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If the Government have their way, the level will rise to 3.5 per cent. Arthur Andersen calculated that an increase of 1 per cent. in stamp duty will lead to a fall in property values of 4.5 per cent. or more, compared with what they would have been. So the effect of stamp duty increases is to reduce the value of the Government's stock of property--worth about £100 billion or £110 billion--by about £5 billion, or more.
That will produce a negative impact on the national balance sheet, but it will have a broader effect on the rest of the economy. The borrowing of the industrial and commercial sector totals about £200 billion, which is roughly equivalent to the value of the property that it holds. Therefore, on the same basis, a 1 per cent. increase
in stamp duty reduces the value of property in the commercial sector by £10 billion or more from what it would have been.
That will make it difficult for some commercial organisations to borrow. At best, it ensures that their capacity for borrowing does not expand as it could have done, and that they are unable to make the investments or take on the extra staff that they otherwise would. The main effect of increased stamp duty is to reduce growth and employment levels below what they would have been.
That is true especially of small and medium-sized businesses, which generally do not have access to independent finance and so must rely on the banks for loans. As we have heard--from a former bank manager--the bank's aim is to secure loans on property. In addition, an increase in stamp duty has an effect on the readiness of proprietors and managers to make property purchases and move to better and more suitable premises. Acquisitions are therefore postponed, and the Government get less tax, as my hon. Friend the Member for Guildford explained.
When some such firms are obliged to make a move, they are bunched together, which compounds the cyclical character of the commercial property market, and thus of the economy as a whole. That is surely the last effect that a Government who constantly claim to want to put an end to boom and bust should want to achieve.
The Minister may have a view of the analysis by Arthur Andersen and the London business school. If so, Conservative Members will listen with interest. However, if the analysis is only half or a quarter right--or if it applies only for one tenth of a per cent., in Halton--the Government should still accept the amendment.
If they do not, it will be clear that their vaunted code for fiscal stability is infinitely elastic, and that they prefer a politically easy tax that will reduce growth and jobs to levels lower than they might have been to the political pain of raising the money by another means or of holding down rises in public expenditure. Despite all the concern expressed for small and medium-sized enterprises, it will be clear, too, that the Government are prepared to allow that sector once again to bear a disproportionate share of the burden.
Finally, although the Government claim to be putting an end to boom and bust, it will be clear, if they reject the amendment, that that claim is more of a slogan than a serious objective.
Mr. Bermingham:
When I came into the Chamber during the opening speech by the hon. Member for Maldon and East Chelmsford (Mr. Whittingdale), I thought that we were talking about window taxes, so archaic were the arguments and so ancient the principles involved. It gradually dawned on me, thanks to a few probing questions, that the Opposition had reached the beginning of the 20th century, although not the latter part. Opposition Members seem signally to have failed to understand what stamp duty is all about. I declared my interest as a former solicitor a long time ago, Mr. Martin.
We may divide the problem into two sections, private and commercial, and I shall deal first with the private section. Stamp duty in the private section is singularly low. If, as has been claimed, we seek to harmonise with Europe, we have an awful long way to go to reach Ireland's rate of 8 per cent. And Ireland is certainly not
in harmony with Germany, France or Denmark, although all but the last are part of EMU. That argument faces a small hurdle.
Who is affected by high rates of stamp duty? Clearly, it is those who buy posh houses. My constituency is not very rich and there are not many houses that cost more than £200,000. A little area, Eccleston, has some such houses, but £28,000 is nearer the mark for most of the constituency.
Mr. Jack:
On a point of order, Mr. Martin. The amendment deals with the effect of stamp duty on business. I have listened for some moments to a discourse on estate agency and big houses. Is the hon. Gentleman in order?
The First Deputy Chairman of Ways and Means (Mr. Michael J. Martin):
The right hon. Gentleman is quite right. We are discussing business duties. However, a little leeway is sometimes given so that hon. Members may lead in to their case.
Mr. Bermingham:
Thank you, Mr. Martin. I have listened to so much about the private housing sector and the 7,000 people who will be affected in Guildford that I thought that I was quite in order in making a few preliminary remarks.
I pointed out in an earlier intervention that, if one bought £1 million worth of commercial land for redevelopment, the total duty would be roughly £35,500, assuming that the purchase price was around £200,000 an acre, giving £200 per house on a five-acre purchase. In my part of the world, ordinary building land costs about £30,000 an acre, and the figure drops to about £20 for each property. That shows the fallacious stupidity of the Opposition's arguments.
Let me turn to commercial matters. I missed a golden opportunity tonight and I shall be kicking myself into next week. We heard a bank manager speak, and I was desperate to ask whether he considers the banks' 4 per cent. over base to be profit. That question falls outwith the remit of the debate, but I almost succumbed to the temptation, and I shall ask again in future.
What will be the effect on commercial property of increasing stamp duty? People who build commercial property do so for one of two purposes--to sell, or to let. If they build to let, there is, of course, stamp duty on the lease. Everyone knows that. The total cost at which they will lease in a competitive market depends, however, on the amount of property available and the number of lessees.
If property is built for sale, the costs of stamp duty on the purchase of the land will naturally be incorporated. Just as with private homes, the amount involved is pretty insignificant and does not affect the market. However, it begins to drive prices down in both the private and commercial sectors.
What has been wrong with British industry for the past 30 years is that it has looked on commercial properties as capital assets that exist for gain or--by lease back or other means--disposal and retention. That creates an artificial profit that in turn drives up prices in both the commercial and private housing sectors, and that disadvantages everyone.
We need to regulate the commercial sector and educate banks. In particular, we need to educate accountants--the destroyers of British industry over the years--to realise that items on the balance sheet should work for the business, as in the American economy, and not act as a bulk, a safety net or a caution point. What is the use of owning £1 million worth of factory floor space if throughput of £10,000 a month is needed to create a viable business? Renting property rather than buying leaves capital available to be used. If we could only educate the banks and accountants--the death knell of British industry--we might achieve something.
The measure will be cost effective. It will not create a great deal of wealth, but it may drive down private sector housing prices and commercial property costs, both for buying and leasing, a little. If it does that, the economy will benefit.
If ever there were an example of investing to accumulate, it is here. One does not invest in buying, one invests in renting, to give one the space to manufacture. In the end, it is manufacturing, not property, that makes money. Property represents an illusory gain--an illusion that has cost this country dear.
The Opposition have already said that, even if they win the vote on their amendment, they will vote against the clause, which is totally illogical. I ask them to justify the insanity of the position that they have adopted.
Mr. Jack:
One is always deeply suspicious about the motives of the Treasury when the Government make a tax change but do not justify it. We are talking about the impact of the changes in stamp duty on business which would result from the amendment that we have tabled suggesting that those who pay the unified business rate should be exempt from the increases in stamp duty.
If the Government had a positive story to tell about why businesses should be subject to higher rates of stamp duty, one would have thought that some mention would have been made of it in the "Financial Statement and Budget Report" before page 99. One has to wait until then to find the simple announcement of the changes in stamp duty rates.
One can conclude by a sort of reverse logic that, as the section of the report that deals with raising productivity and improving the prospects of business does not contain any mention of the changes in stamp duty, they must be bad--QED. Therefore the Government's explanation in their own publication is that the changes do not represent a business-friendly tax. If they did, the Government would have said so.
I shall talk about the impact of the tax shortly, but first I refer the Financial Secretary to paragraph 3.19, on page 37 of the "Budget 99" document--the Red Book. She might find it interesting, because it is the paragraph that eulogises the effect on businesses of the reduction in corporation tax to 10 per cent. on the first £10,000 of profit.
Intriguingly, if the same business that was looking forward to the reduction in corporation tax sold a building worth £250,000 as part of its expansion programme, the increase in stamp duty would negate the additional profits that the Government had allowed it by virtue of the changes in corporation tax.
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