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Hywel Williams (Caernarfon) (PC): Does my hon. Friend agree that there are regional variations? Last year, my constituents in Caernarfon in Gwynedd experienced the highest increase in house prices, which rose by 57 per cent. in one year. What effect will the Government's changes have on that market?

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Adam Price: There has certainly been a problem of affordability in relatively low-wage local economies such as north-west Wales for many, many years, which has now been greatly exacerbated by the massive increase in house prices that has occurred in many other rural areas and now afflicts many urban areas, too. In that context, it seems a crazy move to add further billions of speculative investment to the housing market.

Colin Brown of Grant Thornton said that the rule change will inevitably lead to a further rise in house prices as individuals flood into the market and change the make-up of their pension funds. Tom McPhail, of independent financial advisers Hargreaves Lansdown, said:

That is what independent observers are saying about clauses 171 to 174.

The changes come on top of an already overheated housing market. Why is the market overheated? Because, as we heard from the hon. Member for Yeovil, there is a large buy-to-let component. Yesterday, the Financial Times published figures showing that total buy-to-let lending rose from £24 billion in 2002 to £39 billion in 2003. Although there are signs that the rental market has started to overheat, it is not yet damping down. Returns on buy-to-let investment stagnated in the fourth quarter of 2003 due to the over-supply of rental property; too many people have gone into the market. For instance, yields in London are often below 5 per cent., compared with 7 per cent. in the rest of the country. That trend is likely to spread, as more investment goes into that sector.

Rental yields have been dropping, yet more money is flowing into that market. That is a classic, textbook case of speculative investment. People are basing their investment decisions on expectations of capital gains, regardless of the income base. That is precisely what has happened in Australia, where the buy-to-let sector now represents 45 per cent. of the entire property market and yields have fallen to 2 per cent. Yet the property market is still surging ahead because of the capital gains expectations. That is a classic bubble. Is that the context in which the Government want to create a mechanism that involves a few extra billion pounds? I ask the Paymaster General to give a figure for that when she responds to the debate. To be fair, the Government go into some detail in the regulatory impact assessment to discount some of the arguments that I have adduced, but no figures are given for the extent of the increased investment flowing into the housing market as a result of the changes to SIPPS.

Obviously, a housing property crash would be catastrophic. That goes without saying and we have heard the reasons for that already. Given the already high level of household indebtedness, factoring in a property crash could put us in an extremely worrying position. However, even if there is no property crash, serious problems are still associated with a property market that continues to rise. As we have heard, affordability is a problem for local young families in many parts of the United Kingdom. For that reason
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alone, I urge the Government to be cautious about creating such a method for investing in property using pension funds.

The average age of first-time buyers is rising in the UK. It is now 36 in Wales and 33 across the UK. That may shock hon. Members. In a sense, one's own property has always been a major part of saving for the future. Certainly in this country, a mortgage has been a way to avoid rental expenditure later in life. First-time buyers are increasingly crowded out of the housing market because older, more affluent people are using it as an investment vehicle by buying second or third homes. There are 10,000 people in London with more than 30 homes each and there are thousands more with more than 10 homes. We are crowding out young people from making the most important investment for the future—buying their own home.

I am trying to be constructive; I can understand the rationale for making a wider portfolio of assets available for pension investment because of the pensions crisis, but the SIPPS mechanism that the Government are choosing is not the best means of proceeding. With interest rates rising and probably set to rise further, the timing is certainly very dangerous, given what we all know about the state of the housing market.

6.54 pm

Mr. Richard Bacon (South Norfolk) (Con): It is a pleasure to have the chance to take part in this debate and to follow the hon. Member for East Carmarthen and Dinefwr (Adam Price), to whom I listened with interest.

The Chief Secretary, who is now back in his place, began the debate by saying that he looked around the Chamber and saw lots of graduates of previous Finance Bills. I have to say that I felt distinctly like an undergraduate at that point because this is my first Finance Bill, so I thought that it would be sensible to restrict my comments to two narrow issues that concern me, and to one rather broader issue. The first of the two narrow points is one on which I am concerned that the Government are not doing enough: their policy on the duty on biofuels. The second—the Government's proposals on duty stamps for whisky—is of huge concern to the hon. Member for Moray (Angus Robertson) and other Scottish Members, and to any single malt whisky drinker. I regret to say that we in South Norfolk have no distilleries, but we have a gratifyingly large number of microbreweries.

It is increasingly widely, albeit not universally, known that one can make fuel for cars or lorries from wheat, barley, sugar beet and oilseed rape—and from single malt whisky, I suppose, if one were sufficiently desperate. Such fuel has huge benefits in terms of the environment and fuel security, and it benefits the rural economy and farming constituencies such as mine. There is a good case on a wide variety of grounds for encouraging the development of a biofuels industry in this country. Fuel security has not been a great concern in the past, but in the increasingly uncertain world in which we live, its importance is growing.

I pay tribute to my right hon. Friend the Member for South-West Norfolk (Mrs. Shephard), who has campaigned assiduously on this issue, which has extensive cross-party support within the House, and
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widespread support from outside bodies including the National Farmers Union, the Road Haulage Association, the British Chambers of Commerce, the Confederation of British Industry and Friends of the Earth—not bodies often seen on the same side of an issue. There is a general view that although the 20p per litre duty reduction on biofuels announced by the Government is a welcome step in the right direction, it is not enough to stimulate the development of a serious biofuels industry in this country.

The Government frequently repeat their commitment to reducing emissions of greenhouse gases, but research undertaken by Sheffield Hallam university suggests that conventionally produced bioethanol could produce a reduction of 60 per cent in carbon dioxide emissions, and British Sugar research indicates that efficient production methods could increase that figure to 70 per cent. However, to achieve those benefits, we need a biofuels industry. The Government have stated their intention to meet the renewable fuels targets by 2020 and the requirements of the EU biofuels directive by 2005, but those targets will not be met with the UK biofuels industry in its present state.

The main effect of the Government's duty proposals on biofuels will simply be to suck in imports. Now, oilseed rape is grown in this country, put on a lorry and exported to Germany—the transport generating carbon emissions. There, it is turned into biofuel and re-imported to this country to take advantage of the tax break that the Government have introduced. That is ludicrous. It has happened because the German Government introduced a larger tax break to get a serious manufacturing industry up and running. Everyone accepts that the tax break would not have to last for ever. It could tail off. However, at present it is widely understood that the Government's proposed 20p per litre duty cut is not enough even to get the industry in this country started.

We have to create our own industry. The Curry report on the future of farming, which was commissioned by the Government themselves, refers to biofuels, saying that England—I apologise to Welsh and Scottish Members, but agricultural matters are devolved—

Lord Whitty, a Minister in another place, has said that the 20p reduction on offer is not enough to deliver the investment needed to create a viable industry and achieve the outcomes that everyone would like. It is disappointing, given the chance to develop an exciting industry that would help the rural economy and the environment and improve our fuel security, that more is not being done to foster that opportunity. I therefore hope that the Government will reconsider their position.

Clause 4 deals with duty stamps on spirits, an issue that I raised with the chairman of Customs and Excise when he gave evidence to the Public Accounts Committee.

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