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Mr. Simmonds: My hon. Friend makes a good point. I suspect that, to some extent, that might occur, but depending on the interaction of supply and demand in a particular marketplace, at some point, a retailer or occupier may be prepared to take the decision to pay the stamp duty to get a particular store or industrial unit. However, that does not make the provision right and the direct impact will be to reduce the rent that the occupier is prepared to pay, which will have a knock-effect
because if an occupier is prepared only to pay a lesser rent, or is only capable of paying less, the building will be worth less to an investor. In the big league, shopping centres and office blocks are owned by pension funds, so all hon. Members and everyone outside the House who has a pension fund will be affected because the value of the properties in those funds will reduce.The stock exchange is not particularly safe bet at the moment, so many investors are reluctant to put their money into stocks. Many private individuals are putting their money into commercial property because they believe that it is a safer bet, especially as the leasehold system only allows rents to increase at the moment, but that it is separate argument and I would not wish to go down that route, Mr. Deputy Speaker, because I am sure that you would rule me out of order if I were to do so. However, as was implied by my hon. Friend the Member for Huntingdon (Mr. Djanogly), imposing severe additional costs on many tenant occupiers would have very serious implications.
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Mr. Djanogly: Again, my hon. Friend makes an extremely valuable point, tying in the implications of leasehold stamp duty proposals to the wider implications for the economy. Clearly, the economy has been held up in the past few years by retail sales and the property sector. Does he believe that those proposals could turn the property sector, thus destroying one of the last good bits of the economy?
Mr. Simmonds: I alluded to the severe implications for the property sector, but there are much greater implications that could well have an impact especially on the retail sector, which I shall come to later in my remarks.
I want to raise two specific issues at this juncture, and I hope that the Chief Secretary to the Treasury will reply to them in responding to the debate. First, why did the Treasury initially say that this element of the Budget would be revenue neutral? It clearly will not be revenue neutral. As I said earlier to my hon. Friend the Member for Hertford and Stortford (Mr. Prisk), the British Retail Consortium has said that retailers alone, not the totality of tenant occupiers in the UK, will have an additional tax contribution of £228 million per annum.
I shall repeat the figure that struck me as most stark on Second Reading: B&Q has said that the proposals will cost it—one company alone—an additional £5 million per annum. The only way that it could avoid paying a bill of that size is to reduce the length of lease that it is prepared to accept, which would have a knock-on impact on property values.
We are discussing the details, but these proposals are already having an impact on the marketplace. B&Q and other retailers are already saying that, for deals completed after 1 December 2003, they will be no longer prepared to take leases of 25 years and above. That will cause them internal problems because they traditionally write off their enormous shop-fitting costs over the length of the lease. If the length of lease is shorter, they will need a bigger financial hit per annum. That will have an all-round impact, so the store will be less profitable.
If stores are less profitable, retailers can only afford to pay their staff less, or they will have to employ fewer staff.
Mr. Hugo Swire (East Devon): Is there any evidence to date to show that these proposals might act as a disincentive to multi-stores, such as B&Q, expanding into areas where their employment is much needed, such as market towns and more rural areas?
Mr. Simmonds: My hon. Friend makes a very good point. He is absolutely right, and I shall come to that point a little later in my remarks. What happens in the marketplace will have an impact on those marginal decisions where a retailer may, or may not, expand in a certain area. I shall give some specific statistics for areas, such as the parliamentary constituency of East Ham, where 23 per cent. of the working population are employed in retailing. That is just the sort of place where marginal decisions could have a direct impact on employment in retailing. Many people gain jobs in retailing that are not terribly well paid, but those jobs are necessary to support their lifestyles. I am not sure that there would be much alternative employment in those areas without retailing.
Mr. Djanogly: I wish to return to the total tax take in the retail sector of £350 million, which my hon. Friend referred to slightly earlier. We have concentrated very much on the retail sector, but, of course, there are other sectors. I understand that, under these proposals, the total tax take could be as much as £8 billion, which is more than capital gains tax, inheritance tax and petrol tax added together, so we are discussing enormously significant issues.
Mr. Simmonds: I agree, and my hon. Friend makes a very good point. I had not heard that statistic before, but the £8 billion figure happens to chime with the black hole that the Chancellor currently faces in his Budget. That may be very pertinent, and my hon. Friend may have hit on something very interesting.
Mr. Swire: I am grateful to my hon. Friend for giving way again. Is there any evidence to show that inward investors in the property sector are being affected or that foreign investors are having second thoughts about investing in commercial property in this country as a result of these changes?
Mr. Simmonds: My hon. Friend makes a very good point. I was going to talk partly about that issue, but I decided to leave it out because there is no evidence, as yet, that the Chief Secretary's proposals will have a direct impact on inward investment. However, there is no doubt that, because of the United Kingdom's general economic stability during the past 10 years under Governments of both colours—in my view, the Government are trying to spoil that economic stability—we have received enormous sums of inward investment, as the global economy weakens and especially as money has been invested in commercial property in the UK because of the problems in the middle east. However, there is also no doubt that many foreign investors are looking very carefully at exactly
what the Government will do in relation to these proposals because they will have a detrimental impact on commercial property values.
Mr. Prisk: My hon. Friend is teasing out many of the unintended consequences that the Government clearly have not thought of, but is he aware that the British Retail Consortium has highlighted only today the fact that, if the Government's proposals are implemented, 75 per cent. of retailers will limit or stop their expansion?
Mr. Simmonds: I am aware of that statistic, and it returns us to the intervention made by my hon. Friend the Member for East Devon. The greatest impact of the four-to-eightfold increase in stamp duty on leases will be felt at the marginal sites, assuming that 10-year leases are used. Such leases are short in the prime retail sector, where 15-year leases, if not longer, are normally used, so the multiple will be even higher. These proposals will have a significant impact, but whether the 75 per cent. figure is right will only be provable over time.
The second question that I should like to ask the Chief Secretary at this juncture is how did he, or his Department, arrive at the net asset value figure of £150,000? That figure seems extraordinarily arbitrary. The basis for that calculation may have been a desire to exempt small businesses—the Chancellor of the Exchequer told us that a figure of 60 per cent. was used in the Budget, as the Chief Secretary confirmed in his opening remarks today—but I support what my hon. Friend the Member for Hertford and Stortford said in his polished remarks: that figure is absolute nonsense. It is very interesting that neither the Treasury nor the Inland Revenue will allow members of the public or hon. Members to study the consultation process that the Treasury underwent to arrive at that figure. That suggests that the consultation was not particularly wide and that, if it was wide, it was not particularly deep.
The British Retail Consortium has undertaken its own survey, covering businesses that occupy 10,000 units in the United Kingdom, which amounts to 40 per cent. of the retail market. I suspect that that consultation process was much bigger than that undertaken by the Treasury, under the auspices of the Paymaster General and the Chief Secretary to the Treasury. Only 30 per cent. of units will be exempt, which, from my experience, sounds high in itself. Huge numbers of small businesses will be caught not by a marginal increase but by an enormous increase. The minimum increase will be four to eight times the amount paid at the moment, and that is if one assumes that businesses have a 10-year lease rather than the more traditional 15, 20 or 25-year lease.
What will happen when Debenhams or John Lewis acquires a new department store? Owing to the millions of pounds that must be invested to fit escalators and all things that are required in new outlets, such firms can take 99-year leases. Will they have to pay millions of pounds in stamp duty? I assure the Chief Secretary to the Treasury that they will not, because they will find legal documentation to help them to find a way to avoid paying that unnecessary and unjustified taxation.
The British Property Federation says that no business in London is likely to be exempt, but surely that was not the intended outcome of the Government's attempt—let
us be kind—to exempt small businesses. The measure could have a severe impact on the take-up of leases, especially office occupational leases, which is a struggling market, especially in central London. In the second quarter of this year, office supply in central London has continued to increase while take-up has continued to fall. Provisional figures for the second quarter from a major, well established and highly regarded surveying practice show that available office stock throughout central London grew by 10 per cent., to about 27 million sq ft. The take-up during that quarter is expected to be 1.4 million sq ft in the City of London and 1.1 million sq ft in the west end—both figures are well below the long-term average. City office take-up is expected to be down by 56 per cent.What does the Chief Secretary to the Treasury think that the Bill will do to the office market in central London, which is at the heart of our financial market? Many firms are trying to sub-let office space and many have reduced their staff because of the state of the stock exchange.
The Bill could cause not only the office market but the retail market to suffer. My hon. Friend the Member for East Devon made a good point about marginal sites, but not only acquisitions—new stores—in marginal sites might be shelved. The opening of new stores in prime pitches might be cancelled because of the extent of the additional taxation under the Bill. Leases on existing sites might not be renewed, so properties that were occupied might be vacated. That could cause an area to go downhill and it could become impossible to re-let a space if the pitch changed or if there were an economic change in one area compared with others.
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