§ Question proposed, That the clause stand part of the Bill.
§ Mr. Denzil DaviesI want to raise, very briefly, a number of matters on clause 23. First, I seek clarification, because as time goes by my memory of development land tax is fading. Perhaps the Financial Secretary can clarify one or two basic points.
As I read the clause, quite apart from reducing the top rate of tax from 80 per cent. to 60 per cent. and removing the 66⅔ per cent. rate, it raises the threshold —if that is the right way of describing it —for exemption from £10,000 to £50,000. I gather that that means that £50,000 worth of development value will be completely free of tax. Can the Financial Secretary confirm that when he replies? Although I appreciate that any increase in current use value would be subject to capital gains tax, perhaps the Financial Secretary can tell us whether the whole £50,000 is free of tax, or whether capital gains tax applies to it—[Interruption.] Perhaps he will also confirm that the actual rates of tax paid—[Interruption.]—
§ The Temporary Chairman (Sir Stephen McAdden)Order. It is one of my responsibilities to listen to the right hon. Member for Llanelli (Mr. Davies). Those hon. Members who do not want to listen will leave the Chamber more quietly, I hope.
§ Mr. DaviesThe clause reduces, quite substantially, the tax on betterment or development. We know that betterment is a gain which very often does not reflect any initiative or enthusiasm on the part of the owner of the land. It is a purely gratuitous gain, very often received as a result of a planner drawing a line on a map which rezones or zones a piece of land as development land. That can result in large gains.
Our objection to the clause is that it reduces substantially the rate of tax on betterment gains, and we do not think that that is justified. There may be some justification for increasing the £10,000 exemption limit to say, £20,000, but to go all the way, not only up to £50,000 but also to reduce the rate of tax to 60 per cent., is to go too far. It takes us back to the situation which existed before this legislation was introduced when large gains were made purely as a result of fortuitous acts resulting in an increase in betterment value.
I shall finish there, and ask the Financial Secretary to confirm that there might well be no tax at all on the £50,000 betterment or that it is a capital gains ta[...]charge.
§ 8.15 p.m.
§ Mr. LawsonThe right hon. Member for Llanelli (Mr. Davies) said that there was an element of betterment here which was different from other forms of profit. To an extent he is right, and this is recognised in the rate of tax that we have chosen, which is 60 per cent. We were faced with an effective tax rate of 80 per cent. which resulted in a complete land famine with practically no land coming on to the market, causing serious damage to housing prospects. The right hon. Gentleman asked me how far this could be brought down. Clearly, it could not be brought down below 52 per cent., the rate of corporation tax, otherwise the rate of tax on betterment profit would be less than the rate paid on other forms of profit, which clearly could not be justified. The reason why we have pitched this rate at a higher rate than 52 per cent.—namely, 60 per cent.—reflects this special betterment element, and the fact that sales of land are different from sales of other assets—[Interruption.]
The other question that the right hon. Gentleman asked me was whether the £50.000 exempt slice was indeed an exempt—[Interruption]—
§ The Temporary ChairmanI am sorry to interrupt the hon. Gentleman, but there is such a buzz of conversation it is rather difficult to follow what he is saying. If hon. Members wish to have private conversations I hope they will conduct them either in a low voice or, preferably, outside the Chamber.
§ Mr. LawsonThe other question the right hon. Gentleman asked me was whether the £50,000 exempt slice was an exempt slice, or whether there would be any capital gains tax liability. As I understand it, there could be a capital gains tax liability, subject to the capital gains tax legislation. If I am incorrect in that, I shall inform the right hon. Gentleman.
§ Mr. DaviesThis is an important point. The hon. Gentleman said that we must rely on the capital gains tax legislation. If there is no capital gains tax at all the whole of the £50,000 betterment value is completely free of tax. I appreciate that there might be capital gains tax on the increase of the old use or the current use value of the land, but I am not talking about that. If I am right—I have not 358 had an answer from the hon. Gentleman and he is in charge of this clause, not I—on a gain of £100,000 betterment, the first £50,000 is completely tax free and the second £50,000 is taxed at 60 per cent. That means that £30,000 tax is paid on £100,000 betterment value if the first £50,000 is not subject to capital gains tax.
That means that a gain of £100,000 is subject to 30 per cent. tax. I suggest that that is not a fair or equitable way of establishing taxation. Indeed, it is a far lower rate of tax than if someone were to earn that money by the kind of initiative which the Budget is expecting. Such a person would pay 60 per cent. tax. However, if someone is fortunate enough to find that a person who deals with these matters, such as a town planner, draws the line in such a way that his farm comes within the development area. he will get these large gains.
I see that a note has arrived, and I shall allow the Financial Secretary time to look at it. I do not want to make a bogus point, but he has not answered the question. It might be that a gain of £100,000 of betterment is now taxed at only 30 per cent. We need an answer to this question, because it is an important point, quite apart from the other points in the clause.
§ Mr. LawsonI am glad to be able to confirm with authority and confidence that the answer I gave to the right hon. Gentleman is precisely correct, namely, that the first £50,000, although exempt from development land tax, is not exempt from capital gains tax.
§ Mr. DaviesWe then find the first £50,000 chargeable at 30 per cent. and the next £50,000 chargeable at 60 per cent., which still provides a rate of tax of less than 50 per cent., if my mathematics are correct. Therefore, the clause provides substantial reductions in taxation for substantial benefits which are in no way created by any hard work or initiative. That is why we say that this reduction is not right.
The Financial Secretary mentioned the building industry, and said that no lond had been released for building. That is not correct. Far more damage has been done to the building industry by the measures in the Budget—the measures 359 on interest rates, the raising of MLR and the 15 per cent. VAT for repairs and maintenance—than was ever done by the old rates of DLT. That is why we shall vote against the clause.
§ Mr. LawsonThe right hon. Gentleman is quite wrong. In fact, this change in the tax regime has been welcomed by the building industry for the very fact that it will bring land forward for development. The tax regime which the right hon. Gentleman and his colleagues, when in government, introduced had a dampening and disastrous effect on the land and housing markets and on the building industry. It made sense, if it made sense at all, only in the context of the Community Land Act, which was another disaster which was intended to ensure that all land would eventually be owned by local authorities. As the right hon. Gentleman knows, we intend to
§ repeal the Community Land Act. Therefore, there is no reason whatever for retaining the damaging nonsense of DLT at 80 per cent., which is totally self-defeating.
§ I hope that the right hon. Gentleman will reflect that the 60 per cent. rate is at least a level that we believe to be right. It is above the 52 per cent. corporation tax rate, and we shall retain it at that level. We do not intend to reduce it any further. We believe that 60 per cent. is the right rate. It will provide stability, which is the best way of ensuring a flow of land on to the housing market. I should have thought that that was something which the right hon. Gentleman and his colleagues would wish to see as much as we do.
§ Question put, That the clause stand part of the Bill:—
§ The Committee divided: Ayes 196. Noes 140.
361| Division No. 50] | AYES | 8.25 p.m. |
| Aitken, Jonathan | Dover, Denshore | Lang,Ian |
| Alexander, Richard | Dunn, Robert (Dartford) | Langford-Holt, Sir John |
| Alton, David | Dykes, Hugh | Lawson, Nigel |
| Arnold, Tom | Eggar, Timothy | Le Marchant, Spencer |
| Aspinwall, Jack | Elliott, Sir William | Lester, Jim (Beeston) |
| Atkins, Rt Hon H. (Spelthorne) | Eyre, Reginald | Lloyd, Ian (Havant & Waterloo) |
| Baker, Nicholas (North Dorset) | Fairbairn, Nicholas | Lloyd, Peter (Fareham) |
| Beaumont-Dark, Anthony | Fairgrieve, Russell | Lyell, Nicholas |
| Beith, A. J. | Faith, Mrs Sheila | Macfarlane, Neil |
| Benyon, Thomas (Abingdon) | Fenner, Mrs Peggy | MacKay, John (Argyll) |
| Benyon, W. (Buckingham) | Fisher, Sir Nigel | McNair-Wilson, Michael (Newbury) |
| Berry, Hon Anthony | Fookes, Miss Janet | McQuarrie, Albert |
| Best, Keith | Fowler, Rt Hon Norman | Major, John |
| Bevan, David Gilroy | Fox, Marcus | Marshall, Michael (Arundel) |
| Biffen, Rt Hon John | Gardiner, George (Reigate) | Marten, Neil (Banbury) |
| Biggs-Davison, John | Garel-Jones, Tristan | Mates, Michael |
| Blackburn, John | Glyn, Dr Alan | Mather, Carol |
| Boscawen, Hon Robert | Goodlad, Alastair | Maude, Rt Hon Angus |
| Bottomley, Peter (Woolwich West) | Gorst, John | Mawby, Ray |
| Boyson, Dr Rhodes | Gower, Sir Raymond | Mawhinney, Dr Brian |
| Bright, Graham | Gray, Hamish | Meyer, Sir Anthony |
| Brinton, Tim | Griffiths, Peter (Portsmouth N) | Miller, Hal (Bromsgrove & Redditch) |
| Brown, Michael (Brigg & Sc'thorpe) | Grist, Ian | Mills, lain (Meriden) |
| Bruce-Gardyne, John | Grylls, Michael | Mills, Peter (West Devon) |
| Buchanan-Smith Hon Alick | Gummer, John Selwyn | Molyneaux, James |
| Budgen, Nick | Hamilton, Hon Archie (Eps'm&Ew'll) | Montgomery, Fergus |
| Bulmer, Esmond | Hamilton, Michael (Salisbury) | Moore, John |
| Burden, F. A. | Hannam, John | Morris, Michael (Northampton, Sth) |
| Cadbury, Jocelyn | Hawkins, Paul | Morrison, Hon Charles (Devizes) |
| Carlisle John (Luton West) | Hawksley, Warren | Morrison, Hon Peter (City of Chester) |
| Carlisle, Kenneth (Lincoln) | Heddle, John | Murphy, Christopher |
| Chalker, Mrs Lynda | Henderson, Barry | Myles, David |
| Channon, Paul | Hill, James | Neale, Gerrard |
| Chapman, Sydney | Hogg, Hon Douglas (Grantham) | Newton, Tony |
| Churchill, W. S. | Holland, Philip (Carlton) | Onslow, Cranley |
| Clark, Dr William (Croydon South) | Hooson, Tom | Page, John (Harrow, West) |
| Clarke, Kenneth (Rushcliffe) | Howe, Rt Hon Sir Geoffrey | Page, Rt Hon R. Graham (Crosby) |
| Clegg, Walter | Howells, Geraint | Parris, Matthew |
| Cockeram, Eric | Hunt, John (Ravensbourne) | Patten, Christopher (Bath) |
| Colvin, Michael | Irving, Charles (Cheltenham) | Pattie, Geoffrey |
| Cope, John | Jessel, Toby | Penhaligon, David |
| Corrie, John | Jopling, Rt Hon Michael | Percival, Sir Ian |
| Cranborne, Viscount | Kaberry, Sir Donald | Pollock, Alexander |
| Critchley, Julian | Kilfedder, James A. | Porter, George |
| Crouch, David | Kimball, Marcus | Powell, Rt Hon J. Enoch (S Down) |
| Dean, Paul (North Somerset) | King, Rt Hon Tom | Prior, Rt Hon James |
| Dodsworth, Geoffrey | Knight, Mrs Jill | Proctor, K. Harvey |
| Dorrell, Stephen | Knox, David | Rathbone, Tim |
| Douglas-Hamilton, Lord James | Lamont, Norman | Rees, Peter (Dover and Deal) |
| Rees-Davies, W. R. | Spicer, Michael (S Worcestershire) | Walker, Rt Hon Peter (Worcester) |
| Renton, Tim | Squire, Robin | Walker-Smith, Rt Hon Sir Derek |
| Rhodes James, Robert | Stainton, Keith | Wall, Patrick |
| Ridley, Hon Nicholas | Stanbrook, Ivor | Waller, Gary |
| Roberts, Michael (Cardiff NW) | Steel, Rt Hon David | Ward, John |
| Ross, Stephen (Isle of Wight) | Stewart, Ian (Hitchin) | Watson, John |
| Rost, Peter | Stewart, John (East Renfrewshire) | Wells, Bowen (Hert'rd&Stev'nage) |
| Sainsbury, Hon Timothy | Stokes, John | Wheeler, John |
| St. John-Stevas, Rt Hon Norman | Stradling Thomas, J. | Wickenden, Keith |
| Shaw, Michael (Scarborough) | Tebbit, Norman | Wilkinson, John |
| Shelton, William (Streatham) | Temple-Morris, Peter | Williams, Delwyn (Montgomery) |
| Shepherd, Colin (Hereford) | Thorne, Neil (llford South) | Winterton, Nicholas |
| Shepherd, Richard(Aldridge-Br'hills) | Thornton, Malcolm | Wolfson, Mark |
| Sims, Roger | van Straubenzee, w. R. | |
| Skeet, T. H. H. | Waddington, David | TELLERS FOR THE AY[...] |
| Speed, Keith | Wainwright, Richard (Colne Valley) | Mr. John MacGregor [...] |
| Speller, Tony | Wakeham, John | Mr. Peter Brooke |
| Spence, John | Waldegrave, Hon William | |
| NOES | ||
| Adams, Allen | Field, Frank | Marshall, David (Gl'sgow.Shettles'n) |
| Allaun, Frank | Flannery, Martin | Marshall, Dr Edmund (Goole) |
| Armstrong, Rt Hon Ernest | Fletcher, Ted (Darlington) | Mason, Rt Hon Roy |
| Ashton, Joe | Foot, Rt Hon Michael | Meacher, Michael |
| Atkinson, Norman (H'gey, Tott'ham) | Ford, Ben | Miller, Dr M. S. (East Kilbride) |
| Barnett, Rt Hon Joel (Heywood) | Foster, Derek | Mitchell, R. C. (Soton, Itchen) |
| Benn Rt Hon Anthony Wedgwood | Garrett, John (Norwich S) | Morris, Rt Hon Charles (Openshaw) |
| Bidwell, Sydney | Garrett, W. E. (Wallsend) | Newens, Stanley |
| Booth, Rt Hon Albert | Gilbert, Rt Hn Dr John | Orme, Rt Hon Stanley |
| Brown, Hugh D. (Provan) | Ginsburg, David | Palmer, Arthur |
| Brown, Robert C. (Newcastle W) | Golding, John | Park, George |
| Brown, Ronald W. (Hackney S) | Gourlay, Harry | Powell, Raymond (Ogmore) |
| Buchan, Norman | Graham, Ted | Prescott, John |
| Callaghan, Rt Hon J. (Cardiff SE) | Grant, George (Morpeth) | Radice, Giles |
| Callaghan, Jim (Middleton & P) | Grant, John (Islington C) | Roberts, Albert (Normanton) |
| Campbell-Savours, Dale | Hamilton, James (Bothwell) | Roberts, Ernest (Hackney North) |
| Canavan, Dennis | Hamilton, W. W. (Central Fife) | Robertson, George |
| Cartwright, John | Harrison, Rt Hon Walter | Rooker, J. W. |
| Clark, Dr David (South Shields) | Haynes, Frank | Ross, Ernest (Dundee West) |
| Cocks, Rt Hon Michael (Bristol S) | Healey, Rt Hon Denis | Rowlands, Ted |
| Coleman, Donald | Heffer, Eric S. | Shore, Rt Hon Peter (Step and Pop) |
| Concannon, Rt Hon J. D. | Hogg, Norman (E Dunbartonshire) | Skinner, Dennis |
| Conian, Bernard | Holland, Stuart (L'beth, Vauxhall) | Smith, Rt Hon J. (North Lanarkshire) |
| Cowans, Harry | Home Robertson, John | Snape, Peter |
| Craigen, J. M. (Glasgow, Maryhill) | Homewood, William | Spearing, Nigel |
| Cryer, Bob | Hooley, Frank | Spriggs, Leslie |
| Cunliffe, Lawrence | Horam, John | Stallard, A. W. |
| Cunningham, George (Islington S) | Hughes, Mark (Durham) | Stewart, Rt Hon Donald (W Isles) |
| Dalyell, Tam | Hughes, Roy (Newport) | Stott, Roger |
| Davidson, Arthur | Johnson, James (Hull West) | Strang, Gavin |
| Davies, Rt Hon Denzil (Llanelli) | Jones, Rt Hon Alec (Rhondda) | Thomas, Dafydd (Merioneth) |
| Davies, E. Hudson (Caerphilly) | Jones, Barry (East Flint) | Thorne, Stan (Preston South) |
| Davis, Terry (B'rm'ham, Stechford) | Lambie, David | Tinn, James |
| Deakina, Eric | Lamborn, Harry | Urwin, Rt Hon Tom |
| Dempsey, James | Lamond, James | Wainwright, Edwin (Dearne Valley) |
| Dewar, Donald | Leadbitter, Ted | Wellbeloved, James |
| Dixon, Donald | Leighton, Ronald | Welsh, Michael |
| Dobson, Frank | Lestor, Miss Joan (Eton & Slough) | White, James (Glasgow, Pollok) |
| Dormand, Jack | Lewis, Ron (Carlisle) | Whitlock, William |
| Douglas, Dick | Lofthouse, Geoffrey | Wigley, Dafydd |
| Dunwoody, Mrs Gwyneth | McCartney, Hugh | Wilson, Gordon (Dundee East) |
| Eadie, Alex | McDonald, Dr Oonagh | Wilson, Rt Hon Sir Harold (Huyton) |
| Eastham, Ken | McElhone, Frank | Winnick, David |
| Ellis, Raymond (NE Derbyshire) | McGuire, Michael (Ince) | Woodall, Alec |
| Evans, loan (Aberdare) | McKay, Allen (Penistone) | |
| Evans, John (Newton) | McKelvey, William | TELLERS FOR THE NOES: |
| Ewing, Harry | McMillan, Tom (Glasgow, Central) | Mr. Joseph Dean and |
| Faulds, Andrew | McNally, Thomas | Mr. George Morton. |
§ Question accordingly agreed to.
§ Clause 23 ordered to stand part of the Bill.
362§ Schedule 4 agreed to.
§ Clause 24 ordered to stand part of the Bill.