§ Mr. Archy Kirkwood (Roxburgh and Berwickshire)
I beg to move amendment No. 10, in page 43, line 41, at end insert'or the loan is made to a registered disabled person.'.
The First Deputy Chairman
With this we may take amendment No. 11, in page 44, line 14, after 'April 88' insert'or the loan is made to a registered disabled person.'.
§ Mr. Kirkwood
Clause 42 raises some wide-ranging and important issues. The amendments seek to focus the debate on a more finely defined issue—the disabled. Amendment No. 10 is fairly transparent in its purpose: it seeks to retain tax relief on home improvement loans for disabled people. The justification is simply that disabled people need to adapt their homes to meet the needs of their disabilities.
It goes without saying that the disabled are a particularly vulnerable section of our community. Opposition Members would argue that some of them have suffered especially severely at the hands of the present Government, particularly in relation to the recent social security changes. The old system of supplementary benefit, which brought in its train a system of regular additional payments and single payments as a legal requirement, allowed disabled people to underpin their income and to receive substantial support. The provisions brought in at the beginning of last month changed that system. As a 244 result of the new regime of income support, the severely disabled in particular have suffered considerable financial loss.
My amendment refers directly to registered disabled persons, although I should like to talk about a slightly wider group. The term "registered disabled person" does not embrace the needs of the elderly or, necessarily, those of the mentally handicapped or mentally ill. A large group of people could benefit from the amendment if it were accepted. There are, however, problems of definition in making it clear to whom we are trying to give the concession. The simplest option is probably to restrict debate to the words of the amendment, which embrace only registered disabled persons. The wording has a statutory meaning which leaves no doubt about who would qualify for exemption.
I do not think that the Government can base an argument on the costs that the amendment would involve. The tax forgone by the Treasury would be restricted, because a limited number of people would qualify, and only a relatively small proportion of that group would consider physical adaptations to their homes of benefit to them as individuals.
The cost of the amendment would be modest, but I submit that the effect of obtaining the relief—the ability to undertake such improvements—could transform the quality of life for those taking advantage of the measure. In my experience, few disabled people living outside custom-built institutionalised premises could not benefit from some physical alteration to their homes. There is a case for a coherent Government policy on disabled people to be applied across various Departments. It is only recently that we have begun to appreciate how the quality of life for people with disabilities can be transformed by simple changes to their homes.
§ [MISS BETTY BOOTHROYD in the Chair.]
§ I have personal experience of taking part in a stunt organised by the Young Liberals at the Liberal assembly in 1986. It consisted of putting me in a wheelchair for the best part of a day and taking me through the process of staying in an hotel and taking part in the conference. That had a salutary effect on my perception of some of the problems faced by people in wheelchairs in their homes and their ordinary everyday lives.
§ There is a real need for the Government to adopt a coherent approach and to accept the need to change the perceptions of those of us who enjoy good health and a full life. We have a real fight on our hands and a campaign is needed to change people's attitudes. The Government have an important role to play in that. The change that I am suggesting in the amendment would, if it were accepted, play an important part in that coherent Government policy.
§ If the Government resist the amendment, they will be liable to the charge that their timing is to be deplored. I say that because the Committee will know that the Office of Population Censuses and Surveys expects to publish the results of a survey of disabled people in a series of reports to be issued later this year. That survey will establish the need and extent to which care and support are required. In the past, Government Departments have been labouring under the handicap of not knowing the true extent of the needs of disabled people. Later this year that will not be the case.245
§ I believe that the information that the OPCS provides will serve to inform us about the extent to which ramps, wider doors, lifts and improved access for disabled people can help. It will show the extent to which extra rooms for carers added to homes, or to which bathrooms or single-storey accommodation can prevent institutionalisation. That is all in the area of constructive improvement and does not begin to embrace the improvements that can be brought about by electronic aids which can now be built into improvements in and adaptations to disabled people's homes.
There are other aspects of Government policy that already recognise the needs of the disabled. I draw the Committee's attention to the report on community care recently published by Sir Roy Griffiths. That recognises the need for social work departments to provide tailor-made support to enable people to continue to live at home. The report said:
If community care means anything, it is that responsibility is placed as near to the individual and his or her carers as is possible.
if community care is to be a reality and more than just a slogan to which the Government pay lip service, the terms of the amendment should be accepted. Our suggestions can make a positive contribution.
§ There are other examples of the way in which the distinct nature of building work for disabled people can make a contribution. That has been recognised by Governments in a number of ways. For example, improvement grants have always been paid to the disabled at priority rates. Disabled people are allowed to have charges waived for planning and building control applications and perhaps most significantly, disabled people have always been eligible for zero rating for value added tax on building costs. Therefore, there are clear precedents. Deliberate and coherent concessions have been made to try to improve the special needs of disabled people.
§ My argument to the Committee in relation to these amendments is that the key difference for the disabled person when considering home improvements is that they are necessary. They are not a matter for exercising choice, which would be the case for able-bodied members of the community. The interest relief that I wish to sustain in the amendment is important to disabled people. To remove the relief would impose an unnecessary financial burden on the most vulnerable members of society.10.30 pm
§ Mr. Butterfill
I have listened with great interest and some sympathy to the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood). Many of us would agree that the special needs of the disabled should be accommodated wherever possible. On the other hand, I have to say that there are many other groups that we could include in the special pleading made by the hon. Gentleman. No doubt some of us will turn to that later this evening.
What is incontrovertible, however, is that there has been a lot of abuse of loans for the purpose of home improvements. The hon. Gentleman's amendment would carry greater weight if it proposed not only that the exemption should be for disabled persons, but arising out of their special needs as disabled persons. There is otherwise a possibility of some abuse by disabled persons, 246 as there is by other members of the community in the same way. For that reason, I feel unable to support the amendment.
§ Mr. Morgan
The answer to abuse is to correct the abuse by asking for invoices, so that a grant depends on the submission of audited invoices for the work done.
§ Mr. Chris Smith
On behalf of the official Opposition, I welcome the amendments tabled by the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood).
The hon. Member for Bournemouth, West (Mr. Butterfill) mentioned two objections to the amendment, the first being that many others might fall into a special need category. That is precisely why we shall be debating on clause stand part some of the wider issues surrounding the removal of relief from home improvement loans.
The hon. Gentleman also mentioned the problem of abuse. That point has been answered excellently by my hon. Friend the Member for Cardiff, West (Mr. Morgan) by saying that one tackles abuse by tackling specific abuses rather than removing the relief altogether.
§ Mr. Butterfill
With regard to what the hon. Member for Islington, South and Finsbury (Mr. Smith) and his hon. Friend the Member for Cardiff, West (Mr. Morgan) have just said, the point could be even better tackled by an amendment providing that the relief would be directed not just to disabled persons, but to their special needs. That is my objection to the wording of the amendment.
§ Mr. Smith
The hon. Gentleman fails to pick up the point, which I shall deal with later in more detail, that when addressing abuse one addresses distinctly those areas where abuse is likely to occur. There is very little evidence that people with disabilities have been abusing the home improvement tax relief system. Indeed, that is one reason why I certainly wish to support the amendment tabled by the hon. Member for Roxburgh and Berwickshire.
I support the amendment for three other reasons. First, the essential nature of the improvement work carried out by those with disabilities reflects their need for extra ramps, wider doors, lower working surfaces, and wider internal doorways in their dwellings. The sort of improvements that are carried out are essential for them to lead a proper and easy life. Secondly, many of them face a financial necessity in carrying out improvement work, which to a certain extent is eased by the prospect of tax relief being available. Thirdly, it is easy to check and monitor such a system. It is administratively easy because of the system of registration of disabled persons. The amendments would easily cope with that. The Government will be hard put to find cogent arguments against them. I hope that they will accept them.
§ Mr. Wigley
I apologise, Miss Boothroyd, for arriving late. I understand that earlier the timing went a little skew-whiff.
I very much support the amendment. Disabled people should have the maximum provision possible. I know, from my experience on the all-party disablement group and from constituency cases, the sort of help that can be made available and which makes a material difference. There is, for example, tax relief. It may not make a great difference to disabled people if they are not taxpayers and not in a position to get direct benefit from it, but it can make a difference to the large number of people whose incomes or benefits are taxed.
247 The situation of disabled people is difficult enough. We, as a family, know that the cost of disablement can be much higher than the estimates, especially when there is multiple disablement. Attendance allowance and other benefits—we welcome the new benefits—often do not go far enough towards meeting the costs of day-to-day living or leaving any money to spare, either to fund loans to undertake the work needed on a house or to accumulate capital to do that work directly.
It is clear that disabled people need to meet a greater expenditure than the average family.
§ Mr. Butterfill
Would it riot be an anomaly, which the hon. Gentleman would find difficult to support, if the amendment were carried and a disabled person were permitted tax relief on an extension to provide an extra bathroom but a family with young children with an equal need for a bathroom were denied that same relief?
§ Mr. Wigley
One can argue in favour of relief for families with young children, especially when income support is not sufficient to provide the basic facilities needed for everyday life. There are families on income support who will not pay tax whereas often disabled people, because of the nature of their income, to pay tax. Their cost of living in meeting everyday requirements is that much higher than even the costs of meeting the burdens on people with young families. I can testify to that from personal experience, but many other people, who have had the same experiences as we have but have not had the resources to meet them, can testify even more strongly.
§ Mr. Morgan
There is a further financial reason for making tax relief available: the adaptations which are carried out on the homes of disabled people frequently cost a lot of money and reduce the property's capital value on the open market, because they are specific to the needs of the disabled.
§ Mr. Wigley
That is true in some circumstances. It can work both ways. If a bathroom is needed downstairs as well as one upstairs. that can be additional, but some changes make it difficult to sell a house. I can think of one instance in my constituency when that certainly happened.
It comes back to the question how we try to help disabled families to meet their additional costs in paying for their everyday requirements. One could certainly argue that there are other ways of doing it, but since those ways are not available at present and the benefits, the specialised housing availability and the grants through the social services departments are to a large extent not available to the majority of those who need them, one has to look at what is possible. This has been a possible avenue in the past for undertaking certain work. It has been more generally available, and if it is now to be less generally available I would argue that there is still a strong case for being able to help disabled people and that they should be the last group from which one withdraws this sort of assistance.
I therefore suggest to the Committee that in making this additional provision within the exceptions to paying full income tax and giving this additional relief one is doing something that has support across the Chamber, not only in this context but in others. I hope that, if the Government cannot give a commitment to look again at this matter—if they could, I would welcome it—the entire Committee will support the amendment.
§ Mr. Brooke
I understand the sentiments which have informed this brief debate. These amendments would continue relief for home improvement loans to registered disabled people irrespective of the improvements carried out and of whether they were connected with the borrower's disability—a point made by my hon. Friend the Member for Bournemouth, West (Mr. Butterfill).
This would be very arbitrary in its impact. First, many people with disabilities or special needs of one sort or another are not registered. Secondly, most improvements are irrelevant to a person's disability and it would be odd to provide relief for a loan for double glazing for a disabled person but not for someone else. Thirdly, relief is given only to the borrower and this would do nothing to help a borrower who is not disabled but has a disabled person in his or her household.
An alternative approach would be to try to construct a less arbitrary relief which would be limited to deserved improvements for the disabled. That would be a very difficult allowance to try to administer. The tax system has to operate by reference to general rules and cannot easily distinguish between particular cases.
§ Mr. Chris Smith
The right hon. Gentleman seems to be in the midst of arguing that because we have a system that is good but ultimately imperfect we should remove it altogether, and that we cannot have a perfect system because that would be administratively too complex. He mentioned double glazing. Does he not recognise that there are many people who, because of their disability, need better heating than other people and that the energy conservation which might become available with double glazing could be of incalculable benefit to them?
§ Mr. Brooke
I understand the hon. Gentleman's argument, but he is making my point for me. He is saying that there will be individual cases in which double glazing is relevant, although there may be a large number of cases in which it is not. It would be throwing on the administration in terms of the tax the decision whether double glazing was appropriate for that particular person.
The right approach here is through the grants which are available to adapt homes for disabled owners and occupants. As the consultation paper "Home Improvement Policy" makes clear, we intend that these grants should continue and be mandatory.
The hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood) referred to particular arrangements for VAT in a certain number of cases of disabled persons, but he implied that they were universal and applied to all such cases. That is not so; they are specifically tailored, and that underlines the point I was seeking to make.
I ask my hon. Friends to resist the amendment.
§ Mr. Kirkwood
That really is an unacceptable response, and fairly pathetic. The Minister is saying that it is all too complicated and difficult and would create too many bureaucratic anomalies. That is a disgraceful way to approach these things. Of course the other provisions that he referred to exist, but we are trying to get the Government to face up to the need for a coherent approach that addresses all these problems, some of which may well be complicated. Some may well be technically complicated, and of course some amendments are less than perfect. That is because we are all enthusiastic amateurs when it comes to parliamentary draftsmanship. We do not have the experience of parliamentary draftsmen.
249 The Minister's response was disgraceful and the lobby groups outside the House will read his reply with great interest and condemn him in the way that he so richly deserves. I hope that hon. Members will join me in the Lobby tonight.
§ Question put, That the amendment be made:—
§ The Committee divided: Ayes 91, Noes 206.252
|Division No. 295]||[10.45 pm|
|Abbott, Ms Diane||Jones, Barry (Alyn & Deeside)|
|Ashdown, Paddy||Jones, Ieuan (Ynys Môn)|
|Barnes, Harry (Derbyshire NE)||Kennedy, Charles|
|Battle, John||Kirkwood, Archy|
|Beckett, Margaret||Lewis, Terry|
|Beith, A. J.||Lloyd, Tony (Stretford)|
|Bell, Stuart||McAllion, John|
|Benn, Rt Hon Tony||McAvoy, Thomas|
|Boateng, Paul||McFall, John|
|Boyes, Roland||McKay, Allen (Barnsley West)|
|Brown, Gordon (D'mline E)||McLeish, Henry|
|Brown, Nicholas (Newcastle E)||Madden, Max|
|Bruce, Malcolm (Gordon)||Mahon, Mrs Alice|
|Buchan, Norman||Marek, Dr John|
|Buckley, George J.||Marshall, Jim (Leicester S)|
|Campbell, Menzies (Fife NE)||Maxton, John|
|Campbell-Savours, D. N.||Meale, Alan|
|Carlile, Alex (Mont'g)||Michael, Alun|
|Clwyd, Mrs Ann||Moonie, Dr Lewis|
|Cook, Robin (Livingston)||Morgan, Rhodri|
|Cryer, Bob||Mowlam, Marjorie|
|Cummings, John||Nellist, Dave|
|Cunliffe, Lawrence||Parry, Robert|
|Darling, Alistair||Patchett, Terry|
|Davies, Ron (Caerphilly)||Pike, Peter L.|
|Davis, Terry (B'ham Hodge H'l)||Powell, Ray (Ogmore)|
|Dewar, Donald||Primarolo, Dawn|
|Dixon, Don||Quin, Ms Joyce|
|Dunnachie, Jimmy||Ruddock, Joan|
|Evans, John (St Helens N)||Salmond, Alex|
|Faulds, Andrew||Skinner, Dennis|
|Fearn, Ronald||Smith, Andrew (Oxford E)|
|Fisher, Mark||Smith, C. (Isl'ton & F'bury)|
|Flynn, Paul||Smith, Rt Hon J. (Monk'ds E)|
|Foster, Derek||Soley, Clive|
|Fraser, John||Spearing, Nigel|
|Galbraith, Sam||Taylor, Matthew (Truro)|
|Golding, Mrs Llin||Turner, Dennis|
|Graham, Thomas||Wallace, James|
|Griffiths, Nigel (Edinburgh S)||Wareing, Robert N.|
|Griffiths, Win (Bridgend)||Wigley, Dafydd|
|Haynes, Frank||Williams, Alan W. (Carm'then)|
|Hogg, N. (C'nauld & Kilsyth)||Wise, Mrs Audrey|
|Home Robertson, John|
|Howarth, George (Knowsley N)||Tellers for the Ayes:|
|Hughes, John (Coventry NE)||Mr. Andrew Welsh and|
|Hughes, Sean (Knowsley S)||Mr. Richard Livsey.|
|Adley, Robert||Bennett, Nicholas (Pembroke)|
|Aitken, Jonathan||Bevan, David Gilroy|
|Alison, Rt Hon Michael||Biffen, Rt Hon John|
|Allason, Rupert||Blackburn, Dr John G.|
|Amess, David||Blaker, Rt Hon Sir Peter|
|Amos, Alan||Bonsor, Sir Nicholas|
|Arbuthnot, James||Boscawen, Hon Robert|
|Arnold, Tom (Hazel Grove)||Boswell, Tim|
|Atkinson, David||Bowden, A (Brighton K'pto'n)|
|Baker, Rt Hon K. (Mole Valley)||Bowis, John|
|Baker, Nicholas (Dorset N)||Brandon-Bravo, Martin|
|Baldry, Tony||Brazier, Julian|
|Batiste, Spencer||Bright, Graham|
|Beaumont-Dark, Anthony||Brittan, Rt Hon Leon|
|Bellingham, Henry||Brooke, Rt Hon Peter|
|Bendall, Vivian||Brown, Michael (Brigg & Cl't's)|
|Browne, John (Winchester)||Jones, Robert B (Herts W)|
|Buchanan-Smith, Rt Hon Alick||Jopling, Rt Hon Michael|
|Burt, Alistair||Kellett-Bowman, Dame Elaine|
|Butcher, John||Key, Robert|
|Butler, Chris||King, Roger (B'ham N'thfield)|
|Butterfill, John||Kirkhope, Timothy|
|Carlisle, John, (Luton N)||Knapman, Roger|
|Carlisle, Kenneth (Lincoln)||Knight, Greg (Derby North)|
|Carrington, Matthew||Knight, Dame Jill (Edgbaston)|
|Carttiss, Michael||Knowles, Michael|
|Chapman, Sydney||Knox, David|
|Chope, Christopher||Lamont, Rt Hon Norman|
|Clark, Dr Michael (Rochford)||Lang, Ian|
|Clarke, Rt Hon K. (Rushcliffe)||Latham, Michael|
|Conway, Derek||Lawrence, Ivan|
|Coombs, Anthony (Wyre F'rest)||Lennox-Boyd, Hon Mark|
|Coombs, Simon (Swindon)||Lester, Jim (Broxtowe)|
|Couchman, James||Lilley, Peter|
|Cran, James||Lloyd, Sir Ian (Havant)|
|Currie, Mrs Edwina||Lloyd, Peter (Fareham)|
|Davies, Q. (Stamf'd & Spald'g)||Lord, Michael|
|Davis, David (Boothferry)||Lyell, Sir Nicholas|
|Day, Stephen||Macfarlane, Sir Neil|
|Devlin, Tim||Maclean, David|
|Douglas-Hamilton, Lord James||McLoughlin, Patrick|
|Dover, Den||McNair-Wilson, M. (Newbury)|
|Dunn, Bob||Major, Rt Hon John|
|Durant, Tony||Malins, Humfrey|
|Fallon, Michael||Mans, Keith|
|Favell, Tony||Marland, Paul|
|Fenner, Dame Peggy||Marshall, Michael (Arundel)|
|Field, Barry (Isle of Wight)||Martin, David (Portsmouth S)|
|Forman, Nigel||Maude, Hon Francis|
|Forsyth, Michael (Stirling)||Mawhinney, Dr Brian|
|Forth, Eric||Maxwell-Hyslop, Robin|
|Fox, Sir Marcus||Mayhew, Rt Hon Sir Patrick|
|Franks, Cecil||Mellor, David|
|Freeman, Roger||Miller, Hal|
|French, Douglas||Mills, Iain|
|Gardiner, George||Mitchell, Andrew (Gedling)|
|Garel-Jones, Tristan||Mitchell, David (Hants NW)|
|Gill, Christopher||Montgomery, Sir Fergus|
|Goodhart, Sir Philip||Morrison, Hon Sir Charles|
|Goodlad, Alastair||Moss, Malcolm|
|Goodson-Wickes, Dr Charles||Moynihan, Hon Colin|
|Gow, Ian||Nelson, Anthony|
|Gower, Sir Raymond||Neubert, Michael|
|Grant, Sir Anthony (CambsSW)||Nicholls, Patrick|
|Gregory, Conal||Nicholson, David (Taunton)|
|Griffiths, Sir Eldon (Bury St E)||Nicholson, Emma (Devon West)|
|Griffiths, Peter (Portsmouth N)||Onslow, Rt Hon Cranley|
|Ground, Patrick||Oppenheim, Phillip|
|Gummer, Rt Hon John Selwyn||Page, Richard|
|Hamilton, Hon Archie (Epsom)||Paice, James|
|Hampson, Dr Keith||Patnick, Irvine|
|Hannam, John||Patten, John (Oxford W)|
|Hargreaves, A. (B'ham H'll Gr')||Pattie, Rt Hon Sir Geoffrey|
|Hargreaves, Ken (Hyndburn)||Porter, Barry (Wirral S)|
|Harris, David||Porter, David (Waveney)|
|Hawkins, Christopher||Portillo, Michael|
|Hayes, Jerry||Price, Sir David|
|Hayhoe, Rt Hon Sir Barney||Rattan, Keith|
|Hayward, Robert||Redwood, John|
|Heseltine, Rt Hon Michael||Rhodes James, Robert|
|Hill, James||Ridley, Rt Hon Nicholas|
|Hind, Kenneth||Roberts, Wyn (Conwy)|
|Holt, Richard||Rowe, Andrew|
|Howard, Michael||Ryder, Richard|
|Howarth, G. (Cannock & B'wd)||Sainsbury, Hon Tim|
|Howell, Rt Hon David (G'dford)||Sayeed, Jonathan|
|Hughes, Robert G. (Harrow W)||Shaw, David (Dover)|
|Hunt, David (Wirral W)||Shaw, Sir Michael (Scarb')|
|Hunter, Andrew||Shelton, William (Streatham)|
|Irvine, Michael||Shepherd, Colin (Hereford)|
|Jack, Michael||Shepherd, Richard (Aldridge)|
|Jackson, Robert||Shersby, Michael|
|Janman, Tim||Smith, Sir Dudley (Warwick)|
|Jessel, Toby||Smith, Tim (Beaconsfield)|
|Johnson Smith, Sir Geoffrey||Spicer, Sir Jim (Dorset W)|
|Jones, Gwilym (Cardiff N)||Squire, Robin|
|Stanbrook, Ivor||Thurnham, Peter|
|Stern, Michael||Twinn, Dr Ian|
|Stewart, Allan (Eastwood)||Waddington, Rt Hon David|
|Stewart, Andy (Sherwood)||Walker, Bill (T'side North)|
|Taylor. Ian (Esher)||Waller, Gary|
|Thorne, Neil||Ward, John|
|Widdecombe, Ann||Tellers for the Noes:|
|Yeo, Tim||Mr. David Lightbown and|
|Mr. Stephen Dorrell.|
§ Question accordingly negatived.
§ Motion made, and Question proposed, That the clause stand part of the Bill.—[Mr. Brooke.]253
§ Mr. Gerald Howarth (Cannock and Burntwood)
This clause chips away at the tax relief which has been available to home owners for a great many years. I welcome the Government's sensible refusal to index the £30,000 maximum for mortgage tax relief. It may have been right to encourage home ownership by fiscal incentive, but there is a case for allowing that distortion to fade away through inflation, which is what is happening.
I should be happy if the incentive were transferred to encourage movement from public to private sector provision for other things, particularly health. Tax relief for the medical insurance premiums of the over-60s would be one way of encouraging further growth in private sector health provision.
It is right to retain tax relief for existing borrowings for home improvement loans. The Committee will welcome that. To have done otherwise would have disrupted the finances of many households that had planned their affairs on the basis that they would get that tax relief. It seems that an existing borrower will lose relief if he repays his loan and refinances it with a new loan from a different lender. In effect, he will be locked into his existing lender. If that lender charges a relatively high rate of interest, the borrower will not be able to shop around the market for a cheaper rate because it is unlikely that the difference in rate will compensate him for the loss of that tax relief. The lender will have his borrower over a barrel.
The problem affects anyone with a mortgage, any part of which was to finance improvements. There are many such mortgages. It is encouraging that the mortgage market has become more competitive in recent years, and it would be a great pity if that competition were stifled by tax problems arising out of this clause. I understand that some mortgage lenders are getting as much as a third of their new business through transfers of existing loans from other lenders. Might it not be more equitable if tax relief could be continued when a borrower refinanced his mortgage with a new lender without losing tax relief?
There is also doubt about what happens if a lender wants to sell mortgages to another financial institution. This is an increasingly likely possibility as there are signs of a more active secondary market in mortgages developing here along lines similar to those in the United States. Again, it would be pity if this development were strangled at birth. I should like my right hon. Friend the Paymaster General to reassure the Committee that the borrower will not lose tax relief simply because his lender has sold on the mortgage to another party.
There are also two practical difficulties that I draw to the attention of my right hon. Friend. The first is where a mortgage was taken out some time ago, partly to buy a house and partly to improve it, and has since been partly repaid. How will the Inland Revenue decide what proportion of the remaining loan qualifies for tax relief if the loan is then sold or refinanced?
The second problem, which is rather more important, concerns the first-time buyer of modest means who will buy a property that needs, in the words of the estate agent, "some modification". In other words, it needs a lot of improvement. This means that young couples in particular can buy a first house without having to put down too much capital, and by a process of do-it-yourself can, over months or years, but at their own pace, improve the property and, all the way along the line, borrow money on 254 the mortgage so that the improvements will qualify for tax relief. I know that many people do this, and I did it myself, and I know that hon. Members on both sides of the Committee will have experience of this situation.
Outside the south-east of England—for example, in my constituency—one can buy a property for £15,000, which is not possible in this part of the country. The capital cost of that acquisition would qualify for relief, but under the clause any improvement done by the young couple who had bought such a house over the next year or two would not qualify for relief, and they would lose that advantage. All sorts of schemes may be dreamt up to do something about this problem, but the chief beneficiaries will be the estate agents—some may say, "again".
I hope that my right hon. Friend will consider the practical difficulties that arise out of this clause, and that he will be able to give me the reassurances that I seek.
§ Mr. Chris Smith
I hope, as a result of the remarks that the hon. Member for Cannock and Burntwood (Mr. Howarth) has made, that he will be joining us in the Lobby to vote against clause 42. We have a number of basic objections to clause 42. First, it will deter the improvement of the nation's housing stock. Secondly, it will harm the construction industry. Thirdly, it will harm a substantial number of bona fide home owners.
The National Home Improvement Council, in its comments on the measure, has pointed out that this comes on the heels of a number of other Government measures that deter home improvement. It pointed out that the 15 per cent. VAT that is now added to all home improvement works, including repair and maintenance, but does not apply to new build work, is a deterrent to improvement. It also pointed out that the abolition of insulation grants, except for those receiving social security assistance, deters home improvement, as will the abolition of income tax relief on interest on home improvement loans. It went on:These measures taken together are hard to reconcile with the Government's stated intention of revitalising the older housing stock.That puts it in a nutshell. The Government cannot on the one hand claim to be seeking to improve our older housing stock, and on the other hand seek to remove tax relief which is one of the mechanisms for bringing about that improvement.
Why are the Government bringing in this measure? Perhaps the answer lies in the Chancellor's Budget speech. When talking specifically about home improvement loans, he said:This may be partly due to the substantial scope for abuse, as loans ostensibly taken out for home improvements are used for other purposes, a matter which was the subject of a recent report from the Public Accounts Committee."—[Official Report, 15 March 1988; Vol. 129, c. 1009.]As far as I can tell from reading carefully what the Chancellor said in his Budget speech, and what has been said by Ministers subsequently, that seems to form the entire burden of their argument for removing tax relief from home improvement loans.
Let us consider the question of abuse, which does occur to some extent, and how best to tackle it. First, abuse can be much better controlled than it is at the moment by greater monitoring and checking that work has been carried out for the loan that has been received and which is the subject of relief. Indeed, that was the burden of the two amendments that I and my hon. Friends tabled, and that, in the interest of getting on to the wider clause stand 255 part debate, I did not move. Surely it should stand as an automatic principle that if there is abuse, the entire relief should not be removed altogether from those who abuse and those who do not abuse. Instead, there should be more careful control of the use to which the loan is put. The Government should have taken that route. Sadly, they did not do so.
Secondly, as far as anyone can tell, abuse is at a relatively low level. Some three years ago, by means of a parliamentary question, I asked Government Ministers what was their assessment of the amount of abuse of tax-relieved home loans. At that time they could not provide an estimate. Now, suddenly, when we come to consider this measure, we get an estimate. The Inland Revenue's best estimate is that the level of abuse on home improvement loans for tax relief is around 20 per cent., of the loans that are taken out. Effectively, the Government, in seeking to tackle 20 per cent. are harming the other 80 per cent.
The Building Societies Association put it extremely well in the briefing document that it prepared in connection with our debate. It is worth quoting because it is apposite to what we are discussing and to the issue of abuse which was raised earlier by the hon. Member for Bournemouth, West (Mr. Butterfill) and which seems to be at the heart of what the Government are seeking to do. The Building Societies Association says:It seems unfortunate that the government is using abuse as a reason for denying something which was previously considered perfectly acceptable, and, also, that it has not allowed the measures which it had taken to deal with abuse to be seen to be working. It is rather like suggesting that because there is abuse of unemployment benefit, that unemployment benefit itself should be abolished, whereas in this particular area the government does prosecute.I do not want to give ideas to the Government or some of their supporters, but even this Government can surely see that, even if there is abuse, it should not be tackled by removing the relief altogether.
Some of the items that count as being eligible for home improvement loans are regarded by the Government as luxuries or unworthy items. The item that is always quoted is double glazing. The Government always ignore the fact that double glazing can have beneficial energy conservation effects. It is sometimes needed in inner city constituencies—I speak with some feeling as I represent one of them—to make life tolerable for people by cutting down the level of noise. Far from being a luxury, double glazing may be a necessity.
§ Mr. Butterfill
If double glazing is necessary because of the amount of aircraft or traffic noise, it can be made available through public funding, but if it is considered to he necessary for insulation purposes it would be very much better to spend the money on insulating the cavity walls or on providing additional loft insulation.
§ Mr. Smith
The hon. Gentleman is partly right, but he is not right about the availability of public funding. I should like the residents of Canonbury road in my constituency, who include the Economic Secretary to the Treasury, to be able to secure public funds with which to double glaze their windows to keep out the traffic noise, but that is an impossibility. The hon. Gentleman ignores the fact that the Government could have said that they would draw up a check-list of items, some of which are 256 acceptable while others are not, and that home loans would or would not qualify for tax relief by reference to the check list.
The Government's arguments about abuse and about the "luxury" nature of some of the improvements have no validity because easily administered and valid mechanisms are available to deal with both of those points. Sadly, the Government have chosen to include clause 42 in the Bill. Its effect will be detrimental in a number of ways. It will be detrimental especially to those who purchase homes that are in a substantial state of disrepair. That happens in many parts of the country, and especially to people who are on relatively low incomes, for whom that may be the only way to achieve home ownership status to which they aspire.
Why do the Government not accept the Building Societies Association's proposal, that if improvement work is carried out within 12 months of the purchase of the property it ought to qualify? The Government could easily accept such an amendment to assist the problem of those purchasing homes in a state of disrepair.
The Government ignore the fact that over 1 million dwellings in this country are unfit for habitation. Almost all of them are in the private sector and many are owned by elderly people who, without financial assistance, cannot afford to renovate them or carry out the necessary improvements to enable the homes to be brought up to the appropriate standard. The Government should have taken account of that and of the impact of the measure upon the condition of those properties.
The Government have not taken account of the problem of replacement or consolidation loans which are often taken out in a bona fide manner by owner-occupiers wishing to consolidate a number of different mortgages on the same property or to transfer their mortgage from one lending agency to another. Again, the Building Societies Association has proposed sensible measures to deal with that problem. I look forward to hearing from the Paymaster General that the Government are listening to those suggestions.
The Government have also done nothing to deal with the anomaly that will develop because the loan on an original purchase will qualify for mortgage tax relief, while the improvement work carried out subsequently will not qualify for tax relief, yet, upon a subsequent sale, the entire value of the improved property will qualify for full mortgage tax relief. Is it fair that the original purchaser should qualify for less mortgage tax relief than the subsequent purchaser? That anomaly will develop as a result of the Government's proposals and, so far as we can see, the Government are doing nothing to deal with that.
Finally, the Government ignore the fact that their proposal will encourage people to take out much larger mortgages than they need to fund a subsequent improvement that they fear may be needed to bring the property up to an appropriate standard.
The Government have ignored all those points in bringing forward this proposal. We must ask them to think again about the clause. It will harm home owners, will be to the detriment of the condition of our nation's housing stock and will play havoc with, and create anomalies in, the home loans market. I sincerely hope that the 257 Government will go back to the drawing board, think again and, when they see abuse, will not take a sledgehammer to smash many good features.
§ Mr. Butterfill
I must declare two interests in respect of this clause because, whichever way the vote goes this evening, I may stand to gain from it. First, I am a director of two construction companies with an interest in the removal of the clause from the Bill. Secondly, I am a senior partner in a firm of chartered surveyors which is also involved in estate agency. As many people may be forced to move because they will not be allowed to extend their homes, my agency may well benefit from the clause.
We must address that dichotomy. I would be the first to agree that there have been many abuses of home improvement loans. There is no doubt that loans have been used to buy motor cars, holidays in Marbella and for other purposes for which they were not intended. However, it is possible to deal with those abuses in ways other than by abolishing the system of home improvement loans.
§ Mr. Bob Cryer (Bradford, South)
In view of his declaration, would the hon. Gentleman like to comment on the view of Sir Jeffery Sterling about the striking seamen at P and O and moonlighting?
§ Mr. Butterfill
I do not think that that intervention is worthy of a reply. I shall return to the subject under debate. We are seriously debating whether there should be a system of home improvement loans and what justification there is for them.
In regard to rural properties, for example, it would not be possible in green belt areas to have permission granted for new properties, but it is desirable that existing properties should be improved and, in some cases, extended. In rundown inner-city areas, too, it is desirable to be able to improve the housing stock and to encourage owners to make improvements. For that reason, I hope that it will be possible to retain some relief for those people who wish to improve their properties.
I have received many representations on this matter from the chartered accountants in Scotland and in England, the Building Societies Association and many others. We know that the National Home Improvement Council is anxious that relief should be retained. The essence of the problem is, therefore, how to deal with the abuses and to tighten the criteria under which home improvement grants might be available.
There are some so-called improvements which are not strictly necessary. They could reasonably be excluded. There are others, however, that are entirely desirable and should be permitted. The chartered accountants in Scotland have suggested that there should be a system of inspection by surveyors and that certificates should be issued. Again, I declare an interest as a surveyor, but that proposal seems eminently sensible, especially if the prospective borrower is required to pay the costs that the Government might incur in making inspections and issuing certificates. If the borrower is to receive a benefit in the form of tax relief, he should pay the cost to the public of certifying that relief should be available. As such a scheme could be made available, I ask my right hon. Friend to think again about this matter.
§ Mr. Win Griffiths
We have here a most insidious and damaging clause which will have serious repercussions on the state of property, especially in Wales and other parts of the country where the industrial revolution had its first roots.
Wales has more housing stock which was built between 1870 and 1914 than any other part of the United Kingdom. Only this week, Arolwyg Cyflwr Tai Cymru—the Welsh house condition survey for 1986—was published. Although it shows a slight improvement in the condition of the Welsh housing stock, it reveals that there are still 72,000 houses which it considers unfit. Of those, 40,000 lack basic amenities of some sort, ranging from no inside toilet or bathroom to no hot water or kitchen sink. Some 55,000 terrace houses in Wales need repairs costing more than £3,000. That applies to 23,800 semi-detached houses and 29,300 detached houses. Fortunately, it applies to only 3,700 flats. There is a need to invest more money in improving the housing stock of Wales.
§ Mr. Wigley
As part of my own constituency—the Dwyfor area—is cited as the worst district included in that survey, will the hon. Gentleman confirm that the worst districts are also those which have the longest waiting lists for grants, stretching back before 1984? People there cannot rely only on grants to improve the condition of their properties. They must look to capital from other directions to do that, which is why these provisions are so important.
§ Mr. Griffiths
I confirm what the hon. Member for Caernarfon (Mr. Wigley) says and would add that it is a problem not just in the areas of worst deprivation but right across Wales. Last year, my own district of Ogwr, for example, granted about 800 home improvement grants. The council considers that almost all of the applicants obtained a top-up loan in addition to the grant in the form of an extension to their mortgages, so that the work could be carried our properly. Because home improvement grants are now usually a maximum of 50 per cent. it is necessary for people to obtain an additional loan—yet clause 42 would end tax relief for people obtaining such loans.
The properties concerned are usually of fairly low value and are subject to mortgages nowhere near the £30,000 limit on which tax relief can be enjoyed. They are the property of people who would be worthy of, and could justify receiving, the relief that will now be ended. In the south-east of England, where property prices are much higher, there is no problem about an individual using up the whole of the tax relief to which he is eligible.
§ Mr. Morgan
Perhaps my hon. Friend and I can educate Conservative Members in respect of the value of typical properties in the valleys or in a south Wales city. There, an unimproved house would be worth perhaps £11,000 or £12,000,and might achieve a value of £20,000 to £23,000 once it had been improved. Even after improvement, those properties would still not utilise the full tax relief that properties in the south of England automatically enjoy.
§ Mr. Griffiths
Rather than dispense with the scheme altogether, the Government ought to consider clearly defined categories of eligibility. I refer, for example, to those people who have obtained home improvement grants and those people employing energy-saving 259 measures. I refer also to disabled people, who were the subject of the amendment so unfortunately defeated earlier this evening. There are also properties which have been declared unfit for human habitation but which, according to a local authority inspector, could be made habitable if work was done on them. The Government would do well to reconsider this clause and ways of operating it more effectively.
§ Mr. Darling
This is a surprising proposal from the Government, as two Conservative Members have demonstrated. We must consider it in the light of other proposals within the Finance (No. 2) Bill. Home improvement is of crucial importance, especially in inner-city areas—one of which I represent. Central Edinburgh generally is not rundown, but had it not been for people improving their own houses, many of those properties would not be left standing today.
Instead of widespread demolition and the building of tower blocks. Edinburgh has been successful in maintaining both the new and the old town. Because most of the property takes the form of tenements, it is expensive to improve and maintain. Improvement to property is surely something that we should encourage, especially as there is usually a high demand for houses of this sort.
In my view, home improvement grants are the main vehicle that we should consider as a means of improving property. They target help in a way that mortgage tax relief cannot possibly do, because many people who live in houses that need improvement do not pay income tax, for various reasons. But, because of cutbacks, there has been restraint. In my constituency, 6,500 people are waiting for home improvement grants. If the Government are to withdraw the concession, perhaps they will consider directing some of the £200 million that will be saved towards the home improvement grants that have been so badly cut back, and constantly interrupted because of shifts in Government policy. If the home improvement grants system worked properly, I might not object so strongly to the proposal, although I recognise that there will always he room for objection.
The Government have said that the reason for the withdrawal is that, on their calculation, there has been widespread abuse. That is very odd. The Government can put a figure on the abuse and yet, it seems, cannot do anything about it. As has been said earlier, it is quite easy to check whether a home improvement has been carried out, either by seeking invoices or by sending someone round to see what work has been done. I should have thought that even the most elementary training would equip a representative of the Inland Revenue to go and see whether an extension had been built, or double glazing had been put in.
It is important to realise that if an improvement grant cannot be obtained, financing the work oneself and obtaining tax relief can be the only way of carrying out improvements. As long as we live in a country which contains many houses below the tolerable standard, and property that will constantly need improvement and maintenance, it seems premature to withdraw this tax concession. The Government are very keen on stamping out DHSS abuse. If they were serious about the problem 260 of abuse, it would be easy to institute a proper system of inspection. I should be interested to hear what the Paymaster General has to say about that.
I said at the start that the proposal must be viewed in the context of the Budget as a whole. It is important to bear in mind that yesterday, when we discussed the business expansion scheme, we nodded through a proposal that would enable Rachman-like landlords to thrive. In the same Bill, we find that ordinary decent people are to be denied the means of improving their homes.
§ Mr. Butterfill
Can we make it clear that Rachman was in the business of evicting tenants, whereas the BES is intended to put tenants into new accommodation? There is no question of "Rachman-like landlords". I wish that Opposition Members could get that into their heads. [Interruption.]
§ [MR. HAROLD WALKER in the Chair]
§ Mr. Darling
It is not for me—thankfully—to maintain order in the Committee, Mr. Walker.
We are not discussing the business expansion scheme. I was making the point that we are all concerned to ensure that there are not concessions for one category of people and none for others. The BES is financing an aspect of housing that I consider thoroughly unwanted and disreputable; at the same time, it is removing a concession from ordinary decent people.
Following what has been said by the hon. Member for Bournemouth, West (Mr. Butterfill) and his hon. Friend the Member for Cannock and Burntwood (Mr. Howarth), I hope to see the odd Conservative rebel. Many people will be very upset to discover that they will receive no tax relief on home improvements. They will feel let down, and will not understand why tax breaks should be given to some while help is to be denied to others who wish to do up their houses. The Government should think again.
§ Mr. Tim Devlin (Stockton, South)
I was not minded to intervene when I first came into the Chamber but, having listened to my hon. Friends and Opposition Members, I just want to say one or two words to explain why I will be supporting the Government in the Lobby.
I came to the House to help simplify the system of taxation and lower the burden of taxation on our people In the Budget we are cutting the basic rate of taxation from 27p to 25p and we have made a clear commitment that it will be dropped in the future to 20p in the pound. In addition, we have made the move to abolish top rates of tax and have one sole top rate of tax at 40p in the pound. In addition, we have also raised the main tax allowances by twice—
§ The Chairman of Ways and Means
Order. I must remind the hon. Gentleman that the Committee has debated those matters and I hope that he will now address himself to clause 42.
§ Mr. Devlin
This is pertinent to clause 42 because it explains the whole rationale. If we are simplifying the taxation system and cutting the rates of tax as part of our strategy, it is wholly in order for us to look at ways in which we can get rid of tax breaks. If there is a lower burden of taxation on the individual, there is no need for taxation breaks. The point I was going to make—
§ Mr. Devlin
I did not intervene in the speech of the hon. Member for Islington, South and Finsbury (Mr. Smith). I will be brief, so if points are to be made—
§ Mr. Smith
I am grateful to the hon. Gentleman for finally giving way. He is articulating an interesting and, in some respects, praiseworthy doctrine, which is that one should remove as many anomalies and reliefs from the tax system as possible. Would he extend that argument to mortgage tax relief as a whole, which has been stoutly defended by his Prime Minister—
§ The Chairman
Order. If the hon. Member for Stockton, South (Mr. Devlin) were to respond to that invitation, I would rule him out of order. I hope that we can now return to the subject of home improvement loans.
§ Mr. Devlin
My sole point in making this short speech is to show that breaks such as tax relief for home improvements are blunted the more the rate of taxation goes down. Since it is our stated intention to lower the burden of taxation on the individual, there is absolutely no need for breaks such as home improvement loans to continue. That is our strategy. It is perfectly clear and I agree with it wholeheartedly.
The question of luxury spending has been raised. I can think back to what has happened in my constituency over the past few years. When the A66 and the A19 were constructed, all those—
§ The Chairman
Order. The hon. Gentleman is inviting the Committee to widen the debate way beyond the scope of clause 42. There is nothing in that clause about the A19 or any other road. I hope that we can return to home improvement loans.
§ Mr. Devlin
There is inherent in clause 42 the question of double glazing. The point has been raised that many people—for example, those who live in Canonbury road—should have tax relief for double glazing. Those who lived near the A66 and A19 when the roads were built were offered funding by the Government to put in double glazing. Outside of such circumstances, there is no need for the Government to provide tax relief as well.
I see no reason why we should give tax relief on home improvement loans which are often used for the purchase of motor cars, for people to go on holidays, or for home improvements in the nature of swimming pools.
§ Mr. Campbell-Savours
I shall intervene only briefly, as I have already spoken in the debate.
As we all know, citizens are responsible for paying tax equally, wherever they are in the United Kingdom, and they are equally treated within the law, wherever they live in this country. What worries me is that the Government are drawing a distinction between the treatment of a person in the south of England, who invariably has a mortgage in excess of £30,000—perhaps £50,000—and a 262 person in the north of England, or in other parts of the kingdom, who might have a property worth substantially less, and a much lower mortgage.
For example, a fireman in Surrey may have a mortgage facility of £30,000, whereas a fireman in Workington may live in a house that is worth £25,000 but have a mortgage facility of only £20,000. I submit that a fireman in Workington, having paid exactly the same taxes as a fireman in London, is equally entitled to the tax concession available in these circumstances. He should not be singled out for special treatment and be told that, although he pays the same taxes, he is not entitled to the same tax concessions. Almost uniquely in that respect, the provision in the Bill is totally mistaken.
When the Treasury drew up its recommendations for this year's Budget, it might well have forgotten to consider the divisive nature of the recommendation. In parts of the United Kingdom outside the south, especially in the north of England, Wales and Scotland where property is cheaper, it is certainly in a far worse condition, particularly in the inner cities. We are locking people into property in parts of the country where values are lower and conditions are worse by insisting on a provision that prevents them from taking out an additional mortgage that has tax relief. I hope that the Minister will take that point carefully on board.
We are told in the notes on clauses that clause 42(1) provides that loans made after 6 April 1988 for home improvements will no longer qualify. However, this exclusion does not operate where the loan is for the erection of a new building which is not part of an existing residence on land which, immediately before the development, had no building upon it.
I can foresee circumstances—perhaps this is my devious mind working—where a person who wishes to build an extension can employ a builder to put up a building within, say, 6 or 9 in of the existing building, for which he would get tax relief and be within the law. After the friendly builder says, "Look, guy, you'd better get the man down from the bank to clear it so you get your relief," after the man from the bank has disappeared back to the bank, or whatever is the monitoring authority for all this nonsense, the builder will then say, "Right guy, I'll put the bricks up now and fill the cavities at each end." In effect, the extension will become part of the house. That is the way in which people will get round the provision.
§ Mr. Butterfill
Would the hon. Gentleman agree, being equally devious, that it might be possible for builders to devise bed-and-breakfast schemes for home owners, whereby they would buy the property and improve it, and then immediately, even within the same contract, sell it back improved, with the benefit of the whole loan qualifying for relief?
§ Mr. Campbell-Savours
I am glad that the hon. Gentleman intervened. He seemed to suggest that my proposition might well apply and that there would be such abuses. He drew attention to a further form of abuse, about which I do not know but which appears to be complicated in so far as there is a legal requirement. That approach may be adopted.
I have put two points to the Paymaster General. Can the right hon. Gentleman assure the Commitee that there will not be a subsidy for a construction 6 to 9 in. away from an existing building? What amendment will be made 263 to this provision to ensure that that does not happen? I ask also for equal treatment within the law for people who pay taxes.
§ Mr. Kirkwood
The hon. Member for Workington (Mr. Campbell-Savours) raised the serious point of the regional discrepancies that this measure will introduce. The problem will worsen as time goes on. I do not think that the Treasury has given any thought to this aspect. If it has, I should like to hear a substantive defence to the point which the hon. Gentleman made so eloquently. This matter applies not just to the north of England but to rural areas.
The hon. Member for Islington, South and Finsbury (Mr. Smith) said that this proposal would do nothing to improve housing stock. People in England and Wales have the benefit of a statutory and regular house conditions survey, but we do not have that luxury north of the border because the Government refuse to pay for it. No one knows to what extent the housing stock in Scotland needs to be repaired, but I am certain that this measure in clause 42 will make the position substantially worse.
In constituencies such as mine, one of the most successful acts of the Conservative Government in 1983 was to give substantial improvement grants. They were extremely successful, especially in rural areas and in the private sector. The grants made a substantial difference to derelict farm cottages. The points which have been made about Wales also apply to my part of the world, where improvement grants are not sufficient to effect refurbishment of these properties and where more money is required to top up the grants. Clause 42 will bring that system to an end.
I return to the point made by the hon. Member for Cannock and Burntwood (Mr. Howarth). I am worried when young, first-time buyers purchase property for £15,000 and seek to improve it with an improvement grant of £15,000. The Government have not properly considered that matter, and I look forward to hearing the Paymaster General's comments.
We all have an interest in trying to eliminate abuses. I do not think that anyone is in favour of the stories about these grants which the popular press has been carrying in the past couple of years. The remedy, which the hon. Member for Islington, South and Finsbury has suggested, is to check abuses directly at source without abandoning the whole system.
The real abuse is the fact that the Government did not take the opportunity in the Budget to restrict mortgage tax relief to the standard rate of tax. The Government reduced the top tax rates but, if they wanted to save money and to end abuses, they would have restricted mortgage tax relief instead of making this ludicrous proposal.
§ Mr. Morgan
What happens if the effects of clause 42 and the business expansion scheme provisions for assistance in rented housing are combined? A young couple looking in an inner-city or coal mining area at an 1870 to 1914 property with a dodgy roof will compete against a BES-funded property consortium which, more than likely, can get tax relief at the top rate. How will that produce a simplified tax system, as the hon. Member for Stockton, South (Mr. Devlin) wants? How will it produce a level playing field for a young couple wanting to buy a 264 house and a tax-subsidised business consortium that will obviously be able to outbid that young couple? That is the question to which we want an answer.
§ Dr. Marek
Not a week ago I had a letter from the Corlan Housing Association—a letter that some of my hon. Friends may also have received—saying that I will be aware of Corlan's role in providing sheltered housing for elderly people in Wales and that it has extended its services to include two "staying put" projects. The letter goes on:Some of the projects' clients are eligible for a repairs or improvement grant but the majority live outside the housing priority areas and would have to wait some years. Many large repairs, therefore, are wholly privately financed by the owner-occupier taking out a maturity loan from a building society or bank. The loan is then paid back on an interest-only basis until the house is sold or, the borrower dies, when the capital amount is recovered.The association also says:we feel that the new regulations regarding tax-relief on home improvements are bound to have a negative effect on the success of these projects by deterring both potential clients from taking up loans and lending institutions from offering them readily.
This is a housing association, not a private Rachmanite organisation of any kind. We shall be seeing such organisations, of course, once the business expansion scheme gets off the ground. [Interruption.] It is no use hon. Gentlemen saying "Jesus". They do not need to invoke the deity in this argument. It is quite wrong to do so.
§ Dr. Marek
It is certainly not silly. Hon. Gentlemen will see the results and the truth that we have spoken in the years to come.
These "staying put" projects have been supported by the Welsh Office, yet now there is a danger that they will not go ahead. The letter goes on:We would, therefore, suggest that exemption for those over retirement age should be actively pursued as a matter of urgency.I think that there is a very good argument for the Government to take this clause away and say that they will think about it. We have heard the hon. Member for Bournemouth, West (Mr. Butterfill) arguing along these lines, albeit in a different way, and we have heard a very cogent argument from the hon. Member for Cannock and Burntwood (Mr. Howarth) also for the abandonment of this clause. Therefore, I hope that the Minister will consider this very carefully.
There are ways of getting round this problem. For example, one could have better compliance procedures. It is very clear that in many cases bank managers simply do not ask whether the loans have gone towards home improvements or been used for a second holiday somewhere in Spain or Italy. Alternatively, the Government could define more narrowly those improvements that would qualify for loans. There is no doubt that it could be done if the Government had the will.
Some hon. Members—in particular, the hon. Member for Stockton, South (Mr. Devlin)—actually said that some people want double glazing because they want double glazing. Why does the Conservative party think that double glazing is necessary only for someone who is near a main road or if there is a lot of aircraft noise? The point is that our housing stock is not very good compared with many European countries. There is something good about 265 having double-glazed housing. If somebody wants double glazing he ought to be able to have it and he ought to be encouraged by the Government to have it.
§ Mr. Devlin
I agree with the hon. Gentleman. We have put more money in the pockets of ordinary people with which to buy double glazing if they wish.
§ Dr. Marek
With respect, that is a facile argument. The average man in Britain has not had a lot of money put into his pocket. If the hon. Gentleman had been here throughout the debate he would have realised that it is the super rich who have a lot of money in their pockets. The average person does not have much money—certainly not enough to install double glazing in his or her house.
First-time buyers of dilapidated houses deserve a loan on which they can obtain relief in order to get on the first rung of the house-buying ladder. I always thought that that was what the Conservative party was about, but clearly I am wrong.
§ Mr. Brooke
In the interests of abbreviating this debate—this is the first occasion on which I have intervened—it may help the Committee if I make a brief general remark.
The removal of relief for interest paid on home improvement loans is part of the Government's general programme of reducing tax rates and removing tax reliefs which are complicated, uneven in their availability and expensive in terms of revenue or administrative costs. In future, mortgage interest relief will be concentrated on its primary aim, which is to help people buy their own homes.
I recognise that improvements which genuinely make more accommodation available for home ownership might merit some assistance but only a very small part of home improvement relief is devoted to such purposes. It is in any event only available to a borrower who has not used all his relief on house purchase. It is not true, as some of the more sensational stories have suggested, that the relief is widely used to subsidise the construction of swimming pools and tennis courts.
§ Mr. Brooke
I went out of my way to say that those suggestions were not true.
But the fact is that about seven out of eight of these loans are used for installations such as double glazing and central heating. I do not deny the merit of home owners improving their houses and adding to their value in this way, but I see no reason why the tax system should subsidise this particular form of consumer credit.
My hon. Friend the Member for Cannock and Burntwood (Mr. Howarth) and the hon. Member for Islington, South and Finsbury (Mr. Smith) addressed the Committee on observations made by the Building Societies Association. The Building Societies Association pressed for protection when a loan is replaced outside the borrower's control—for example, in the two circumstances of local authorities or commercial lenders closing their whole mortgage book. We think that very few will be affected: remaining local authority mortgage lending is small and much of that is almost certainly for purchase rather than improvement. Although the Building Societies Association is apparently unaware of this, we understand 266 that the one commercial institution to which it refers has already disposed of its mortgage business, and not to a building society.
Other cases might arise, but it would be open to the lender to make special arrangements for any protected loans by, for example, simply letting them run to maturity. No doubt the BSA is correct in saying that the main motivation for replacing a loan would be to obtain a lower interest rate, but it does not follow that there would be less tax relief overall. The tax relief might well increase if the replacement loan carried extended terms or was on an endowment rather than a repayment basis. In the case of excessive interest rates of over 20 per cent. charged by some lenders, replacement current mortgage interest rates of around 10 per cent., even without tax relief, would be advantageous.
It is true that problems will arise when loans are replaced and have to be split into qualifying and non-qualifying parts. That is not a new problem. The abolition of improvement loan relief simply extends an existing problem. Increased competition in recent years has meant that lenders, including building societies, have been making loans for many purposes.
The main thrust of the considerable advertising of replacement loans is the consolidation of various loans into a replacement with a lower average interest rate. When that occurs it is relatively easy to isolate the purchase element being replaced. It would be much more difficult to establish to what extent the balance represented an improvement as opposed to, say, a car purchase element. There will be a strong incentive for borrowers to certify that the replaced loans were entirely for purchase or improvement.
As the legislation stands, and once we have disposed of the loans straddling 6 April, no loan will qualify for relief unless it is for purchase. This enables us to simplify the application forms and concentrate compliance checking on purchase loans. If, however, protection is extended to replacement loans, it means that loans made for improvements will qualify for relief if they replace pre-6 April loans. This will add to the compliance checking burden and policing will be difficult.
I agree that there is some merit in extending relief to replacement loans where the borrower has no control over the replacement. However, it would be difficult to confine legislation to this very small class. Extending protection to all replacement loans will give scope for avoidance, add to the administrative burden, and prolong the preferential tax treatment for existing compared with new borrowers.
§ Mr. Gerald Howarth
Will my right hon. Friend address himself to the point that the secondary mortgage market is growing? He has referred to one organisation which is engaged in the market. According to the BSA bulletin of July last year, there are no fewer than five organisations, all backed by major city institutions, engaged in the market. I am not sure that they represent a small number of people. Certainly the potential is there for a large number of people to be involved.
§ Mr. Brooke
I am grateful to my hon. Friend for his further intervention.
The argument advanced by the building societies is that the abolition of relief for improvement loans is particularly harsh on poorer people purchasing rundown properties. 267 They suggest that relief should be allowed when loans are applied to repairs or improvements undertaken within 12 months of purchase. But this proposal amounts to a continuation of the present system with a 12-month time limit. Relief would continue provided the work was carried out within one year of purchase. This point was made by the hon. Member for Islington, South and Finsbury.
The same distribution of improvement work, with a heavy concentration on items such as double glazing, would probably prevail. If, however, an attempt were made to restrict relief to deserving improvements to dilapidated houses, considerable compliance and policing problems would arise. There would be a large grey area in determining a deserving improvement and the time limit would create a further inequity. Why should the person who can raise finance within a year of purchase get relief when a perhaps poorer person, who has to wait longer, is denied? Derelict housing is in any event often restored by a builder or developer who sells the improved property. The new owner can then obtain relief on a purchase loan.
In the case of council house purchases under the right-to-buy scheme substantial discounts of up to 60 per cent. are available. The 12-month period allowed for the occupation of a newly purchased property simply permits the purchaser to obtain mortgage interest relief if his move is, for example, delayed because of difficulty in selling his existing house. Therefore, it is not relevant as a precedent for a 12-month limit on improvement relief.
§ Mr. Battle
The view which the Minister has just expressed runs counter to the view of the National Home Improvement Council. I recall that on 17 March, a few days after the Budget, that council was addressed at a luncheon by the Minister for Housing and Planning. He was pressed on the matter and was asked to take back to the Treasury the view of the council that the proposals would not improve the housing stock. Certainly I was under the impression, as many people there were, that the Minister for Housing and Planning would have discussions with the Treasury on the matter. Can the Minister tell the Committee the outcome of the discussions between the Treasury and the Department of the Environment?
§ Mr. Brooke
I share with the Committee the point that it is not common custom to reveal conversations that may be going on within the Government. I am grateful to the hon. Gentleman for giving me the opportunity to say that.
On secondary effects, first, it is suggested that tighter compliance checking of improvement loans has reduced VAT evasion—although no evidence is produced. Even if true, it is a strange argument to propose that income tax relief should be given so as to increase VAT compliance.
Secondly, it is claimed that improvement loan relief has not been abolished, but merely deferred, because a buyer of an improved house will qualify for relief on a purchase loan. But abolition ensures that the same improvement does not qualify for relief twice. Before abolition, the improver obtained relief for the improvement loan and then sold the improved property. The purchaser then obtained relief on a purchase loan covering the improved property. In future, relief will arise only on the purchase transaction. By denying relief to the improver there will be a genuine reduction in the cost of mortgage interest relief.
Thirdly, it is suggested that people will borrow more initially on purchase if they know that they cannot get the 268 relief later in improvement loans. We doubt that. Most people will in any case borrow as much as they can afford from the beginning, at least up to the ceiling on tax relief.
The hon. Member for Edinburgh, Central (Mr. Darling) raised matters concerning abuse. The Inland Revenue has concentrated compliance checking on the higher risk, higher value loans, and has been making detailed investigations into a random sample of such cases. We estimate that about 1.5 million new home improvement loans are currently being taken out each year. To require and check the evidence that improvement work has been carried out in every case, as various hon. Members have suggested, would be a formidable administrative task. There is, too, the practical problem that most improvement loans are of necessity taken out before the work is carried out. Interest becomes payable immediately and tax relief is often allowed at source through the MIRAS system. If relief were not allowed until the work had been carried out, and the evidence supplied and checked, it would then have to be allowed retrospectively by the tax offices, which would add a further administrative cost and mean a bureaucratic paper chase.
§ Mr. Darling
Is the right hon. Gentleman saying that there have been significant cases of abuse? If so, what has been done about them? Or is he saying that he thinks there might be a problem, so the whole thing must go? Will he not hammer anyone else merely because of the odd case of abuse that there may be?
§ Mr. Brooke
The hon. Member for Islington, South and Finsbury acknowledged that abuse was running at 20 per cent. by the Inland Revenue account, which he described as a relatively low level. He did not quote the amount of money involved, which is £100 million. If our positions were reversed, I do not believe that Opposition spokesmen would seek to cover up an abuse of £100 million. The order of magnitude of the problem emerged after the Public Accounts Committee report.
§ Mr. Butterfill
To the extent that there might be abuse, would my right hon. Friend comment on the suggestion made by the Institute of Chartered Accountants of Scotland that independent checking could be done at the expense of the borrower? Would it not be possible retrospectively to disallow relief and to include a penalty if abuse were discovered?
§ Mr. Brooke
I am grateful to my hon. Friend.
I shall conclude the discussion about abuse. The hon. Member for Workington (Mr. Campbell-Savours) raised a point about the tax system applying throughout the United Kingdom. If I may give him an observation from a southern constituency, a borrower who is forced to pay £30,000 in a high-cost area in the south-east of England for purchasing purposes is then denied any opportunity of mortgage interest relief for an improvement loan under the existing system.
The hon. Member for Workington went on to ask me a question about an empty plot. Only a completely empty plot, plus a new building, qualifies. So a separate second building, such as the hon. Gentleman envisaged, would not qualify. I can recall Customs and Excise taking a similar interest, for policing purposes, in such cases, in the context of VAT.
§ Mr. Campbell-Savours
The right hon. Gentleman has not answered the first proposition that I put to him, and that many in the north of England will want him to answer. We pay the same taxes in the north as people do in the south. Why should we not have an equal right to the full £30,000 facility? As, due to the arrangement of property prices in the United Kingdom, people in the south are more inclined to take up their tax allowance in full, why can we not have an equal advantage?
§ Mr. Brooke
The hon. Gentleman answered that question himself, when he stated that the tax system applies throughout the United Kingdom. There is a particular level of relief and that applies everywhere.
The hon. Member for Wrexham (Dr. Marek) spoke about "care and repair" mortgages. These are usually for small amounts and to poorer people, for houses probably worth no more than £15,000. The National Federation of Housing Associations does not specify an income limit for qualification. It rightly explains that there are more attractive schemes for richer people with more valuable properties. However, these mortgages would rapidly gain wider appeal if they qualified for tax relief. Operating an income limit would be administratively difficult, as income is usually not known until after the end of the year, whereas interest relief under MIRAS is given by deduction at source at the time of payment. At present mortgage interest rates, the tax relief on a £2,000 mortgage is worth about £50 a year, or £1 a week. Without underestimating the value to a poor person, that seems a peculiarly cumbersome way to provide such a small improvement subsidy. A more sensible approach, involving the better targeting of improvement grants to those most in need, is outlined in the consultation paper "Home Improvement Policy" published by the Department of the Environment on 5 November last year.
§ Mr. Brooke
The hon. Gentleman knows that if a similar abuse were found under other circumstances he would be the first to point it out.
As to abuse, the steps taken last year to tighten compliance checking will continue for the substantial number of improvement loans taken out before April, for which relief is continuing. For the future, it will be concentrated on its primary aim of helping people to buy their own homes. The removal of this relief, which, to a large extent, simply subsidises consumer credit, is in line with our general policy of reducing tax rates, broadening the tax base, and simplifying the tax system, and I ask my hon. Friends to support the clause.
§ Question put, That the clause stand part of the Bill:—
§ The Committee divided: Ayes 153, Noes 65.271
|Division No. 296]||[12.12 am|
|Alison, Rt Hon Michael||Benyon, W.|
|Allason, Rupert||Bevan, David Gilroy|
|Amess, David||Biffen, Rt Hon John|
|Amos, Alan||Blaker, Rt Hon Sir Peter|
|Arbuthnot, James||Boscawen, Hon Robert|
|Arnold, Tom (Hazel Grove)||Boswell, Tim|
|Atkinson, David||Bowden, A (Brighton K'pto'n)|
|Baker, Rt Hon K. (Mole Valley)||Bowis, John|
|Baldry, Tony||Brandon-Bravo, Martin|
|Bennett, Nicholas (Pembroke)||Brazier, Julian|
|Bright, Graham||Kirkhope, Timothy|
|Brittan, Rt Hon Leon||Knapman, Roger|
|Brooke, Rt Hon Peter||Knight, Greg (Derby North)|
|Burt, Alistair||Knowles, Michael|
|Butcher, John||Knox, David|
|Butler, Chris||Lamont, Rt Hon Norman|
|Butterfill, John||Lang, Ian|
|Carlisle, John, (Luton N)||Latham, Michael|
|Carrington, Matthew||Lawrence, Ivan|
|Carttiss, Michael||Lennox-Boyd, Hon Mark|
|Chapman, Sydney||Lester, Jim (Broxtowe)|
|Chope, Christopher||Lilley, Peter|
|Clark, Dr Michael (Rochford)||Lloyd, Peter (Fareham)|
|Clarke, Rt Hon K. (Rushcliffe)||Lord, Michael|
|Conway, Derek||Lyell, Sir Nicholas|
|Coombs, Anthony (Wyre F'rest)||Macfarlane, Sir Neil|
|Coombs, Simon (Swindon)||Maclean, David|
|Couchman, James||McLoughlin, Patrick|
|Cran, James||Major, Rt Hon John|
|Currie, Mrs Edwina||Malins, Humfrey|
|Davies, Q. (Stamf'd & Spald'g)||Mans, Keith|
|Davis, David (Boothferry)||Martin, David (Portsmouth S)|
|Day, Stephen||Maude, Hon Francis|
|Devlin, Tim||Maxwell-Hyslop, Robin|
|Dorrell, Stephen||Miller, Hal|
|Dover, Den||Mills, Iain|
|Dunn, Bob||Mitchell, David (Hants NW)|
|Fallon, Michael||Montgomery, Sir Fergus|
|Favell, Tony||Morrison, Hon Sir Charles|
|Fenner, Dame Peggy||Moss, Malcolm|
|Field, Barry (Isle of Wight)||Moynihan, Hon Colin|
|Forman, Nigel||Neubert, Michael|
|Forsyth, Michael (Stirling)||Nicholls, Patrick|
|Forth, Eric||Nicholson, David (Taunton)|
|Freeman, Roger||Nicholson, Emma (Devon West)|
|French, Douglas||Oppenheim, Phillip|
|Garel-Jones, Tristan||Page, Richard|
|Gill, Christopher||Paice, James|
|Goodhart, Sir Philip||Patnick, Irvine|
|Goodson-Wickes, Dr Charles||Patten, John (Oxford W)|
|Gow, Ian||Porter, David (Waveney)|
|Gregory, Conal||Raffan, Keith|
|Griffiths, Peter (Portsmouth N)||Redwood, John|
|Ground, Patrick||Rhodes James, Robert|
|Gummer, Rt Hon John Selwyn||Ridley, Rt Hon Nicholas|
|Hamilton, Hon Archie (Epsom)||Roberts, Wyn (Conwy)|
|Hannam, John||Ryder, Richard|
|Hargreaves, A. (B'ham H'll Gr')||Sainsbury, Hon Tim|
|Hargreaves, Ken (Hyndburn)||Sayeed, Jonathan|
|Harris, David||Shaw, David (Dover)|
|Hawkins, Christopher||Shaw, Sir Michael (Scarb')|
|Hayes, Jerry||Shepherd, Colin (Hereford)|
|Hayward, Robert||Shepherd, Richard (Aldridge)|
|Heseltine, Rt Hon Michael||Smith, Sir Dudley (Warwick)|
|Hind, Kenneth||Smith, Tim (Beaconsfield)|
|Howarth, G. (Cannock & B'wd)||Spicer, Sir Jim (Dorset W)|
|Hughes, Robert G. (Harrow W)||Squire, Robin|
|Hunt, David (Wirral W)||Stern, Michael|
|Hunter, Andrew||Taylor, Ian (Esher)|
|Irvine, Michael||Thorne, Neil|
|Jack, Michael||Thurnham, Peter|
|Janman, Tim||Twinn, Dr Ian|
|Jessel, Toby||Waddington, Rt Hon David|
|Jones, Gwilym (Cardiff N)||Widdecombe, Ann|
|Jones, Robert B (Herts W)|
|Jopling, Rt Hon Michael||Tellers for the Ayes:|
|Kellett-Bowman, Dame Elaine||Mr. Tony Durant and|
|Key, Robert||Mr. David Lightbown.|
|King, Roger (B'ham N'thfield)|
|Abbott, Ms Diane||Buckley, George J.|
|Ashdown, Paddy||Campbell, Menzies (Fife NE)|
|Barnes, Harry (Derbyshire NE)||Campbell-Savours, D. N.|
|Battle, John||Carlile, Alex (Mont'g)|
|Beith, A. J.||Cryer, Bob|
|Bradley, Keith||Cunliffe, Lawrence|
|Brown, Gordon (D'mline E)||Darling, Alistair|
|Brown, Nicholas (Newcastle E)||Davies, Ron (Caerphilly)|
|Bruce, Malcolm (Gordon)||Davis, Terry (B'ham Hodge H'l)|
|Dewar, Donald||Michael, Alun|
|Dixon, Don||Mitchell, Austin (G't Grimsby)|
|Evans, John (St Helens N)||Morgan, Rhodri|
|Foster, Derek||Nellist, Dave|
|Fraser, John||Parry, Robert|
|Galbraith, Sam||Pike, Peter L.|
|Griffiths, Nigel (Edinburgh S)||Prescott, John|
|Griffiths, Win (Bridgend)||Quin, Ms Joyce|
|Home Robertson, John||Salmond, Alex|
|Howarth, George (Knowsley N)||Skinner, Dennis|
|Hughes, Sean (Knowsley S)||Smith, Andrew (Oxford E)|
|Ingram, Adam||Smith, C. (Isl'ton & F'bury)|
|Jones, Ieuan (Ynys Môn)||Smith, Rt Hon J. (Monk'ds E)|
|Kirkwood, Archy||Soley, Clive|
|Lewis, Terry||Taylor, Matthew (Truro)|
|Livsey, Richard||Turner, Dennis|
|Lloyd, Tony (Stretford)||Wallace, James|
|McAvoy, Thomas||Wareing, Robert N.|
|McFall, John||Welsh, Andrew (Angus E)|
|McKay, Allen (Barnsley West)||Wigley, Dafydd|
|McLeish, Henry||Wise, Mrs Audrey|
|Mahon, Mrs Alice|
|Marek, Dr John||Tellers for the Noes:|
|Marshall, Jim (Leicester S)||Mr. Frank Haynes and|
|Maxton, John||Mrs. Llin Golding.|
§ Question accordingly agreed to.
§ Clause ordered to stand part of the Bill.
§ Bill ( Clauses 22, 23, 26 to 28, 31, 42, 49, 91, 98, 127 and 128 and schedule 7) reported, without amendment; to lie upon the Table.