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Session 2006 - 07
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Public Bill Committee Debates

Stamp Duty Land Tax (Variation of the Finance Act 2003) Regulations 2006

The Committee consisted of the following Members:

Chairman: Dr. William McCrea
Balls, Ed (Economic Secretary to the Treasury)
Brennan, Kevin (Lord Commissioner of Her Majesty's Treasury)
Cable, Dr. Vincent (Twickenham) (LD)
Clwyd, Ann (Cynon Valley) (Lab)
Evennett, Mr. David (Bexleyheath and Crayford) (Con)
Field, Mr. Frank (Birkenhead) (Lab)
Flynn, Paul (Newport, West) (Lab)
Francois, Mr. Mark (Rayleigh) (Con)
Fraser, Mr. Christopher (South-West Norfolk) (Con)
Goldsworthy, Julia (Falmouth and Camborne) (LD)
Hands, Mr. Greg (Hammersmith and Fulham) (Con)
Hollobone, Mr. Philip (Kettering) (Con)
Johnson, Ms Diana R. (Kingston upon Hull, North) (Lab)
Keeble, Ms Sally (Northampton, North) (Lab)
Prosser, Gwyn (Dover) (Lab)
Stoate, Dr. Howard (Dartford) (Lab)
Vaz, Keith (Leicester, East) (Lab)
Emily Commander, Committee Clerk
† attended the Committee

Fourth Delegated Legislation Committee

Wednesday 10 January 2007

[Dr. William McCrea in the Chair]

Stamp Duty Land Tax (Variation of the Finance Act 2003) Regulations 2006

2.30 pm
The Chairman: May I welcome everyone to the Committee and wish you all a very happy new year? I call the Economic Secretary to move the motion.
The Economic Secretary to the Treasury (Ed Balls): I beg to move,
That the Committee has considered the Stamp DutyLand Tax (Variation of the Finance Act 2003) Regulations 2006 (S. I. 2006, No. 3237).
Thank you, Dr. McCrea. May I start by saying that it is a great privilege to serve for the first time under your chairmanship? I am sure that hon. Members on both sides of the House and the Committee will reciprocate those good wishes, and wish you a very happy new year for 2007.
The purpose of the statutory instrument is to give effect to the decision of my right hon. Friend the Chancellor of the Exchequer in the pre-Budget report on 6 December to tackle a number of schemes that have been developed by property lawyers to avoid paying stamp duty land tax. As hon. Members will know, stamp duty land tax is a transactions tax payable on the purchase of land and property or any consideration for the acquisition of an interest in land or property. It is payable by the buyer at a rate that depends on the purchase price of the property, and it is administered and collected by Her Majesty’s Revenue and Customs.
As part of a major modernisation in the Finance Act 2003, stamp duty on documents was replaced by stamp duty land tax on the transaction itself with effect from 1 December 2003. One of the key drivers for the new stamp duty land tax structure was to counter stamp duty land tax avoidance by a few taxpayers at the expense of the rest. Since the introduction of stamp duty land tax, commercial avoidance of stamp duty on property transactions has been reduced. However, some taxpayers have continued to seek to evade the tax.
Keith Vaz (Leicester, East) (Lab): I thank the Economic Secretary for his introduction. Can he tell the Committee whether the Treasury has had any discussion with the Law Society about the activities of those solicitors who are involved in what he has described as helping clients to evade tax? Clearly, it is not illegal—we are seeking to make it illegal—but have any consultations or discussions taken place to try to persuade them not to continue with such practice?
We extended the disclosure regime for stamp duty land tax in 2005, and the regulations that we are discussing arise directly from those disclosures. Since 2005, disclosures to HMRC have made us aware of several sophisticated and highly artificial avoidance schemes that are being used in high-value commercial property transactions. The three schemes that have been identified are avoiding stamp duty land tax using leases, sub-sales and partnerships. They seek to avoid payment of stamp duty land tax by adding additional stages to the sale of property from one party to another in such a way as to remove the need to pay tax on the transaction. That that is happening is widely acknowledged in the industry. Indeed, Craig Leslie from PricewaterhouseCoopers described the schemes in Property Week as
“artificial structures that are used once you’ve got two sides ready to do a deal”.
The instrument that we are debating will clarify Parliament’s intention in relation to the transactions and put beyond doubt the fact that tax is due in those three circumstances. It will ensure fairness as the transactions will henceforth be taxed in the same way as they would have been had they been straightforward land transactions between two parties.
Although up to now only a relatively few transactions have used the schemes, the loss in stamp duty land tax yield is significant and, without action, would rise as more transactions take place. Indeed, those particular schemes seem to be quickly gaining popularity among tax advisers and I reiterate that HMRC is receiving notifications of increasing numbers of proposals for such schemes. HMRC estimates that the schemes account for a loss in stamp duty land tax yield of about £75 million a year at their current levels and that would be bound to grow. Closing them will bring extra combined revenue for the years 2006-07to 2009-10 respectively of £25 million, £75 million,£70 million and £70 million.
The regulations that we are debating are, by law, temporary and last only 18 months. The Government will include provisions in this year’s Finance Bill to make the schemes ineffective for the long term. Some might argue that we should wait until the 2007 Budget to make the schemes ineffective instead of acting now. In other tax fields, we have closed loopholes through ministerial statements that are only subsequently backed by legislation. However, stamp duty land tax is a real-time transactions tax. A land transaction return must be delivered to HMRC within 30 days of purchase of a property. A ministerial statement cannot have the legal force, and the short time limit for submitting a land transaction return means that it could be submitted before the law is changed. That is the reason for the regulations today and why we shall return to such matters under the Finance Bill.
Mr. Greg Hands (Hammersmith and Fulham) (Con): Can the Economic Secretary say when he first became aware of the apparent loophole and explain how long it has taken for it to be closed?
Ed Balls: As the Minister in charge of such matters, I was first aware of the loophole in the autumn of last year. I acted within a matter of weeks on advice from HMRC to advise the Chancellor that we should take action in the pre-Budget report and act through regulation. The notifications in disclosure terms have clearly been coming to HMRC over time, but the fact that, in recent months, there were two particular transactions of very high value meant that we had to persuade HMRC that we needed to act because there would be a significant revenue loss if we did not. That was why we were advised to take action in the pre-Budget report.
Keith Vaz: Can my hon. Friend estimate the amount that has been lost to the Treasury as a result of the avoidance of tax in this area?
Ed Balls: I have not got a precise figure to give to my right hon. Friend today, but in 2006-07 the loss that we would have experienced would have been in the order of £25 million. That is the amount that we would not otherwise have brought in as a result of the regulations. That figure increases to £75 million, £70 million and £70 million. The fact that some of those transactions might have taken place during the current tax year means that there will be a revenue loss, but I cannot give the Committee a precise estimate of that loss.
Paul Flynn (Newport, West) (Lab): Will the Economic Secretary name the two companies involved?
Ed Balls: I have to tell my hon. Friend that, as is completely normal in tax matters, I do not know the names of the two companies. It would be improper and outside the normal practices of HMRC for Ministers to know the names of individuals or companies. What I do know is that the two transactions had a substantial value, running into the high hundreds of millions. That was one of the things that prompted us to take such quick action in the pre-Budget report. I am not telling him the names, because I am not able to. I do not know the names of the two companies involved.
Mr. Hands: The Economic Secretary mentioned that two schemes in particular seem to have triggered the instrument. Can he tell us what threshold the Treasury normally looks at in a tax evasion or avoidance scheme before a loophole is closed? He implied that a certain level has to be reached before such things happen.
Ed Balls: The fact that I cannot put a figure on the possible tax loss over the past few months probably answers the hon. Gentleman’s question. No particular threshold is specified. The question is whether we think that there is the potential for significant revenue loss because of abuse. I have given the Committee the extra information that two particular transactions are causing concern. The flow of information in notification terms has happened only in the past six months or so. If there were a loss of even a few million and we feared that it could grow over time, we would act. It is clear from the figures that I have given that the sums in this case are considerably higher than that—£25 million rising to £70 million. The wise thing to do when making tax policy is, if one sees a problem that could lead to wider abuse, to take action before that occurs. In this case, we are acting early to ensure that potential revenue losses do not occur. I reassure the Committee that there has not been a substantial revenue loss so far, although there will have been some. We are enacting today’s regulations in order to avoid substantial losses in future.
Julia Goldsworthy (Falmouth and Camborne) (LD): The Economic Secretary has spoken about the need to act immediately in order to prevent forestalling. Does he know of any examples of companies that were in the process of a transaction but did not complete it because the measures were introduced with immediate effect in the pre-Budget report?
Ed Balls: I do not have that information and, from a ministerial point of view, it is in the nature of tax policy making that it is not normal to track in real time any particular transaction. I cannot answer the question because, as part of the normal business of government, I would not have that information, just as I would not have the names of particular companies. I was advised in the autumn, in advance of the pre-Budget report, of a concern that there could be substantial revenue loss over time. Subsequently, I was told that two particular transactions that ran into the high hundreds of millions prompted us to take action. However, I cannot tell the Committee the relationship between the two transactions and the regulations. That would be to go further into the detail of a transaction than is appropriate for a Minister. My role is to ensure that the regime is right and the policy is correct, notto track individual transactions. That is a matterfor HMRC, which stands at arm’s length from Government.
When we introduced the disclosure regime and legislated, we introduced a regulation precisely in order to allow the Government to act quickly and decisively to prevent revenue loss, but we time limited it to18 months, which means that we have to review whether the legislation is right, and to come back with permanent measures in the Finance Bill. That is what we will do. We are acting now, and a new piece of legislation covering the same ground will appear in the Finance Bill and will apply once it gains Royal Assent. That will enable us to make any tweaks that are needed to the legislation that we are considering today, but it enables us to act now to protect any future revenue loss.
We have been reassured by the responses that we have received from the property industry since the pre-Budget report. Sue Taylor, head of real estate tax at Eversheds, said that the instrument that we are debating today will
“catch most of the avoidance planning in current use”,
and the tax barrister Patrick Cannon told us that it is “A well-aimed measure” which “raises the bar.” But at the same time, I have instructed HMRC to monitor the situation very closely in the coming months in case the industry develops new avoidance schemes that try to get round these regulations. We will take appropriate action to close new schemes.
The vast majority of taxpayers do what is right. They pay what they owe and they claim only what they are due. We are committed to supporting those taxpayers by dealing firmly with the minority who intentionally avoid their responsibilities. I hope that the Committee agrees. I look forward to the Committee’s support and I commend the instrument.
2.45 pm
Mr. Mark Francois (Rayleigh) (Con): It is pleasureto serve under your chairmanship this afternoon,Dr. McCrea. I have no doubt that you will keep us in good order. I would also like to reciprocate your wishes for a happy new year in 2007 as we come to debate these regulations on the operation of stamp duty land tax, or SDLT for short.
It is also a pleasure to be discussing these matters opposite the Economic Secretary. During the proceedings of the Finance Act 2005, I debated a number of changes to the SDLT regime with his departmental predecessor the current Under-Secretary of State for Health, the hon. Member for Bury, South (Mr. Lewis) who now struggles with the crisis in the NHS. I welcome the opportunity to return to these issues today.
As the explanatory notes to the regulations point out, the aim of these measures is essentially to prevent avoidance. The first deals with multiple transactions while the second deals with the SDLT implicationsof transfers into and out of partnerships and transfers of partnership interests, including a revised method of calculating the sum of the lower proportions or the SLP ratio, as it is known, which often applies when transactions take place. The Opposition can see what the Government are trying to do here. We do not oppose these measures and we do not intend to vote against them at the end of the Committee. But there are, nevertheless, several questions that I should liketo ask the Economic Secretary about the background to the measures and how the SDLT is intended to work in practice thereafter.
First, one of the criticisms of the SDLT regime is that it is in many respects more complicated than the system it replaced. These regulations themselves are quite detailed, demonstrated in part by the fact that the explanatory notes and the accompanying technical note are longer than the instruments themselves. Under the heading “Policy background”, section 7.2 of the explanatory memorandum gives the Government’s rationale for the measures in the following terms:
“HM Revenue & Customs have recently become aware of a number of avoidance schemes which have the potential to put significant tax yield at risk. In view of the amounts at stake the Government has decided it is appropriate to counter the schemes with immediate effect.”
As we are being asked to provide retrospective approval to these changes, which were brought in 6 December 2006, the day of the pre-Budget report, and therefore, in effect, to make what is a complicated regime on one level more complicated still, can the Economic Secretary give the Committee some idea of what is really at stake here financially? He mentioned the figure of up to £75 million a year which the Government feel could be lost if the measure were not passed. We are mindful of that. Can he say a little more about how this estimate was calculated? Is it mainly based upon the two cases to which he referred? I understand the constraints on discussing specific details of the case. We appreciate his dilemma, but is that estimate mainly based on those two examples or is there a wider number of examples that he and his officials used to come up with that £75 million estimate?
Secondly, section 109 of the Finance Act 2003 gives the Treasury power to vary part 4 of the Act which deals with the SDLT regime by regulations. Section 4.2 of the explanatory notes, under the heading “Legislative background”, states:
“The power in section 109 has been used once before in making The Stamp Duty and Stamp Duty Land Tax (Variation of the Finance Act 2003) (No 2) Regulations 2003... (in strictness twice, since those Regulations replaced an earlier defective instrument).”
Given that, how confident are the Government that these regulations will succeed in addressing the problems that they have apparently now identified, particularly as they are only temporary measures that will be superseded in this year’s Finance Bill? In short, considering that the Government brought in a statutory instrument a while ago that they admit was defective, how confident are they that these regulations will work and be, as it were, fit for purpose?
Thirdly, the Government have announced a consultation exercise on the new stamp duty land tax regime and the further changes that they wish to introduce in the Finance Bill. In light of the technicalities involved, we welcome that approach; it is sensible to consult on such technical matters. I therefore wish to take this opportunity to raise with the Economic Secretary some operational matters about the stamp duty land tax regime, and I hope that he will take them as a contribution towards the consultation exercise. In the hope of receiving some initial answers this afternoon, I should tell the Committee that I have given him private notice of my points.
The SDLT regime is complex, which has caused a number of practical difficulties for those operating it, particularly solicitors involved in property purchasing. In November 2006, the Law Society carried out a survey of solicitors on the operation of the regime, to which some 1,128 replied. As most opinion polls are normally a sample of about 1,000 adults, I hope that the Economic Secretary will accept that as a sizeable and credible sample.
The survey highlighted three principal issues that are still affecting the operation of the regime. One wasthe need to simplify the stamp duty land tax forms. As the Law Society’s note to me, which is based on the survey’s findings, states:
“Simplification of SDLT forms - we have continued to encourage HMRC to look at simplifying the forms but with little success. Many of the questions asked on the forms are not relevant to collection. Discussions of the VOA have produced a few very minor concessions. A transparent review of why so many questions are asked, which waste a lot of time (and money) to answer would be welcome. As a better regulation measure only essential questions should be asked.”
Do the Government have any plans to simplify the forms? If the Economic Secretary plans to argue that that might make fraud easier, there is a counterpoint to that: having complicated systems can itself encourage fraud. Tax credits are a classic case of that, but I shall contain myself from straying on to them. Is simplifying the forms a practical possibility? They are of concern to the profession.
The second matter highlighted in the survey was the turnaround time for HMRC to issue an SDLT certificate to enable registration with Her Majesty’s Land Registry. The Law Society estimates that only64 per cent. of such certificates—fewer than two thirds—are issued within HMRC’s own target of five days. In the Law Society’s words,
“This is a fundamental part of the process which is still a long way from adequate”.
What is being done to address that problem?
The third point raised was that there are still difficulties in the e-filing of SDLT returns. The Law Society accepts that it might eventually be the best way to proceed but argues that the system is not yet sufficiently robust. As it characterises the situation:
“E-filing of SDLT returns will probably be the answer in the long-term but the Society (and the HMRC) do not feel the current system is yet sufficiently ‘tried and tested’ for us to actively promote it to the profession.”
Will the Economic Secretary pass those comments to the IT specialists in HMRC, and can he say anything this afternoon about plans to improve the e-filing of SDLT returns to help to speed up the process of property purchase, which we would all welcome?
I hope that the Economic Secretary accepts that my questions represent genuine feedback from SDLT practitioners. I have used this opportunity to bring them to his attention and I thank you for your forbearance, Dr. McCrea, in allowing me to do so. I hope that he will reassure me that the matters are being addressed. I will entirely understand it if he needs to write to me on any of the detail, but in the mean time I look forward to hearing what he is able to tell the Committee this afternoon.
2.55 pm
Julia Goldsworthy: I too wish you a happy new year, Dr. McCrea. I believe that this is the first time that I have had the pleasure of serving under your chairmanship.
This instrument represents the follow-up to the announcement in the pre-Budget report of measures to tackle stamp duty land tax avoidance, which was made effective on the day same day to avoid forestalling. Section 109 of the Finance Act 2003 gave the Treasury powers to vary part 4 of that Act, which relates to stamp duty, and to do so with immediate effect, provided that that was subsequently approved by the House of Commons, as we are doing today. The same section also requires that such regulations cease to have effect after 18 months, so we look forward to further discussion on the issue in this year’s Finance Bill.
I understand that this is the first time that section 109 has been used to introduce regulations to counter avoidance. It has been used before, but when stamp duty land tax was introduced by the Finance Act 2003, the consultation process was continuing at the same time and it was accepted that further changes would be required prior to re-enactment. The section was used for that purpose and primarily for the purpose of granting reliefs.
Given that the projected total stamp duty receipts are £12.7 billion for this year, the figures represent a change of a fraction of a per cent. in the total stamp duty land tax take. With regard to residential and commercial property, that still represents a small proportion of the total take. Avoidance on any scale must be tackled, but we are talking about a relatively small amount compared with the overall take.
On the provisions themselves, paragraph 1 of the schedule seeks to close loopholes in high-value cases where the cost of making arrangements proves to be cost-effective. By undertaking such arrangements, the liability for stamp duty can be reduced in a disposal and acquisition by breaking down a transaction down into a series of transactions. The press notices that accompany the pre-Budget report are helpful in giving some specific examples of the kind of transactions concerned. They relate to the granting of leases, the payment of dividends to parent companies and complex arrangements relating to freehold and leasehold properties involving more than two companies.
Paragraph 2 of the schedule deals with partnership transactions and makes changes to schedule 15 to the Finance Act 2003, which relates to transfers in and out of partnerships, again closing the loophole so that it is not possible to reduce stamp duty liability by making such changes, as has been the case. There has been mention in the professional press of specific cases in which anticipated transactions intended to gain benefit from those loopholes have not taken place.
There has been little opposition to these proposals, and I see little reason to oppose them. It is important to ensure that the spirit of stamp duty is adhered to in these narrow areas, and I have a few questions to which I hope the Economic Secretary will be able to respond. Although the number of commercial transactions that are liable for stamp duty has fluctuated but has not increased or decreased significantly since 1996-97, the number of liable transactions involving residential properties has jumped from 531,000 to nearly a million in 2004-05, according to parliamentary answers. What does he estimate will be the impact of the proposals on the number of commercial property transactions? Similarly, in 2001 the stamp duty yield from residential properties represented only 26 per cent. of the total stamp duty take. That figure has increased to 42 per cent. Is he considering further proposals to those measures implemented in 2005-06 to increase the stamp duty threshold to £120,000 to ensure that the continuing rise in house prices does continue to burden more and more people with that liability? With reference to my part of the world, while the threshold may have been raised to £120,000, very few people can afford to scrape their stamp duty together to get a first foot on the housing ladder.
Individuals increasingly find themselves liable for stamp duty while, in a large number of high-value commercial transactions, companies can still use a variety of avenues to avoid that liability. Even in the proposals before us, there are opportunities to avoid the spirit of the original legislation.
I shall give two examples relating to single asset property companies that show the extent of the limitations. In the first example, company A is a UK-based single asset property company. The company, which had a single asset—the property—was sold in August last year for £6 million. Because it was the company that was sold, only 0.5 per cent. stamp duty was paid, rather than 4 per cent., meaning that £30,000 was paid rather than £240,000. There was no implication of improper actions on the part of the buyer.
However, given that in the pre-Budget report, Gordon Brown—[Interruption.] I am sorry. The Chancellor of the Exchequer announced a package of measures aimed at ensuring that all individuals and companies contribute their fair share to the provision of public services and the Economic Secretary has restated that today. Does he think that the example I gave fits in with the spirit and principles of stamp duty and of paying a fair share? Will he consider dealing with that issue in a future package that we might consider in the Finance Bill this year? What does he consider the underlying commercial reality of the transaction that I outlined in my example to be?
My second example relates to another single asset property company, this time based abroad. Let us say that a company that was leasing decided to buy a single asset company, which includes the freehold of a property. Again it would be liable for only 0.5 per cent. stamp duty, not 4 per cent.
It will not come as a surprise to either the Economic Secretary or Opposition Members that the experiences of company A are very similar to those of a single asset property company called 16 OQS Ltd, formerly called Labour Party Properties (Two) Ltd, which sold the Labour party headquarters last summer. In the second example, company B’s experiences are very similar to, and mirror closely, the experiences of a company based in the British Virgin Islands called Platinum Overseas Holdings, which owns the former Conservative party headquarters.
Does the Economic Secretary agree that those examples show an obvious underlying commercial reality and an abuse against which steps should have been taken in the proposals? Will he take steps to tackle those issues in the next Finance Bill, when the proposals before us will be considered again? It is another area in which there is abuse that needs to be tackled.
Mr. Francois: Will the hon. Lady give way?
Julia Goldsworthy: I had finished my remarks.
The Chairman: Even if the hon. Lady had finished her remarks, the hon. Member for Rayleigh has a right to speak again. Therefore, I will give him leave to speak now.
Mr. Francois: I am very grateful, Dr. McCrea. That is probably the quickest way of dealing with it.
As the hon. Lady has touched on such subjects, may I ask her whether the individual who funded the Liberal party general election campaign to the tune of £2 million, but who was found to not be a UK resident, has had to have that money paid back?
The Chairman: The hon. Lady had sat down, so I now call the Economic Secretary.
3.4 pm
Ed Balls: I have a range of issues to deal with. I will not, however, attempt to answer the hon. Member for Rayleigh, because I do not know the answer in detail. The question was almost certainly out of order. In any case, it would be quite wrong of me as a Treasury Minister to comment on the tax practices of any individual—onshore, offshore, donor, non-donor, Labour, Conservative or Liberal Democrat. For the hon. Member for Rayleigh or me to pick over those open wounds would be out of order, so I will not go down that road.
Similarly, it would be quite wrong for me to delve too far into the detail of the questions asked by the hon. Member for Falmouth and Camborne. She worked through some examples, which I struggled to follow. My ears pricked up when she started to name names, and I realised that to attempt to answer her questions at that point and give her the answers that I had given her a second ago would be completely inappropriate. However, the hon. Lady’s colleague Lord Oakeshott wrote to me on the matter, and I have written to him today. The letter that I sent pointed out that I cannot comment on any individual taxpayer’s case, but she is welcome to read it.
Julia Goldsworthy: The issue is single-asset companies—companies that are set up specifically because they have a single asset. Will the Economic Secretary undertake to investigate such circumstances to see whether it is possible to establish, as the proposals seek to do, what the underlying transaction is behind any such set-up? As the hon. Member for Rayleigh said earlier, lawyers are clearly advising companies on what procedures to take to receive the most beneficial tax treatment. Perhaps it would benefit the Treasury to examine that as well.
Ed Balls: The hon. Lady persists in trying to draw me into commenting on individual tax schemes and affairs, despite the fact that in terms of tax policy it would be the wrong thing to do. As the hon. Member for Rayleigh pointed out, it is not without risks in political terms either. I assure the hon. Lady and the Committee that HMRC will continue to carry out its role of collecting tax where due without favour. Where it finds evidence that the correct amount of tax has not been paid or has not been paid on time, it will take appropriate action. To go further into individual affairs would run foul of HMRC’s proper procedures and run risks that, as the hon. Member for Rayleigh pointed out, would probably not be in the hon. Lady’s interests either.
I return to the substance of the debate. I shall divide my remarks into two parts, addressing the particular questions that have been asked about the operation of the regulations and the broader question asked by the hon. Member for Rayleigh. He asked whether the regulations risk making the SDLT system more complex, and whether the fact that we will need to legislate again in the Finance Bill is evidence of that. As the hon. Member for Falmouth and Camborne pointed out, section 109 of the Finance Act 2003 allows for regulations lasting only 18 months. In our view, it is part of good tax practice to act quickly in regulations and return to the matter in the Finance Bill. In and of itself, it is not evidence of greater complexity.
Of course, some tax practitioners raised public concerns that the regulations might be too wide or make things more complex. It is appropriate for them to make such comments, but many of the very same tax practitioners have a professional duty, in their view, to ensure that they always push the boundary of the law to test the Government’s intentions. As they come up with more complex ways to get around the rules, we will have to deal with that. It is always our intention to do so in the simplest way, but the hon. Member for Rayleigh knows that the matter is very complex. The structures put in place, as the hon. Member for Falmouth and Camborne inadvertently pointed out, can be complex and hard for the uninitiated to follow in detail, but we will carry out any possible simplification or narrowing of scope in the Finance Bill.
The hon. Members for Rayleigh and for Falmouth and Camborne asked about our calculations. They were based not on just two transactions but on all the evidence before us; we also consulted the industry. The estimates are the best available to us at the moment and they are calculated in the normal way on the basis of all the evidence that we have. However, the numbers that I quoted rose because if we did not act, the interest in the marketplace would grow, and is growing. Our estimates are therefore based on a forecast of potential transactions prevented, rather than on actual transactions stopped. That is the nature of tax forecasting.
Mr. Hands: I am glad the Economic Secretary is confident that these measures will be effective. He earlier quoted Eversheds solicitors saying that the firm was confident that these measures would catch most of the avoidance. Has he contacted Eversheds to find out what it believes will not be covered by these regulations?
Ed Balls: I will use the hon. Gentleman’s intervention to answer a further question from the hon. Member for Rayleigh about whether we were confident that the proposal would work. The reality of tax policy making is that we move quickly with a regulation if we need to act against avoidance, and then have further consultation. We took legal advice on the drafting of the regulation, but we have also invited representations on that regulation from practitioners as part of the process of drafting the Finance Bill proposals. Officials are meeting groups of practitioners and I am 100 per cent. confident that an expert from Eversheds will be invited to such a meeting. We will take representations as part of the process of drafting the legislation.
We are as confident as we can be that the regulations will work, but issues may be raised as part of the consultation, which will prompt us to take a different view at the margin when we come to the Finance Bill. That is the nature of tax policy making. I cannot say that with absolute certainty because of the ingenuity of tax experts and their ability to think up new and complex ways to stay within or go outside the intentions of tax policy makers. That is why we have proposed these regulations. We are as confident as we can be that we are doing things in the right way. I think that that answers the questions raised by the hon. Member for Rayleigh; I will come back to his operational questions in a moment.
I hope that I have answered the hon. Lady’s question about the calculation; she also asked me about the overall split between commercial and residential yields. She appeared to suggest that £200 million over four years was a small amount, but then indicated that she was worried that we were not doing enough to tackle avoidance in the commercial sector, so the yield from the residential sector was rising. In my experience,£25 million is an avoidance sum that raises concern, and the £75 millions add up. If the hon. Lady were in government, I assure her that she would be concerned about figures of £75 million. I urge her not to dismiss the numbers that I quoted today.
It is true that the yield from residential stamp duty has been rising, although at the same time, as the hon. Lady said, because of our actions, half of all first-time buyers are exempt from stamp duty entirely, and 80 per cent. of all home buyers pay only the 1 per cent. rate. The overall yield has risen because house prices have risen. Most people with the largest houses pay more stamp duty than they did 10 years ago.
The hon. Lady was worried that there may have been a shift from the commercial to the residential sector. The latest available figures, which were published by the independent and well reputed National Statistics in September showed that there was a £1 billion increase in the commercial yield in 2005-06 compared with 2004-05 and a £1 billion reduction in residential yield compared with 2004-05. The balance between residential and commercial has been shifting in the direction of the latter over the last year. I hope that that gives her some comfort that we are not falling into the traps that she mentioned.
Julia Goldsworthy: Referring to my earlier comments, I was not saying that there was not serious avoidance, but that the figures represented a small proportion of the total tax take for stamp duty. With regard to the Economic Secretary’s comments on the balance between residential and commercial property, the reality is that the yield from residential transactions has been growing rapidly and that rate of increase has been much more significant and rapid over the past five years than in the commercial sector. Would he accept that?
The hon. Member for Rayleigh gave me notice of his questions last night and in detail again this morning. In my experience on the Finance Bill, his approach in such debates is to try to ensure that Committee discussions bring out more detail on policy and lead to greater understanding. I have always found him to be courteous in dealing with such matters, as was the case when we debated at great length last summer the residential position on real estate investment trusts. As a result of his giving me notice of his questions, for which I am grateful, I hope that I can give him answers that are more detailed than he was expecting. However, I shall avoid giving too much detail because to do so would go outside the terms of the Committee. This is a rather complex issue.
The hon. Gentleman asked three questions. First, are the returns too long and complex and can we simplify the form? Secondly, why are considerably fewer than 100 per cent. of certificates issued by HMRC within five days? Thirdly, have there been difficulties with e-filing? To provide some background, since the introduction of the new SDLT regime over the past two or three years, there has been a substantial engagement by HMRC with the industry. There have been two reviews, a working together group has been established, additional resources have been made available through our stamp duty helpline and improved website and, as he mentioned, we have also had the input from the survey of solicitors. This is an ongoing discussion. We have been trying to make improvements.
If it is okay with the hon. Gentleman, I shall answer his second question first, because that will help to answer his first. Our latest figures, from December 2006, show that 74 per cent. of certificates were issued within five days. We would like that number to be considerably higher. There is one important reason why that number is less than 100 per cent.: when solicitors submit a paper form to HMRC, if there are errors or mistakes in that submission or further information is needed, a form called SDLT8, seeking clarification, is sent to the practitioner. Part of the problem is that too many SDLT8 forms are having to be sent to solicitors, which holds up the process and means that it extends beyond the five-day period.
Mr. Francois: I am grateful to the Economic Secretary for giving way and I appreciate the generous remarks he made earlier. I have no doubt that there is some merit in what he says about errors on original forms from solicitors. However, when we debated these matters two years ago, a difficulty with that error rate was that the devices that HMRC was using to scan the forms into their computer system had a problem recognising the digit zero. Clearly, in terms of SDLT returns, that is a practical problem. I should like quickly to make the point that it would not be fair entirely to blame the solicitors for those. That leads on to my third point about problems with IT.
The Chairman: Order. I have given the hon. Gentleman quite a wide berth.
Ed Balls: It will horrify you, Dr. McCrea, to learn that I can answer that question; I shall try to do so briefly. Over the last year, as a result of efforts both by the community itself and by HMRC—we are happy to acknowledge that learning was needed on both sides—we have been able to reduce the number of SDLT8 forms that had to be sent from 35 per cent. to under 15 per cent. We want to get that down further. One of the ways in which we have done that is by having a form that can be effectively computer-read, which is slightly longer. The answer to the hon. Gentleman’s first question about why the form is longer, is precisely to ensure, first, that we can get all the information that we need to avoid having to go back, and secondly, to make sure that we can read the forms in a computer and avoid the kind of problems that he mentioned. That is the answer to his first question: the form looks longer so as to try to avoid having to go back to get more information.
The second way in which we can reduce sending out the forms is by encouraging firms to file online, a process that we introduced in August. The great advantage of online filing is that the verification process occurs before the form gets submitted to HMRC. If someone gets the information wrong or does not fill in a box, they are unable to file; the form is thrown back at them to have another go. By the time that someone gets it in, it works. Since August 2005, when we started that process, we have managed to increase online filing from 17 per cent. in October to22 per cent. in December. Our internal goals, which I am happy to tell the Committee, are to get to 30 per cent. by March 2007 and to 40 per cent. by March 2008. The process of online filing has been a voluntary process, and it is our goal, as the hon. Member for Rayleigh acknowledged, to have universal online filing. Moving to more online filing solves the problem of delay because the issue of an SDLT8 form does not arise because verification happens as part of the filing process. I hope that that will help to explain to him the actions that we are taking to try to improve the position.
Thirdly, we need to ensure that online filing works, and that the systems are sufficiently robust. We have investigated the position in terms of our own systems, and have not managed to identify ways in which the HMRC systems have problems. However, sometimes the problems exist in the technology of the filing solicitors, and sometimes it is to do with the interaction between the solicitors’ computers and those of HMRC. We now have teams of IT specialists who go out to visit solicitors who have problems to try to rectify them on-site. We are willing to do more of that, and that is an issue that the working together group is looking at to try to improve the position.
I will not stretch you patience any further,Dr. McCrea. I think that I have answered the questions asked by the hon. Member for Rayleigh. If he wants to write with further detailed questions, I will be happy to provide further detailed written answers. I assure him that HMRC and the working together group are addressing all those issues. Having, I fear, stretched the patience of the Committee at the request of the hon. Gentleman, I am happy to commend the regulations.
Question put and agreed to.
That the Committee has considered the Stamp DutyLand Tax (Variation of the Finance Act 2003) Regulations 2006 (S. I. 2006, No. 3237).
Committee rose at twenty-four minutes past Three o’clock.

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