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Mr. George Osborne (Tatton) rose—
Mr. Boateng: I fear that we are now about to hear folly in triplicate from the hon. Gentleman.
Mr. Osborne: I am not sure I am grateful to the Chief Secretary for giving way on that sour note, but perhaps he will answer this question: in what sense is this tax a stamp duty, since it involves neither a stamp nor a duty?
Mr. Boateng: It is a reflection of a continuing process of modernisation that was begun by the Conservative party, which should welcome it. I am surprised that, having heard the arguments, the hon. Gentleman, who has an open mind, should persist in that one.
Let me emphasise that those who already pay their way—the vast majority of purchasers and their advisers—will notice little difference as a result of the implementation of SDLT. The rates for residential purchases will remain the same. The main difference will be that payment of SDLT will be accompanied by a return rather than an original document, but the information on the return will be virtually the same as that already provided to the Revenue, so there is no change there.
The legal and accountancy professions are familiar with the name "stamp duty land tax" as a result of the customer education programme that we have already launched. It would cause a great deal of needless confusion if, in the unlikely event of the amendment appealing to the House, that name were to be changed. Those who will notice a difference are those who have used the archaic features of stamp duty for avoidance purposes. The modernised structure and procedures will
ensure that they pay their proper share. I hope that the Opposition will support us in that aim and the changes that are necessary to achieve it.This is where I shall labour the point at a little length—
Mr. Mark Prisk (Hertford and Stortford): It will not make any difference.
Mr. Boateng: That is very unfair. It is important to point out the history to Opposition Members. In 1986, the then Conservative Government introduced stamp duty reserve tax. Precisely the same strictures that the hon. Member for Tatton (Mr. Osborne) threw at me might have been thrown at my predecessor or the Financial or Economic Secretaries of the time. Of course, what was introduced was a tax on transactions involving chargeable securities, which does not involve the physical stamping of a document, but I cannot remember anyone, whether from the Government or the Opposition, suggesting at that time that the name was misleading. [Interruption.] I was not in the House at that time. Indeed, I suspect that the hon. Member for Tatton was still in primary education or, as that is not possible even for one so youthful, in the sixth form.
Mr. George Osborne: I was doing O-levels.
Mr. Boateng: The hon. Gentleman was in the fifth remove; no doubt he was the terror of the fifth remove.
There is absolutely no basis for the amendments that the Opposition have tabled in an attempt to persuade the House of the virtues of a change of name, and I urge the House to reject them.
Amendments Nos. 9 and 10 are perhaps the more serious Opposition amendments. They would remove the provisions relating to the SDLT charge on the rental element of leases. Of course, Opposition Members are well aware that there is an existing stamp duty charge on the rental element of leases. However, since stamp duty on land transactions will in general be abolished from the implementation of SDLT, the amendments would mean that there was no charge at all—not even the current one—on the rental element of the leases. That in itself is enough to make me urge my hon. Friends to resist the amendments. Indeed, I hope that on reflection Opposition Members will recognise the error into which they have fallen in tabling them.
Mr. Mark Simmonds (Boston and Skegness): Will the Chief Secretary give way?
Mr. Boateng: Of course I shall give way to the hon. Gentleman, who may have been reflecting even as I have been speaking and may want to assure us that that is not the intention.
Mr. Simmonds: I am grateful to the Chief Secretary for giving way. He is being a little disingenuous in suggesting that the stamp duty on leases will disappear altogether. He knows as well as I do that many predictions suggest not only that there will be an increase of four to eight times in the stamp duty payable on an average 10-year lease, but that, in many
circumstances and in exceptional cases, the amount payable in relation to longer leases could be very much higher.
Mr. Boateng: I am afraid I do not accept that analysis, and I shall explain why. As is so often the case when the effect of amendments would by any definition be disastrous, we will no doubt hear from the Opposition spokesman that these are merely probing amendments designed to allow a debate—in this case on the lease duty proposals. As the Opposition denied themselves in the Committee of the whole House by concentrating at length—I do not criticise them for this—on the other, perhaps less significant, aspects of the Bill, it is right for me, as they clearly desire it, to set out in a little more detail the Government's approach to the charge on the rental element of leases.
Stamp duty payable on the rental element of leases, which is often called lease duty, has long been out of step with the duty payable on purchases, and the existing structure of lease duty distorts commercial decision making. The current charge is on just one year's rent, at rates that vary according to the length of the lease. A lease of 35 years is charged at 2 per cent., whereas one of 36 years is charged at 12 per cent. The Government believe that the decision to own a property leasehold or freehold, or on what type of lease to take, should be business led, not tax led.
After extensive consultation, we now propose a new lease duty structure to reduce such distortions while securing a fair amount of tax from those transactions. The Government are still open to comment on the proposals. My officials have recently had positive and constructive meetings with interested parties. We are perfectly prepared to consider an alternative structure that meets the Government's objectives equally well. Under the proposals, lease duty will, as now, be a one-off, up-front charge on rents, but based instead on the value of the lease over its term, using total rent discounted to net present value. That approach surely better captures the value of a lease to the lessee and reflects modern commercial practice in the treatment of future payments.
The £150,000 zero rate threshold for purchases will apply equally to the value of rents on commercial leases, so that leases where the net present value of rent over the term is less than £150,000 will be exempt. That will take 60 per cent. of all commercial leases out of the charge completely; and businesses that do pay more under the proposals will pay at a flat rate of 1 per cent., which is still considerably less than the 4 per cent. on an equivalent purchase. That decision was welcomed by the industry.
The structure narrows the gap between charges on leasehold and freehold transactions without imposing an unfair burden on large businesses, and removes the burden completely for smaller leases such as those typically used by small businesses and start-ups, where help is most needed and where this Government have done much to assist. Most residential rental leases are currently liable to lease duty, but under the proposals the vast majority will fall below the £60,000 threshold. A small number of residential leases, about 5,000 per year, will be liable—broadly those with the very highest rents. The proposals thus reflect the Government's commitment to fairness, to encouraging enterprise and
to reducing regulatory burdens. I ask my hon. Friends to show their support for those commitments by rejecting the amendments decisively.Amendment No. 11 aims to defer the introduction of stamp duty land tax until at least 1 December 2004. Hon. Members will be aware that the right hon. and learned Member for Folkestone and Hythe (Mr. Howard) has already written to my right hon. Friend the Chancellor on that subject; the hon. Member for Hertford and Stortford (Mr. Prisk) kindly informed me that my reply to that letter was received yesterday. The terms of that reply were similar to those in which I shall suggest to the House that the amendment should be roundly rejected.
Deferring the modernisation process for another year simply does not make sense. We have already told the House about the widespread avoidance of stamp duty, which will undoubtedly continue if reform is not pursued. We received general recognition in the course of our deliberations in Committee that the issue was a cause for concern: that ought not to divide the House. We have explained that half of all commercial property transactions worth £10 million or more pay stamp duty at 4 per cent., whereas the other half pay nothing. That cannot be right. The continuation of such unfairness for another year cannot be justified, and would lead to a loss of yield of around £250 million.
I note that Conservative Members did not seek to defend to my hon. Friends or me in Standing Committee unfair tax avoidance of the sort that we described. Indeed, the hon. Member for Hertford and Stortford said that he supported the Revenue in challenging
- "unreasonable actions that seek to enable someone to avoid their fair tax liabilities."—[Official Report, Standing Committee B, 3 June 2003; c. 312.]
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