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Away from the big picture, I wanted to address four specific issues faced by my constituents that have not been raised in the debate in any detail. The first is stamp duty, or more precisely, stamp duty land tax. According to Her Majesty’s Revenue and Customs, the stamp duty yield from residential property throughout the UK has gone up sevenfold under Labour, from £675 million in 1996-97, to £4.6 billion in the last financial year. In London, during the past 10 years,
there has been an eightfold increase. Five times as much of that tax is raised from London as from Scotland, and 16 times as much in London as from the whole of the north-east.
Mr. Hands: I am coming to that.
The yield from all stamp duties is projected to rise from £10.9 billion last year to £14.3 billion in 2007-08, all because the higher thresholds remain at £250,000 and £500,000, and there is no sign of the Chancellor upgrading them in line with inflation—past, present or future. It is a London stealth tax. Because the average London home price is more than £300,000, and far higher in constituencies such as mine, and because the percentage rate rises from 1 per cent. to 3 per cent. at the £250,000 threshold, the majority of London home buyers need to find at least £7,500 in cash just to buy a property, and that is on top of the deposit, survey fees, legal fees and so on.
The effects of stamp duty banding are serious. It is a mobility tax and combined with the inflexible policies pursued by many councils, such as preventing otherwise reasonable loft extensions, the huge rises in stamp duty land tax are making previously uneconomic home improvements worth while; for example, light wells and basement conversions, which have sprouted up all over Fulham and south Hammersmith, especially since the punitive stamp duty regimes came in. Light wells tend to flood, and there is a real fear that their increasing prevalence may lead to long-term structural damage to neighbouring properties. Ironically, my constituency is reckoned to be one of the first in Britain that would disappear if some of the more dire predictions of global warming were to come true. The flooding may get much worse.
The impact of stamp duty on mobility in London is severe and leads to a number of effects that other Members frequently remark on in their constituencies. Before the big increases in stamp duty, families used to move within Hammersmith and Fulham when they wanted more space because of, for example, an expanding family, or even just a better-paid job. Now, the move from a two-bedroom house, perhaps costing £450,000, to a £600,000 three-bedroom house will cost £24,000 in stamp duty alone, plus the extra £150,000 difference between the two sale prices.
If we compare the £24,000 stamp duty bill with a loft conversion costing on average £35,000, a side conversion costing £45,000 or a light well at around £60,000, we start to see why such home improvements are all the rage. An argument might be made that those buying and selling simultaneously should pay stamp duty on the difference between the prices of the two homes, as long as they are below a certain level and there is a minimum fee. In my view, that idea should be explored. It would be rather like capital gains tax, which is paid only on an increase in asset price. It might be said to discriminate against first-time buyers—I shall come back to them—who, by definition, have no property to sell, but I believe that the proposal would have an impact on the supply of homes to the market, in London in particular, which would have a huge knock-on benefit for first-time buyers. It would also encourage people, mainly retired, who wanted to trade
down the size of their home, because they would end up paying no stamp duty and would thereby free up a family-sized home for another buyer. We could also look at schemes such as those in Australia where first-time buyers can be exempt from stamp duty.
Peter Luff: I am grateful to my hon. Friend for making those important points about the impact of stamp duty on mobility in the labour market and housing market, but I urge him to pursue the argument with our Front-Bench colleagues because it is not just in London that it is a major issue. I can tell him from my personal experience that it is a problem around the country, with people delaying housing changes that they might have made because they do not want to write out a very large cheque to the Chancellor of the Exchequer.
Mr. Hands: My hon. Friend is quite right. The problem extends throughout the south-east, parts of the south and probably into Wales, the north of England, and doubtless elsewhere. It is certainly not exclusive to London.
Mobility is vital to the housing market, yet the Chancellor has done a great deal to harm it. At the moment, the supply of homes is severely constricted as prices continue their meteoric rise, as demand vastly outstrips supply. It has also had an effect on second homes. One hears constantly from Members with rural constituencies—for example, in Cornwall, where I first lived in this country—about the impact of Londoners and others from the south-east buying second homes, and it is important to understand the economics.
Ironically, many of the professional people in my constituency are more tempted to buy second homes than they used to be, by the perverse effects of stamp duty land tax. Someone in my London constituency with £100,000 of capital and mortgage financing could spend that sum on two extensions to their home—a loft extension and a side extension to the kitchen—or they could move within Hammersmith and Fulham or within London and trade up to a house with an additional bedroom, but they would have to pay the Exchequer stamp duty of between £20,000 and £30,000 to do so. Increasingly, my residents take a third option: to buy a bolthole in the country for their extra space.
I was looking at the prices advertised by an estate agent in Looe, in Cornwall, where I spent a large part of my childhood: a one-bedroom cottage was on sale for £90,000. For many of my constituents, getting their additional space at that price would be extremely attractive, because no stamp duty whatever would have to be paid on that home. Given the punitive taxes on moving, is it any wonder that many of my constituents find their extra space by building extensions of doubtful wisdom or buying second homes in far-away places, adding to all the other effects we dislike about that trend, such as carbon emissions, road and rail congestion and rural depopulation?
I want to talk about some of the effects in my constituency of NHS deficits and of the poor management of the NHS and its financing. The Chancellor mentioned the NHS only once in his speech, which may not be surprising when we consider
how his meddling has undermined health services in my constituency. Since the last Budget, Ravenscourt Park hospital has closed—a remarkable fact; but even more remarkable is the fact that the closure took place only four years after the hospital opened. The chief executive of the hospitals trust announced 150 sackings at the time of the closure, yet when the hospital opened four years ago he said:
“The NHS is people hungry. It needs skilled and qualified people and that is why we are scouring the world.”
He went on to describe how he was hiring people from Germany, Australia and so on, yet such is the boom and bust, or feast and famine, in the NHS, that only four years later the new hospital was closed.
When I raised the matter last year, the Secretary of State for Health told the House:
“The hon. Gentleman has fallen into precisely the trap that so much of the media have and that I warned against earlier: those are not sackings.”
However, Hansard then records the riposte:
“Hon. Members: ‘Yes, they are.’”—[ Official Report, 7 June 2006; Vol. 447, c. 269-70.]
Remarkably, a few weeks later I received a letter from a sheepish Secretary of State apologising to me, stating that she needed to make a correction and that they were indeed sackings. In Hammersmith and Fulham, as is the case across a large part of west London, we await with bated breath the impact of the hospitals reorganisation that is likely to be announced in the summer and its effect on services at the Charing Cross hospital in the heart of my constituency.
The third important matter for my constituents is the specialist area of funding for British films. Hammersmith and Fulham is a centre for the British film industry and for a large number of other media jobs related to it. The criticism from the sector is not that the Government have neglected it, but that they are constantly chopping and changing their policy on it. A producer who visited my surgery this morning told me:
“It’s as if every producer in this country is trying not to make films here...outside of this country, producers have given up on us altogether.”
Film policy is a shambles, I am told. Since 2000, the Government have made 12 major changes to film policy. It is impossible to secure the long-term funding that is needed to make films, partly due to the fact that some of those changes in policy have taken place with retrospective effect. The attitude from many of the funders is: once bitten, twice shy with the UK film industry.
For example, almost the entire industry used to use sale and leaseback finance. That was replaced in last year’s Budget, quite suddenly, by a scheme of tax credits. Unfortunately for the British film industry, not only did few understand the new tax credits—that might sound a little familiar to my colleagues—but the new scheme did not take effect until 1 January this year. Between the last Budget and 1 January 2007, there was no support at all for the British film industry.
The effect of all that chopping and changing is not always apparent to the general public. The general public see us winning a few Oscars or they see a couple of films that look like they were probably made in Britain or about Britain, but the British film industry is
in deep trouble. For example, one company that was going to make a series of six Beatrix Potter films in the UK is now going to Louisiana. Classic British titles, such as James Bond and Harry Potter, are moving out of the UK. We need consistency and intelligence in how we support the British film industry.
Peter Luff: I do not know whether this is good or bad news, but the concerns that my hon. Friend has expressed, which I share, about taxation and the film industry could become entirely irrelevant, because if Ofcom’s auction of the spectrum goes ahead as currently planned, there will be no radio microphones so it will become impossible to make films at all in this country.
Mr. Hands: My hon. Friend is an expert on these matters. Often, when I have tabled questions on spectrum issues the answer that I receive states, “I have nothing to add to the answer given to the hon. Member for Mid-Worcestershire (Peter Luff).” I have great respect for his views on these matters, which I share.
The fourth area of importance for my constituents is council tax. If the Chancellor wants to take lessons in how to set a budget, he should take a short, 25-minute tube ride to Hammersmith station, get off and make the five-minute walk to Hammersmith town hall. The Hammersmith and Fulham Conservatives have shown how to set a real budget. Together with my hon. Friend the Member for Brentwood and Ongar (Mr. Pickles), I attended the budget meeting of the new council last month. The 3 per cent. council tax cut will ensure that Hammersmith and Fulham residents are set to be the only people in the country to receive a reduction in their council tax bills this year. A further programme of tax cuts was announced for the next two years as well. There were no stealth taxes or tax cons—unlike in the Chancellor’s Budget. It was a pure cut in the basic council tax rate. The new administration ran on a clear policy of a tax cut to bring council tax down to Wandsworth’s levels within two terms, over eight years. What a shame that we do not hear that level of ambition from Members on the Labour Benches. The Hammersmith and Fulham councillors were elected as tax cutters and I am sure that they will govern that way as well.
After 18 years of Labour mismanagement, my local council is making real improvements and councillors are starting to turn around a council that was previously handicapped by bureaucracy, political correctness, red tape, unions and vested interest. Hammersmith and Fulham council is on its way to becoming a model Conservative council, delivering high-quality value-for-money services to all. In the last week, it has come under attack from Polly Toynbee. I am not one of those Conservatives who is a great fan of Polly Toynbee.
Mr. Hands: Perhaps there is a split: a split between two Gregs.
The mistake that old left wingers such as Polly Toynbee insist on making is in thinking that higher tax equals better services and that lower tax means cutting services. In Hammersmith and Fulham, we are
demonstrating that that is not the case. The 3 per cent. council tax cut has been well documented, but the council is also spending new money on the things that matter to residents. It is investing £1.5 million over the next two years to pay for round-the-clock beat policing in our town centres, as well as spending more on schools and, as was mentioned earlier, providing free personal care at home for our most vulnerable residents. It is one of only two councils in London to do that. We talked earlier about the NHS, but, although the health budget has increased in recent years, council social care budgets have not been keeping pace with need. That needs to be addressed seriously in next year’s budgets.
There are tough decisions to be made in my local authority. For example, despite investing nearly £500,000 extra in social care, the council is having to balance finite resources with an ever-increasing demand for services. The funding from the Government has not kept pace with the demands of an ageing population. The funds have increased by just 14 per cent. in real terms since 1997.
For my constituents in Hammersmith and Fulham, the Budget has been in general very unwelcome and will hit people quite hard. More generally, Britain is heading in the wrong direction. Under Labour, we have fallen eleven places in the international competitiveness league. Tax is rising rapidly, inflation is the highest for 16 years, unemployment is going up, and interest rates are rising. Britain is over-taxed. We need lower, simpler and flatter taxes, and I look forward to a new Conservative Government delivering them.
7.45 pm
Martin Horwood (Cheltenham) (LD): Today’s debate has been intriguing. At some times, it has seemed like a hustings for the Labour party leadership and at others like an episode of “Play School”, in which we have had Conservative speakers quoting long passages from “Alice’s Adventures in Wonderland” and, earlier, holding up pieces of paper with coloured paint blobs on them. I will commend those to my five-year-old daughter Maya and my two-year-old son Sam, who I am sure will be impressed, but if hon. Members do not mind, I will move on to more serious issues.
As many hon. Members have pointed out, at the heart of the Budget is essentially a tax con. The Chancellor of the Exchequer gave away some £8 billion by cutting the basic rate of tax from 22 to 20 per cent., but largely offset that by doubling the starting rate of tax from 10 to 20 per cent. This tax measure therefore joins a long list of measures introduced by this Government and then abolished by them a few years later.
The measure was probably designed to fool about three audiences, since it could never have been expected to fool serious analysts. The first audience was the Chancellor’s supporters on the Labour Benches, who, astonishingly, cheered a Budget that doubled the rate of income tax for those on the very lowest incomes and raised it for many others earning less than £18,000 a year. The second audience that it was designed to fool was the right hon. Member for Witney (Mr. Cameron), who in his initial response to the Budget said that it was a vote-grabbing tax cut, which is the phrase that I was
trying to get my mouth round earlier when I intervened on the hon. Member for Mid-Worcestershire (Peter Luff).
The third audience that the measure was designed to try to fool was the headline writers, but unfortunately in that respect it failed, thanks to my right hon. and learned Friend the Member for North-East Fife (Sir Menzies Campbell) and my hon. Friend the Member for Northavon (Steve Webb), who spotted the tax con at the heart of the Budget. The Chancellor, who had hoped to gain a reputation as a tax cutter, instead reconfirmed his reputation for sleights of hand.
Helen Goodman: Why does the hon. Gentleman think that there is anything dishonest whatsoever about having structural changes that are fiscally neutral?
Martin Horwood: I am grateful to the hon. Lady for her intervention. I will come on to whether the changes are fiscally neutral for poor families in a minute—well, in fact, why not straight away? There were many costs to this piece of political theatre. One is going to be paid by the lowest-paid in our society. Labour Members will argue that the cost of doubling the starting rate of income tax will be offset by tax credits. Tax credits are clearly a favourite of the Chancellor. But the Government’s figures, in the Budget documents, show that only 82 per cent. take up child tax credit at the moment. That means that 18 per cent. do not. Only 65 per cent. take up working tax credit, so again a large number of families miss out on a benefit that is designed to offset the rise in income tax.
Many of us are aware from the casework that we get in our surgeries and constituencies that, even among the families that do claim tax credits, the repayments that are an integral part of the system cause particular families huge problems when they are called upon to repay adjustments. It would be far better to do the right thing with the tax system from the start than to do the wrong thing and then introduce a complicated system to try to compensate for it. We need real tax breaks for the lowest-paid, which can be paid for by green taxes.
The piece of trickery with income tax also has a cost for charities. Income tax is crucial to the earning of gift aid by British charities. The Chancellor has breath-taking cheek, because in his statement, he said:
“Our culture of volunteering and giving defines Britain as a fair and compassionate society.”
Almost in the same breath, he went on to say:
“My right hon. Friend the Chancellor of the Duchy of Lancaster and I will consult the charitable sector on measures that we will fund to increase take-up of gift aid”.—[ Official Report, 21 March 2007; Vol. 458, c. 823.]
Well, they will need to fund quite a lot, because the damage to the income of British charities from gift aid is estimated by the Charity Finance Directors Group at 11.4 per cent. of current gift aid receipts, or some £70 million.
That is the situation before we consider the Lyons report’s simultaneous recommendation of removing charities’ council tax relief, although I hope that, when the recommendation is considered, it will be rejected. The finance director of Oxfam estimates that the changes to income tax and thus gift aid will cost that
charity alone £1.8 million. The World Wide Fund for Nature has told my office that the changes will cost it something like £400,000. How will the measure help international and environmental charities like these to assist us in the battle against climate change?
The environment is the most important challenge facing the Chancellor and the Government when developing their policies, including their economic policies. The Chancellor’s comments on the environment sounded quite ambitious. In his Budget statement, he said:
“our objective is that we have not only the most economically competitive but environmentally sustainable companies”.
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