HC Deb 16 March 1993 vol 221 cc181-2

I turn now to mortgage interest relief. The rapid expansion of home ownership is one of this Government's most enduring achievements, and I have no plans to change the existing ceiling for mortgage interest relief of £;30,000, but in the last few Budgets we have taken steps to improve the focus of mortgage interest relief and to contain its costs—most recently in my 1991 Budget—by restricting the relief to the basic rate.

Even so, mortgage interest relief is expected to cost the Exchequer £4.3 billion next year alone. I propose, therefore, to reduce the rate at which relief is given from 25 per cent. to 20 per cent., but I propose to defer the implementation of this change until April 1994. In all, this change will yield £900 million in 1994–95 and £960 million in the following year.

At the current mortgage rates, no borrower will be more than £10 a month worse off from the reduced rate of relief, and for many with mortgages below £30,000 the increase in payments will be even smaller. Moreover, it is the level of interest rates, not the amount of tax relief, that is the most important determinant of the cost of a mortgage. Because interest rates have fallen so far since October 1990, payments on the average mortgage have been cut by over £150 a month, so the cost of the change I am proposing is equal to just a fraction of the benefit mortgage payers have already received from lower mortgage interest rates.

I know that there are some elderly people with life annuity home income plans which allow them to draw down some of the savings that they have invested in their houses. Such schemes will continue to attract relief at 25 per cent.

I am fully aware that, despite some encouraging signs of increasing activity, the housing market remains fragile. That is why the changes I have described will not come into effect until next year; and it is also why I have one further proposal which will affect people buying houses. Whereas my proposals on mortgage interest relief do not apply until April 1994, this measure comes into effect immediately. I propose to double the stamp duty threshold to £60,000 for documents executed from today and not stamped before 23 March, when the required Budget resolution has been considered by the House.

This means that the cost of buying homes priced at between £30,000 and £60,000 will be reduced by up to £600. From today, the number of transactions in the housing market liable to stamp duty will be halved. This will be of particular benefit to first-time buyers, who tend to buy less expensive homes. With mortgage interest rates at their lowest level for decades, this reduction in stamp duty should provide a further stimulus to the housing market. The change will cost £220 million in 1993–94 and about £270 million in the following year.

Last year, I announced a significant change in the treatment of the married couple's allowance, giving couples greater flexibility in allocating it between them. Today, I have a further important change to propose.

At present the married couple's allowance reduces a taxpayer's liability at his or her marginal rate. A taxpayer on the 20 per cent. lower rate benefits by £344, but a higher rate taxpayer gets £688—twice as much. There is no good reason why an allowance intended to recognise the responsibilities of marriage should give least to those on low incomes and most to those right at the top of the income scale.

From 6 April 1994, therefore, I propose to restrict relief for the married couple's allowance to the lower rate of 20 per cent. It will then be worth the same amount to taxpayers at all levels of income. The allowances which are linked to the married couple's allowance for those aged under 65 will be similarly restricted.

Because of the higher level of MCA to which they are entitled, this change will bear harder on elderly married couples, so, also from 1994–95, I propose to increase by £200 the married couple's allowance for those aged 65 and over. This will ensure that pensioners paying tax at the basic rate are affected by the change in the same way as any other basic rate taxpayer, and some elderly married couples in the lower rate band will actually gain slightly.

As I have said, these changes will not come into effect until 1994–95. They will raise about £900 million in 1994–95, and £1.2 in 1995–96.