RELIEF FOR INTEREST (Hansard, 17 July 1986)

§ Dr. McDonald
I beg to move amendment No. 4, in page 17, line 31, at end insert— `and for basic rate taxpayers shall be £31,000'. When I tabled the amendment I was not aware that the issue would be subject to the most interesting speculation in the press today, including, for example, the leader in The Guardian, in which we are told: Mrs Thatcher's advisers are reported to be urging her to raise the amount of mortgage eligible for tax relief from £30,000 to £35,000. This idea is said to have been scorned by the Prime Minister's own harrowing househunting experiences. When she and Denis eventually found a £400,000 retirement home in Dulwich … she became convinced that home owners, particularly first time buyers, needed extra financial help. I read that with wry amusement. We had begun to think that the Prime Minister was getting out of touch, but we did not think that the extent of the reality was quite so great that she had become sorry for the first-time buyers when looking for a £400,000 retirement home. When my constituents are looking for properties, they are looking for small flats, maisonettes or small houses at the cost of between £30,000 and £35,000. That is part of the source of concern expressed in the amendment.
In passing, I should mention that this is the only kind of amendment that the Opposition can table. The Opposition cannot table an amendment that increases the burden of taxation generally. The political point of tabling the amendment will become clear in my remarks because, as it stands, the amendment does not make a great deal of sense.
There are two points here. As I have indicated, our concern is over the rapid rise in house prices, particularly in London and the south-east. Throughout the country house prices in the second quarter of this year have risen by 11 per cent. over the previous year, but the regional 1249 differences are quite significant. In Greater London house prices are rising at a rate of 21.9 per cent. on the previous year and, in the south-east as a whole, at the rate of 16 per cent. This is a very sharp increase in house prices and places enormous burdens on those who are looking for houses, particularly in London and the south-east. I am talking about modest flats, maisonettes and threebedroomed semis—the average house for the average couple.
The £30,000 ceiling may soon present difficulties for such purchasers. This is especially true if we bear in mind that the average mortgage advance for first-time buyers in 1985 in the Greater London area, according to figures supplied by the Building Societies Association, was £29,482. In other words, the average mortgage requirement is almost up against the limit for first-time buyers. In the south-east generally, the mortgage advanced to first-time buyers is just over £25,000. The limit is likely to be reached for many purchasers buying quite modest accommodation in London and the south-east.
We understand the concern about that, but the Prime Minister's sudden concern in this matter is purely political. If the right hon. Lady has it in mind to raise the limit for mortgage interest relief by £5,000 a year, she is thinking of Tory voters turning to the alliance in London and the south-east. If she were seriously concerned about the prospects for home buyers, particularly in London and the south-east, far more would have been done to prevent the sharp increase in house prices, which arises not just from the shortage of housing in the public sector, but from the shortage of housing in the private sector.
The number of new dwellings built last year was 189,000, which was 33 per cent. lower than in 1978. The Conservative party claims to be concerned about this and to wish to promote home ownership, but it is responsible for building so many fewer private homes than the last Labour Government did in 1978 that prices are shooting through the roof and many people, particularly young couples, cannot afford to buy anything. They cannot turn to the public sector either, as we all know from our experience as constituency Members of Parliament that houses and flats to rent from the local authority are simply not available.
The queues for new housing have trebled in London and the south-east, as well as in other parts of the country. The Prime Minister's sudden wakening to the thought that many young couples in London and the south-east find it difficult to afford a house has led her to believe that raising the mortgage interest relief will solve the problem. It will not. Money should be put into public sector housing to provide homes for those in need, and private house building should be encouraged. It would he if the economy were growing at a proper rate and if there were not the drag of so many unemployed.
The other part of the amendment is designed to limit mortgage tax relief to the standard rate of income tax. We support this form of relief for those wishing to buy their own property, but we see no reason why very large mortgages for rich people should be subsidised to the extent that they are by the Exchequer. In 1985–86, about 750,000 mortgagors received relief in excess of the basic rate of income tax. This represents about three quarters of 1250 all the higher rate taxpayers. Just under 1 million mortgagors received enormous relief from the Tory Government.
This year the number has increased. It is estimated that about 800,000 mortgagors will benefit from the higher rate relief. These people know how to play the system and push up their mortgages to make sure that they obtain the maximum relief at the higher rate of income tax. The cost of that to the Exchequer is more than £1 billion. That figure was given in Hansard on 11 June, at column 201.
We are in favour of aiding people to buy their own homes, but we have in mind the average person buying an average home. That £1 billion should not be squandered on a tiny minority of higher rate taxpayers. It is disgraceful that such sums should be used in such a way. We make it clear that we shall limit the relief to the basic rate, which will benefit those on average incomes buying average homes. There are far too many homeless people. I have examples in my constituency of people whose marriages have broken up, and the wife and children are living in a council house or flat while the husband has to resort to sleeping at his place of work or in the car. That £1 billion cannot be justified as a proper expenditure by any Government while people are homeless and unable to find the council houses or flats that they desperately need.
The Labour party in government will put a stop to the squandering of revenue in such a way, while at the same time we shall ensure that average couples can buy the houses that they need with assistance from the Government through mortgage tax relief.

§ Mr. Robert Sheldon (Ashton-under-Lyne)
We are grateful to my hon. Friend the Member for Thurrock (Dr. McDonald) for tabling the amendment. She was right when she said that what the Prime Minister has in mind has more to do with the forthcoming general election than with the housing problems. We saw that at the previous election. One of the last actions of the first Conservative Government was to increase the limit of mortgage tax relief from £25,000 to £30,000. I was against it then, the Treasury has always been against it, and I would not be surprised if the present Treasury Ministers were also against it. It does not make sense.
We all know that all that one gets out of the nonsense of excessive tax relief for housing investment is an increase in the price of houses. My hon. Friend made this clear when she pointed out that prices in the south-east are rising at 16 per cent. a year. First-time buyers need help to get on to the property ladder, but thereafter their needs can be dealt with quite adequately by the operation of the housing market.
It is easy to increase the limit for mortgage relief, but it is difficult to bring it down. It has some similarities with the problem of inflation. Inflation can rise easily. To bring it down requires painful experiences. So it will be in this case. People take out mortgages with 20 years in view and plan their expenditure accordingly. To bring about changes in their expectations causes much discomfort and even distress, so any relief that is given will be difficult to remove later.
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It is worse than that because many institutions are anxious to see people trading up or being overhoused. Only last weekend I saw an advertisement that offered people money to trade up as a good investment. People were being told that they should not be satisfied with the 1251 house that they had when they could get something better; as long as they had a basic house partly paid for, they were being encouraged to think of buying a better house because of the investment opportunity that would create. One of the last things we want is that people should be overhoused when manufacturing industry is in such decline.

§ Mr. Gerald Bermingham (St. Helens, South)
Does my right hon. Friend agree that if the housing market is to progress and more first-time buyers are to come in, more houses at the bottom of the purchasing scale are essential? If there were additional basic allowances for ordinary people in the south-east, Manchester or any other area, that would increase mobility in the rest of the market.

§ Mr. Sheldon
Of course, mobility is not helped by the present system. A very dear friend of mine moved from London to near where I live in the north-west. What he got for his modest house provided a magnificent house in the north-west. Now he needs to return to London. It is easy to make the transition from a modest house to a splendid house, but it is much more difficult to move the other way. In addition, the type of house that that family left originally is now well beyond its means. So mobility has not been made easier, although it is required because of the attractions of the south-east. People advocate greater movement between north and south, but movement is limited because of the changes made by the Government.
My hon. Friend the Member for Thurrock was right in saying that the Prime Minister is proceeding in this way because of Tory votes. Shortage of houses still remains a problem. We are on a treadmill where year by year house prices will rise as tax relief becomes more attractive. Let us consider the total amount that is spent—£5 billion to encourage people to live in houses that more than meet their needs. If that amount were spent on manufacturing industry it would provide an incentive of about £1,000 per worker per year. We must compare investment in the housing market with the incentives that are being denied to manufacturing industry.
We must also take account of the rate of increase in tax relief as an incentive to people to buy better houses. Only two years ago mortgage tax relief amounted to about £3.5 billion. Three months ago it was £4.5 billion. Now it is £5 billion. No doubt it will rise to £6 billion and £7 billion. At some stage a halt must be called because it will take a long time for the 20-year mortgages to work their way through the system. It is not a sensible use of resources to spend money in that way.

§ Mr. David Penhaligon (Truro)
I have listened with interest to the two speeches on the amendment. My sympathies lie more with the hon. Member for Thurrock (Dr. McDonald), the official Opposition Front Bench spokesman, than with the right hon. Member for Ashton-under-Lyne (Mr. Sheldon). A serious problem is being drawn to the attention of the House. The hon. Lady said that the concession to upper rate taxpayers costs £1 billion a year. I wish that the figure was less.
I support a phased arrangement whereby tax relief would be restricted to the standard rate, but it is a peculiarity of our Parliament that we cannot argue that case. There may be logical reasons for that somewhere, but they have escaped me. It is a shame that we cannot arrange a debate about an amendment that we wish to put forward.
1252 Although the alliance defends the principle of tax relief for mortgage payments, as we have made clear, some aspects of the present arrangement are totally indefensible. A person earning £14,000 a year may take on a mortgage. Indeed, we respect the advantage given to people by the current system. If that person gets promotion and earns £40,000 a year, what is the effect on his mortgage relief? Under the present arrangement the help given to him in hard cash terms, pound notes in his hand, more than doubles.
The Government may regard it as proper and reasonable that a man earning £40,000 a year should get twice as much help towards paying his mortgage as someone earning £14,000, but on grounds of decency and justice or any rational approach, I find that a distortion of reality, sense and good reason. Given the opportunity, we shall seek to change the tax relief system so that relief is restricted to the standard rate, recognising that the change will have to be phased because of the point made by the right hon. Member for Ashton-under-Lyne about mortgages covering a 20-year period.
I take issue with the right hon. Gentleman about his assertion that massive differences in house prices in the south-east compared with the north arise because of income tax relief. There are massive differences between the south-east and the north, as there are between the south-east and everywhere else. Sometimes I find the north-south argument difficult to understand. I was brought up to regard Exeter as being in the midlands and Bristol in the north. For economic arguments I regard myself as being in the north, but I do not accept that the differences in prices are purely and simply a reflection of the tax relief system, although that cannot help. The differences in prices are a reflection of other things which the debate on this amendment will not allow us to argue about now.
If tax relief were restricted to the standard rate there might be an argument for increasing the limit. On the other hand, if there were no change in the system there might be an argument for decreasing the tax relief limit. If it remains at £30,000 from now to infinity, and nothing remarkable happens to inflation, the amount will, in effect, be reduced as time goes on. The alliance objects to the system which gives the better off more assistance towards purchasing their homes.
Mortgage tax relief is not new. It has existed for a long time under different Governments. I ask the Minister how he and his Government can justify a system whereby, on the same mortgage, a man earning £40,000 a year receives more than twice the assistance received by a person who is earning £14,000 a year.

§ Mr. Bermingham
As a member of the Standing Committee that considered the Bill, I welcome the contribution from Liberal Benches tonight. It is more than we had from the SDP Benches in Committee. However, I shall not go over old matters.
I recall what was said in Committee. I know that Treasury Ministers railed and riled and poured scorn on Opposition Members of the Committee because we wanted to increase the basic rate tax relief on mortgages above the £30,000 limit.
I was somewhat amused, if not tickled, to read in The Guardian today that the Prime Minister has been reminded —I do not know whether it is the thought of having to retire to Dulwich—that ordinary human beings need to 1253 live in houses. As a Member representing a northern constituency, I do not necessarily go along with the proposition that the housing problem is greater in the south of England. The problem is as great in certain suburban areas in the north as it is in the south. One can hardly buy a one-bedroom flat for £30,000 in London—not only in the posher areas, such as Belgravia and Eaton Square, but in areas such as Chalk Farm, Camden, and so on, where houses are being refurbished.
A person buying his first house or flat becomes part of the housing chain. Because of family needs, people sell and move to bigger homes. That releases another first-home property on the market. Increasingly, buying a property is out of the range of the ordinary man in the street. Not everybody in the City of London works in the commercial sector and earns £20,000 or £30,000 a year.
Let me give the example of a secretary, earning between £8,000 and £10,000 a year, and her husband—perhaps he is a manual worker or is in a semi-skilled occupation —who earns about the same. Probably, that couple can obtain a mortgage of only one and a half times their gross income. I am aware that building societies are scrambling to offer loans of two and a half times a couple's joint income, and so on. However, it is all very well to offer such a loan, but the potential strain on families at that level of borrowing is great. There is an enormous strain to meet the mortgage commitment if the wife or husband falls sick or if they seek to have a family, thereby losing one income.
Even with a basic tax relief of 29 per cent., a £30,000 mortgage is a considerable weight on the shoulders of such a family. Even if it bears interest of only 10 or 11 per cent., the repayments are about £3,000 a year—£60 a week—gross. Then the 29 per cent. is taken off. If my arithmetic is not fast enough and if I get the figures wrong, I am sure that hon. Gentlemen will assist me. The amount payable would be about £47 a week. That is before the capital repayment and rates are considered. An enormous strain is placed on a family whose joint income can be as low as £14,000 or £15,000 a year.
That is only one side of the coin. However, I am a realist. I accept that house prices rise as the years go by. I dealt with conveyancing matters when I practised as a solicitor. There is a tendency to calculate when giving advice. I am sure that hon. Members who are solicitors would agree. One calculates what the tax relief will be at 30 per cent., 40 per cent., and so on, on a £30,000 mortgage. One always arrives at a monthly cash flow figure — what a person can afford to pay per month towards his housing costs. There is an incentive, as a person's income rises, to look further up the market.
I disagree in part with what my right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) said. One element—it is not a major element—that forces house prices up—

§ Mr. Robert Sheldon
Mortgage relief is only one aspect. There is the capital gains tax and the abolition of schedule A. It is those, together, that have made property for one's own residence purposes the most attractive investment that one can make, on a scale that is difficult to justify.

§ Mr. Bermingham
Either I have misunderstood my right hon. Friend or he has misunderstood me. I do not 1254 disagree about the investment factor. I agree that housing has become an attractive investment proposition. Its track record since 1968 has shown that. At that time, there was a boom in house prices both in the north and south. In 1968, one could buy a semi-detached house for £3,000. By 1970, or 1971, the price had gone up to £4,000 or £5,000. By about 1973–74, the figure was approaching £7,000.

§ Mr. Tony Favell (Stockport)
Does the hon. Gentleman suggest that his party wants to make buying one's own home a less attractive proposition than it is now? In what way does the hon. Gentleman's party seek to make it less attractive?

§ Mr. Bermingham
I have known the hon. Gentleman in a professional capacity for many years. I am amazed at his almost immature — I say that as kindly as I can —approach. Of course we do not seek to dissuade people from bying houses. On the contrary, we seek to assist them to buy. What we are saying is that, in terms of capital gains tax, the purchase of a house over the past 18 years has undoubtedly been an attractive investment. It has kept ahead of inflation levels. In fact, at times, it has risen startingly higher. We saw that in the 1974 property boom and we saw it in some parts of the country in the late 1970s and early 1980s.
Although an aspect of capital gains tax has led to the escalation of house prices in certain parts of the country, I do not think that that is the primary reason for high prices. The reason is that most people want to improve their housing as the years go by and as their family needs increase.
There has been a scarcity factor in the housing market. That factor often commenced in the starter houses and escalated up the scale. Unless there is mobility in housing — availability of housing—so that people can go up, and unless there is a broad enough market—

§ Mr. Ian Gow (Eastbourne)
indicated assent.

§ Mr. Bermingham
The hon. Member for Eastbourne (Mr. Gow), who is a former housing Minister, nods—I hope in agreement with what I have said. Unless there is availability of housing, there is no way that prices can be kept under control. If there are only two nice, five-bedroom houses in a town and 40 people want to buy them, that will escalate the cost. If there are 40 houses, that will not escalate the cost.

§ Mr. Gow
I agree entirely with what the hon. Gentleman said about the supreme importance of improving mobility. Does the hon. Gentleman not understand that his party refuses to contemplate the form of the private rented sector and, notably, any removal or diminution of the twin evils of rent control and security of tenure? The failure of his party to accept that possibility of reform means that a great deal of property remains unused or underused. If that reform came about, that housing would be brought into use and would increase the stock of housing available.

§ Mr. Deputy Speaker (Sir Paul Dean)
Order. I hope that the hon. Member will resist the temptation to get into a general debate on housing.

§ Mr. Bermingham
I never thought that I was going down that road. I was considering the taxation aspects. The taxation aspects are reflected in our housing policies. Perhaps the Treasury, with a little wisdom in its sack of knowledge, will bring a bit of pressure to bear. After all, 1255 he who pays the piper usually calls the tune. I realise that if I were to reply to the hon. Member for Eastbourne I would trespass on the breadth of the debate. The hon. Gentleman and I have a fundamental disagreement on the philosophy behind who should rent and on what terms and conditions.
I agree that the rented sector is part of the general aspect, but it has been a decreasing sector for a number of years. Indeeed, I am told that the rented sector has been on the decline since before 1914. There must be a rented sector, and the quality of rented sector housing must be as high as possible, but perhaps that argument can be left to another day.
I return to mobility and scarcity, which come well within the scope and ambit of the amendment. If there is a shortage of housing, house prices escalate. That is as true at the top of the scale as it is at the bottom of the scale. One of the tragedies of the last few years has been the fall in the number of starter houses. In the late 1970s I was a member of a city council that tried the experiment of building for sale. It was a partnership idea, involving local authority land and local builders. Starter houses were, in a sense, only partly built. One or two rooms formed the basis of the house and rooms were added to it as families grew in size. It was an enormously popular scheme, but it was discouraged, and it was yet another aspect of starter housing that fell by the wayside.
If we increase the availability of houses, by means of starter housing for young people, builders will be provided with an incentive to provide the next stage. One might call it Barratt developments, mark 2, as opposed to Barratt developments, mark 1. Once again the purchaser must be able to meet the price.
I understand from what I read in the newspapers that the Prime Minister has begun to think about uprating. But I must never believe anything that I read in the newspapers, though they are usually told before the House of Commons is told. It is called the Lobby system. Let out the leak, to begin with, then firm it up with a couple of others, preferably by colleagues making speeches halfway round the country, and suddenly it becomes the official party policy of this or that party. That is what the present Government do, and they always seem to do it just before the summer recess so that hon. Members have no opportunity to comment on or criticise that policy. I may be over-suspicious but we are approaching the long recess and the mortgage question seems to be the first stage of such a policy.
If we were to assist young couples, the starter buyers, by increasing the relief for interest limit to £35,000 at the standard rate of income tax, we should stimulate the market. However, we could stimulate that market even more. The arithmetic is quite simple. My hon. Friend the Member for Thurrock (Dr. McDonald) said that the total amount of tax relief for higher rate taxpayers is £1 billion. If one is earning between £40,000 and £60,000 a year, I suppose that one can afford to spend a little more on housing.
The hon. Member for Truro (Mr. Penhaligon) rightly said that it is obscene that persons earning £40,000 a year are entitled to more tax relief than persons earning £14,000 a year. If we were to take away £1 billion from them, it would not mean much to them. During the last seven or eight years they have had enough incentives. They have been given everything. We should say to them, "Look, chaps, you really have had a good whack. Your top rate 1256 of tax has been brought down, all the other little perks have been added in and you have done all right by this Conservative Government, so how about a genuine sacrifice? You are to lose tax relief at the top rate. You can have it only at the standard rate."
I can think where to put that £1 billion to help very many homeless people. What about the housing sector? If £1 billion were invested in housing many jobs and many fresh starts would be created. Perhaps the tide in the diminution of fresh starts could be turned again. If I may be allowed to make just a small plug, I represent a constituency which has a large glass industry and also a large brick works industry. Many jobs have been lost in both industries. If £1 billion were to be invested in the housing market, it might just produce a few jobs in St. Helens.

§ Mr. Deputy Speaker
Order. The hon. Gentleman is straying again. This is a comparatively narrow amendment dealing with relief for interest. He must address himself to the amendment.

§ Mr. Bermingham
I apologise if, by promoting a constituency interest, I have strayed from the amendment, but the point is made.
If our society cares about housing and about young people being able to buy their own homes, we should support the amendment, which is a tiny step down that road. If the newspaper reports are true and we have entered the season in which we learn by leak of future policy, let Treasury Ministers have the courage tonight to say, "Yes, we are going to raise the £30,000 level. It will come." Let them also have the courage to say that it will come for those who need it most, not for those who have the most.

§ The Financial Secretary to the Treasury (Mr. Norman Lamont)
When the hon. Member for Thurrock (Dr. McDonald) was moving her amendment she explained the technical background to it. She made it quite clear that she accepts that the amendment does not make any sense, but she said that she had put it forward to initiate a discussion of the subject. She then made it clear that she had two objectives: first, to show that it was the policy and intention of the Labour party to phase out mortgage interest relief for those who pay income tax at above the basic rate, and, secondly, to increase the £30,000 limit for the basic rate taxpayer.
The hon. Lady began by quoting newspaper reports, although she quoted selectively from them. She did not quote all that The Guardian said about how wrong it would be to increase the £30,000 limit. She quoted a few newspaper reports that speculate about the intentions of my right hon. Friend the Prime Minister. The hon. Lady used the word "speculation." It is exactly that — pure speculation. It has no foundation in fact. My right hon. Friend the Prime Minister has always attached the highest possible political priority to increasing home ownershi:p. She takes enormous pride in the fact that home ownership is now at its highest level ever. It is in no way surprising —indeed it is wholly natural—that my right hon. Friend should always be concerned about the opportunities for young people to buy their own homes, but that is the beginning and end of the matter.
The Opposition's proposal is that the higher rate relief for mortgage interest should be withdrawn altogether. The hon. Lady quoted a figure of £1 billion, a figure that was 1257 echoed by the hon. Member for St. Helens (Mr. Bermingham), who referred to the amendment directing £1 billion towards the construction industry. I ought to point out to the hon. Lady that £1 billion is the total cost of tax relief to the higher earnings group, above £20,000, but that is not the cost of the higher rate relief. That is £320 million. The £1 billion includes the basic rate element, so the resources released by the amendment would not be of the magnitude implied by the hon. Member for St. Helens, South. That does not affect the principle, but we should be clear about the arithmetic.
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The right hon. Member for Ashton-under-Lyne (Mr. Sheldon) instanced the special position of housing within the tax system, not just by merit of mortgage interest relief, but by merit of capital gains tax. This long-standing practice was introduced when home ownership was at a lower level. Nobody could quarrel with the fact that housing enjoys a special position in our tax system.
The hon. Member for Truro (Mr. Penhaligon) did not make his position entirely clear. He did not come clean on whether higher rate mortgage interest relief should wither on the vine or whether there should be some other form of transitional relief. He seemed to agree with the Labour party, but at the same time implied that something could be said for leaving the system to wither on the vine. I should be grateful if the hon. Gentleman would clarify his position.

§ Mr. Penhaligon
I am sorry that I did not make my position clear. I said that the case for restricting mortgage interest relief to the standard rate on a phased system was overwhelming. Given that it is based on the standard rate, there is a case for adjusting the limit at least in line with inflation.

§ Mr. Lamont
Is it the policy of the alliance to phase out the higher rate relief?

§ Mr. Penhaligon
Yes.

§ Mr. Lamont
I am grateful for the fact that that has been put on the record.

§ Mr. Penhaligon
I said "phased".

§ Mr. Lamont
Phased, as distinct from withering on the vine. We all look forward to analysing that vague, rather nebulous and imprecise distinction. I do not think that I was alone in not being entirely clear about the position of the alliance. I am sure that 800,000 mortgagors who would be affected by the change advocated in the amendment, which was unequivocally supported by the hon. Gentleman, will note his remark.
The Government see nothing wrong in allowing relief at the higher rates of tax as the natural consequence of our progressive tax system. If tax relief on mortgages is to continue—the Opposition have promised to continue it —it is reasonable that it should apply to borrowers at all rates of tax.
Of course, housing has a privileged position. The hon. Gentleman compared it with that of industry. Mortgage interest tax relief is long standing, and in looking at it today we must take into account the fact that many people have entered into long-standing commitments that are of enormous financial importance to themselves. It is therefore difficult to justify any sudden change.
1258 The Government have considered the position of mortgage interest relief in our tax system each year. In 1983 we increased the limit from £25,000 to £30,000. This year we cut the basic rate of tax and increased personal allowances. We felt that the mortgage interest relief limit should remain at its present level. We shall continue to review it in the future.
The hon. Member for Thurrock commented on house prices in the south-east. Obviously, they are increasing rapidly, although it is still true that even in the south-east the average first-time buyer is within the £30,000 limit, although only just within it. As with other tax relief limits, this limit is set for the country as a whole. It would be impossible to introduce differential relief limits according to regional variations. Recent interest rate reductions are the way in which we can help home ownership and the first-time buyer. The Government are seeking to do this by their economic policies, and by bringing about a situation in which interest rates are likely to fall.

§ Mr. Penhaligon
The Minister commented on the disadvantages of my proposal to the 700,000 people who benefit under the higher levels of relief. Could he explain, shortly and succinctly, to the other 28 million people in Britain who do not benefit from this why the Government defend allowing over twice as much relief to a person earning £40,000 a year as they allow to a person earning £14,000 a year?

§ Mr. Lamont
Because something is not available to everybody, it does not mean that it should not be available to anybody. For many years tax relief has been available to people with higher incomes, and they have been encouraged to borrow money to buy houses. It is a logical consequence of a progressive tax system that the greatest benefit of relief is available to those who pay higher rates of tax. Liberal Members do not seem to understand that when they discuss very small adjustments to the tax system.

§ Mr. Penhaligon
The Minister is saying clearly, for everyone to understand him, that he thinks it is rational, proper and reasonable that if a person in a specific house, and with a specific mortgage commitment, increases his salary from £14,000 to £40,000 a year, the Government should give him as cash in his hand twice as much relief as previously.

§ Mr. Lamont
It is extraordinary that the hon. Gentleman regards tax relief which allows somebody to keep more of his income as giving him cash in his hand. My instinctive reaction is that allowing a person to keep more of his own income is not giving him cash in hand. My presumption—it may be extraordinary—is that his income belongs to himself rather than to the state. Perhaps the hon. Gentleman finds that difficult to follow.

§ Mr. Hanley
Does my right hon. Friend agree that if the mythical constituent mentioned by the hon. Member for Truro (Mr. Penhaligon) raises his income from £14,000 to £40,000 a year he will pay greatly increased rates of tax? The net effect on that individual will be that he is paying more tax and is not receiving money.

§ Mr. Lamont
My hon. Friend is absolutely right, as he so often is. The Labour party says that it is the guardian of the poor and the lower paid. That is admirable, but Opposition Members seem to think that people on above average incomes have no rights and are of no importance 1259 at all. Not content with wanting to increase their income tax, they want to increase their bills massively. In the past this country has suffered from too high a burden of taxation on above-average incomes and it has affected our overall economic performance.
There is a clear division on this matter between the two sides of the House.

§ Mr. Gow
As the House has the advantage of the presence of the solitary representative of the Liberal party, can my right hon. Friend confirm my understanding that the policy of the Liberal party—leaving aside the SDP—is to end the exemption of houses from relief from capital gains tax?

§ Mr. Lamont
I am afraid that I am not as informed as my hon. Friend is about this matter. I am therefore happy to give way to the hon. Member for Truro.

§ Mr. Penhaligon
The Conservatives of Eastbourne are famous for making up their own versions of Liberal policy. However, as the years pass by, the good people of Eastbourne have the sense to pick the real version. The hon. Member for Eastbourne (Mr. Gow) is at it again.

§ Mr. Lamont
One can hardly blame my hon. Friend the Member for Eastbourne (Mr. Gow) for trying to make up Liberal policy. It is difficult to work out Liberal policy, as we saw when I put a direct question to the hon. Gentleman. Even when he gives a straight answer, it is so vapid and foggy that much analysis is required to make sense of it.
This matter has perhaps been debated for long enough. There is a clear division between the two sides of the House. The 800,000 people who would be affected by this will notice not just what has been said by the Labour party, but what has been said by the hon. Member for Truro —that the alliance intends to remove relief from higher rate taxpayers.

§ Dr. McDonald
First, I thank the Financial Secretary for not misrepresenting the Labour party's views on maintaining and continuing mortgage tax relief when we take office. That, I fear, has been done in the past by Treasury Ministers and I am glad to note that he at least has not fallen into that trap. We have been at pains to overcome such misrepresentations and to make it clear that we intend to retain mortgage tax relief for standard rate taxpayers.
I was interested to note that the Financial Secretary seemed to move away a little from the original purpose of mortgage tax relief, which is, of course, to encourage and assist people in purchasing their homes. He seemed to regard it, as indeed it is so regarded by many higher rate taxpayers, as a means of lightening the tax burden. I could not help but notice that drift in the Financial Secretary's remarks.
We wish to limit mortgage tax relief to the standard rate because, in an area which is so sensitive and basic to most people's lives—the provision of a home for themselves and their families — help should be concentrated by Government where it is most needed. Higher rate taxpayers do not need to receive this relief at the higher rate. They usually manage to provide homes well above average for themselves and their families.
Therefore, it is not through any wish to attack the incomes of higher rate taxpayers in receipt of mortgage tax relief that we have moved the amendment; it is just that 1260 we think that in the provision of housing, whether through the purchase of one's own home, through co-operative ownership schemes or through houses or flats to rent in the public sector, aid should he concentrated where it is most needed. Therefore, we should not continue the relief at the higher rate.
I take the Financial Secretary's point about the progressive nature of the tax system. Of course, people on higher incomes benefit more. That is almost inevitable with a progressive tax system. But there comes a point when that system can be broken by saying that such a relief is not justified at that level. It is an expensive relief for Government to administer and therefore help should be concentrated on those who most need it for something as important as housing.
As I have already said, and as the Financial Secretary understood, the amendment does not achieve our real purpose. It is merely a method of giving notice that the next Labour Government will carry out the intentions that I have just described. Therefore, I beg to ask leave to withdraw the amendment.