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Clause 147

Stamp duty on conveyance or transfer on sale

Mr. David Heathcoat-Amory (Wells): I beg to move amendment No. 10, in page 136, line 32, at end insert--


'(4A) This section shall not apply to properties which are subject to uniform business rate.'.

I shall give my reasons for moving the amendment in the context of a wider comment about the Bill, which is that it is a tax-raising measure. That is the general nature of the Bill, and the clause is very much part of that strategy.

We had a good deal of waffle in the Budget statement about the Budget being for investment and enterprise. However, wherever we look in the Bill we find an

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increased tax burden, often on the precise sectors of the economy that are asked to produce additional jobs and more investment.

The Chancellor of the Exchequer said in his statement that stamp duty would rise from 1.5 to 2 per cent.--a 25 per cent. increase for the transfer of properties above £250,000 in value. For properties valued at more than £500,000, there would be a 50 per cent. increase in stamp duty from 2 to 3 per cent.

I have a commercial interest to declare as I am a director of a property company that is duly registered in the Register of Members' Interests. Perhaps right hon. and hon. Members may be affected in their private lives by having to pay increased stamp duty on house transactions. I do not think that many Members will be affected in that way, however, because the burden of the tax does not fall primarily on the house owner, contrary to what the Chancellor tried to put over in his Budget speech.

The right hon. Gentleman, having described the tax increase, said that it was


He was therefore suggesting that the tax would be felt only by richer householders. The truth is that the burden falls on the commercial sector, not on the private householder. The Chancellor adopted a disingenuous way of describing the increase because three quarters of the tax is paid by commerce.

The burdens are considerable. In the current year, the extra burden of the tax will be £390 million, rising in the next financial year to £470 million. In the year 2000-01, the yield will be £520 million, so the yield from this tax will be more than half a billion pounds a year. The burden will fall on the sector of the economy that is asked in the welfare-to-work project to produce extra jobs.

In the Budget statement, we had an appeal for more investment. In the Red Book, which was subsequently published, we find that, although business investment has been rising strongly in recent years--it is recorded as rising at 7.75 per cent. last year--there is a projected stabilisation and then a small decline.

8.45 pm

The reason lies in the clauses that are before the Committee this evening. Quite simply--it is not a startling observation--if we tax business and reduce profits, the result is fewer jobs and less investment. More than that, such an approach inhibits mobility, flexibility and inward investment--those are all the things which the Government say that they are seeking to encourage. It is not surprising that the Association of British Insurers said that the measure was


The increased tax will be paid primarily perhaps by those selling commercial property. However, indirectly it will be paid by a much wider spectrum of businesses. Commercial tenants will pay because their landlords will seek to recover the additional cost of stamp duty through increased rents. The increased tax will provide a perverse incentive for those who are investing in property. For example, there will be an advantage in investing in property overseas in those countries that have lower property transfer taxes, especially those outside the European Union.

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In the time available, I have undertaken a little research in the context of the European Union. There is a confused position because there is not even attempted harmonisation or standardisation in the description of taxes, let alone the rates and incidence of the taxes. Sometimes, they are described as property transfer taxes and at others as conveyancing taxes. Sometimes, the taxes are described, like our own, as stamp duty. Some taxes are collected at municipal level, some at regional level and others at national level.

Generally, most member states have higher equivalent taxes than we do. It seems that the French conveyancing tax is levied at an ordinary rate between 13.4 and 15.4 per cent. In Belgium, the standard rate for a similar tax is12.5 per cent. The rate in the Netherlands is lower. It seems that 6 per cent. is normal for property transactions there. Ireland has a conveyancing duty on a sliding scale between 1 and 6 per cent. In Portugal, the tax is collected by the municipalities. The Library produced a figure of 10 per cent., that being normal on transfers of urban buildings or building land. There is a sliding scale for domestic properties. Germany seems to have a lower rate of 2 per cent. which is collected by the Lander government, so the picture on the continent is very mixed.

I mention that because one of our advantages up to now was that our stamp duty was comparatively low, and that at least contributed to our being an attractive haven for inward business investment, but the Government appear set on eroding that. Indeed, if we go on increasing stamp duty as we are going, we shall lose a very valuable competitive advantage. This could be connected with the fact that, a few months ago, the Government signed up to a code of conduct on business taxes to counter what the European Union is pleased to call harmful tax competition. One of my questions for the Paymaster General is whether the code of conduct on business taxation has implications for stamp duty and whether the Government are seeking to increase stamp duty under the guise of harmonisation, as there is undoubtedly pressure from that part of the European Commission that sees low taxes as unfair.

Another point worth dwelling on for a moment is which companies will primarily pay the increased stamp duty. It is well known in accountancy circles--I have to confess to being a chartered accountant, so I used to earn a living by doing such things--that large companies can on occasion avoid stamp duty by using various avoidance devices. The simplest concept is that a property to be transferred is owned by a subsidiary company, and it is the company rather than the property that is sold. If that is done offshore, in another tax jurisdiction, stamp duty can sometimes be avoided completely.

Of course, there are various anti-avoidance devices; nevertheless, it remains true that the sophisticated company which is well advised can often find ways around stamp duty. In a free trading world and a global environment in which many multinational companies have their headquarters in Britain, it is increasingly the case that, where avoidance can be secured, great time and effort go into securing it. It tends to be the smaller or medium-sized company, which is less sophisticated and less well advised, that pays the increased taxes upfront.

If the Paymaster General is intent on increasing stamp duty, is this not an opportunity to move to a slice rather than a slab system? Putting it as simply as I can, under the slab system if the value of a property moves even

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£1 above the threshold of, say, £250,000, the higher rate of stamp duty is applied to the entire value rather than just to the extra slice. That can lead to a mysterious grouping of valuations just below the threshold, for obvious reasons, and people can attempt to divide up properties or sell the furniture and fittings separately in order to keep under the relevant value. However, it is inequitable that the extra charge should apply to the entire value of the property. Was this not an opportunity to move to a slice system, whereby the higher rate applied only to the top slice? I put that forward not as an amendment but as a genuine question to the Paymaster General. The higher the rates become, the more inequitable the system of assessment.

Our best solution is to remove clause 147 altogether and put things back to the way they were before Budget day. If that is not possible, our second-best option is to confine the proposal entirely to householders. If the Government really are anxious to tax people with large and expensive houses, amendment No. 10 does exactly that by exempting properties that are subject to the uniform business rate, so stamp duty would not be a tax on the commercial sector.

I commend the amendment to the Committee.

Mr. Hammond: I welcome the opportunity to speak in support of the amendment. I shall declare an interest over and above the interest that all hon. Members have as owners or aspiring owners of houses, in that I have an interest in a small house building company, and the house building sector is certainly more interested than most in the proposals.

As my right hon. Friend the Member for Wells(Mr. Heathcoat-Amory) said, we are opposed to the measure in its totality, and would prefer it to have been excluded from the Bill. Since coming to office less than a year ago, the Government have now had two bites at the cherry of stamp duty. As my right hon. Friend suggested, one must have serious concerns about where this will lead us. I shall say a little more about that in a moment.

The spin put on the stamp duty announcement during the Chancellor's Budget speech and in most of the press reporting immediately after the Budget was to relate it entirely to houses. Indeed, as my right hon. Friend pointed out, the Chancellor said that the change would leave


That takes us back to the politics of envy of some20 years ago--"It's all right, because it will affect only those who have houses worth more than £250,000," the implication being that we should not be too concerned about such people. I draw the Committee's attention to the fact that any arbitrary cut-off level of that nature in relation to house prices already discriminates severely against certain parts of the country.

In my constituency, for example, someone owning a house worth £250,000 is likely to be the kind of industrious manager in a small business whom the Paymaster General is anxious to encourage in his endeavours. I accept that in other parts of the country, someone owning a £250,000 house might genuinely be considered to be a rich and unusual member of the community, but that is not so in the more affluent parts of the south-east.

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Since 1 May 1997, the Government have effectively tripled the stamp duty payable on the transmission of properties worth more than £500,000 and doubled it on properties valued at more than £250,000. If we look further down the house price scale, it is not true to say that the measure will not affect 98 per cent. of houses, because houses have to be built on land. When builders and developers buy land to build even the most modestly priced houses, they will typically buy it in parcels worth more than £500,000. In those circumstances, the Government's action will contribute to house price inflation at the bottom as well as the top end of the scale. Typically, land accounts for a third of the value of a new house, and very much more than that in the south-east. The amendment would specifically exclude business premises from the scope of the stamp duty increase. It is a second-best option if the increase cannot be rescinded altogether. My right hon. Friend the Member for Wells made a persuasive case for, as he put it, the slice system as opposed to the slab system.

Until last year's Budget, most of us regarded stamp duty at 1 per cent. as more of an irritant than a meaningful consideration in a transaction. Now that it is becoming a meaningful consideration, one of our concerns must be the extraordinarily high marginal rates at the change points of £250,000 and £500,000.

The Chancellor recognised quite rightly in his Budget speech, when addressing matters of welfare reform, that high marginal rates have a disastrously distorting effect in the marketplace, sending people all the wrong signals and inspiring inappropriate behaviour. He was referring to marginal rates of withdrawal of 80 or 100 per cent. In respect of a property priced at £499,999, we are discussing a marginal rate of tax of 500,000 per cent. if the sale price increased by £1. The Paymaster General will recognise that, in general terms, that would lead inevitably to distortions in the market, discrete steps and a discontinuity in the curve of the marketplace. My right hon. Friend the Member for Wells has made a sensible and valuable proposal which I hope the Government will consider.


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