§ Question proposed, That the clause stand part of the Bill.
§ Mr. FlightClause 113 introduces—if I may put it thus—a much more naked and transparent stealth tax. It will raise stamp duty by a further 0.5 per cent.—for the third year running—making tax on property sales in this country one of the highest in the developed world. The clause is in part IV, which deals with stamp duty in general. Clause 116 empowers the Treasury to change the rules merely by statutory instrument, and we shall object to that strongly as well. Other proposed changes exclude property transfers to social institutions from stamp duty, and tighten coverage in the case of companies and leases.
The Government say that they expect to derive a yield of some £290 million over the tax year to next April. In due time, we shall ask what the yield is: given the cyclical increase in property transactions, we suspect that it will be substantially above the predicted figure.
The proposed tax is mainly a stealth tax on business. We particularly object to the contradiction between the Prime Minister's entirely correct support for the flexible Anglo-Saxon system—the Anglo-Saxon economies have been successful here and in the United States—and the proposal for a tax that will damage corporate restructuring, prevent improvements in productivity and discourage investment. Members may recollect the Chancellor extolling the McKinsey report on how to improve productivity in this country and the damage done to productivity improvements by our system of taxing property and by some of our planning laws.
10.45 pm
How much will stamp duty cost in the Rover restructuring? Whatever the cost is, another 0.5 per cent. will be added as a result of the Bill. It is particularly damaging for small businesses because property is their main asset. It is the asset against which they go to banks to borrow money. The main effect of the rise in stamp duty—up some 400 per cent. since the Government came to power—for businesses is to increase the volatility of prices, particularly in down cycles. For that reason, the banking sector will be less willing to lend to small business.
I have referred to clause 116. The Government have implicitly already accepted that they have hiked the tax to the limit because they are looking to give themselves discretionary measures to try to attack the mitigation that they expect, particularly from businesses seeking to save on such a high level of tax when they want to restructure.
The tax obviously bears on individuals, too. It is both unfair and economically damaging. It hits the more enterprising in society. How often has the House heard the Chancellor say that his policies are driven by fairness and encourage entrepreneurship? Here we have something that points in the other direction.
Some Labour Members have been gloating that the tax will soak the rich, as it soaked rich people such as the Prime Minister when he sold his house in Islington, but, in reality, it is a tax on middle England. Since the last data were produced, property prices in the southern half 261 of England have risen by between 20 and 50 per cent. Some 25 per cent. of the property market in the south-east is represented by houses costing about £250,000—it is the average price of three and four-bedroom family houses—which will bear the new rate of stamp duty of 3 per cent.
Who moves? Who wants to move? It is people who have to move because of their jobs. It is people who produce children and need larger houses. This is a tax on job mobility and yet another stealth tax on families.
The measure causes more subtle damage. There are problems with potential over-building in the southern half of the country. Senior citizens are already often reluctant to move from the houses that they have lived in to smaller accommodation. That will discourage yet more such senior citizens from vacating larger family houses.
It is the increase in volatility that we are particularly concerned about. When the downturn comes and when the Chancellor realises that he has not abolished the economic cycle, the greater volatility will increase opportunities for negative equity in two ways. First, when there is a much higher tax on buyers and when the market is bad, buyers retreat. Secondly, many families will have used up their capital in paying significant amounts of stamp duty when buying their properties.
The excuse that the Government will give is that the measures are designed to contain property overheating. When the deputy Governor of the Bank of England gave evidence to the Select Committee on Education and Employment recently, he reported that such fiscal measures were not an effective tool in determining prices, particularly domestic property prices, during up cycles. As I have said, such measures worsen the volatility in down cycles, but do not constrain upward movement in up cycles.
In summary, this is another extremely cynical stealth tax that was designed purely to raise revenue. Its economic effects will be bad. They will be particularly damaging in the very areas that the Chancellor claims that he wants to improve.
§ Mr. Matthew Taylor (Truro and St. Austell)I shall not detain the House long, but I wish to raise a significant issue in respect of stamp duty, which this and previous Governments have avoided tackling—one that becomes more serious as the rates increase.
If we are to have such a system, it makes sense that the Government should attempt to close any loopholes. Indeed, it is surprising that they have not gone further in tackling the use of companies as a tax shelter in respect of property transactions. Presumably, that is why they have left open the opportunity to make further changes by order. Although I do not consider that to be the appropriate mechanism, I hope that the Government will attempt to create a system whereby people pay according to the value of the transaction and not according to how much they can afford to pay specialists to help them avoid paying tax as that tends to mean that big companies avoid paying tax and small companies and individuals end up paying it.
The Government have not addressed the fact that stamp duty is an unusual tax in that different banded levels increase with the value of the transaction, yet the increases apply to the entire transaction. That leads to a simple form of avoidance in that people try to keep the price just below the relevant threshold. As the duty increases on 262 transactions over £250,000, a difference of just £1 in the price of a property makes a difference of £5,000 on the tax that falls on the individual or company. As a result, people try to avoid tax, not always through legitimate means, such as by selling fixtures and fittings at an inflated price while reducing the notional price of the property.
Research that I have undertaken through the Land Registry shows that as stamp duty has increased, there has been a decrease in the number of properties sold at just over £250,000 and an increase in the number sold at just under £250,000. The difference widens as the tax incentive increases. The Secretary of State for Northern Ireland benefited from that by coming in just under the threshold. It cannot be right to have prices bunching just under the break levels so that purchasers avoid tax. Whatever any particular individual may have done, I have no doubt that some people are deliberately avoiding tax. That is not good for the Treasury or the tax system and it makes no proper sense.
Other taxes operate so that the increase applies only to the part of the transaction that is above the break point. It would be possible to make that reform on a revenue-neutral basis, if that were what the Government wanted to do, and it would have exactly the same effect in terms of dampening down the property boom. The tax burden would fall more fairly. Such a reform would remove the incentive to try to avoid tax. Surely, making such a reform would also be infinitely simpler than trying to use Inland Revenue checks to determine whether the fixtures and fittings have been overvalued and the property undervalued. Not only is it pretty difficult to resolve such arguments, but it could cost an awful lot to get a result.
I have tried, consulting the Library and tax experts, to research why we have our peculiar tax banding structure, but answer came there none. The answer was simply, "That's historically how it's been done." I do not think that the current Government feel particularly tied to doing things in a certain way simply because they have always been done that way. I should therefore like to hear from the Minister why that reform has not been pursued, whether it might be pursued, and whether it might not be a more sensible approach than that being pursued by the Government.
Additionally, if the Government are proposing the increases to dampen the residential property boom, why have they not considered creating a divide between commercial and residential property? Such a divide exists in many other countries and has not caused major tax avoidance problems. I think that that, too, would he a sensible measure.
I hope that the Government will consider making those simple reforms, which would help to create a more progressive tax structure and remove the incentive to cheat that the current system undoubtedly presents.
§ The Economic Secretary to the Treasury (Miss Melanie Johnson)In his opening remarks, the hon. Member for Arundel and South Downs (Mr. Flight) most amusingly alleged that the measure was some type 263 of "transparent stealth tax"—which is a new Tory contradiction in terms, to add to all the many other contradictions that they have recently offered us.
§ Mr. FlightWill the Minister give way?
§ Miss JohnsonI have barely uttered a full sentence, but I shall give way to the hon. Gentleman.
§ Mr. FlightThe word "stealth" has two applications in this context. It applies, first, because the increase is a significant but unexpected tax on business. It applies, secondly, because people do not necessarily think about tax when they have to change houses after changing jobs or relocating, or when their family has grown. The tax therefore sneaks up on them.
§ Miss JohnsonI think that the hon. Gentleman has just accepted that his point was not very meaningful.
The hon. Gentleman dealt with the measure's effect, in the residential sector, on families. I should like to explain how the Government's actions are helping families. In our Budgets since the general election, we have done a huge amount to help families. We have reduced tax on the average family, so that for a single-earner family on average earnings with two children, tax is at the lowest rate since 1972. [Interruption.] The right hon. Member for Wells (Mr. Heathcoat-Amory) can say that he does not believe it, but it is a fact. In these matters, there is nothing as unarguable as a fact.
We also have incredibly low mortgage rates—which are particularly low in comparison with the mortgage rates that applied at their peak in the 1990s. Therefore, on average, people will be paying £300 less per month because of the Labour Government's economic policies and platform, the stability that we have created, and the low inflation and low interest rates that we have managed to generate. Householders are much better off.
We should also consider how many people will pay stamp duty on residential transactions. The fact is that more than one third of transactions incur no stamp duty at all—they never have incurred stamp duty. Moreover, 95 per cent. of sales will be completely unaffected by the Budget's provisions. Those are the facts that the House should consider. The hon. Gentleman gave us scarcely any facts in favour of his hypothesis. There is no evidence that the measures on stamp duty in this or earlier Budgets have had any effect on house prices or the number of transactions carried out in the residential property market.
11 pm
The same is true of commercial sales. We have a healthy commercial sector, which has enjoyed good growth. A large number of transactions take place and there is no evidence of any problem. In last year's Budget debate, Conservative Members put forward hypotheses that there would be damage as a result of last year's measures. Well, we have this year's figures, and I notice that the hon. Gentleman has not referred to the implications of last year's arguments. It is clear that the problems that Conservative Members referred to then have not materialised, and that the Government have been proved right. Stamp duty presents a fair and progressive system of taxation, which is why we have made these proposals.
264 The hon. Gentleman referred to loan collateral and the possible harmful effect on business. There is no evidence that a stamp duty increase of 0.5 per cent. reduces property values significantly, if at all. In fact, commercial property is not usually of primary importance as collateral, so on neither count is there evidence of a problem. It was suggested that the measure might have been taken to help stabilise the housing market. That is not its main purpose; its main purpose is to put in place a fair and progressive structure for stamp duty. Our macro-economic framework is the main measure to stabilise the housing market. That is working to the benefit of the economy, businesses and families—people right across the country are benefiting from our management of the economy.
The hon. Member for Truro and St. Austell talked about the loopholes that are being closed. There are a number of such loopholes, some of which we have considered for some time. They include a revised definition of "group" for the purposes of stamp duty relief for transfers of property between associated companies. I hope that the hon. Gentleman will give us his full support on our measures to close those loopholes.
I was distressed to hear that the hon. Member for Arundel and South Downs will not be supporting clause 116. That measure will enable us, when we discover avoidance techniques, to close loopholes in the middle of a year between Finance Bills. People will be able to discuss the way in which that is being done, but the measure will stop off revenue outflows that should be going to the Exchequer because people are finding loopholes in the system.
I cannot comment on the Rover restructuring. There are many issues that are still, unfortunately, unresolved, and although the hon. Gentleman invited me to comment, it would not be appropriate for me to do so.
The hon. Member for Truro and St. Austell remarked on the way in which we might change to what is called a slice basis for stamp duty. The full-year cost would probably approach £1.5 billion, or more than a third of the current yield from the duty. Higher rates of duty would then be needed to maintain the yield. It would be interesting to hear what measure the hon. Gentleman would propose to stop up the gap—the money that would be missing from the Exchequer—as a result of that suggestion.
§ Mr. Matthew TaylorI was talking about a revenue-neutral basis. The hon. Lady has suggested how that can be done. Is she aware that under the present system, before the Chancellor started to raise the differentials for more valuable property there was virtually no difference in the number of transactions just above and just below the £250,000 band. After the first increase, 139 properties were sold just under the £250,000 band for every 100 above it. Now, 151 are sold at just under £250,000 for every 100 above it. There is clear evidence of avoidance and of loss of revenue to the Exchequer as a result. Therefore, there is clear evidence that we have created a system that favours the cheat over the honest person.
§ Miss JohnsonI cannot agree. There are different ways to structure stamp duty, but other methods, in particular the slice basis, cause problems of their own. That method would cause a significant loss to the Exchequer.
The sort of problems that the hon. Gentleman describes are not apparent. We are still collecting the revenue that we have always expected to collect from stamp duty. Indeed, last year, we met the expected target for the collection of stamp duty revenues. The case that he put forward is not borne out by the facts.
§ Mr. Campbell-SavoursIs it not true that the phenomena that the hon. Member for Truro and St. Austell (Mr. Taylor) mentioned show that the measure is probably having a deflationary effect on house prices?
§ Miss JohnsonThat could indeed be so. There is a danger in changing the basis of something that has always worked well. Stamp duty was introduced in 1694. [Interruption.] I am conscious of the fact that many hon. Member would like to leave the Chamber to go home to their beds.
Stamp duty is an extremely efficient tax. The measures that we are introducing are giving a fairer and more progressive structure to the tax. There is no evidence that we need to change the basis for the duty on commercial or residential property, or indeed shares. It brings revenue into the Exchequer and we are, in fact, in a beneficial position. I urge hon. Members to support the proposal. It is working well and will continue to do so.
§ Mr. FlightI shall be brief. First, do the Government intend to continue with their policy of increasing stamp duty by 0.5 per cent. per annum, or do they believe that the level that the duty has reached represents some form of ceiling?
Secondly, the Minister seemed to argue that extra charges on transactions have no economic impact. For the past three years, for a variety of reasons, property prices have been rising continuously. Bank of England studies have found that increased transaction costs have an impact when the market goes down—the increase in volatility and the fall in prices tend to be exaggerated by rising transaction costs. Then, families really suffer if it takes them into negative equity. Independent data show that families are already paying about £670 more in tax per annum, so they are not better off in tax terms. Furthermore, they have lost their mortgage interest relief at source.
I pointed out the objections to clause 116; they were echoed by the hon. Member for Truro and St. Austell (Mr. Taylor). In essence, they are that the clause lacks clarity—if there is a problem to be dealt with, it does not help the marketplace if matters are not clear and certain. It would be better if there were specific clauses to address any problems that the Government believe are outstanding.
I rebut the assertion that 95 per cent. of transactions will not be affected. As I pointed out, those data were produced before the rise in house prices that has taken place over the past year or so; in the south-east, that has certainly been in the order of 20 per cent. The Economic Secretary to the Treasury herself commented—presumably she was including commercial property—that only a third of transactions paid no form of stamp duty.
266 I repeat that this tax is predominantly levied on business. The Minister did not reply to my points on that issue. Business pays the most stamp duty. It is a tax on businesses that relocate and set up new operations in different parts of the country. It is a tax that will apply in situations such as that of Rover, where major changes must be made in order to survive.
§ Question put, That the clause stand part of the Bill:—
§ The Committee divided: Ayes 242, Noes 50.
268| Division No. 179] | [11.12 pm |
| AYES | |
| Adams, Mrs Irene (Paisley N) | Dawson, Hilton |
| Ainger, Nick | Dean, Mrs Janet |
| Ainsworth, Robert (Cov'try NE) | Denham, John |
| Alexander, Douglas | Donohoe, Brian H |
| Allen, Graham | Doran, Frank |
| Anderson, Donald (Swansea E) | Drew, David |
| Armstrong, Rt Hon Ms Hilary | Eagle, Maria (L 'pool Garston) |
| Atherton, Ms Candy | Edwards, Huw |
| Austin, John | Ellman, Mrs Louise |
| Banks, Tony | Field, Rt Hon Frank |
| Barnes, Harry | Fisher, Mark |
| Bayley, Hugh | Flint, Caroline |
| Beard, Nigel | Flynn, Paul |
| Benn, Hilary (Leeds C) | Foster, Rt Hon Derek |
| Bennett, Andrew F | Foster, Michael Jabez (Hastings) |
| Benton, Joe | Foulkes, George |
| Berry, Roger | Fyfe, Maria |
| Best, Harold | Gardiner, Barry |
| Blackman, Liz | George, Bruce (Walsall S) |
| Blears, Ms Hazel | Gerrard, Neil |
| Boateng, Rt Hon Paul | Gibson, Dr Ian |
| Borrow, David | Godman, Dr Norman A |
| Bradley, Keith (Withington) | Godsiff, Roger |
| Brinton, Mrs Helen | Goggins, Paul |
| Brown, Rt Hon Nick (Newcastle E) | Gordon, Mrs Eileen |
| Brown, Russell (Dumfries) | Griffiths, Nigel (Edinburgh S) |
| Browne, Desmond | Grocott, Bruce |
| Butler, Mrs Christine | Grogan, John |
| Campbell-Savours, Dale | Hain, Peter |
| Caplin, Ivor | Hall, Mike (Weaver Vale) |
| Caton, Martin | Hanson, David |
| Cawsey, Ian | Harman, Rt Hon Ms Harriet |
| Chaytor, David | Heal, Mrs Sylvia |
| Clapham, Michael | Healey, John |
| Clark, Rt Hon Dr David (S Shields) | Henderson, Ivan (Harwich) |
| Clark, Dr Lynda (Edinburgh Pentlands) | Hepburn, Stephen |
| Hill, Keith | |
| Clarke, Charles (Norwich S) | Hinchliffe, David |
| Clarke, Eric (Midlothian) | Hodge, Ms Margaret |
| Clarke, Rt Hon Tom (Coatbridge) | Hoey, Kate |
| Clarke, Tony (Northampton S) | Hood, Jimmy |
| Clwyd, Ann | Hoon, Rt Hon Geoffrey |
| Coaker, Vernon | Hope, Phil |
| Colman, Tony | Howells, Dr Kim |
| Connarty, Michael | Hughes, Kevin (Doncaster N) |
| Corbett, Robin | Humble, Mrs Joan |
| Corbyn, Jeremy | Hurst, Alan |
| Corston, Jean | Hutton, John |
| Cox, Tom | Iddon, Dr Brian |
| Cranston, Ross | Jackson, Ms Glenda (Hampstead) |
| Crausby, David | Johnson, Alan (Hull W & Hessle) |
| Cryer, Mrs Ann (Keighley) | Johnson, Miss Melanie (Welwyn Hatfield) |
| Cryer, John (Hornchurch) | |
| Cummings, John | Jones, Rt Hon Barry (Alyn) |
| Cunningham, Rt Hon Dr Jack (Copeland) | Jones, Helen (Warrington N) |
| Jones, Ms Jenny (Wolverh'ton SW) | |
| Dalyell, Tam | |
| Darling, Rt Hon Alistair | Jones, Dr Lynne (Selly Oak) |
| Davey, Valerie (Bristol W) | Jones, Martyn (Clwyd S) |
| Davidson, Ian | Jowell, Rt Hon Ms Tessa |
| Davies, Rt Hon Denzil (Llanelli) | Keen, Alan (Feltham & Heston) |
| Khabra, Piara S | Pickthall, Colin |
| Kilfoyle, Peter | Pike, Peter L |
| Ladyman, Dr Stephen | Plaskitt, James |
| Lawrence, Mrs Jackie | Pollard, Kerry |
| Lepper, David | Pond, Chris |
| Levitt, Tom | Pound, Stephen |
| Liddell, Rt Hon Mrs Helen | Prentice, Ms Bridget (Lewisham E) |
| Linton, Martin | Prentice, Gordon (Pendle) |
| Lloyd, Tony (Manchester C) | Prescott, Rt Hon John |
| Llwyd, Elfyn | Primarolo, Dawn |
| Love, Andrew | Prosser, Gwyn |
| McAvoy, Thomas | Purchase, Ken |
| McDonagh, Siobhain | Quin, Rt Hon Ms Joyce |
| Macdonald, Calum | Rammell, Bill |
| McDonnell, John | Rapson, Syd |
| McFall, John | Raynsford, Nick |
| McGuire, Mrs Anne | Reed, Andrew (Loughborough) |
| McIsaac, Shona | Reid, Rt Hon Dr John (Hamilton N) |
| McKenna, Mrs Rosemary | Robinson, Geoffrey (Cov'try NW) |
| Mackinlay, Andrew | Roche, Mrs Barbara |
| McNamara, Kevin | Rooker, Rt Hon Jeff |
| MacShane, Denis | Ross, Ernie (Dundee W) |
| Mactaggart, Fiona | Rowlands, Ted |
| McWilliam, John | Roy, Frank |
| Mahon, Mrs Alice | Ruane, Chris |
| Marsden, Paul (Shrewsbury) | Ruddock, Joan |
| Marshall, Jim (Leicester S) | Ryan, Ms Joan |
| Meacher, Rt Hon Michael | Sarwar, Mohammad |
| Meale, Alan | Sawford, Phil |
| Michael, Rt Hon Alun | Sedgemore, Brian |
| Milburn, Rt Hon Alan | Sheerman, Barry |
| Miller, Andrew | Skinner, Dennis |
| Moffatt, Laura | Smith, Rt Hon Andrew (Oxford E) |
| Moonie, Dr Lewis | Smith, Miss Geraldine (Morecambe & Lunesdale) |
| Moran, Ms Margaret | |
| Morgan, Ms Julie (Cardiff N) | Smith, John (Glamorgan) |
| Morley, Elliot | Smith, Llew (Blaenau Gwent) |
| Morris, Rt Hon Ms Estelle (B'ham Yardley) | Snape, Peter |
| Soley, Clive | |
| Murphy, Denis (Wansbeck) | Spellar, John |
| Murphy, Jim (Eastwood) | Squire, Ms Rachel |
| Naysmith, Dr Doug | Steinberg, Gerry |
| Norris, Dan | Stevenson, George |
| O'Brien, Bill (Normanton) | Stewart, David (Inverness E) |
| O'Hara, Eddie | Stewart, Ian (Eccles) |
| Olner, Bill | Stoate, Dr Howard |
| O'Neill, Martin | Strang, Rt Hon Dr Gavin |
| Organ, Mrs Diana | Stuart, Ms Gisela |
| Osborne, Ms Sandra | Taylor, Rt Hon Mrs Ann (Dewsbury) |
| Palmer, Dr Nick | |
| Pearson, Ian | Taylor, David (NW Leics) |
| Temple-Morris, Peter | Wigley, Rt Hon Dafydd |
| Thomas, Gareth (Clwyd W) | Williams, Rt Hon Alan (Swansea W) |
| Thomas, Simon (Ceredigion) | |
| Timms, Stephen | Williams, Alan W (E Carmarthen) |
| Tipping, Paddy | Williams, Mrs Betty (Conwy) |
| Todd, Mark | Wilson, Brian |
| Touhig, Don | Winnick, David |
| Trickett, Jon | Wood, Mike |
| Turner, Dennis (Wolverh'ton SE) | Worthington, Tony |
| Turner, Dr Desmond (Kemptown) | Wray, James |
| Turner, Dr George (NW Norfolk) | Wright, Dr Tony (Cannock) |
| Twigg, Derek (Halton) | |
| Tynan, Bill | Tellers for the Ayes: |
| Vis, Dr Rudi | Mr. David Clelland and |
| Ward, Ms Claire | Mr. Jim Dowd. |
| NOES | |
| Arbuthnot, Rt Hon James | Jack, Rt Hon Michael |
| Atkinson, Peter (Hexham) | Kirkwood, Archy |
| Ballard, Jackie | Leigh, Edward |
| Boswell, Tim | Letwin, Oliver |
| Brady, Graham | Lewis, Dr Julian (New Forest E) |
| Brazier, Julian | Lyell, Rt Hon Sir Nicholas |
| Bruce, Malcolm (Gordon) | McIntosh, Miss Anne |
| Burstow, Paul | Mawhinney, Rt Hon Sir Brian |
| Campbell, Rt Hon Menzies (NE Fife) | Paterson, Owen |
| Portillo, Rt Hon Michael | |
| Cash, William | Robertson, Laurence |
| Collins, Tim | Russell, Bob (Colchester) |
| Cran, James | Simpson, Keith (Mid-Norfolk) |
| Davey, Edward (Kingston) | Smith, Sir Robert (W Ab'd'ns) |
| Davies, Quentin (Grantham) | Stanley, Rt Hon Sir John |
| Steen, Anthony | |
| Dorrell, Rt Hon Stephen | Swayne, Desmond |
| Emery, Rt Hon Sir Peter | Syms, Robert |
| Flight, Howard | Taylor, Matthew (Truro) |
| Garnier, Edward | Tredinnick, David |
| Gill, Christopher | Tyler, Paul |
| Gray, James | Webb, Steve |
| Greenway, John | Whittingdale, John |
| Harvey, Nick | Yeo, Tim |
| Heath, David (Somerton & Frome) | |
| Heathcoat-Amory, Rt Hon David | Tellers for the Noes: |
| Horam, John | Mrs. Eleanor Laing and |
| Howarth, Gerald (Aldershot) | Mr. Peter Luff. |
§ Question accordingly agreed to.
§ Clause 113 ordered to stand part of the Bill.
§ Bill (Clauses 1, 12, 30, 31, 59, 102 and 113) reported, without amendment; to lie upon the Table.