HC Deb 12 May 1977 vol 931 cc1721-37

'At the end of Clause 29(2) of the Finance Act 1965 there shall be added the words "provided that, where subsequent to the acquisition by an individual of a dwellinghouse or part thereof as that individual's only or main residence (the 'residence'), that individual lets part of it not exceeding in superficial area 1,000 square feet, or one-third of the total superficial area of the dwellinghouse or part thereof whichever is the smaller, such let part shall be deemed to be occupied by that individual as part of his residence 'so long as that residence' remains the only or main residence of the individual".'—[Mr. Pardoe.]

Brought up, and read the First time

Mr. Pardoe

I beg to move, That the clause be read a Second time.

The Chairman (Mr. Oscar Murton)

With this, we may take the amendment to the new clause, at the end add 'and subsection (5) of section 29 shall no longer apply'

Mr. Pardoe

I am sorry to rise again so soon after the last debate. I declare an interest, because I wish to let part of my house and the clause is about letting part of one's house. I do not think that letting part of one's house, if one has a surplus of accommodation, is antisocial. In fact, it is a social thing to do.

Mr. Nicholas Winterton

As long as one can get it back.

Mr. Pardoe

The purpose of the clause is to remove one of the barriers that tend to stop owner-occupiers from letting accommodation in their main residence. The present situation is summed up in an Inland Revenue Press notice of November 1975. It says: Where the owner of a dwelling has occupied the whole of it as his only or main residence throughout his period of ownership (or since 6th April 1965 if he acquired it before then) any gain on disposal is exempt from capital gains tax…. Where a lodger lives as a member of the owner's family, sharing their living accommodation and taking meals with them, no part of the accommodation is treated as having ceased to be occupied as the owner's main residence, and the exemption will not be restricted at all…If the owner lets accommodation in his home so that the part let ceases to be used as his only or main residence, the capital gains tax exemption must be restricted. There follows a fascinating calculation showing how to work out one's liability for capital gains tax involving the chargeable gain made if a property had been let for part of the year to, say, a student.

We all ought to want people to rent out spare accommodation in their main residence. We are not an under-housed nation. We are a ruinously over-housed nation compared with our European neighbours in terms of square metres of occupiable accommodation per individual. Our problem is that we are using that accommodation wastefully.

The Government have recognised part of the problem, and the most recent Rent Act specifically exempts resident landlords from the provisions giving tenants of furnished accommodation security of tenure. Despite this, we are still using our accommodation wastefully.

12 midnight.

What are the main barriers which stop the owner-occupier from letting a part of his property? Obviously, first, the assemblage of Rent Acts is the main constraint, and sooner or later the Government housing review must do something about that. In many ways this is almost the most important constraint. There is also the tax on the income that one gets from renting the property. It would be useful if we also dealt with that.

Perhaps capital gains tax is not the most important constraint on letting a dwelling, but it is a constraint which can be removed by this tightly drawn, conservatively-phrased clause. It would not cost very much money. I doubt whether it would cost even £1 million, unlike the last new clause, which would have cost two-thirds of the total revenue from capital gains tax.

I believe that it is worth removing this constraint, such as it is, from the landlord who wishes to let a part of his property. It is for that reason that I have moved the clause, and I propose to press it to a Division.

Mr. Bruce Douglas-Mann (Mitcham and Mordern)

I congratulate the ho[...] Member for Cornwall, North (Mr. Pardoe) on adopting one of the amendments that I put forward to last year's Finance Bill. Although I have some doubts about whether it would be advisable to press the matter to a Division at this late stage, I hope that my hon. Friends on the Front Bench will give serious consideration to the clause.

Although I agree with the hon. Gentleman that capital gains tax is not the principal constraint against the letting of part of a property, it is indeed one of the constraints. There are three constraints. Perhaps the most important is the misunderstanding of the effect of the Rent Acts. One serious defect of the Rent Acts is the fixed-term letting provision.

The second constraint is the fear of disclosing the rents one receives for income tax purposes because of the capital gains tax provision. As a consequence, the owner-occupier is unwilling to let, not because he is afraid of paying tax but because he is afraid of landing himself with capital gains tax as a consequence of disclosing the rent he has received.

The Minister shakes his head. Most people are willing to pay tax on what they have received, but they are apprehensive about the extent to which they are landed with capital gains tax because it will reduce the income they receive from rents to zero.

The effect of double taxation on the rental income is a greater deterrent to owner-occupiers letting part of their home than either of the taxes taken by themselves. The actual loss of revenue will be minute. The hon. Member for Cornwall, North referred to £1 million. I may be wrong—I have no direct experience—but I have been informed that it is the practice of the Revenue to disregard properties where the letting has come to an end more than 12 months before disposal of the property. If that is correct it provides a strong incentive for the disposal of a tenant long before one may choose to dispose of one's house, just to be on the safe side.

Mr. Freud

Will the hon. Gentleman not agree that the executors are more likely to keep the house empty in order to discharge their job properly and burden the estate with the minimum amount of capital gains tax?

Mr. Douglas-Mann

We may be talking about a subvention. I have tried to ascertain what the practice is. I have been given this information, but it is difficult to check up on extra-statutory concessions. If it is indeed the case that lettings more than 12 months prior to the disposal are disregarded the effect of the provision is absolutely nugatory and the revenue loss is virtually nil.

In any event, I am not concerned so much with the impact on the revenue as with the impact on owner-occupiers contemplating letting part of their homes. That is a highly desirable practice and should be encouraged. A substantial part of the 1974 Rent Act was designed with that intention. The amendment would remove a substantial disincentive. Even if I am wrong about the extra-statutory concession, the proposal will not be significant in revenue terms. Whatever the Minister's decision, I hope that this matter will be reconsidered later.

Mr. MacGregor

I have tabled, as an amendment to the proposed clause, at the end add 'and subsection (5) of section 29 shall no longer apply'. Unfortunately, my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley) could not be present and asked me to deal with the amendment for him. I agree very much with the proposed clause. I am sure that we are all concerned about the diminution in the amount of accommodation provided for students and single people over the last two years.

I have been puzzling out the exact details of the amendment, but I think that my hon. Friend is on an interesting point. The amendment is slightly defective in drafting—something we have all been guilty of—but I commend my hon. Friend's ingenuity in getting this point in.

The amendment relates to subsection (5) of Section 29 of the 1965 Rent Act, which states that any part of a dwelling-house given over to business or trade purposes shall not be exempt from capital gains tax. My hon. Friend said that this might even cover the case of a vicar who used part of his house to pray in, but the more serious and usual cases are those of doctors and dentists who use part of their homes as surgeries and waiting rooms.

This would be a moderate exemption. If the amendment is accepted, it should be subject to the same kind of limitation in terms of square feet as is contained in the clause. Obviously, if three-quarters of a dwelling-house was used for trade purposes, that should not he exempt from capital gains tax; the amendment relates to the use only of a dining room or some such area.

Someone might convert part of his house in pursuit of his business but then have to leave unexpectedly and at short notice. He would find that part of the proceeds of selling his house would go in capital gains tax, but then he would have to acquire a similar house in another part of the country. In such cases, the surgery or the business dining room reverts to its ordinary domestic use. This worry should be removed.

Subject to the ceiling on the square footage, I look forward to the Minister's reply.

Mr. Tony Newton (Braintree)

I do not want to take too much of the time of the Committee to support the hon. Member for Cornwall, North (Mr. Pardoe). The hon. Gentleman has performed a valuable function in bringing this proposal before the House of Commons once more. If I am right in my recollection, it was raised before from the Government Benches. It can hardly be said to relate to an unimportant measure of policy apart from its relationship to taxation.

The clause has rightly been moved as part of a more sensible approach to housing policy at a time when there can be little doubt that we need to adopt a more sensible approach. Clearly, we need to make the best use of our housing resources. No doubt you would rule me out of order, Mr. Murton, if I were to attempt to discuss housing policy in any great detail. However, I am glad to see that my hon. Friend the Member for Hornsey (Mr. Rossi) is present, bearing in mind his responsibilities for housing. That is some sign of the relevance of the subject and the fact that the clause relates to an issue quite different from the one that is ostensibly under discussion. As the hon. Member for Cornwall, North said, I hope that there will be agreement from both sides of the Chamber.

There is little doubt that we have plenty of housing stock, although there may be argument about the condition that some of it is in and whether we need to do more to bring it up to standard. The problem is not a shortage of rooms and houses but that many of them are in places where people are not living, or do not want to live, which is not a problem that we can solve tonight, and that many of them are not being properly used because of a variety of disincentives.

I well recall buying the house in which I am now living in my constituency some two years ago. At that time there was a lodger in the house. I was trying to buy the house and no one would let me sign a document until the tenant was out. That would not necessarily be the situation as the law now stands but there was a great deal of worry at the time. It is a good illustration of the problems that are created by current tax and housing legislation.

I was happy that the tenant should stay. I should have been happy to have had a little extra income. The tenant wanted to stay in the house for a while before she returned to the North of England. However, in no way would my legal advisers allow me to go through the transaction until she was out. As a result, a large part of the house stood empty for a few months.

Mr. Joel Barnett

That has nothing to do with the clause.

Mr. Newton

Perhaps the Chief Secretary will leave the question of whether I am in order to you, Mr. Murton.

I return quickly to the issue of capital gains tax. I seek to illustrate my contention by drawing to the attention of the Committee that a great deal of our housing stock: is wasted and under-used for a variety of legal reasons. The main problem is rent legislation, but tax legislation is unquestionably a contributory factor.

It seems that the problems of housing and the persistent failures of Governments of both parties to solve them satisfactorily over a number of years must lead us to accept that we need to consider every possible contribution that we can make towards easing the problems, whether by tax or rent legislation, security of tenure, building policy or anything else. Tonight we have the opportunity to discuss the matter and to do something about a relatively small area of the tax system that could do something to help.

The hon. Member for Mitcham and Morden (Mr. Douglas-Mann) referred to a topic that appeared to be too lightly dismissed by the Chief Secretary. The right hon. Gentleman did not give vent to words but made his attitude clear by gestures, by shaking his head and employing other manifestations that have become familiar as one Finance Bill has been followed by another. The right hon. Gentleman indicated that he did not accept the hon. Gentleman's argument.

I have no doubt that a good deal of what amounts to dishonesty in the tax system arises from the letting of properties. People do not declare a great deal of income, especially that derived from casual lettings to students and the like during the summer. I would not care to judge how far that is the result of their not wanting to pay income tax at, for the most part, investment income rates and how far it is because they fear the capital gains tax consequences.

12.15 a.m.

If the Chief Secretary believes that all taxpayers are so unsophisticated that many of them do not think of the implications of declaring the income when it comes to assessing the house for capital gains tax if they want to sell it, I think that he is wrong. There are many taxpayers sophisticated enough to know that by declaring the income they may be landing themselves with another problem not too far in the future. We may thus be creating an incentive to dishonesty, which we would all want to check, or encouraging the holding of that part of the house off the letting market, with the kind of consequences for housing policy of which we have been talking. Therefore, the right hon. Gentleman cannot dismiss the matter as easily as that. It does not apply to everybody, but if it applies to some it is worth taking into account.

I am not sure what Ministers will say in reply. I shall be interested to hear. I do not propose to delay the Committee too long before we have the opportunity to gain this fascinating intelligence. Ministers may say that it is not a very important problem. It is clear from the general signs and muttering on the Labour Benches that they are building up to asking what we are fussing about, and whether we cannot all go home to bed. [HON. MEMBERS: "Hear, hear."]I can understand the Government Whips' enthusiasm for that, particularly as one train to the North follows another as we debate. If that is to be the Ministers' line, they are standing the point on its head. If it does not matter very much, what is the argument against doing it, in the hope that it may ease, at least a little, a problem that both sides of the Committee agree to be important?

The general point is that none of us can be sure which of the factors discussed in this short debate are the ones that are contributing to the fact that a great deal of accommodation that used to be rented has been taken off the market and that much less than we would like to see comes on to the market. One thing we can be quite clear about is that people with accommodation available for letting in the sort of circumstances of which the hon. Member for Cornwall, North spoke are now thoroughly confused and frightened about what will happen. They decide that the safest thing is not to risk getting into this tangle by letting their property.

The clause would not solve the problem, but it might do a little to help. If Ministers are to resist the clause, they cannot get away with saying that it does not concern a particularly important aspect, because that is a matter of judgment, and I doubt whether either side in the argument can prove it. They must say why they do not think it worth doing anything we can to encourage owner-occupiers to let those parts of their property that they do not wish to use themselves. They must also persuade us of what the Treasury and the Inland Revenue have to lose by accepting the clause. As far as I can see, virtually nothing can be lost by the Treasury. There is no new scope for tax evasion or similar difficulties. At least there is the hope and possibility that we may strike a small blow, if nothing more, for a slightly better use of our housing stock.

For these reasons, I shall be happy to support the clause in the Lobby.

Mr. Freud

The points that the hon. Member for Braintree (Mr. Newton) raised about tax avoidance or evasion have little to do with the clause. I should like, particularly in my capacity as rector of a Scottish university, to point out the great dangers inherent in not accepting the clause.

Let us consider the present position in regard to education grants and especially discretionary grants, towards many of which there should be contributions from parents, contributions which are not forthcoming because of the parents' inability to pay. Therefore, it is essential that universities have as many different kinds of lodgings as possible, offering as many different facilities at different prices as possible.

Certainly, the accommodation officer of Dundee University is encouraged during the recess to go to houses and ask people whether they might conceivably take one or two students during the 30 weeks of the 52-week year. But, of course, it is his duty to warn anyone whom he so solicits about his tax commitments and anything else he might be eligible for, and I think that the knowledge that that part of the house which he rents out will then be eligible for capital gains tax is just one more disincentive to people, because people who have retired and who would dearly like the company of young and intelligent undergraduates—[Laughter]—also have this astonishing responsibility to their next-of-kin and to the amount of money that they are going to leave, which will be that much less if it is liable to capital gains tax. [Laughter.] The people of Dundee University would be surprised and disappointed by the idiotic levity currently being shown by the Government Front Bench, but I shall go on, for this is an important point. It is certainly an enormously important point to constituents who do not have enough money to take a course at university without the need to commute, which, heaven knows, is expensive enough.

The amendment, however ably put forward, has little relevance, and I wish particularly to point out to the hon. Member for Norfolk, South (Mr. MacGregor), who felt that the amendment might mean that if a vicar prayed in one part of the house he might have to pay capital gains tax on that part, that that vicar's only chance would be if he prayed for money and his prayer was successful.

Mr. Nicholas Winterton

I agree with the views so eloquently expressed by the hon. Member for the Isle of Ely (Mr. Freud) about the importance of accommodation in university towns. But I want to address my remarks to the amendment, ably referred to by my hon. Friend the Member for Norfolk, South (Mr. MacGregor) on behalf of my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley), because I want to draw one point to the attention of the Minister of State.

It is my understanding, on the advice of accountants, that if an hon. Member of this House uses a room in his principal residence as a study or as a room totally dedicated to parliamentary and constituency work and puts against his tax a small sum to cover the expenditure involved in that, his house, if it was sold, or that proportion of it which would apply to that room, would attract capital gains tax.

Members of Parliament are badly paid as it is, and they incur substantial expenses. In this case, they are not legitimately able to set against tax expenses incurred in carrying out their parliamentary duties because they would prejudice the sale if they did, as it would attract capital gains tax to their principal residence. Therefore, the amendment holds a considerable amount of water. It justifies sympathetic consideration by Treasury Ministers, and I hope that the few words that the Minister of State has been uttering to his colleague indicate some support for my case.

I believe that there is a lot of sense not only in the clause—which I shall support—but in the amendment. We want to get as much accommodation used as possible, and any deterrent which exists, whether through the Rent Acts—my hon. Friend the Member for Hornsey (Mr. Rossi) knows a lot about them and how damaging they are—or through the danger of capital gains tax, we should do our best to remove. I hope that we shall get a sympathetic answer from the Government.

Mr. Hugh Rossi (Hornsey)

I support the clause. It is significant that so far not one voice, from any party, has been raised against it in the debate. No doubt there will be one such voice from the Minister, and he will read from his brief and tell us all the reasons why the Inland Revenue feels that it cannot make this concession.

However, what is significant is that hon. Members have spoken about the housing problem that exists. I think it right to say that there is no one in the House of Commons in any way concerned with the housing problems of this country who does not regret the continual decline in rented accommodation. It is of particular importance in the cities and the university towns to students and to the young mobile. It is a provision of accommodation for a particular section of the community who are having their first home of their own, their first independence of their parents, and are not in a position or are not willing or anxious to set up a permanent home in the sense of buying their own place. They do not qualify at all for council accommodation. Therefore, the private rented sector has traditionally been the area in which they have found their homes.

The history of housing since the war has been one of a continual and progressive decline in that kind of accommodation. Today we are faced with all the problems of homelessness, particularly among the single young, and squatting and all the other ugly symptoms that we have in our society, consequential upon the kind of legislation that we in this Parliament have passed, which has acted as an effective deterrent to people allowing others to occupy part of their homes.

The Rent Acts are a root cause of this. On this occasion I do not want to go into the merits and demerits of the Rent Acts. We have had that debate time and again in this Chamber. But there is no doubt at all that the incidence of capital gains tax in the way that the clause seeks to alleviate is a contributory factor.

Certain hon. Members have expressed doubts about whether it is a significant factor in the loss of rented accommodation, or about the extent of its significance. Perhaps I can help them on this point. Very soon after the Rent Act 1974 came into operation, it came to my notice—people had made representations to me—that there was particular suffering and hardship among the student body as a result of the Act. Immediately after the Act was passed, for example, as third-year students went down in July 1974 and public attention was drawn to the fact that the Act would be giving security of tenure, landladies were not letting to the first-year students coming up in September and October. In London in that term over 1,000 students were unable to take up their courses straight away because they could not be placed by the accommodation officer in suitable places—or they were sleeping in sleeping bags in the corridors of friends' digs.

That situation existed. I tried to obtain some help from the Government, from the Minister in the Department of the Environment who was concerned with these matters at the time. I did not get the help from him that I was seeking. Therefore, I had to make my own inquiries. I wrote to every university and every polytechnic in this country. I asked them to what extent they felt that the Rent Act had had an effect upon their student population, and whether it had made it more difficult for them to find accommodation to start their courses and the rest.

12.30 a.m.

I had many replies. A great number of the universities and polytechnics said that they had halls of residence and, therefore, the problem was not great, but a substantial number said that the Rent Act had had an extremely bad effect on the supply of accommodation.

Mr. Douglas-Mann

rose—

Mr. Rossi

Just let me finish. But in that correspondence I received another piece of information which I had not sought. I had not asked the question. The information was volunteered. There was this recurrent theme: "Equal to the operation of the Rent Act, we regard the incidence of capital gains tax upon resident landords for the part of the house that they let as a disincentive towards letting."

That was the first time that the proposition impinged itself upon my mind to any significant degree. I was impressed by the way one university and polytechnic after another volunteered that information. They asked for that particular incidence of tax to be removed from the resident landlord so that there could be a greater provision of letting for their students. That bears out, in terms of positive, hard evidence, that this tax has had, and is having, an adverse effect upon the supply of rented accommodation for young people.

Having spoken in terms of general support for the clause, I should point out two matters in it which I find regrettable.

I think that the hon. Member for Cornwall, North (Mr. Pardoe) has made it too restrictive. I do not see why he found it necessary to limit his concession to cases where subsequent to the acquisition". the letting takes place

I should like to put this proposition to the hon. Gentleman. If someone buys a house with a sitting tenant in part and subsequently that sitting tenant leaves, the owner is faced with this situation. If he does not relet but keeps the accommodation empty and spreads his own possessions into it, he will not pay capital gains tax when he sells the property after that situation has appertained for sufficient time to satisfy the inspector of taxes that it has become his main residence. I think that the statute requires that period to be at least 12 months. Alternatively, if he decides to relet that accommodation, then, on the wording of the clause, he will be stuck with capital gains tax, because the property was already let before he acquired it and he has replaced the tenant.

In other words, the hon. Gentleman is moving away from what he is trying to achieve namely, to encourage people to let their houses. The wording of the clause would encourage people to keep their houses empty after their tenants had gone. I should have thought that was undesirable. Therefore, if we are to accept the principle underlying the clause, we must not—on another occasion—see that qualification in it.

I do not understand the need for a limit of 1,000 sq. ft. or one-third of the dwelling-house. I do not recall the hon. Gentleman indicating why he chose that area or particular proportion of the house. I can understand that he wants to ensure that there is some limit and no abuse of the situation.

Again, let us consider a university town where a landlady may be a widow with a largish house who is prepared to take in 10 or 12 students. Why should she limit her activity to one-third of her accommodation and leave the surplus empty? If we are to have this arbitrary definition in a clause of this kind, who will determine the issue? What is to be the test? Will a landlady, when making her tax returns, declare that she falls within the provisions of this clause? Does she have to support her claim with a surveyor's report which says that he has gone round all the rooms? Alternatively, will the inspector of taxes have the right to measure the size of the rooms which are let, with the possibility of people being boxed and coxed around? I do not see where such a restriction takes us. It is unnecessary. It militates against the spirit of the clause.

Mr. Pardoe

The clause is designed as an anti-avoidance measure. If we did not have this provision, someone could occupy a small part of the dwelling. That is outside the spirit of what we are trying to do.

Mr. Rossi

I draw the hon. Member's attention to the Rent Act 1974. The question of avoidance was examined carefully when the concept of residential landlords was considered. A distinction was clearly drawn between the resident landlord in a purpose-built block of flats and the resident landlord in a house which was not purpose-built as a flat. If that was sufficient for Rent Act purposes, it should be sufficient for the hon. Member.

We are concerned particularly not with the raising of revenue but with housing policy. We want to remove a tax as an instrument of housing policy. Our concern should be for the provision of privately rented accommodation.

I should be interested to learn how much revenue comes from this source. It is probably a small proportion of the total amount of tax raised. It is an irritant, not a great money-spinner for the Revenue. I hope that the Minister will not regard the amendment in the same light as an accountant looking for a few more boo-boos.

Mr. Denzil Davies

First I shall deal with the points raised by the hon. Member for Cornwall, North (Mr. Pardoe) and then I shall deal with the amendment in the name of the hon. Member for Norfolk, South (Mr. MacGregor). The problem is not new. We have considered it before. My hon. Friend the Member for Mitcham and Morden (Mr. Douglas-Mann) has pressed the issue on several occasions. The former hon. Member for Cambridge, Mr. Lane, came to see me and we discussed the problem.

If it were possible to do something in this limited case, we should be sympathetic. But there are objections. They are not Revenue objections. The amount of revenue lost as a result of passing this new clause would be minimal. It is a question of equity betwen taxpayers. That might not interest the hon. Member for Hornsey (Mr. Rossi), who pressed the housing argument. We are talking about tax legislation, not housing. We must consider the equity between different types of taxpayer.

Hon. Members are asking for relief from capital gains tax for someone who lets part of his house and then sells that house. Relief is sought for the part of the house that has been let. The amendment seeks to extend that relief, quite logically if one considers the clause, to someone who uses part of his house for a trade or profession. I ask the Committee why a trader who uses two rooms in his house for that purpose should be denied the exemption if it is to be given to a landlord letting part of his house to a student or other tenant. I see no difference in taxation logic and equity between the two cases.

The hon. Member for Macclesfield (Mr. Winterton) raised the question of Members of Parliament. This shows the difficulty. If a doctor uses part of his house as a surgery, is he to be denied capital gains tax exemption when a landlady or landlord who lets part of a house gets it? On grounds of housing policy that might be a very good thing to do, but on grounds of taxation equity it is not.

Mr. Rossi

I think that a certain amount of misunderstanding has crept into the debate. I understood that if a Member of Parliament used a room or rooms in his house, perhaps as a study or an office, or if a professional man did the same, the Revenue did not charge capital gains tax on that notional proportion of the value of the house. If a professional man put a brass plate on his front door and the room became a separate hereditament, that would be a different situation altogether.

Mr. Davies

May we forget the case of the Member of Parliament, even though I understand the interest of hon. Members in that? A provision in Clause 29, which it was attempted to remove, is that if a person uses part of his house for the purposes of a trade or profession that part which he sets aside for those purposes bears capital gains tax if the house is sold. That is the important point. If we concede the housing case I can see no grounds for not conceding the case of a person who uses part of his house for a trade or profession. Why should not the shopkeeper get the same exemption as the landlord?

Mr. Newton

The Minister is ignoring the fact that we already have a distinction for capital gains tax purposes between owner-occupied property—that is, the concession to housing policy—and other forms of property. How can it be equitable to exempt owner-occupied houses from capital gains tax and then reject on grounds of equity the other aim of housing policy which is being advocated this evening?

Mr. Davies

It may be an aim of taxation to exempt the owner-occupier from paying this tax. But we are talking about a part of the property which is not in owner-occupation but is set aside. The owner-occupation exemption was given to enable the person who uses the house for his ownership and occupation to be exempted from tax. Many people would argue that even that capital gains tax relief should not be allowed, but I am not arguing that case. Once part of the house has ben let or used for trade or professional purposes, it is not then in owner-occupation. I cannot see how we can give exemption in one case and not in another.

It would not be fair to allow it in the case of the landlord who lets part of his house when someone else using a house for other purposes is denied the exemption. I have great sympathy with the point that is being advanced, and if the line could be held at the case of students we might be able to accept it. But it would go much further. There would be no case for not extending the exemption to the doctor, the dentist or the shopkeeper who used part of his house for getting his income. For these reasons I cannot accept the proposal.

12.45 a.m.

Mr. Pardoe

I cannot accept the argument put forward by the Minister of State. He was entirely on the wrong point in distinguishing between those who want to use a room in their house for business purposes and those who wish to let part of their house. We are not desperately trying to encourage people to use part of their house for business purposes. We are not decrying that use, but it is not part of our policy to encourage it. What we wish to encourage is the use of accommodation not otherwise being used to house homeless students and others who cannot obtain accommodation.

Since it would cost only peanuts to get rid of this injustice, why do we not do it? When the Minister distinguishes between persons who want to use a room for office purposes and those who want to let part of their house, let me point

Division No. 137] AYES [12.48 a.m.
Biggs-Davison, John Lawson, Nigel Thorpe, Rt Hon Jeremy (N Devon)
Brooke, Peter Le Marchant, Spencer Weatherill, Bernard
Cope, John MacGregor, John Wigley, Dafydd
Eyre, Reginald Newton, Tony Winterton, Nicholas
Henderson, Douglas Pardoe, John TELLERS FOR THE AYES:
Hunt, David (Wirral) Rossi, Hugh (Hornsey) Mr. Clement Freud and
Lamont, Norman Steel, Rt Hon David Mr. Stephen Ross.
NOES
Archer, Peter Ewing, Harry (Stirling) Mulley, Rt Hon Frederick
Ashton, Joe Golding, John Noble, Mike
Barnett, Rt Hon Joel (Heywood) Graham, Ted Palmer, Arthur
Bates, Alf Grant, John (Islington C) Parry, Robert
Brown, Robert C. (Newcastle W) Hardy, Peter Sheldon, Rt Hon Robert
Clemitson, Ivor Harrison, Walter (Wakefield) Silkin, Rt Hon S. C. (Dulwich)
Cocks, Rt Hon Michael Hooley, Frank Silverman, Julius
Cohen, Stanley Horam, John Skinner, Dennis
Coleman, Donald Kaufman, Gerald Snape, Peter
Cox, Thomas (Tooting) Lamborn, Harry Spearing, Nigel
Crowther, Stan (Rotherham) Luard, Evan Stallard, A. W.
Davies, Derail (Llanelli) Lyon, Alexander (York) Stoddart, David
Davies, Ifor (Gower) Lyons, Edward (Bradford W) Tinn, James
Davis, Clinton (Hackney C) McCartney, Hugh Walker, Harold (Doncaster)
Deakins, Eric MacFarquhar, Roderick Whitehead, Phillip
Dunn, James A. Madden, Max Wrigglesworth, Ian
Ellis, John (Brigg & Scun) Marshall, Dr Edmund (Goole)
Ennals, David Mendelson, John TELLERS FOR THE NOES:
Evans, Ioan (Aberdare) Mitchell, Austin Vernon (Grimsby) Mr. Joseph Harper and Mrs. Anne Taylor.

Question accordingly negatived

Bill (Clauses 4, 15, 21, and a new clause) reported with amendments; to lie upon the Table.