revenue did not run out of forms. Everyone who asked for a return form will have received one. The Inland Revenue estimated the number of forms necessary, and it never ran out of returns. By early December, the Inland Revenue had received requests for more than 1 million returns for a maximum of 8,000 transactions a day. Returns could also be obtained from the website and from case management software, and the Inland Revenue sent out starter packs to more than 10,000 practitioners before
The hon. Lady went on to raise three questions. One concerned the duty calculator, the second related to the two weeks that the certificates took to arrive, and the third to the inquiry line not working. Those are important points, and I can tell her that there were problems in the first week of December, but the calculator was working correctly by the end of that week. In the interim period, the Inland Revenue staff were helping practitioners with calculations.
The hon. Lady gave a particular example of a telephone being put down in mid-conversation and she said that she would have liked to have been a fly on the wall at that point. I, too, would have liked to have been a fly on the wall to see what really happened. I cannot comment on the particulars of the case, but as a general point, and as the high standards by which the Revenue operates demand, I, like everybody else, would not expect anyone to have the phone put down on them when they are making inquiries. I do not know the details of the incident, but I will certainly make sure that my view about the courtesy of our staff on the telephone, and my understanding of how they behave, is the one that prevails.
The hon. Lady made points about the regulations, and that was a theme of each of the contributions made. We were, as I have tried to explain, rightly committed to allowing a proper time for consultation, but there was a minor error in the formula. That will not take effect for five years, but none the less it is important to have correct regulations. There was also the question about the answers that my hon. Friend the Financial Secretary to the Treasury gave and whether they were in plenty of time. They were in plenty of time for a return of any SDLT transaction to be completed in time. The earliest SDLT transaction on
I hope that the hon. Lady realises that I completely understand her frustration at the anger that some people have expressed to her. I also hope that she accepts that the Inland Revenue did consult and undertook to ensure a process that could be as smooth as humanly possible, given that we were transferring from one system to a new flexible one, as was requested of us in the consultation, with the manual working and the light touch approach. It continues to provide enough time for practitioners to become familiar with the new processes. The information required is the same as was required for 98 per cent. of those in the system predating
Inland Revenue officials are going further because, if our objective is to move to e-conveyancing, it is important to ensure that there are products on the market that enable it to take place. That includes work to introduce an online version available on the Inland Revenue website and for Inland Revenue-approved versions of various returns to be provided by software companies as part of their case-management packages. Returning to the point about the process being all being pen and ink, both alternatives have been widely and warmly welcomed and will be introduced to the system.
Inland Revenue officials continue to work on other ways in which to complete SDLT returns. A stand-alone CD-ROM that will help some practitioners is currently being tested, and the Inland Revenue expects to have e-filing available in the autumn. As part of the development of those tailor-made response options, the Inland Revenue has consulted practitioners to ensure that the individual product will be of most value to their business. An online filing service will be available later in 2004.
One objective of the implementation of SDLT was to ensure that the new processes should not inconvenience property purchases, and particularly home purchases, to which the hon. Lady referred. Another objective was to ensure that there was less avoidance, which I am sure all Members welcome.
After only seven weeks, I am sure that hon. Members will appreciate that it is difficult to judge whether the measure has been successful. Mr. Laws referred to that in his contribution about monitoring and testing the objectives. However, the number of transactions notified to the Inland Revenue is up by about 25 per cent. and the amount of duty paid in November and December 2003 was more than £933 million compared with £864 million for the equivalent period in 2002.
I should like to continue.
From a compliance perspective, it is interesting to note that higher than expected volumes of stamp duty transactions continue to be returned late to the Inland Revenue, and it must consider the reasons for that. There are a number of other issues in the market, so—before the hon. Gentleman jumps to his feet—I am not suggesting that there is a causal relationship between those volumes and the change in revenue, although we need to understand the trends in such matters. The Inland Revenue will therefore analyse the reasons behind that, and it will have the power to take action just in case anyone is backdating transactions.
We recognise that the successful introduction of SDLT on
I am delighted that the Paymaster General has given way. Would she not accept that the Government could have closed the loopholes that were being used without introducing the additional taxation, and could have concluded the consultation period properly to make sure that such problems did not arise?
I cannot believe that the hon. Gentleman said that. A loophole allows people not to pay tax when they should be doing so, and the purpose of the legislation is to stop their avoiding tax that they should have paid. The Government did not conceal the point that we were proceeding on the basis that we had avoidance and that the nature of that avoidance was distorting the stamp duty system.
If I could just finish my point, I will give way to the hon. Gentleman.
The stamp duty system needed to be fundamentally addressed. That is not new; the Conservative Government did it on loan relationships, and I am extremely happy to discuss the detail of how that was implemented, what went wrong and how the Government are still trying to put it right.
I am grateful to the Paymaster General for giving way. She has obviously never heard of a tax-neutral reform before. Perhaps I can help her as she has clearly run out of her speech. In her earlier comments, was she saying that the yield from the new tax has, so far, turned out to be higher than expected? Is she saying, therefore, that when it comes to the Budget in a couple of months' time, she may have to revise up the yield that the Exchequer will get from the new tax?
I was not saying any such thing. That goes to show that when one tries to answer a question honestly by giving early indications to hon. Members, it can be swung round to mean something different thing. What is important is that we ensure that the tax is collected, that everybody pays the fair amount of tax that the legislation requires, that we introduce the new system, moving to e-commerce as smoothly as we can by taking on board points about the transition that are made to us in consultation, and that we have a system that is fair to all taxpayers. As a Government, we must ensure that we continue to monitor the system's introduction, continue the discussion on its implementation and therefore ensure that we have a system that is fair to all taxpayers and fair to taxpayers in the area. That is precisely what the Government have done.