The
Committee consisted of the following
Members:
Arbuthnot,
Mr. James
(North-East Hampshire)
(Con)
†
Blizzard,
Mr. Bob
(Lord Commissioner of Her Majesty's
Treasury)†
Borrow,
Mr. David S.
(South Ribble)
(Lab)
†
Browne,
Mr. Jeremy
(Taunton)
(LD)
Cable,
Dr. Vincent
(Twickenham)
(LD)
†
Cairns,
David
(Inverclyde)
(Lab)
†
Chaytor,
Mr. David
(Bury, North)
(Lab)
†
Clwyd,
Ann
(Cynon Valley)
(Lab)
Davis,
David
(Haltemprice and Howden)
(Con)
†
Gauke,
Mr. David
(South-West Hertfordshire)
(Con)
†
Greenway,
Mr. John
(Ryedale)
(Con)
MacShane,
Mr. Denis
(Rotherham)
(Lab)
†
Moran,
Margaret
(Luton, South)
(Lab)
†
Newmark,
Mr. Brooks
(Braintree)
(Con)
†
Pearson,
Ian
(Economic Secretary to the
Treasury)†
Robertson,
John
(Glasgow, North-West)
(Lab)
Celia Blacklock, Committee
Clerk
† attended the
Committee
Third
Delegated Legislation
Committee
Wednesday 22
October
2008
[Joan
Walley in the
Chair]
Stamp Duty Land Tax (Variation of Part 4 of the Finance Act 2003) Regulations 2008
2.32
pm
The
Economic Secretary to the Treasury (Ian Pearson): I beg to
move,
That
the Committee has considered the draft Stamp Duty Land Tax (Variation
of Part 4 of the Finance Act 2003) Regulations 2008 (S.I. 2008, No.
2338).
It
is a pleasure, Ms Walley, to serve under your chairmanship this
afternoon. The purpose of the regulations is to require purchases of
residential property qualifying for the stamp duty land tax holiday,
announced on 2 September 2008, to be notified to
Her Majesty’s Revenue and Customs. Without notification of
purchases, there would be no way for HMRC to police the holiday and
prevent incorrect claims. These purchases would have been notifiable
prior to the introduction of the stamp duty land tax holiday, and
therefore there are no additional administrative burdens on purchasers
or their
agents.
The
regulations are linked to the Stamp Duty Land Tax (Exemption of Certain
Acquisitions of Residential Property) Regulations 2008, which
temporarily exempt purchases of residential property worth not more
than £175,000 from stamp duty land tax. The holiday began on
3 September 2008 and will last for one year. The Stamp Duty
Land Tax (Exemption of Certain Acquisitions of Residential Property)
Regulations 2008 were made using the power granted to the Government in
schedule 3 to the Finance Act 2003. The side effect of those
regulations was to eliminate the notification requirement for purchases
qualifying for that exemption. The regulations that we are discussing
vary part 4 of the Finance Act 2003, which deals with stamp duty land
tax, so as to reinstate the return
requirement.
The
stamp duty holiday was announced against the backdrop of a period of
sharp adjustment in the housing market, which was made in response to
global developments and the ensuing tightening in financial market
conditions across the world. People are finding it harder to get
mortgages, house prices are falling and house builders are experiencing
difficult business conditions. The Government decided to introduce a
stamp duty holiday to demonstrate their support for those buying and
selling properties at this time of falling house prices and lower than
normal volumes of transactions. The holiday will mean that, for the
next year, about half of all purchasers will be exempt from paying
stamp duty. The holiday is limited to transactions up to the value of
£175,000.
The
Government are right to take targeted action at this time to support
those home buyers who need it most. The holiday should also be seen in
the context of the wider range of measures that were announced at the
same time. Key elements of that package include a new £300
million shared equity scheme to help first-time buyers; a £200
million mortgage rescue scheme and changes to the support for mortgage
interest scheme to support the most vulnerable home owners facing
repossession; the delivery of up to 5,500 new social homes; and,
together with regional development agencies, support for the most
critical regeneration schemes with the greatest potential to transform
their communities. Taken as a whole, those measures will help to
support the housing market and assist those who have been adversely
affected by recent developments. I commend the regulations to the
Committee.
2.36
pm
Mr.
David Gauke (South-West Hertfordshire) (Con): It is a
great pleasure to serve under your chairmanship, Ms Walley, for what I
believe is the first time.
I am grateful
to the Minister for his explanation. As he said, the order is in some
respects consequential on the related announcement of the increase in
the stamp duty land tax threshold from £125,000 to
£175,000. I will not give the full title of the regulations that
introduced that increase, but we might call them the increase in
threshold regulations.
I have to ask
about the manner in which the information about the increase in
threshold first emerged in an article in The Sun on 5 August
headlined, “Brown to scrap stamp duty”. That article, by
journalist George Pascoe-Watson, made it clear that the proposal was
the Prime Minister’s personal initiative. Subsequent speculation
suggested that it was briefed by the Prime Minister’s office,
not the Treasury. Interviewed later on the “Today”
programme by James Naughtie, the Chancellor of the Exchequer was asked
whether he planned to scrap stamp duty and he gave a non-committal
answer. Perhaps unfairly, he received a great deal of criticism,
because the responsibility surely lies with the Prime Minister.
However, enormous confusion and uncertainty were created in the housing
market, with a number of purchasers pulling out of transactions,
believing that they would benefit from a better stamp duty arrangement
once the announcement was formally made.
There were
widespread allegations that the Government had essentially managed to
paralyse an already difficult housing market. James Scott-Lee of the
Royal Institute of Chartered Surveyors said:
“August
was expected to be bad, but the general view among agents across the
country is that they are seeing 20 per cent. fewer new buyers in the
market than they had expected at the start of the
month.”
I know from my own
constituency surgeries that that had an impact on estate agents. One
estate agent from Berkhamsted told me that three deals collapsed for
her over the course of the week after that interview with the
Chancellor. That pattern could be seen across the country. Figures for
mortgage approvals for August were at a record low. Will the Minister
therefore apologise for the uncertainty that was created in the period
from 5 August to 3 September, when the announcement was made?
Before
turning to the measure before us, it might help the Committee if I
raise some questions about the thinking behind the stamp duty holiday.
What assessment have the Government made of the likely benefit of this
stamp duty window? How will they measure whether it has succeeded? Are
they prepared to extend it beyond
September 2009 when the impact of these regulations will come to an end?
What would be the impact of reverting to the £125,000 threshold?
The Minister said, and he may have chosen his words carefully, that the
purpose behind the stamp duty policy in the order and in statutory
instrument No. 2339 was to demonstrate support. It seems to be about
perceptions and about demonstrating that the Government are doing
something, rather than anything terribly practical. I suspect that many
people will raise those concerns.
It may be
helpful to the Committee, if I outline how the Government raised the
threshold by using the regulatory powers in paragraph 5 of schedule 3
to the Finance Act 2003. I understand from the explanatory notes that
this is the first time that that method has been used. Why was that
mechanism used? Was it the only regulatory way available? This is not
the first time that a stamp duty window has been created, but how was
it done in the past?
The order
attempts to remedy the difficulty of the general reporting requirements
for transactions, even those for which no stamp duty is payable.
However, there is a list of exemptions from the reporting requirements
set out in schedule 3 to the Finance Act 2003. As the Government have
used paragraph 5 of schedule 3 to raise the threshold, without this
order all transactions of less than £175,000 would fall outside
the reporting requirements—that is my understanding of the
difficulty. Hence the order’s purpose is to get us back to the
reporting position that we were in before the threshold was raised. Can
the Minister confirm that there is no further regulatory burden? I
think that he has said so, but I would be grateful if he returned to it
and confirmed that no differences have crept in as a consequence of the
two orders working together.
Finally,
I would like to raise one other issue that relates to raising the
thresholds. I looked at the HMRC website to see the rates that apply
for stamp duty. I said earlier that we had seen an increase in the
threshold from £125,000 to £175,000, and we do not object
to that. The website sets out the thresholds and refers to a band of
£0 to £175,000 from 3 September 2008 to 2
September 2009, but it also refers to a rate for land in disadvantaged
areas and states that the threshold there is not £175,000 but
£150,000. That seems remarkable. If that were correct, and I can
only assume that it is a mistake, it would mean that disadvantaged
areas would be disadvantaged: the threshold for most of the country
would be £175,000, having previously been £125,000, but
in certain deprived areas—there is a full list, and I believe
that some are in the Minister’s constituency—stamp duty
would start to be payable at a lower level than in the rest of the
country. Surely that is a mistake. The Government’s intention in
introducing a differential rate for disadvantaged areas was to set the
threshold at £150,000. I think that when that was originally
introduced, the stamp duty threshold for the rest of the country was
£60,000. There is a big gap, and that is an important question.
I can only assume that it is a mistake on the HMRC website—I
would be grateful for the Minister’s assurance that that will be
rectified as soon as possible—but if it is not, that raises
additional
questions.
Mr.
Jeremy Browne (Taunton) (LD): I apologise for pre-empting
the hon. Gentleman and raising things that I was going to say in my
speech, but the specific point is interesting. May I conclude, from
what the hon. Gentleman
has said, that he would not favour any differentials in thresholds on
stamp duty to reflect the marked differences in prices throughout the
country? In poorer parts of the
country—
The
Chairman: Order. I am finding it difficult to see how that
is linked to the
order.
Mr.
Gauke: I am grateful to the hon. Gentleman. The scope of
the order depends on what the thresholds are and the effects of the
other statutory instrument. If it has no effects—for example, in
disadvantaged areas—that is of interest to the Committee. I am
not sure whether the hon. Gentleman was suggesting that areas in which
prices are lower should have a lower threshold, but that seems a
strange implication, and I understand the Government’s approach
of trying to provide a beneficial system in disadvantaged areas. My
question is whether the Government have done that. They are clearly
doing away with the differential by introducing the holiday, so that
everyone pays for £175,000 as the starting point for stamp duty,
but if the starting point is £150,000 in some areas, that is
curious. I cannot believe that that is the case, but I would be
grateful for the Minister’s confirmation that it is
not.
2.47
pm
Mr.
Browne: May I begin by apologising for my late arrival, Ms
Walley? I was being overly zealous in the exercise of my democratic
duties in the Chamber, and my arrival in Committee was delayed. As it
is the first time that I have served under your chairmanship, I assure
you that that is not my regular pattern of activity. I also apologise
to the Minister for missing his comments, so I hope, not knowing what
he said, that I do not go over any territory that has already been
covered. I shall keep my comments
brief.
The
announcement made by the Chancellor was interesting. I echo the
thoughts of the hon. Member for South-West Hertfordshire that it
created considerable uncertainty in the housing market, which was
detrimental to the interests of both buyers and estate agents. The
Chancellor, like the Prime Minister, has always been at pains to say
that tax changes are not announced on an ad hoc basis throughout the
year, but that they are announced in a systematic way in the Budget or
the pre-Budget report. That general, self-applied rule did not seem to
take effect on this occasion. The regulations are also indicative of a
belief that the Prime Minister in particular appears to hold:
micro-measures are likely to have a disproportionately large impact on
the economy as a whole. I can only conclude, from looking at the state
of the housing market, that that appears not to be the case so
far.
I
would like to ask the Minister a few questions. First, how many home
buyers are likely to be affected by the measures that we are looking at
today, because that has a bearing on our assessment of whether the
order is likely to be effective? My second question is a slightly wider
and possibly more philosophical. What assessment have the Government
made of the wisdom of trying to lure first-time buyers into a falling
housing market? That is a moral question, as it were, but also a
financial one, because the Prime Minister announced earlier today new
measures to help people facing repossession as well
as those falling behind with their mortgage payments. We have heard
reports this week that an estimated 2 million households
will go into negative equity during this cycle. Most people expect
house prices to fall by a considerable further margin. Estimates vary,
but we are a long way from the bottom of the market. It is an
interesting Government policy that asks people to buy depreciating
assets.
Presumably
that is targeted at people buying a house costing £150,000, for
example, so the stamp duty at 1 per cent. would be
£1,500. That sum could make the difference between their feeling
that they could, or could not, commit to buying the property. We are
not talking about people who could easily buy such a property, but
about those who are stretched to the limit and are incentivised by a
saving of between £1,250 and £1,750, which is a tight
margin. If the property were to depreciate by a further 10 to 20 per
cent., those people might wonder a year later why the Government tried
to make it more desirable for them to buy an asset that was falling in
value. I would be interested to know whether the Minister considers
that to be a wise use of taxpayers’ money in the current
circumstances. I would also be interested to know how many properties
are affected and what the cost is to the Exchequer.
What is the
Minister’s assessment of how well that policy is doing? We are
already a month and a half into the new regime, which is quite a long
way for a plan that will only last one year. It does not appear to have
had a dramatically beneficial impact on the take-up of new house
purchases. What does he believe the impact will be when the holiday is
withdrawn in September 2009? I thought that that was an entirely fair
question from the hon. Member for South-West Hertfordshire. If the
housing market is still falling, or at least still in the doldrums,
101/2 months from now, the Government will be sending out an
interesting message when the £125,000 threshold is
re-imposed.
2.51
pm
Ian
Pearson: I will reply first to the comments made by the
hon. Member for South-West Hertfordshire about the unhelpful press
speculation over the summer. The Government simply cannot control what
goes into the press, although at times we might like to do so. The
speculation in August was unhelpful, and we worked hard to discourage
it. My understanding is that the Government were considering a number
of different options at the time to help home buyers who were under
pressure, and no decision had been taken. Speculation in the press did
not help our deliberations, and we worked actively to discourage
it.
Mr.
Gauke: I am grateful for that, and I do not for a moment
doubt the sincerity of the Minister’s view or that of the
Treasury’s view as a whole, but the fact is that that
speculation was started by an article in
The Sun that was
clearly informed by a briefing by the Prime Minister’s
office.
Ian
Pearson: I repeat that that speculation was unhelpful. No
decision had been taken on the matter at that time and, as we all know,
many stories abound in the press in August without
authenticity.
I will move on
to address the points made by the hon. Member for Taunton about
encouraging people to step on to the housing ladder at a difficult
time. The Government are committed to helping people to realise their
aspirations for home ownership, but only when that is affordable and
sustainable. It is up to first-time buyers to decide whether now is the
right time to purchase. I do not think that anyone who is looking to
get their foot on the first rung of the housing ladder will think that
stamp duty is the decisive factor influencing their decision. The
measure will help, and I am sure it is welcomed by those considering
purchasing their own home, but it is up to those individuals to decide
what is best for them in the circumstances. It is also up to banks and
building societies to lend responsibly. Our discussions on this order
relate narrowly to notification; it is a consequential statutory
instrument to the main statutory instrument that granted the 12-month
stamp duty holiday, and it is important to recognise that that was part
of a package of measures that we announced on 2 September. Those
measures do a number of things, including providing help to people who
are experiencing difficulties paying their mortgage, and looking at the
potential for shared equity schemes where that might be the most
acceptable
route.
I
shall turn to some of the questions that have been raised. We cannot
anticipate the precise impact of the stamp duty land tax holiday. As I
indicated earlier, we think that about half of all purchases will be
exempt, because they will fall below the £175,000 limit, but
market conditions during the holiday and individual purchasing
decisions will determine the size of the
take-up.
Mr.
Browne: I realise that it is difficult to anticipate how
millions of people will respond in the marketplace, but the Treasury
must have made an assessment of the cost of the measure to the
Exchequer. The very act of drawing up that assessment should show what
the Government anticipate the market effect to be. If the Minister
tells us how much the Exchequer expects to lose financially as a result
of the changes, we can do the sums
ourselves.
Ian
Pearson: The Treasury published an assessment at the time
in which it said that the likely cost was £615
million during the year, but that was based on previous figures for
demand. I would expect the actual cost to be significantly less than
that because of the changes that we have seen in the housing market.
That is why it is difficult to be precise about the potential cost.
However, there is clearly a benefit to those who want to take advantage
of the stamp duty exemption. We believe that it is right to have that
short-term measure as part of a package to demonstrate our support for
home buyers, but it is not intended as a permanent increase in the
stamp duty thresholds. As with other policies, however, we will keep
that under
review.
The
hon. Member for South-West Hertfordshire asked why we used section 3 of
the Finance Act 2003. This is the first time that power has been used.
We did so, because we believed it was right to take urgent action. That
is one of reasons, again in response to the hon. Member for Taunton,
why we took action in September rather than waiting until the
pre-Budget report, which will be issued later this month. Again, I
strongly want to
defend that. It is important during difficult times that we put together
what support we can as a Government to help home owners and people who
want to purchase their own
home.
I
can confirm that there is no further regulatory burden as a result of
this statutory instrument. Previously, notification had to be made to
Her Majesty’s Revenue and Customs, and that will continue to be
the case if the statutory instrument is agreed. That will help us to
police the system, but it will not require an additional regulatory
burden. I was asked whether people seeking to buy homes in
disadvantaged areas will be further disadvantaged by the measure. The
hon. Member for South-West Hertfordshire mentioned £150,000 as
opposed to £175,000. He will be aware that before the measure
was introduced the normal practice was that there was a 0 per cent.
threshold up to £125,000, apart from 2,000 deprived areas where
it was £150,000. I can confirm that the stamp duty holiday is
£175,000 right across all areas.
Ian
Pearson: If there is an inaccuracy on the HMRC website I
will check it and ensure that it is sorted out. I think that that deals
with the concerns raised by hon. Members. I thank them for their
questions and I hope that they have found my answers
satisfactory.
Question
put and agreed
to.
Committee
rose at Three
o’clock.
