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9.30 pm
We are not talking about sums of money that are insignificant to the businesses concerned. My hon. Friend the Member for Maldon and East Chelmsford (Mr. Whittingdale) spoke of the slab-slice dilemma, and it is interesting to convert slab-slice into money. The new proposals leave stamp duty on £249,000 deals at £2,490, whereas paying £2,000 more puts another £3,785 on the stamp duty bill. The Financial Secretary should explain why that sort of cliff-edge philosophy still finds a place in the Treasury.
It is sad that the contributions from the Government Benches have lacked any imagination. If the Government propose to use stamp duty as a creative tool, they should offer some imaginative suggestions as to its application. For example, why have the Government not considered relieving businesses in objective 1 or 2 areas of the stamp duty changes? That would be a positive way of encouraging new business development. By contrast, the Government have adopted a uniform approach. Why is there no regional differentiation? Why is the Treasury not using some imagination? As was mentioned earlier, why do the Government not encourage developments on brown-field sites by relieving them of stamp duty increases as a way of encouraging the use of such sites?
It seems that the Government are using stamp duty as a blunt instrument. They have not thought about it creatively--and it is time that they did. As a result of the Government's proposals, stamp duty on a £500,000 deal will rise to £17,500 per transaction. Stamp duty on a £3 million deal--which is modest by industrial standards--will increase from £90,000 to £105,000. An increase of £15,000 is not insubstantial.
Will the Financial Secretary comment on the findings that these proposals will reduce property values? A 1 per cent. increase in stamp duty will reduce property values by £25.6 billion. Several of my hon. Friends have said that Government stock will be reduced by £5 billion. Does the Financial Secretary agree with that figure? Hasthe resource accounting mechanism--which will be introduced shortly--made any allowances for that loss in value to business?
Does the Financial Secretary agree that the changes will amplify the fact that tax rates are rising in this country? Taxes on property in the United Kingdom are already twice the European Union average when expressed in gross domestic product terms. Tax equals 3.7 per cent. of GDP. Why is it necessary to raise business taxes further as a result of these proposals?
Has the Financial Secretary given any thought to introducing into this country the types of stamp duty exemptions that exist in other European regimes? For example, in Portugal, public bodies, social housing and business reorganisations are exempt from stamp duty, full stop--never mind any increases. I dwell on this point because, if the Government are anxious to develop stamp duty as a tax, it would be useful to know whether they will apply it creatively. If they do not, they will have to contend with a large avoidance industry.
It is unusual for tax avoidance practitioners to declare their hand. However, the Financial Secretary will find that, as businesses seek ways around the tax increases, the avoidance industry will limber up, ready to turn property and land into companies with share capital--bearing in mind that there is only 0.5 per cent. stamp duty on share transfers--that can be bought and sold. The higher rate will be 3 per cent. under the Government's proposals. Is that not a sure-fire way of relinquishing income in terms of business tax?
Mr. Bermingham:
Is the right hon. Gentleman trying to tell the Committee that if Jack Investments Ltd.--I use the right hon. Gentleman's name as an example--has among its assets a factory and a green-field site, it will create a new company to take those two items from Jack Investments Ltd. so that the new company can be sold, and the factory and the green-field site can therefore be sold as shares in that company rather than as assets? That is totally ridiculous.
Mr. Jack:
The hon. Gentleman says that it is totally ridiculous, but perhaps he would like to explain that degree of ridicule to the authors of the London business school report, who advance the view that I have just explained. The hon. Gentleman is entitled to his view, but I am certain that, in transactions of sufficient size, that type of avoidance mechanism will be used, particularly if the Government continue to increase the rate of stamp duty. Why should people pay tax unnecessarily if, to put it bluntly, there is a cheap way round it?
Mr. Bermingham:
In such a mechanism, property would be assets bought by a company. If they were then sold on to a new company, there would be a capital gains tax liability, which would be a cost on the company, so to save a few pounds companies might create a tax loss of many thousands of pounds. To respond to the right hon. Gentleman's earlier point, I shall willingly take on the authors of that report--they do not seem to know what they are talking about.
Mr. Jack:
The hon. Gentleman did not consider the roll-over mechanisms in capital gains tax. I am absolutely certain that people would take those into account.
Conservative Members have performed sufficiently well in the debate to demonstrate that the Government must clearly answer many questions to justify their proposal. The amendment would try to relieve business from that unnecessary tax.
Before I end my remarks, may I apologise to you, Mr. Martin, and the Committee for not at the outset declaring my registrable business interests, which are in
the Register of Members' Interests, in case anybody is concerned that they might have influenced what I had to say.
Mr. Clifton-Brown:
Many points have already been made, so, in view of the hour, I shall keep my remarks brief. Before I begin, I should declare that I have property interests that could possibly be affected by the amendment and the clause. They are declared in the Register of Members' Interests.
Clause 99 increases stamp duty on the transfer of property valued at over £250,000 but less than £500,000 from 2 to 2.5 per cent., and on property valued at over £500,000 from 3 to 3.5 per cent. It is worth noting that this is the third time in two years that the Government have increased stamp duty. It is worth noting also that, for the bulk of the 18 years of Conservative government, stamp duty was fixed at 1 per cent. All objections to the tax have been multiplied many times because of its increase from 1 per cent. to a top rate of 3 per cent. I point that out in reply to the repeated interventions from the hon. Member sitting below the Gangway, who, I think represents Birmingham--
Dr. Lynne Jones (Birmingham, Selly Oak):
I am sitting below the Gangway, but the hon. Gentleman is confusing the name of the Member to whom he refers with that Member's constituency. I am a Member who represents Birmingham, but the hon. Gentleman who spoke is my hon. Friend the Member for St. Helens, South (Mr. Bermingham).
Mr. Clifton-Brown:
The hon. Lady has made a stupid, cheap point. She knows perfectly well to whom I was referring.
Mr. McKee of the British Property Federation has said that we shall hear a wide variety of debate in industry about whether a 3 per cent. stamp duty is too much or whether it is not yet too much, but the real question is, "What are the Chancellor's plans for stamp duty?" That is the real question in this debate. The property industry and all the institutions connected with that industry are entitled to ask the Government what their long-term strategy is for stamp duty. Unless they have some answers to those questions, they will draw their own conclusions.
Like my hon. Friends, I shall quote a few facts and statistics from the Arthur Andersen report, compiled jointly with the London business school. One of its most startling predictions was that, in the short term, a 1 per cent. increase in stamp duty would lead to a decline in gross domestic product of 0.02 per cent. in year 1 and a 0.06 per cent. in year 3, and that this would be accompanied by a reduction of 11,300 people in work by year 4. In the longer term, additional factors would increase the reduction in GDP to some 0.05 to 0.1 per cent. I am pretty certain that not even the Government can tell the Committee tonight that the increase in stamp duty will have anything other than a deleterious economic effect.
It is worth noting how important the commercial property sector, which will be affected by this tax, is to the economy. It is worth approximately twice the entire gilt market. Although, in the mid-1980s, the value of United Kingdom equities was about 50 per cent. greater than that of commercial property, it is now three times
that of the commercial property sector. That illustrates the relative decline in commercial property as an investment medium. There is no doubt about it: in an increasingly international world, our investing institutions that invest in properties will carefully monitor transaction costs and, if they find that transaction costs on property are significantly higher in the UK than those not just in the rest of Europe but in the rest of the world--as is the case even now, when total property transaction costs amount to about 10 per cent.--they will vote with their feet and invest elsewhere, and that inward investment and our own domestic investment will be invested elsewhere.
It may be worth considering how we compare with some other European countries. As I pointed out in an intervention, the UK has the highest property transaction costs in the European Union, amounting to some 10.5 per cent.--higher than those in Luxembourg, our nearest rival, whose costs are about 8 per cent. In Austria, such costs are about 1.5 per cent., so UK costs are significantly higher.
As I also said in my intervention, France has become so worried about the effect of high property transaction costs that it has cut its transaction tax drastically, from a huge 18.5 per cent. to 4.5 per cent. The rate in Germany--perhaps our nearest major rival--is only 3.5 per cent.
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