HC Deb 23 January 1997 vol 288 cc1131-4

'(1) Part III of the 1988 Act is amended as set out in subsection (2) (which provides for the abolition of liability to non domestic rating in respect of housebuilders showhouses). (2) In section 66 there shall be inserted: (5A) (a) Where property

  1. (i) has been constructed or adapted for use as living accommodation;
  2. (ii) has not since it was constructed or adapted for use as living accommodation been used for that purpose; and
  3. (iii) it is used wholly or mainly as a showhouse; 1132 it shall be treated as next in use as domestic property for the purposes of subsection (5) above.
(b) for the purposes of subsection (5A)(a) above property whether furnished or not is used as a showhouse if
  1. (i) it is used by or on behalf of its owner for display to members of the public as an example of other property constructed or to be constructed by him in order to market that other property, and
  2. (ii) that other property is, or will be when constructed, domestic property by virtue of subsection (5) above".'.—[Mrs. Peacock.]
Brought up, and read the First time.

Mrs. Elizabeth Peacock (Batley and Spen)

I beg to move, That the clause be read a Second time.

My right hon. Friend the Minister will be aware of my long interest in the provision of housing for purchase and for rent. This is an occasion on which the Government can help reduce the cost of new houses.

My right hon. Friend the Minister will recall that, in a rating tribunal case in 1995—Ideal Homes v. Ian Walker—it was decided that house-builders' show houses were properly subject to uniform business rate, not council tax. That decision followed a long period of uncertainty after the introduction of the UBR, during which some authorities claimed UBR on show houses and others were satisfied to collect council tax. Given that the uncertainty was resolved by the decision, it is understandable that most local authorities started to charge UBR, and that, based on research undertaken by the House-Builders Federation, the charge paid by house-builders paying council tax would be roughly doubled. The federation has always argued that show houses should be subject not to UBR but to council tax, and new clause 2 sets out to achieve that.

I am sure that my right hon. Friend the Minister will be asking himself—and possibly me—about the cost of the proposal. Perhaps I might tell him. The cost of making show houses subject to council tax rather than UBR is—I estimate—about £5 million per annum, based on current levels of house-building activity. That is a small sum in United Kingdom accounting terms, but it is real money that has to be paid by housebuilders at a time of relatively poor trading activity, although recently we are seeing many more house starts and much more activity.

The change in law requested would have no cost to the Government: it would merely switch funds between local authority budgets. Levying UBR on what is housebuilders' stock is an unusually onerous approach and one that breaches the general principle of not taxing stock. The showhouse is an empty, unsold house and should be subject to the appropriate council tax regime, which is intended to provide an incentive to avoid keeping property empty unnecessarily. A showhouse serves the same purpose as a new car in a car showroom—it is there to increase the rate of sale of other stock. A car in a showroom is not taxed until it is sold. That principle is already breached by the levying of council tax at the basic rate.

I appreciate that my right hon. Friend the Minister of State may choose to remind the House that showhouses are sometimes used as sales offices and we must bear that in mind. It is, however, penalising the legitimate use of housing stock to subject it to UBR, which was essentially intended for commercial, retail or industrial property. Moreover, it appears from the original record of debates in Hansard that it was never the intention of Parliament to tax domestic buildings with the commercial rating legislation. A showhouse, like a car in a showroom, is temporarily and briefly used for demonstration purposes before reverting to the residential use for which it was designed and built. It should therefore be taxed only in the manner appropriate to its intended residential use—through the council tax.

The impact of UBR is uneven. Some 50 per cent. of authorities charge UBR and the other 50 per cent. charge council tax. That is clearly unfair, but the removal of the anomaly can be achieved only by increasing costs in a sector in which I imagine the Government wish to see non-inflationary recovery. Any further cost burden will only retard recovery, while its removal would be a small but welcome step forward.

The majority of housebuilders are not large, publicly quoted companies, as we are sometimes told. They fall within the small and medium-sized enterprise sector, which the Government and all of us wish to encourage. Removal of the anomaly and reduction in cost would therefore clarify the tax treatment of an important group of SMEs and, I hope, be reflected in house prices, which would benefit all our constituents.

7.45 pm
Mr. Nicholas Winterton

I declare my interest as chairman of the Manufacturing and Construction Industries Alliance. I congratulate my hon. Friend the Member for Batley and Spen (Mrs. Peacock) on new clause 2 and register strong support for what it seeks to achieve. My hon. Friend advised the House that the cost to the housebuilding industry of making showhouses subject to uniform business rate rather than council tax is estimated to be some £5 million. I am sure the House will agree that that is not a huge sum in the context of the size of that important sector of our economy, but I emphasise that the small to medium-sized building firms and companies are hit disproportionately by the tax, at a time when—as my hon. Friend said—profit margins have been squeezed by the recent severe recession in the housing market for which the industry itself was not to blame in any way.

Newly built showhouses awaiting sale are simply the stock—I emphasise the word "stock"—of the housebuilding industry or, at worst, are unoccupied residential premises. Their prime purpose and their prime use is simply display so that potential purchasers of a new home can see the product that they are considering buying. It is inevitable that in some showhouses there may be a receptionist to greet visitors or perhaps even a salesman or saleswoman available, on a part-time basis or by appointment, to negotiate a sale, but that is not necessarily typical of many of the showhouses on the many small developments where the local building company or firm has neither the resources nor the inclination to maintain the cost of a sales team. We need therefore to assess the tax liability of such premises not on the basis of what minor activities may on occasion be undertaken in showhouses but on the basis of their prime purpose which is, as I have already said, as the stock of the building industry.

Some people have expressed the irrational fear that the new clause's amendment to the local government tax regime would set a precedent for other industries seeking to widen the benefit. I do not accept those arguments.

Dentists or pharmacists who use one or two rooms in their home for their practice are using those premises not as stock for sale but as a place of business under the prime purpose criteria. Retailers who live above the shop could not claim the shop as part of their residence because its prime purpose is the conduct of retail trade.

Simply because a housebuilder might on occasion undertake limited secretarial or administrative work in a showhouse—as Members of Parliament sometimes do in their homes—should not mean that suddenly the prime purpose of the premises is considered to be the commercial conduct of secretarial and administrative work. The prime purpose of the property is its sale. If that were not the case, in the interests of justice all right hon. and hon. Members who cannot escape paperwork, correspondence, filing, meetings and even media interviews at home would have to be charged the uniform business rate as well as the council tax.

I sincerely commend the new clause to my right hon. Friend the Minister of State and I hope that he will listen carefully and sympathetically to what has been said tonight and accept that the unjust anomaly should be addressed. I hope that he will undertake to make acceptable proposals of his own for putting the matter right. We have spoken briefly but to the point and I hope that the Government will make proposals to put right the current unjust anomaly.

Mr. Curry

As my hon. Friends will know, we can add to the list of eligible properties and businesses under the order-making powers that are attached to the Bill. We would look to use that mechanism in any additions we made to the Bill and on those grounds I will ask my hon. Friends to withdraw the new clause.

I wish to state clearly, so that there is no misunderstanding, that I am in two minds on the issue. There is a good case on both sides of the argument. As my hon. Friend the Member for Batley and Spen (Mrs. Peacock) said, the land tribunals have defined the problem recently so the legal uncertainty is now at an end. She also admitted that the way some builders use the showhouses has a business element. When showhouses lie empty for a while, we must also take into account the tax treatment of empty properties under the council tax regime.

Equally, I can see that placing show houses on the business rate list—even for a short time—and moving them on to the council tax list once they are sold as dwellings would place an administrative burden on the council tax payer and the Valuation Office. Therefore, on the grounds of deregulation, there is a case to be listened to. I can tell my hon. Friends the Members for Batley and Spen and for Macclesfield that I am ready to listen to that case and I am willing to receive representations to balance the arguments. If they can persuade me that this is the correct move, I will use the order-making powers in the Bill to bring it into effect and I shall do so conterminously with the discussions on the legislation.

Mrs. Peacock

My right hon. Friend the Minister of State has obviously listened to what I and my hon. Friend the Member for Macclesfield have had to say, and I hope that he will be able to introduce a measure along the lines that we have suggested. I therefore beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

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