Previous SectionIndexHome Page

Finance Bill Programme (No. 2)

6.8 pm

The Paymaster General (Dawn Primarolo): I beg to move,

Consideration of the Finance Bill in the Standing Committee has been completed: 106 clauses and 300 pages. I am glad to tell the House that the Bill was successfully reprinted overnight, and I am sure that all of us have read it avidly--indeed, those of us who are members of the Standing Committee think of nothing else but reading the Finance Bill.

On Report, we shall discuss new clauses--eight in total--one new schedule and three amendments, all tabled by Opposition parties. I hope that the House will agree to the motion so that we can turn to consideration of the matters that the Opposition want to debate.

6.9 pm

Mr. Oliver Letwin (West Dorset): In the tradition of the events that we have just witnessed, it would fall to me to speak for 43 minutes; however, I offer those present consolation by saying that I intend to speak for about 43 seconds. We want to move on to the substance of the debate. I should not like to resume my seat without offering the Paymaster General my condolences: if she really has been thinking of nothing but the Finance Bill--especially this Financial Bill--hers is a sad fate.

It is remarkable to be gathered here today having last spoken about the Bill at the tail end, as we thought, of our proceedings yesterday evening. I have no doubt that the items that we discuss today will be more interesting than many of those that it fell to the Standing Committee to discuss during the past couple of weeks.

6.10 pm

Mr. Edward Davey (Kingston and Surbiton): The Liberal Democrats have no problem with the programme motion. I should just like to say that it is a tribute to all three main parties that a smooth consensus operated between them during the proceedings of the Standing Committee.

Question put and agreed to.

9 May 2001 : Column 160

Orders of the Day

Finance Bill

As amended in the Committee, considered.

New Clause 1

Application of definitions of private residences and job-related accommodation

'Sections 222(1), (8) and (8A) of the Taxation of Chargeable Gains Act 1992 (which define private residence and job-related accommodation for the purposes of relief) shall be applied by the Inland Revenue in the exercise of all of its functions.'.--[Mr. Letwin.]

Brought up, and read the First time.

6.11 pm

Mr. Oliver Letwin (West Dorset): I beg to move, That the clause be read a Second time.

The new clause is short and simple. Its effect would be to render it necessary for the Inland Revenue to treat all second homes owned by those who, because of their occupation, live and are forced to live in tied accommodation as principal residences for the purposes of, among other things, the working families tax credit. I shall explain briefly why that is necessary.

For many years, the Inland Revenue has treated second homes as principal residences for the purposes of capital gains tax if those second homes are owned by people in the position that I have just described--held as investments or hedges, purchased by people who are forced by their occupation to live in tied accommodation. The rationale for that is clear and a matter of consensus between the political parties. If an individual buys a principal residence, he or she is exempt from capital gains tax on that residence. It is and always has been regarded as reasonable that the second home owned by an individual who is forced by his or her occupation to occupy tied accommodation--perhaps a tenant farmer or farm worker, a caretaker, a person who works for one of the utilities, or a carer--should be treated as exempt for capital gains purposes, as is the primary residence of other individuals.

Were that not the treatment for capital gains purposes, an inequity would have arisen. A farm worker, for example, who was forced to live in tied accommodation would be exposed to one of two serious risks. If he chose to avoid the capital gains problem by not buying a second home, when he left his job or retired, and if in the meantime house prices had, as has been the case cyclically for decades now, risen significantly, he would find himself in serious financial difficulty and might be unable to buy a home or to rent one at a reasonable price. If, on the other hand, while living in tied accommodation he chose to buy the second home but to encounter capital gains tax on selling it, he could find himself at a huge disadvantage compared to those who live permanently in a primary residence, sell that and move elsewhere, and who do not pay capital gains tax. On those grounds, and as a matter of consensus, the Inland Revenue has for many years treated second homes owned by such individuals as principal homes. That is the purpose of section 222 subsections (1), (8) and (8A) of the Taxation of Chargeable Gains Act 1992.

9 May 2001 : Column 161

6.15 pm

As I understand it--I am open to correction in narrating this history--when the Government introduced the working families tax credit as a substitute for family credit, the officials--I assume from the Department of Social Security--who handled family credit, or at least the rules and practices that guided those officials, transferred themselves to the Inland Revenue and began to administer the working families tax credit as part of the tax system, but according to principles that bore greater similarity to those that had applied in respect of family credit under the DSS. The right hon. Member for Birkenhead (Mr. Field) frequently alludes to a curious feature of our tax and social security systems, which is that our tax system largely treats individuals as individuals. It does not--or did not before the current Government took office--contain anything recognisable as a graduated means test, as opposed to thresholds of taxation. However, our social security system tends to look at families rather than individuals. It contains heavily graduated means-tested benefits--rather more, regrettably, under the current Government than hitherto. Above all, for the purpose of the current debate it contains a number of wealth tests, unknown in general to the tax system.

For example, I cite the famous case of a person who seeks to enter long-term care. That person will be funded fully by the Government only if his or her wealth is less than £18,000--I believe that that is the correct figure. It was, presumably, on that principle that family credit was never treated as exempt from a wealth test and it is, presumably, also on that principle that the working families tax credit is treated as it is.

The Paymaster General (Dawn Primarolo): I do not think that the hon. Gentleman's point serves his argument well. Let me try to assist him. The working families tax credit was indeed built on family credit, and the capital rules on family credit had been in place for 10 years under the previous Government. I do not think that the issue of capital gains tax serves as a peg on which to hang the debate. The question is whether one has a capital rule and, if so, where the ceiling should be set; not whether, because it lies within the tax system, something should follow capital gains. If the hon. Gentleman thinks that capital rules should be abolished, he must explain why the Conservative Government, in 10 years of presiding over family credit, did not take the opportunity to abolish the capital limits.

Mr. Letwin: The Paymaster General mistakes the character of my argument. I freely acknowledge that capital rules were in place for family credit, just as they are, rightly or wrongly, for other means-tested benefits. I am not accusing the Government of suddenly introducing those rules into the working families tax credit; nor is it our intention to suggest that the capital rules should be removed for the purposes of receiving that credit. I was merely sketching a history. As capital rules have been a feature of benefits rather than taxes, second homes have been treated as a piece of capital. If an individual who lives in tied accommodation obtains a second home, the Inland Revenue will treat him as having capital in that second home for the purposes of disqualification from

9 May 2001 : Column 162

working families tax credit, although he would be exempt from capital gains tax were he to sell it. That was also the case with family credit.

Dawn Primarolo: It will help the debate if we clarify the terms that we use when we refer to tied accommodation. What the hon. Gentleman calls the second home is not, in fact, the second home. I understand the issue that he raises and, clearly, capital gains tax does arise on a second home. Tax language is precise, and so must we be. I accept that it is not a question of removing capital gains on second homes. The Opposition are interested in whether there is a requirement to revise the interpretation of "household" in the working families tax credit, which recognises the existence of only one household--the place where people live. We should be clear on that.

Next Section

IndexHome Page