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4.52 pm
Mr. Mark Simmonds (Boston and Skegness): Before I begin, I want to draw the House's attention to my interests, which I have declared in the Register of Members' Interests. I join my colleagues and others who have welcomed the return of the Financial Secretary to the Front Bench—it is the first time that I have taken part in a debate on this topic when I have had a feeling that at least somebody on the Treasury Bench understands and takes this matter seriously. That is not the conclusion that I have reached in relation to her two colleagues who have partaken of these debates previously.
I have spoken at length on this topic in previous debates, but I have no desire to continue at length today. Suffice it to say that I do not agree with this additional tax. It is not about closing loopholes, as the Financial Secretary and her colleagues have said previously. It is purely about raising additional revenue. It is nothing to do with modernisation; it is about trying to fill the gap in the Treasury finances created by the disparity between the increase in public expenditure and the reducing revenues coming into the Treasury.
The first point of contradiction that I want the Financial Secretary to explain relates to why, initially, the Chancellor and his Treasury team said that these measures would be revenue-neutral. The Treasury then gave a figure of £250 million, which was reduced to £230 million, and I understand from her opening remarks that it is now £170 million. As I told the hon. Member for Yeovil (Mr. Laws), the figure from the British Retail Consortium—which relates to retailers who are members of that organisation, and not the totality of retailers in the United Kingdom by any means—is £200 million alone. That ignores businesses in the industrial market and the office market and businesses that take out smaller leases in different sectors, including the licensed premises sector and the restaurant sector.
The Government appear to believe that all leases are tax-avoidance schemes, but that is simply not true. As my hon. Friend the Member for Huntingdon (Mr. Djanogly) said, businesses need leases to create flexibility and ensure that their capital is not tied up in property so that they have spare capital to invest in opening new stores or expanding their factories or office premises, which generates additional employment and allows them to go forward. The briefing for the debate written by the Royal Institution of Chartered Surveyors supports that point.
It is worth pinpointing several serious side effects of the measures, although I have highlighted them before. The Association of Licensed Multiple Retailers has produced pertinent statistics that we should all take on board before deciding whether the additional tax will be good for the economy, businesses and jobs. Its survey shows that the impact of the new lease duty will mean that 85 per cent. of retailers will not invest in certain
areas, 80 per cent. will limit expansion, 61 per cent. will want shorter leases and 40 per cent. will cut jobs. If that would not be serious for the economy, I do not know what would be. We would have to cope with that in our constituencies. Marginal sites will be hit and such sites tend to be in areas with socio-economic deprivation. We need to regenerate those areas, not hit them hard with additional taxation.The measures will affect employment. The retail sector employs a significant number of people in our constituencies. Some 5,500 people—12 per cent. of the work force—are employed in the retail sector in Boston and Skegness, which is a slightly higher percentage than average. In East Ham, 23 per cent. of the work force are employed in the retail sector and the figure is 24 per cent. in Thurrock—one in four people are employed in the retail sector in that constituency. The measures will have a dramatic impact on job creation and sustainability in the retail sector. They are diametrically opposed to what the Government have been talking about, although such contradiction is not peculiar, because they go against a flexible, entrepreneurial and dynamic economy.
I have asked several specific questions about the measures before but no answers have been forthcoming, so I hope that the Financial Secretary will answer them in her winding-up speech. How did the Government arrive at the net asset figure of £150,000 because no one seems to know where the figure came from? More appropriate figures have been proposed, such as the much more sensible threshold of £500,000 that was suggested by the consortium led by the CBI that wrote to the Financial Secretary during the summer. I was interested to hear her cite the results of the Investment Property Databank regarding the collation of the property market information. As far as I am concerned, it did not say that 60 per cent. of leases will be caught but that 98 per cent. of the value of all leasehold transactions in the United Kingdom will be caught by the measure—almost all leases. It has been argued that the average length of a lease is 10 years but leases are generally longer than that, especially those for prime properties. Therefore, if a lease had a net asset value of £150,000, the rent paid would be between £10,000 and £12,000 a year, which is low for commercial property these days.
My hon. Friend the Member for Hertford and Stortford (Mr. Prisk) mentioned the subject of my second question during his polished and articulate speech. Where does the 3.5 per cent. figure for discounted cash flow come from because it bears no relation to commercial practice? The team that was led by the CBI suggested alternative figures. One cannot borrow money commercially at an interest rate of 3.5 per cent. or issue bonds with a gilt yield of 3.5 per cent., so there is no correlation between the Government's figure and the reality in the marketplace.
I was intrigued and surprised to hear the Minister confirm that 60 per cent. of leasehold transactions would be exempt. According to a written answer to the Leader of the Opposition, the then shadow Chancellor, that figure was 87 per cent. The British Retail Consortium says that only 30 per cent. of leases will be exempt. The British Property Federation says that no leasehold transactions will be exempt in the City of London. The Royal Institution of Chartered Surveyors
strongly supports the IPD's view that 98 per cent. of the value of commercial leases will be subject to lease duty. I know whom I would believe.It is highly unlikely that the changes in stamp duty will be limited to increases of four to eight times. That will have a direct impact on the money that those with longer leases, up to 35 years, will be prepared to invest in new properties. I have in mind those who occupy retail warehouse units or those with licensed premises who need that length of lease to enable them to write off shop-fitting costs.
Why did the Treasury reject the proposals alluded to or specifically suggested by the group led by the CBI? If we accept the need to tidy up or, to use the Treasury's term, modernise, then a graduated tax rate, an exemption threshold of £500,000 and an increase in the discount rate from 3.5 to 7 per cent. are eminently sensible ideas.
The tax increase has serious implications for the commercial property market. Not only will there be market distortions, but shorter leases, which will inevitably affect the capital value of property and the capital and human investment that firms are prepared to make in their businesses. As my right hon. Friend the Member for Charnwood (Mr. Dorrell) said, it will reduce Exchequer yield because it will reduce and lessen economic activity.
The tax increase will also affect the UK's competitiveness in the global economy. Retailers make decisions on an international basis. They do not necessarily decide just to go from one town to another. International retailers that are based in the United States, parts of continental Europe or the UK have branches abroad. The United States and Germany have no taxation on the granting of new leases, so we are making ourselves uncompetitive. Potential investors outside and inside the UK are worried about whether they should leave their money in this country as the commercial property market is hit.
We discussed the impact on the UK property investment market, but it is not simply the traditional property investment sectors—retail, industrial and offices—that will be affected. The hon. Member for Chatham and Aylesford (Jonathan Shaw) made a pertinent point. The proposal will have significant impacts on tangential investment sectors based on the premise that, as the stamp duty takes a hold, leases will become shorter and capital values will be lowered. The only way to support the value if capital values decrease is by increasing rent, but as tenants cannot afford to pay increasing rents, some investors will withdraw from tangential sectors.
The specific examples given to me of sectors that will be hardest hit are those that should most concern the Government. They include hospitals, nursing homes, learning disability units and brain injury units. The main investor in that market said that, if the stamp duty regime is introduced, it will withdraw from the sector, having a direct impact on the Government's ability to increase their public sector provision.
The Treasury has provided an online calculator for small businesses. That is obviously on the internet. My constituency in rural Lincolnshire does not have broadband. People do not have access to such facilities. I hope that the Treasury has other ways to communicate
with businesses and professionals to ensure that information is disseminated to the relevant people as soon as possible, especially in light of the fact that there are only 13 working days to go.When the rate increases are combined with property costs, the second biggest factor facing employers after wages, that challenges all the Government's lines on job creation and regeneration, which supposedly encourage a thriving, dynamic and entrepreneurial business sector. That does not fit comfortably with those reassurances. I am pleased that there is now some clarity in the orders, particularly regarding sale and lease-backs. However, it is not obvious whether, in the sale and lease-back proposals, the relief applies just to freehold to leasehold, or long leasehold to normal leasehold.
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