Finance Bill

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Mr. Michael Jack (Fylde): My right hon. Friend has made comments that I intended to make about the ending of MIRAS and the tax position of benefits in kind such as loans for season tickets. Continuing my right hon. Friend's argument, I should be interested to hear why the Government did not carve out a specific provision to exempt benefits in kind. An employee, in, say, a bank or building society might have obtained a loan to buy a house at a preferential rate of interest. The ending of the provision in this clause and other clauses for such loans to qualify for MIRAS will mean that beneficial loans will fall into the same category as loans that might be had to buy a season ticket, as my right hon. Friend said. The possibly unintended effect of ending MIRAS will be the washing out from tax relief loans of up to £5,000, which, under existing provisions, are exempt from tax.

Why should this small concession now be so effective, especially for those working in finance or banking who had loans from their companies at beneficial rates to help them buy their house? Those loans were categorised as qualifying for MIRAS but now, with its removal, they are of the sort that will be affected by the benefit-in-kind legislation. Will the Paymaster General explain the Government's position on that?

Mr. Edward Davey (Kingston and Surbiton): The Committee should not allow the demise of MIRAS to pass without some recognition of the work of those from all political parties who campaigned for its abolition over many years. People campaigned against it because it distorted the housing market and caused inflation, which resulted in higher interest rates for the wider economy, hitting manufacturing industry and jobs. As the hon. Member for Edmonton (Mr. Love) said, it also caused problems within the housing market, favouring one form of tenure over another.

Mr. Love: According to the Council for Mortgage Lenders, another body that does not support the continuation of MIRAS, house price inflation rose by around 5 per cent. because of the subsidy. Does the hon. Gentleman agree that the abolition of MIRAS will have a beneficial effect on the housing market?

Mr. Davey: I do, indeed. I was arguing that the beneficial effect goes even wider than the housing market and will be felt by the wider economy. The abolition of MIRAS is a welcome measure.

I was surprised at the remarks of the right hon. Member for Wells (Mr. Heathcoat-Amory). His Government saw a considerable reduction in MIRAS over several years and many Conservatives believed that it should have been abolished many years ago. It was kept on by a few people who misunderstood free market economics, and the Conservatives effectively left it to the Labour Government to pursue free market policies within the housing market. I am therefore surprised that the right hon. Gentleman did not stand up today to apologise—to industry and to the British people—for retaining a subsidy that had such a dreadful effect on the housing market and the wider economy.

Mr. Love: I thank the hon. Gentleman again and apologise for intervening a second time. Whenever ``MIRAS'' is mentioned, it conjures up a vision of Cabinet Ministers who wanted at least to reduce MIRAS, sat around the Cabinet table being handbagged by Mrs. Thatcher to continue it. Did it not take the abolition of Mrs. Thatcher to start the process of the abolition of MIRAS?

Mr. Davey: Tempting though it is to go down that road, I am sure that I would be ruled out of order if I did.

People who defended MIRAS for so long did so in the name of supporting home owners, but they betrayed home owners because the net result was higher interest rates. Those who wanted to defend home ownership should have developed completely different policies such as stable macroeconomic management buttressed by an independent central bank. I am pleased to say that the Labour Government borrowed that policy from the Liberal Democrat manifesto. We have not yet heard whether the Tories are going to fight the next election on renationalising the bank or keeping it. We await hearing about that with some interest.

Ms Sally Keeble (Northampton, North): I have not got my handbag here, but I was quite a supporter of MIRAS. Many of my constituents received it—obviously, given that 70 per cent. of them are home owners. The Labour Government are able to get rid of it without detrimental effects because they have got rid of boom and bust. We have low inflation and low interest rates. Had the Liberal Democrats supported us consistently on the economy, they could claim with a bit more credit that they support us on MIRAS as well.

Mr. Davey: I shall be interested to see whether the hon. Lady votes for this clause. She makes a rather odd point in trying to suggest that Liberal Democrats do not support the most important policy of getting rid of boom and bust. That policy was in our manifesto, but not in the Labour party's.

I shall return to the issue of interest rates, and the hon. Lady may support my points on that. One of the best ways of ensuring that interest rates are low for home owners and for industry is not a tax relief scheme but for the United Kingdom economy to join Euroland. If we do that, we shall have low interest rates. At the moment—

The Chairman: Order. The hon. Gentleman is straying very far from the clause. Will he direct his remarks to the subject of the debate?

Mr. Davey: Far be it from me, as a young Member of the House, to question your ruling, Mr. Butterfill—[Hon. Members: ``You are losing your hair.''] I am not losing my rag.

We are discussing a relief for home owners. Interest rates are a key issue in their finances and the package that they must consider. If we want lower interest rates in the short, medium and long terms, we must ensure that this country enjoys the low interest rates that are enjoyed in Euroland, which are nearly 3 per cent. lower than in the United Kingdom. If the right hon. Member for Wells really supports home ownership, he should reconsider his and the Conservative party's views on the euro. Liberal Democrats believe that home ownership is important. The best way to encourage it is to ensure stable macroeconomics and low interest rates.

Some people want to use the tax and benefits system to support home owners and to help people who have trouble paying their mortgages. The best way to do that is to target resources in a completely different way from mortgage tax relief. My hon. Friend the Member for Northavon (Mr. Webb) was once a senior researcher at the Insititute for Fiscal Studies and he produced a proposal for a mortage benefit scheme. It would have ensured that, when people moved from unemployment into work, they had support for their mortgage payments in the transition period. At present, the benefits system provides support for mortgage payments only for people on income support. They lose that support when they return to employment.

Mr. Love: I thank the hon. Gentleman for his forbearance. I shall be interested to see whether the official Opposition confirm that they will re-introduce MIRAS, should they be in the fortunate position of winning an election.

We are discussing how to replace MIRAS with a more effective benefit. Is not a housing allowance, which has been suggested by several housing groups and which would cover all forms of tenure and support low-income owner-occupiers, by far the most effective way of encouraging home ownership?

The Chairman: Order. I hope that the hon. Member for Kingston and Surbiton (Mr. Davey) will not be tempted down that road. We are in danger of straying still further from the clause under discussion. Hon. Members have had the opportunity to discuss their personal hobby-horses, so we should now return to debating the clause.

Mr. Davey: I should be delighted to do that, Mr. Butterfill. However, I thought that, on this historic day when we are discussing the abolition of MIRAS, we should debate how we can assist home ownership. That is why—

The Chairman: Order. The hon. Gentleman has plenty of opportunities in the House to secure a debate on home ownership. This is not the place. We are discussing a particularly fine issue here. Will the hon. Gentleman confine his remarks to it?

Mr. Davey: Thank you, Mr. Butterfill. I am about to conclude my remarks, and I shall be happy to do what you say. I simply wanted to reassure the Government that if the official Opposition call for a Division on the clause, we shall support the Government.

5 pm

The Paymaster General (Dawn Primarolo): I thank the hon. Member for Kingston and Surbiton for his final comment. I did not have to sigh with great relief at the prospect of the Liberal Democrats voting with the Government this time, but I know that his party has long argued for the abolition of MIRAS. Indeed, their party leader welcomed its abolition in the Budget debate.

I do not want to intrude into the personal grief of the hon. Member for Kingston and Surbiton or the right hon. Member for Wells with regard to their views on Europe, although I should warn the hon. Gentleman that the right hon. Gentleman has robust views. We shall be able to hear them if they step outside to exchange those views, but they are not relevant in the Committee.

Clause 35 and schedule 4 together deal with the withdrawal of mortgate interest relief, a process begun by the Conservative Government in 1988. During the Conservatives' time in office, they cut the relief seven times, and its value has been reduced so much that it is now worth an average of only £2.50 a week. As the hon. Member for Kingston and Surbiton, like my right hon. Friend the Chancellor of the Exchequer, has said, over the past year short-term and long-term interest rates have fallen considerably, so now is the right time to make this change.

Mr. Nick Gibb (Bognor Regis and Littlehampton): Will the Paymaster General give way?

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