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9.45 pm

Given a low rate of, say, 1.5 per cent., the change in value between--I choose two arbitrary figures--a house of £275,000 and one of £276,000 would be £15 extra tax. That is hardly a material difference. The case is, however, entirely different at the margin, which is the substance of the amendments.

If one moves across the margin into a new tax rate, it triggers the higher rate throughout the whole cost. The Institute of Directors, for example, pointed out that a move in value from £250,000 to £251,000 would

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move up the duty from £2,500 to £3,765. That is an extra tax not of £15 on exactly the same step as in the example that I quoted for a property of higher value, but of £1,265 on an increase in value of £1,000. That is a marginal rate of 126.5 per cent., by my calculation.

If the property were on offer and the contract was made at £250,001, almost exactly the same tax hike would take effect, but the marginal rate would reach the stratosphere.

In practice, of course--this is a bad sign for tax propriety--vendors, purchasers and their professional advisers will move heaven and earth at the marginal points to try to prevent the situation arising. All manner of deals will be done with the furniture or excluding the light bulbs to bring the value below the magic threshold. That is a bad way of conducting taxation.

The Institute of Directors proposes a slice system. Although it is silent on the first £60,000, which is of course tax free at present, the taxable rate, as I understand the proposal, would be 1 per cent. on the first £250,000 of value, 1.5 per cent. on the next £250,000 of value, and 2 per cent. thereafter.

Without access to the full Revenue figures, it is complex to work out the likely implications of trying to balance the revenue. I strongly suspect, particularly given the facts that I have mentioned, that we would be able to secure the same revenue with only small adjustments in the bands, and that the system would be a great deal fairer.

The amendments show an unfairness in the structure of the stamp duty that the Government have introduced. We do not like the changes because they are skewed towards the commercial sector, as the Government have run away from taxing the personal sector. We would prefer the Financial Secretary to withdraw the proposals tonight. We will put that to a vote.

In any case, if, given the exigencies of time, the Financial Secretary does not feel that she can adequately reply to the debate tonight, I hope that she and her advisers will go away and think about a better structure to operate in the future. There was no problem with the previous rates, but the changes that the Government have made by evolution from the traditional structure have created gross unfairness and will do significant damage.

Mr. Gibb: We have already seen an example tonight of old Labour emerging from behind the mask of new Labour, with its antipathy to medical insurance.

With the doubling of the rate of stamp duty, we hark back to the era of the last Labour Government. The first Budget of that Government, on 26 March 1974, did precisely the same as the present Budget in doubling the rate of stamp duty from 1 to 2 per cent. Fortunately, in a subsequent Conservative Budget in March 1984, the rate of stamp duty was reduced again to 1 per cent.

It has always been my view that stamp duty should be repealed. In today's society, there is no longer a role for stamp duty. It was my hope that the previous Government had as a long-term aim the ultimate abolition of this anachronistic tax. Labour Members may recall that in the 1990 Budget, the Chancellor began the process of abolishing stamp duty on share

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transactions, a move which was linked to the implementation of the TAURUS computer system in the London stock exchange. Alas, with the demise of that system, so went the abolition of stamp duty on share prices. I am, however, still hopeful that a future Conservative Government will get round to abolishing stamp duty on shares and on property transactions.

This Government are moving in the opposite direction. They have begun their period in office by doubling the rate of stamp duty which will raise £240 million in 1997-98 and £490 million in 1998-99. It is another example of this Government scrabbling for every penny, oblivious of the damage to the wider economy that such measures cause. They are oblivious to the 0.06 per cent. fall in GDP as a result of this one measure and they are oblivious to the thousands of job losses it will cause, particularly in the construction industry. Those are facts, according to the Centre for Economic and Business Research which has shown that there will be a fall of 0.75 per cent. in private housing sector output as a result of this measure. The Government appear to be oblivious to all the indirect and unforeseen consequences of this one Budget measure, which is being implemented simply to scrabble extra millions for their long-term spending plans.

As my hon. Friend the Member for Daventry (Mr. Boswell) said, stamp duty applies to business properties as well as to residential properties. It applies, for example, to the transfer of good will and to businesses whose sale or disposal requires transfer by document. Those documents have to be stamped with a rate of 1 per cent. and, now, some will be stamped with a rate of 2 per cent.

This measure will hit the commercial sector disproportionately harder than the residential sector, yet we were told that it was introduced to help to dampen down the residential property market. Three quarters of all stamp duty is paid by the residential sector, but three quarters of the stamp duty increase will fall on the commercial side.

The measure will distort business. Throughout much of the Budget, proposals are implemented for one purpose, but the results are completely the opposite. Although the Budget is meant generally to take the heat out of the domestic housing market, the abolition of tax credits on dividends receivable by pension funds, for example, will shift billions of pounds of investment from UK equities into the commercial and residential property sectors, thereby fuelling price increases. It will, therefore, have precisely the opposite effect from that intended.

The increase in stamp duty is an attack on home ownership and it joins the other attacks on home ownership in the Budget. We have had the phasing down of MIRAS, we have had three interest rate rises in as many months, and now we have the increase in stamp duty. It is yet another of the many examples of distorting measures in the Budget.

Clause 8, for example, will end the freezing of duty on beer. That will distort the market in beer and will lead to higher levels of smuggling. Clause 19 introduces a distorting measure with the abolition of ACT credits which will mean massive changes to the investment

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policies of pension funds and other institutions in the City. We have seen the distorting effects of clause 20; the abolition of section 242 relief will have an effect on open-ended investment companies. We have also seen the distorting effect of clause 30 with the abolition of tax credits for non-tax-paying individuals, whereas we are keeping tax credits for higher-rate and basic-rate taxpayers. There are also distorting effects in clause 42, with the implementation of temporary first-year allowances for only small and medium-sized enterprises.

The amendment is designed to end the slab scale of the previous stamp duty regime. The intention behind it is the introduction of a rising scale of stamp duty measures so that we do not have yet another distorting measure. For example, if someone happens to be selling a house at a price that approaches one of the arbitrary sums imposed by the Government--£60,000, £250,000 or £500,000--there is an enormous difference when it comes to consideration of whether the contract should be one of those sums. Sellers and buyers will go to enormous lengths to recategorise the assets that are being sold, such as fixtures and fittings or, as my hon. Friend the Member for Daventry said, light bulbs or light switches. The Government's proposal will have an enormous distorting effect in the marketplace.

The amendment will do much to reduce or eliminate one of the many distorting effects introduced by the Government in the Budget. I hope that it will be agreed to.

The Chief Secretary to the Treasury (Mr. Alistair Darling): The hon. Member for Bognor Regis and Littlehampton (Mr. Gibb) having been signalled to resume his place by his colleagues, I shall make a few comments before we conclude this evening's proceedings.

The hon. Member for Daventry (Mr. Boswell) made four points, one of which had some substance. I shall return to it briefly. First, he invited my hon. Friend the Financial Secretary to visit Bush house to watch the stamping process. As a legal apprentice, I watched documents being stamped on many occasions, and fascinating is not a word which I would use to describe the process. I would say, however, that the opportunity to get out of the office, especially on a nice, hot summer's day, was something which I and all my fellow apprentices used to welcome.

Secondly, the hon. Member for Daventry said that we might have had more time to discuss these matters had it not been for the guillotine. I shall not pretend to be the best attender of debates in Standing Committee, because my other duties kept me elsewhere, but I have read the reports of the proceedings. If Conservative Members had not spent so much time discussing their Welsh mothers, tours of south America and various other discursions on Americanisms and other matters, there might have been more time to spend on the Bill. I have come to the conclusion, as have many of my right hon. and hon. Friends, that Conservative Members seemed determined never to finish consideration of the Bill because they wanted to claim that the guillotine was operating against them.

It is said that there is no overheating in the economy, especially in the housing market. I suppose that that will always be a matter of judgment. Suffice it to say

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that we reached the judgment that action was necessary to encourage stability in the housing market. I think that we would have the support of many members of the public, bearing in mind the heavy price that they paid for the unsustainable housing boom that was caused by the Conservative party's policies in the 1980s. We can agree to disagree, but we believed that action was necessary. Our proposal will raise valuable revenue. We do not shrink from the fact that that revenue is needed to finance the debt reduction programme that is necessary because of the large levels of debt that we inherited from the outgoing Conservative Government.

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