HL Deb 11 February 1992 vol 535 cc682-90

9.16 p.m.

The Minister of State, Department of Transport (Lord Brabazon of Tara)

My Lords, I beg to move that this Bill be now read a second time.

This Bill is part of the package of measures announced by my right honourable friend the Chancellor of the Exchequer in his Statement on 19th December. That package is specially aimed at helping borrowers in difficulty over the mortgage repayments on their homes. The Chancellor announced a variety of measures to reduce substantially the level of home repossessions this year.

In his Statement the Chancellor also recognised people's concern about the depressed state of the housing market, which has been affecting home owners in general and also has implications for the wider economy. In order to provide a stimulus to the market, the Chancellor announced the substantial lifting of the stamp duty threshold for an eight-month period, with which this Bill is concerned.

Stamp duty on house sales applies at 1 per cent. of the purchase price where that exceeds the threshold, which stood at £30,000 at the time of the Chancellor's Statement. The duty is normally paid by the buyer, because it has to be paid before the Land Registry can register a change of ownership.

The Bill raises the stamp duty threshold to £250,000 for all documents executed between 20th December last year—the day following the Chancellor's Statement—and 19th August this year. That is an eight-month moratorium. As a result of the measure, around 600,000 private house purchases will not bear stamp duty during that period. That is about 90 per cent. of all residential property purchases. Home owners will be able to save up to £2,500 on the cost of moving home, and there will be a good saving of £600 on the purchase of an average priced house.

The benefit of the higher threshold will also apply to transfers of leasehold property and, in general, to the premiums on new leases. Documents effecting transfers of any other property, except shares, will also benefit from the change.

The Bill is short. Clause 1 effects the increase in the stamp duty threshold for sales of land and buildings to £250,000. The purpose is to encourage people thinking of moving home to get into the property market, and make sure that their purchases come within the period of the moratorium. We believe eight months is a reasonable period for that purpose.

It is of course still too early to assess the full extent of the effect of the measure. Decisions about house purchase take time. But reactions from those in a good position to judge—for example, the Council of Mortgage Lenders and the Housebuilders Federation —have been encouraging.

Clause 2 enables the Inland Revenue to make refunds in appropriate cases where people executed their documents between 20th December and 16th January, the date of the resolution founding the Bill, and also chose to have their documents stamped within that period. Before the resolution came into effect on 16th January, documents had to be stamped on the basis of the previous £30,000 threshold. The Revenue will be making refunds in those relatively few cases as promptly as possible once the Bill becomes law.

The cost of this measure to the Exchequer will be about £420 million; £110 million in the current financial year and £310 million in 1992–93. The cost will be met out of savings arising from deferral of the abolition of stamp duty on shares. In his 1990 Budget Statement, my right honourable friend the Prime Minister stated that stamp duty on shares would be abolished late in 1991–92, to coincide as closely as possible with the introduction by the Stock Exchange of paperless trading—the system known as Taurus. The Stock Exchange has recently announced that Taurus will not be ready before April 1993. The Chancellor has said that the abolition of stamp duty on securities will also be deferred at least until then. That means a saving of £1 billion in the public sector borrowing requirement.

The proposal in the Bill is a particularly well-targeted measure. The vast majority of the transactions that will be taken out of the stamp duty charge as a result will be in residential rather than commercial property. Nearly all the benefit of the measure goes to home buyers. I commend the Bill to the House.

Moved, That the Bill be now read a second time. —(Lord Brabazon of Tara.)

9.21 p.m.

Lord Peston

My Lords, I thank the noble Lord, Lord Brabazon of Tara, for introducing this Bill. I believe that we should start from the position of how we got into the mess that we are in. It is well-known and accepted that the financial liberalisation towards the end of the 1980s lead to enormous asset price inflation, and notably within that the rise in house prices. In general most experts—certainly most economists—believe that the housing market was simply over-stimulated. I am not opposing financial liberalisation, but the failures of Government policy. An interesting technical aspect of financial liberalisation was the Building Societies Act 1986 which helped to make liquid capital, notably in the form of housing, more liquid, which therefore encouraged people to spend their assets when otherwise they might not have done.

The result was that because the Government failed to recognise the over-stimulus we had runaway inflation towards the end of the 1980s. The Government have had to depress the economy to get inflation back under control. Having over-stimulated housing prices we now overshoot in the other direction and we have disaster in the housing market with all the problems that I shall not be dwelling on in this short debate, such as mortgage arrears and repossessions.

The Government now wish to stimulate the housing market. They are willing to abandon all their principles by engaging in Keynesianism of the most active and interventionist kind; the kind of thing that a Keynesian economist like me has advocated for years. I am somewhat surprised to find those measures coming from the Government themselves. It is essentially a temporary concession which it is hoped will have permanent effect. In other words, as I understand it, the purpose of the measure is not to bring purchases forward in time, although it will do that, but to engender further rounds of purchases of houses. That seems to be the rationale.

In endeavouring to assess whether the measure will work, during the inflation and excessive expansion of the late 1980s most economists believed that the ratio of house prices to incomes was far too high. House prices now having fallen relative to incomes, the interesting question is whether we have yet got to about the right level. Certainly there are respectable economists who believe—it is a source of no happiness to me—that the ratio may have to fall further still. I throw that in as a perspective in the debate.

The difficulty is that this situation clearly distorts the housing market. I have no objection to that if it works. We have to ask the question: is the measure likely to work; is it sufficient in magnitude and does it get anywhere near dealing with the causes of the trouble? If one takes the view that the causes of the trouble are, on the one hand, the cost of borrowing and, on the other, the very great uncertainty coupled with pessimism about future incomes and employment, then it is unlikely that the measure will work.

Perhaps I may also draw the attention of the noble Lord to this point. I am sure that he knows more than I do about this. We have seen, as a result of the recent experience, a considerable increase in so-called mortgage indemnity insurance. That is costing more and more. It may more than offset the concession on the stamp duty that we are being asked to consider.

I should like to ask about the calculation of the cost. What is the basis of that? I believe that the noble Lord said that it would be £110 million in the financial year 1991–92, and then it would rise to £310 million in the financial year 1992–93. What assumptions are made in order to come up with that calculation? It seems to me that essentially the cost must be made up of two parts: it must be made up of the concession to transactions that would otherwise have taken place. That is the deadweight loss of doing it. In other words, that is money thrown away because those transactions would have occurred without the stamp duty concession. If the policy works at all, then there will he some additional transactions. That will be the benefit of the policy. I believe that the noble Lord said that it would refer to 600,000 houses or dwellings. How many of that 600,000 would be the normal number of transactions subject to stamp duty in this period? How many are the result of the policy? There is no way of assessing whether this money is at all worthwhile unless we have that breakdown. If the answer is that no transactions are generated by this, then the whole £400 million is just thrown away as far as concerns the purpose of stimulating the market. On the other hand, if a large part of the 600,000 are net additions, then it becomes a much more cost effective policy. May we have that question answered?

I shall not take any more time to discuss the subject of what we need to do to stimulate the economy and to make up for the Government's mistakes. I hope that between now and the Spring we shall have a more general economics debate when I can talk about those subjects.

However, there are two other technical matters which I want to make sure that I understand. There is one that I should particularly like to ask, but I should also say that I understand that my noble friend Lord Macaulay of Bragar will be introducing another technical point which he feels is particularly damaging to the viability of the Bill. Perhaps the Minister will explain this point when he replies at the end of the debate. Have I fully understood the point that all transactions which are appropriate—in other words, which are subject to stamp duty and which get the concession and that take place between the relevant dates; that is, between 20th December, 1991 to 20th August, 1992—will get the concession? For example, if lots of people have already paid the stamp duty will they get that money back? Is that what the noble Lord was saying? He said there would not be very many. That puzzles me. Perhaps that is because many people have not yet paid the stamp duty. However, I take it that if stamp duty has been paid, and it should not have been paid under this new Bill, the Inland Revenue will simply write a cheque for, on average, £600? I should like to have that clarified. I think that is what the noble Lord said.

We shall do nothing to impede the passage of the measure, although going back to my younger days when I worked at the Treasury, I am a trifle worried about whether this is an incorrect way of spending money. However, I shall not waste time on that now; the Bill can go ahead. In due course we shall get some measures which might deal with the problems that confront us.

9.28 p.m.

Lord Ross of Newport

My Lords, I do not intend to go into the problem of repossessions which are taking place at the present time because I spoke for more than 30 minutes in this House just before Christmas on the subject. However, I should like to thank the noble Lord, Lord Brabazon of Tara, for introducing this measure to the House today and explaining its contents. It is a small concession but nevertheless is very welcome. I am not one of those who thinks it will be much of a stimulus to the housing market, except possibly to first-time buyers buying a property somewhere in the price range of £30,000 to £70,000. I concede that there it could be of help. I hope to God it is. Any cut in overheads for young people buying their first home must be helpful.

I have long felt that stamp duty on house purchase is an anachronism, and should have been abolished long ago. It is that extra, quite substantial cost in house purchase which most of us tend to forget. I do not state that, I have to say hastily, as Liberal Democrat policy because I shall no doubt be asked how the revenue lost would be replaced. Some figures have been quoted from the Opposition Front Bench this evening. It is yet another source of income to the Treasury which may have to be replaced.

However, I sincerely hope that future Chancellors of the Exchequer—I hope that it will not be too long away—will in time be able to do away with stamp duty on house purchase altogether or, at the very least—perhaps those people who want to buy in the £250,000 and upwards range can pay it—amend the duty so that it comes into effect only on a sliding scale when the sum involved exceeds £100,000.

I am thinking of my own children, one of whom lives in London where I suppose a first time buyer has to think in terms of paying between £60,000 and £70,000 when buying a first home. In rural areas I am pleased to see that there are now opportunities in the £30,000 to £40,000 region. This concession is helpful, particularly where people are having to take out mortgages of 90 per cent. or thereabouts. I hope that by putting my suggestion on the record the Chancellor will take some note of it. I do not believe that we should reintroduce stamp duty—if it has to be reintroduced after next August—for purchases of under £100,000.

I should like to make one other point. I wish that I had done a little more research before I put down a Question for Written Answer the other day. I am told that stamp duty is still being charged on assured shorthold tenancies lasting a year and upwards. That is totally wrong. Surely the Government want to encourage people who are unable to purchase because of financial difficulties of one kind or another. People should not be encouraged to buy things that they cannot afford to buy; but at least they should be able to rent. I supported the Government on introducing assured shorthold tenancies, but I am told that stamp duty is still being charged in certain circumstances. That is wrong, and the charge should be withdrawn. I ask the Government to look at that point. The answer that I received the other day was not at all helpful. Having said those few words, I welcome the concession that has been made, and I hope that it will be made permanent.

9.32 p.m.

Lord Macaulay of Bragar

My Lords, this is a short but important Bill despite its transitory nature. My noble friend Lord Peston has already dealt with its fiscal and political aspects. I do not intend to dwell on those because they are not my reason for contributing to the debate.

I should like to raise a matter in relation to conveyancing. The Bill applies to stamp duty in relation to instruments executed on or after 20th December 1991 or after 16th January 1992. The important word there is "executed". There are various definitions of the word "execute" in the Oxford English Dictionary. I shall quote four of them. If I quoted them all we would be here for a considerable time. The first definition is: To follow out into effect, carry out … To follow out, carry into effect (an intention, purpose, plan, instruction, or command.) The second and perhaps more important definition is: To give practical effect to (a passion, sentiment, principle"— I do not think that we have any of those qualities in this debate— Also, to bring (a weapon) into operation". I do not think that we shall have that spectacle in your Lordships' House.

The third definition is: To carry into effect ministerially (a law, a judicial sentence, etc.). The final definition is perhaps more relevant to the present debate: To go through the formalities necessary to the validity of (a legal act, e.g. a bequest, agreement, mortgage, etc.). Hence, to complete and give validity to (the instrument by which such act is effected) by performing what the law requires to be done, as by signing, sealing, etc. At first blush, that would give support to the use in the Bill of the word "execute." However, I want to draw the attention of the House to the peculiarity of conveyancing because the execution of a deed—it applies both in Scotland and in England—is not the point at which the transaction takes effect. In Scottish conveyancing practice the deeds which transfer ownership of heritable property and which are subject to stamp duty may be executed some time prior to the date of entry to the property when physical possession of the property is given to the purchaser. It is only at the point when the executed deed is delivered that the transaction becomes effective; that is, that the intention is put into effect and a real right in the property is given to the purchaser. Up until that stage, there is a paper contract between the parties which has been signed but not delivered. Of course, if one party resiled from the contract, that would lead to actions in the court —in Scotland, for specific implement. I am not sure what it is called in England. Therefore, it is at the point of delivery that the real right goes to the purchaser of the property which has been bought.

The point I am trying to make is that it appears that by restricting the increased threshold to deeds which are executed on or after 19th December of last year and before 19th August of this year, the Government may be penalising all those purchasers who were sufficiently organised to have had their solicitors prepare deeds for signing by the sellers before 19th December but where delivery is not made until after 19th December and between that date and 19th August. That means that any person who delays until then for delivery will not receive the benefit of the Bill's provisions.

Of course, it is a two-way process. At the other end of the scale, on 19th August 1992, as a specific date for the termination of the concession, it may be found that many people will be forced into the position where they will execute the deeds within the period in the Bill but delivery will not take place until perhaps September, October, November or sometime thereafter.

There is precedent for using the date of delivery as the effective date for stamp duty purposes. For example, if a penalty is to be charged on the late stamping of a deed in conveyancing practice, the date of delivery is used as the date rather than the date of execution of the deed. Further, as I understand it, in terms of the question of a change of rate of stamp duty, the date of delivery will normally be considered as the effective date of the deed rather than the date of execution.

It is my submission to your Lordships that there is no definition of the word "execute" in the Bill. The Bill is deficient to that extent, quite apart from the other matters to which I referred. In view of the fact that no amendments can be put forward from this side of the House due to the nature of the Bill, I suggest to the Government that they consider amending the Bill themselves. Alternatively, they may wish to take it away for further consideration. A simple amendment could be made which would, I believe, bring a degree of fairness into the proposals of the Bill and meet the point that I have made. I suggest that the words "or delivered" could be inserted after the word "executed" in Clause 2(a) and (b). I am trying to be constructive to ensure that the proposal fits in with the Scottish method of conveyancing. I have consulted English colleagues and, apart from the differences in terminology, the principle appears to be exactly the same. I ask the Government to take time to consider what I hope is a constructive proposal.

9.35 p.m.

Lord Brabazon of Tara

My Lords, I am grateful to noble Lords for participating in what I believe has been a useful debate. I listened with great interest to the remarks made. As I said earlier, the measure before the House has been well received by those concerned with the housing market. Indeed, many people will gain from it between now and late summer. The property sector of the economy can only benefit as a result. That is my answer to the question put by the noble Lord, Lord Peston, as to whether we believe it is likely to work. From the evidence that I have heard, I believe that it is likely to provide a stimulus.

The noble Lord, Lord Peston, asked, perhaps, rhetorically—though I think that I should be careful in using that word, having listened to an earlier debate —how we had got into this mess.

Lord Peston

It was rhetorical!

Lord Brabazon of Tara

My Lords, I explained when I repeated the Statement of my right honourable friend the Chancellor of the Exchequer just before Christmas that the current weakness in the housing market is due to many factors. To return to the question of whether the Bill is likely to work, I believe that I have already outlined the reasons why I believe that it will.

On the cost of borrowing, I merely remind the noble Lord that interest rate changes since we joined the ERM—an action of which I am aware he was in favour—have given the average householder a reduction of something like £70 a month in his mortgage interest payments, which can only be helpful.

On the calculation of the cost of the measure, the £420 million is the duty forgone on transactions which would have taken place and upon which duty would have been paid in the absence of the change. That figure relates to the 600,000 people, to whom I referred, who would otherwise have paid duty. The extra transactions which would not have occurred in the absence of the proposal would not of course have produced any duty and so they do not count towards the £420 million cost.

Lord Peston

My Lords, perhaps I may interrupt the Minister. I merely want to say that I do not understand his answer. Will he write to me? I should like to know the answer. I do not want to press him at this point. I am probably just a trifle tired.

Lord Brabazon of Tara

My Lords, perhaps the noble Lord will read tomorrow in Hansard what I have said before pressing me to write to him. Having read that he may well find that he understands my reply. The noble Lord further asked whether everyone who has paid stamp duty since 20th December would receive back their money. The answer to that is an unequivocal yes. People who executed their documents after 19th December will not pay stamp duty on their purchases between £30,000 and £250,000. Duty paid before the passing of the resolution in another place on 15th January will be refunded by the Inland Revenue.

I am grateful to the noble Lord, Lord Ross of Newport, for his general welcome of the Bill. He said that he did not think that it would produce much stimulus to the market but then went on to argue for the permanent abolition of stamp duty. I do not wish to comment on that point at this stage. I welcomed his statement that he thought the measure would help first time buyers in particular.

Since 1979 stamp duty has been reduced by a considerable amount. In 1979 stamp duty of 0.5 per cent. was payable below £20,000, and of 2 per cent. above £30,000. Before the Bill, it was 1 per cent. above £30,000 only. The noble Lord also referred to duty on rent under shorthold tenancies and leases. The Bill is concerned with the threshold of the 1 per cent. stamp duty on the purchase of property or on the premium on a lease. The duty on rent under a lease is charged on a separate scale of rates and is not altered by the Bill. Any duty charged on a rent under a shorthold lease is likely to be small. I note, however, the point that the noble Lord makes, and I shall of course refer his remarks to my right honourable friend.

I am grateful to the noble Lord, Lord Macaulay of Bragar, for his constructive suggestions, in particular those relating to Scots law. I do not wish to give him a definitive reply now. On the date of execution, the general stamp duty rule is that a document has to be stamped in accordance with the law in force at the time it was executed. Stamp duty changes therefore usually apply to documents executed on or after a particular date. The Bill follows that practice. "Executed" is a legal term. Broadly, a conveyance or other document is executed at the point when it becomes legally effective. The precise point at which that occurs may well depend upon the particular circumstances of the case.

A purchaser who is in doubt about his own case may need to consult his solicitor. I shall read carefully what the noble Lord said, and I shall write to him if I can go further on that matter. The Inland Revenue has issued two press releases—one on 19th December outlining the change, and another on 16th January about the practical arrangements. A further announcement will be made once the Bill becomes law. Stamp offices have also been giving detailed guidance to their customers. I hope that I have answered the main points raised by noble Lords.

In conclusion, this is a positive measure to stimulate a depressed housing market by giving people a bit of encouragement at a difficult time to buy houses or to put them on the market. Stamp duty can be an important element of the costs of buying a house and a saving of £600 on an average priced dwelling is a big incentive. The measure gives help to the housing market in the right place by concentrating on domestic property, and at the right time by taking effect well in advance of the peak period for housing transactions in the summer. I therefore once more commend the Bill to your Lordships.

On Question, Bill read a second time; Committee negatived.

Then, Standing Order No. 44 having been dispensed with (pursuant to Resolution of 6th February), Bill read a third time and passed.