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Public Bill Committee Debates

Stamp Duty Land Tax (Variation of Part 4 of the Finance Act 2003) Regulations 2008

The Committee consisted of the following Members:

Chairman: Joan Walley
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.
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?
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.
Mr. Gauke: The website?
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.

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