§ `(1) The provision of Schedule (Capital allowances for dwelling-houses let on assured tenancies) to this Act shall have effect to provide for reliefs in respect of expenditure incurred on the construction of buildings consisting of or including dwelling-houses let on assured and certain other tenancies.
§ (2) Schedule (Capital allowances for dwelling-houses let on assured tenancies) to this Act has effect only where the expenditure concerned is incurred on or after 10th March 1982 and before 1st April 1987 or is deemed to have been so incurred by virtue of paragraph 8 of that Schedule.'.—[Mr. Brittan.]
§ Brought up, and read the First time.
§ 7 pm
§ Mr. Deputy Speaker (Mr. Paul Dean)
With this it will be convenient to take Government amendment No. 153.
§ Mr. Brittan
The new clause fulfils the Chancellor of the Exchequer's promise—made in the Budget Statement—to give further encouragement to new private investment in housing for rent by introducing capital allowances for expenditure on the construction of properties for letting as assured tenancies.
I recognise that the clause and schedule are long. I am sorry that that should be so and that it should be necessary to table them at this stage. However, there is a legitimate reason. Until the decision had been made in the Budget speech to do any such thing, it was impossible to enter into any consultations. Consultations have now taken place. Inevitably, it has proved necessary to have a number of detailed rules for such a narrow, but important, scheme. However, most of them are technical and seek not to introduce any new, great principle, but to follow the relevant provisions of the industrial buildings allowance, which this new allowance mirrors quite closely.
I hope that the House will accept that no fundamental new principles lurk within that mass of technicalities. However, the provisions are necessary to follow the 699 pattern of the industrial building allowance and to provide the appropriate relief for the construction of properties for letting as assured tenancies. It may help if I highlight the main points.
The allowance is entirely new and is available in respect of dwellings let on assured tenancies by bodies approved by the Secretary of State for the Environment under the assured tenancy scheme introduced in the Houseing Act 1980. My hon. Friend the Minister for Housing and Construction gave details in a written answer last Friday of the bodies that have been approved and of further decisions and applications in relation to the approval of bodies for the scheme.
An initial allowance of 75 per cent. is proposed which, of course, is equal to that for the industrial buildings allowance. In addition, annual allowances in respect of the balance of 4 per cent. per year are proposed. That is an addition to what was mentioned in the Budget Statement, but again, it is equal to that for the industrial buildings allowance. The new allowance is to run for an experimental period of five years, from 10 March 1982 until 31 March 1987. It is to be available for all types of dwelling as long as the premises are let on assured tenancies, whether those premises are houses, maisonettes, flats or whatever.
However, it is important to note that there will be an upper limit on allowable expenditure. Where the value of a dwelling exceeds £40,000 outside London or £60,000 in Greater London the excess above those figures will not qualify for the allowances. Therefore, relief goes up to a limited point and is for a limited type of dwelling.
The provision of the new allowance will provide a valuable boost to the assured tenancy scheme. That scheme was imaginative and was designed by us to encourage the construction of property for renting to individuals at freely negotiated rents. This tax incentive will further encourage the construction of such properties. In addition, it will provide a further stimulus for the construction industry. It is one of a number of measures included in the Budget of which the principal measure in terms of impact is the extension of home improvement grants.
I stress the experimental nature of the scheme. It is an attempt to inject life into the private rented sector, which has been dormant for many years. It focuses on a section of that sector—the assured tenancy scheme, which is only two years old. Countries of diverse social patterns and political philosophies are united in agreeing that there are many people for whom the provision of private rented accommodation is of considerable value and importance. Provided that there is no scope for adverse consequences any steps that enable the private rented sector to revive must be commended to the House.
The Finance Bill does no more than build, in a small way, on the major initiative taken by the Secretary of State for the Environment and by my hon. Friend the Minister for Housing and Construction. Therefore, I hope that the new clause and the accompanying schedule will commend themselves to the House.
§ Mr. Cook
At the beginning of our proceedings my right hon. Friend the Member for Stepney and Poplar (Mr. Shore) drew attention to the many Government amendments and new clauses that had been tabled at a late hour. Even among that great number, the new clause and amendment are distinguished. The amendment was tabled 700 last Wednesday. It takes up no fewer than nine pages of the Amendment Paper. The text is dense and appears complex to those who attempt to understand it. Moreover, the provisions are intimately related to the law on housing and rents. Those of us who have served on Committees considering rent Acts know that the area covered is one of fearsome complexity.
It is difficult to understand why the new clause should be tabled so late in our proceedings when, as the Chief Secretary said, it arises from a commitment given by the Chancellor of the Exchequer on 10 March 1982, four months ago. If the Chancellor of the Exchequer felt sufficiently far advanced in his considerations to give a commitment in his Budget speech, it is difficult to understand why it has taken the combined resources of the Department of the Environment and the Treasury four months to produce such an extraordinarily long new clause and schedule.
The Chief Secretary may be able to disabuse us of the unworthy suspicion that we are witnessing the publication of detailed and complex legislation at the very last minute in order, to put it mildly, not to assist the House in too great a scrutiny of the legislation's detail. Nevertheless, I must congratulate the Chief Secretary on his refreshing innovation of placing in the Vote Office the notes on clauses complete with part 2—which is marked "For the Minister's personal use only"—and with the note from the Minister for Housing and Construction, which I was pleased to read. I trust that that was a controlled experiment and not an uncontrolled error and that a precedent has been set for placing notes on clauses in the Vote Office. My right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) suggested that I should request that part 2 of the other notes on clauses should also be placed in the Vote Office for our consideration.
In the course of our proceedings on the Housing Bill 1980 my right hon. Friend the Member for Manchester, Ardwick (Mr. Kaufman) said that we would watch the development of the assured tenancies with interest. We noted that they were presented to the Committee by the Government as a controlled experiment. Our view, which was expressed in Committee, is that left to itself the introduction of assured tenancies will make little difference to the system of housing tenure and will do little to stimulate the prevision of property to let. I am tempted to conclude, from the publication of the new clause, that the Government share that view; otherwise it is difficult to see why they are bringing forward a provision that practically gives away the houses provided to create the assured tenancies. What evidence has there been that there was any probability of assured tenancies on any significant scale being provided had there not been the provision of the capital allowances under the new clause? The second question we are entitled to ask the Chief Secretary is, leaving aside the lobbying from his hon. Friends in the Department of the Environment and regarding the matter as a Treasury Minister, what rationale can he find to provide capital allowances against corporation tax for this form of investment? The Chief Secretary will be well aware of the debates we have had in the past about capital allowances. Since capital allowances allow such a generous offset against corporation tax, our debates on them have taken up an increasing amount of time in the Finance Bill Committee.
The Chief Secretary will be aware that both his Government and previous Governments have defended a 701 system of giving allowances against industrial investment on two grounds. First, it stimulates investment which assists our industry to maintain competition with the industry of other countries, and provides jobs in Great Britain. Those considerations are not applicable in this case. The speculative developer in Great Britain is not in competition with a foreign developer. In any case, both of them would get the allowance under this arrangement. Nor does any house provided for an assured tenancy create permanent employment. It may provide employment during construction but it will not once the house is finished, unlike a factory. The whole point of providing building allowances to factories is to provide a place of permanent employment.
There is another equally irrelevant rationale. The Treasury in the past has defended the system of capital allowance and the 4 per cent. write-down on the basis that if industrial development is created the factory will deteriorate; its capital value will decline. It is therefore appropriate to give an allowance against that investment which is not available for investment for other buildings which appreciate in value. If the Chief Secretary lets through this capital allowance—a capital allowance relating to buildings which can be expected to appreciate in capital value—he will find himself in severe difficulty when he is next pressed by some of his hon. Friends on the Back Benches to extend similar capital allowances for hotels or many other purposes. I warn him that in departing from those rationales he is creating a dangerous precedent for himself.
When the assured tenancy scheme was introduced in Committee by the Minister, the Committee was led to believe that the bodies that would take advantage of it would be building societies and housing associations.
The Chief Secretary will be aware that last week the Minister for Housing and Construction gave a written answer in which he listed those bodies that had been recognised for the purposes of assured tenancy schemes. The list makes interesting reading. I cannot detect a single building society or more than one housing association. It lists companies such as Wates Limited, Barratt Developments PLC, Snowmountain Investments Limited, Oakmead Estates Limited, Tay Developments (Airedale) Limited, Eaton Square Properties Limited and Pattinson Estates Limited. The majority of the bodies offering themselves for approval—and succeeding in obtaining approval—for the purpose of assured tenancies are speculative property developers. What on earth is the Chief Secretary doing extending generous tax allowances to companies of that nature and extending capital allowances against corporation tax to those bodies when he is requesting the Department of the Environment to make further cuts in expenditure on any other form of housing investment?
That brings me back to the notes on clauses that were put in the Vote Office. Part 2—the public section, if I may put it that way—contains an entry on the top line which says: "Cost (to follow)." Has the cost followed, and may we have an estimate of how much will be lost to the Treasury because of those allowances?
My last question relates to the density of the text used in the nine pages across which the schedule spreads. In 702 paragraph 4 of the schedule there is provision for balancing charges to be made where an assured tenancy building is sold after a capital allowance has been obtained. When the Chief Secretary introduced the new clause he stated that these provisions follow closely the standard provisions for balancing charges on industrial building allowances. This of course relates to an allowance that is in no way comparable to an industrial building allowance.
If a factory is subsequently sold, it is generally bought as a factory. It will rarely be acquired for another purpose. When a factory is acquired for continuing use, one would not anticipate any substantial change in its value. When a block of flats provided as an assured tenancy block of flats is subsequently sold for owner-occupation, there would be a substantial shift in the value of the property. It would be much higher as a block of flats for owner-occupation than it would be as a block of flats containing sitting tenants with some limited security of tenure under the assured tenancy scheme.
Will the provision in paragraph 4 of the new schedule prove satisfactory against the occasions when companies such as Wates and Barratts—companies that are in the business of providing houses for owner-occupation—provide a block of flats for assured tenancies, obtain a 75 per cent. capital allowance, and over a five-year period acquire the remaining 4 per cent. per annum, which takes them to a 100 per cent. allowance in five years and in the sixth year they sell that property for owner-occupation, possibly even to the tenants they had over the previous five or six years? In those circumstances, they may make a substantial profit that exceeds the original cost of constructing the building and on which they received a generous capital allowance.
It would help the House to judge how prodigal the provision will be if the Chief Secretary will explain how in those circumstances the balancing charge will be assessed. May we have a guarantee—I cannot see one in paragraph 4 of the schedule—that in those circumstances the Treasury will be able to recoup the entire amount of the 100 per cent. allowance that it has paid over the preceding five or six years?
§ Mr. Brittan
The hon. Member for Edinburgh, Central (Mr. Cook) prided himself on finding, whether by accident or design, all kinds of classified and secret material. I found that extremely interesting, and felt, at one point in his speech, that he had seen part 2 and had imagined that it was something other than it was, and had invented arguments to resist a possible Opposition new clause rather than to put forward a Government one.
When the hon. Gentleman talked about what would happen if we were asked in future years to extend this to hotels and all sorts of other buildings, I had a vision of him reading an official brief to resist an amendment on the basis of the danger of the precedent that it would set. Clearly, the hon. Gentleman is so ambitious for future advancement to the Government side of the Dispatch Box that he is capable not just of stating the argument but of inventing the official brief. On this occasion, however, the official brief was absent because this is essentially an experimental scheme for only five years. The building of hotels is not on the whole an experimental activity. Therefore, I need not worry unduly about the argument regarding precedent.
The essential argument for the new clause is quite different. The hon. Gentleman asked what was the 703 rationale for this form of investment, as it does not provide factories for employment and its value does not decline. The answer is that although it does not provide factories, it will provide houses for people who might otherwise not have them and a form of tenure that may he more convenient and suitable to them than local authority accommodation or owner-occupation.
It is no use shirking the fact that in every possible social sense a larger private rented sector is intensely desirable. The only reason why it does not exist now is because of the present limitations and regulations and the prospect that any changes enabling the private rented sector to come to the fore would be instantly negated by the threat of countervailing legislation by the Labour Party. That is the reality of the situation.
§ Mr. K. J. Woolmer (Batley and Morley)
If the Chief Secretary cares so much about housing and if he is impartial as to the way in which it is provided, why does he not ensure that local authorities have more money for council house building? Is he aware that in Leeds there are 30,000 people on the council house waiting list? Why does he not get off his backside and do something about providing more money for local authority housing?
§ Mr. Brittan
I have. There is more money this year. However, we are not debating housing policy generally, nor am I talking about the total provision for housing. I am talking about the need, within whatever total amount is spent on housing, for a healthy private rented sector.
In the case of the assured tenancy—it is easy for me to say this as one who is not directly responsible for it—a valiant attempt has been made to find a way forward which would not run counter to the political prejudices of any section of the community and would enable an admittedly limited amount of private sector development to meet a social need. That is the justification and the rationale both for the introduction of the scheme and for its encouragement by fiscal means. I find no embarrassment, incongruity or inconsistency in, and every socially desirable need for, the introduction of this modest proposal.
The hon. Gentleman asked specifically about the sale of property at an enhanced value. If it is sold into owner-occupation within 25 years, the whole of the original capital allowance will be recovered. The cost of the scheme will be negligible in 1982–83, rising to £5 million in a full year.
On that basis and for those reasons, I commend the new clause to the House.
§ Mr. Cook
We have already made plain our position on assured tenancies. We shall let the experiment run and watch it with interest. In view of the comparatively small sum to which the Chief Secretary referred, however, it seems that, despite his conviction that this would be a good thing, he is not persuaded that large developments will come forward.
In the meantime, I invite the House to note that the result of the new clause, perverse though it may seem, will be to provide a far more generous subsidy for the construction of assured tenancy houses by private landlords than the Government are prepared to concede to local authorities which would willingly accept a subsidy enabling them to write off the capital cost of building a house within five years of its construction. Moreover, the Conservatives will provide this subsidy for housing on 704 which not one penny of public sector rent will be paid in any future year. I can only wonder at the Government's priorities. I am sure that my hon. Friends will bear in mind the prodigality of the Government in this respect next time we debate their attitude towards the public rented sector.
§ Question put and agreed to.
§ Clause read a Second time, and added to the Bill.