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Mr. Simmonds: The hon. Gentleman makes a good point. Is he aware that deprivation is measured on residential areas and not on the amount of commercial activity that takes place? That would create anomalies; for example, removing all the stamp duty from the Meadowhall shopping centre, just outside Sheffield, would add £50 million to its value—equivalent to 1p on the net asset value of the share price of the company that owns it. That is neither a sensible nor a wise use of public money.
Mr. Laws: The hon. Gentleman is right. He echoes the comments made by the Lords Committee on the Finance Bill. The House of Lords Committee urged the Government to reconsider the measures before the House today, and to look at how the deprived area relief interacts with them. It makes no sense that a leisure business in a deprived part of Yeovil should suffer as a result of the proposals, when a pub in Canary Wharf serving well paid investment bankers or a major department store in Leeds remain exempt. That is irrational.
The hon. Member for Hertford and Stortford (Mr. Prisk) mentioned many of the detailed concerns about the proposals felt by businesses and professional organisations, and I shall not repeat them. My criticism, and that of my party, is that the proposals represent a significant tax increase for business, and hit specific sectors very hard. There is no good economic rationale for hitting businesses with long leases, unless the Government are determined to change the maturity structure of leases. However, there seems to be no good reason to do that in the leisure sector. We also consider the proposals to be unfair in the way that they affect businesses in deprived areas.
The Government held a consultation and listened to the results, but they do not seem to have heard the points made by business. It may be too late to get them to change their mind today, but I hope that the Financial Secretary will return to these matters in the future. At present, the Government have got the proposals wrong.
4.26 pm
Mr. Stephen Dorrell (Charnwood): I begin by declaring a personal interest. I am a director and shareholder of a trading company that occupies
leasehold property. As far as I know, we are not involved in renegotiating any leases, so I do not anticipate that the proposals would have any immediate effect. However, at some time in the future I could have a direct personal interest.The Government say, euphemistically, that they want to modernise stamp duty. My hon. Friend the Member for Hertford and Stortford (Mr. Prisk) made a compelling case against the policy, in terms of detail and, more importantly, of strategy. What the Government describe as modernising stamp duty is, in fact, a policy of raising extra revenue through a new tax structure that they hope that voters will not notice.
We in this House have a responsibility to look beyond the immediate effect on voter perception and to consider the economic effect of the Government's tax policy. My hon. Friend the Member for Hertford and Stortford was right to say that the Government have ambitious spending plans and want to raise revenue without voters noticing. For that reason, they are looking for opportunities to use tax policy to squeeze extra revenue out of parts of the economy that they hope that voters are unaware of. However, getting extra revenue from stamp duty will do substantial economic damage, along the lines described by my hon. Friend.
The Minister herself identified why stamp duty is an especially damaging tax. She said that the reforms would remove cliff edges from the operation of stamp duty. Yet stamp duty is a cliff edge in itself—that is the nature of a tax on capital transactions. Cliff edges cannot be removed from it. In a nutshell, that is why the Government are wrong to use this tax to close their revenue gap.
The more tax that the Government raise out of capital transaction taxes, the more distortions they build into the economy, and the more economic damage is done. My hon. Friend the Member for Hertford and Stortford was right to focus attention on the effect that taxing new leases will have on encouraging urban regeneration and the establishment of new businesses. If we tax something we make it less likely to happen. That is one of the basic rules of economics. The Government are putting up taxes on urban regeneration and new business creation, and we must assume that they understand that the likely economic effect of their policy will be less urban regeneration and less new business formation, especially in the leisure industry.
Mr. John Taylor (Solihull): Does my right hon. Friend recall that when Lord Lawson was Chancellor of the Exchequer and halved the rate of stamp duty, he doubled his revenue from that source?
Mr. Dorrell: My hon. Friend is right—although he will probably remember that there were some secondary effects, which at the time were controversial. None the less, that example is a clear illustration of the principle that reducing the rate of tax on something tends to increase the activity, and increasing the rate of tax on something tends to reduce the activity. That is what the Government must be assumed to be planning as a result of this policy, and that is the fundamental objection to it.
I shall make two other points about tax policy, and explain why I think this tax is even worse than other forms of capital transaction tax. My first point is that when a new lease is taxed, what is really being taxed is a prospective revenue flow. Inevitably, an estimate has to be made. If both parties to the lease go under as a result of signing it, huge damage will have been done, but the Government will in the meantime have made off over the hills with their sack of gold. To tax a prospective revenue flow is to tax something that is particularly risky within the spectrum of economic activity.
My second point is that if we choose to focus on that tax base, we introduce a huge incentive for people to distort their estimates. Listening to the Minister justifying this draft of her policy, I noticed that she was describing the introduction of a tax system that already, before the structure comes into effect, the Government recognise will be riddled with avoidance and tax planning opportunities.
When I held the Financial Secretary's job, I learned that whereas in my previous existence—I am happy to say that this also applies to my present emancipated existence—I was allowed to call such activity tax planning, in her rather sterner existence she has to learn to call it tax avoidance, and sometimes tax evasion. No doubt she is better than I was at remembering the difference between those two. One is legal, and the other is not, but I could never remember which was which.
Introducing a new higher tax on an uncertain future revenue flow condemns us, without peradventure, to a new industry of tax planning experts, who even now, in the big accountancy firms, will be planning ways in which their clients can avoid the tax that the Financial Secretary is introducing. I guarantee to the House that, as with capital gains tax, the further this policy goes on, the more the Treasury will come to the House year after year with page after page of what it will describe as anti-avoidance legislation.At the moment, the phrase used is "abnormal rents"—but what the Treasury describes as abnormal rents is today's normality. When we tax today's normality, that creates tomorrow's abnormality, because that is where the tax planning industry will go.
I congratulate my hon. Friend the Member for Hertford and Stortford on the case that he has made against the measure. It is objectionable because it will introduce a new and higher rate of tax on something that we should be encouraging, and because the only thing that the new set of taxes will encourage is the tax planning industry and the big accountants, who must even now be rubbing their hands with glee.
4.34 pm
Mr. Jonathan Djanogly (Huntingdon): I wish to declare an interest in rented property.
Everything that I have read or heard about the regulations on stamp duty land tax points towards a Government who have failed to listen to the representations made to them by almost everyone who takes an interest in the issue. To my mind, we are now cruising towards the onset of a disaster, which is what will occur when the tax takes effect in what is now not many days' time. I therefore fully support my hon. Friend the Member for Hertford and Stortford (Mr. Prisk) in once again asking the Government to reconsider their position on the tax.
In short, it is my contention that the main result of the tax as amended by the regulations will be to increase hugely the stamp duty payable on leases and unnecessarily to increase the complexity of the calculation of tax, despite the provision in the regulations to vary the way in which it is calculated, which I believe will make the process even more complicated. In particular, retailers will be penalised and people in industry who want to enter into long-term leases will have to opt for short-term leases instead, depriving them of the security and certainty that they would otherwise have. That is not in the interests of British industry. I also wish to suggest on the basis of the regulations that this tax is the precursor to a massive Labour tax-raising exercise on property.
The Government seem to maintain that the ending of stamping leases will somehow simplify the system. While I agree that that may be a precursor or a necessity in respect of their proposals for electronic conveyancing, I regard the suggestion that the tax will become simpler to administer as defying belief.
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