Section 13 of the Development Land Tax Act 1976 shall have effect and shall be deemed always to have had effect as if the date in subsection (1) of that section was 31st March 1980.'—[Mr. Ian Stewart.]
§ Brought up, and read the First time.
§ Mr. Ian Stewart (Hitchin)
I beg to move, That the clause be read a Second time.
Last year in the Committee stage on the Finance Bill the Opposition introduced a new clause which led to a major alteration in the arrangements for development land tax, in that case relating to the taxation of pre-let developments. This year in Committee I moved new clause no. 15, as it then was, which has led to a further important change in the arrangements for development land tax. The subject of the new clause—which is essentially repeated in new clause no. 20, which we are now considering—is to extend the interim period during which the rate of tax on realised development value up to a figure of £150,000 in any one year is at the lower rate of 66⅔ per cent. rather than the 80 per cent. which is the standard full rate for the tax.
New clause no. 15, moved in Committee, suggested that a further extension of time of three years should be provided from March 1979 when, under the present 1352 terms of the Development Land Tax Act 1976, this interim period will expire. In our debate on this matter the Minister of State in part agreed with the case put forward, but he made two significant reservations. The first was that the extension should be for only one year, from 1979 to 1980, instead of to 1982, and secondly that the change should not be brought about until the Finance Bill in the spring of 1979.
The purpose of new clause no. 20 is to give effect to this undertaking by the Minister of State but without an unnecessary year's delay. I shall not now repeat in detail the arguments that I put in Committee, but I think it might be right, for the record, briefly to outline the background.
The development land tax was introduced in 1976 with this basic rate of 80 per cent., with the intention that it should rise to 100 per cent. at some future time in relation to the progress of the community land scheme, but that is probably in the far distance. In the meantime, 80 per cent. is the basic effective rate. But on the first £150,000 of development value a concessionary rate of 66⅔ per cent. was introduced for the first three years of the development land tax in operation, in order, as was explained at the time, to encourage those who owned land which might be suitable for development to bring it forward before the higher rate applied from April 1979 onwards.
What has happened in these three years. which are so nearly up, is that there has been quite a lack of development because of the economic circumstances of the time, and also because such development as has taken place has largely been by the use of land which was held by developers before the introduction of development land tax, and which therefore was exempted from it.
Since the collapse of the property and development market in 1974, we have some four years of backlog of development, and this backlog will need to be made up. Many bodies and developers have expressed the opinion that the high rates of development land tax are now beginning to bite seriously and to be a 1353 deterrent to the bringing forward of suitable land for further development projects. There was a very effective submission, from which I quoted in Committee, from the Royal Institution of Chartered Surveyors, and that body is very far from being alone in stressing the strength of the case.
The bulk of transactions under development land tax to date have fallen within the £150,000 band, and therefore at the lower rate. I believe that to move to an 80 per cent. rate for development land tax in the near funture, whether in 1980 rather than 1979 or otherwise, would have the effect of creating an artificial shortage of building land, and would force up the overall cost of land and, as a result, also the prices of houses, factories, and so on.
This point was partially taken by the Government in extending the concession to 1980, but why is it necessary to wait until next year's Finance Bill in order to achieve this? Surely certainty is needed in our tax legislation. Transactions of th kind which fall to be taxed under development land tax often take six months, nine months or more to organise, therefore some of those which are in hand now may not even come to completion until after the expiry date of 31st March 1979 as it stands at present in the Bill.
If we were to have a spring Budget next year in April with perhaps the Finance Bill in April or May which was debated in June and July, and perhaps enacted at the end of July, by then it would be necessary to have a retrospective provision covering the period which had elapsed from 31st March 1979. At the time the Finance Bill was published, the rate in law for all development land tax would then be 80 per cent. By not dealing with it in this year's Finance Bill, it seems to me that we are creating a needless extra area of doubt and complexity in what is already a very difficult and incomprehensible tax.
I suggest that the remedy lies in the hands of the Government, by accepting this new clause to this year's Finance Bill, well in advance of the time when it will have to come into operation. I therefore commend the new clause to the House.
§ Mr. Denzil Davies
The hon. Gentleman correctly said that in Committee I 1354 had given an undertaking that the Government would introduce legislation next year to extend the period of relief for development land tax in respect of the first £150,000 for another year. The Opposition have tabled this new clause to incorporate that particular undertaking in this year's Finance Bill. As I said in Committee, it was not strictly necessary to do it until next year, but I have no objection if the Opposition wish it to be in the Bill this year. Therefore, I am very happy to accept the new clause.
§ Question put and agreed to.
§ Clause read a Second time, and added to the Bill.