Mr.
Stuart: I am grateful to the hon. Gentleman for being so
clear, because he has laid out, as we approach a general election,
whenever it is, two policies that will obviously form part of the
Liberal Democrats’ manifesto. One is that they oppose support
for first-time buyers to get on the housing ladder and, secondly, that
they support measures that will lead to a collapse in the already
fallen state of the property market, in order to close the ratios to
something that better fits the hon. Gentleman’s ideal
of the right mathematical
calculation.
Mr.
Browne: Oh dear—if that is the best that the
Conservative party can do, I fear that they are even further from
office than I had anticipated when I read new clause 3. I believe in
free market economics—a shocking concept for Conservatives. I
break the news to the hon. Gentleman that the reason that house prices
are where they are is not that there is a man in an office in Whitehall
who comes up with all the prices; it is because of supply and demand,
and people deciding how much they will pay for a house. The person who
owns the house typically sells it to the person offering the most
money. That is how the system works. It is not decided by the Liberal
Democrats. We decide lots of things in this
country—
Mr.
Browne: For example, the status of Gurkhas in the United
Kingdom—many things. We set the pace in politics, as all members
of the Committee
know. My
point—a serious one—is whether the policy of Government
should be to spend money on protecting the value of one type of asset
over another type of asset. Should money be taken from people who do
not own a house at all, in order to put an artificial floor under an
asset belonging to people who are in many cases far more prosperous? I
do not say that as Liberal Democrat policy. It is a reasonable question
for anyone to ask, and without asking it, proper consideration of the
clause seems
impossible.
Mr.
Stuart: I put it gently to the hon. Gentleman that not
taxing someone who is trying to get on the housing ladder for the first
is not the same as spending taxpayers’ money. Perhaps the
Liberal Democrats need to recognise that it is the people’s
money that the Government tax and not the other way
around.
Mr.
Browne: I take that point and understand what the hon.
Gentleman is saying. Equally, however, one could make the same point
about abolishing VAT on cars for people buying their first
car—an aspiration that many young people have. In rural areas,
such as I represent, many people regard owning a car not just as an
aspiration, but as a social and economic necessity—I shall not
go too far down this track, Mr. Atkinson—after they
pass their test when they are 17 years old. One could say that that
would be a legitimate forfeiture of tax revenue. On the other hand, the
duty of people who cannot afford to own a car at all is not to
subsidise the cost of someone who is buying their first car. That was
my only point.
My wider point
was why first-time buyers are not buying property in the numbers that
clause 10 induces them to do—new clause 3 seeks a similar
inducement. Is it because they are deterred by stamp duty levels? My
answer is: perhaps, to some extent. Clearly there is a marginal effect,
although in the overall scheme of things, when buying a new property,
it is not, I would contend, the biggest factor. I think that there are
three factors that cause more problems for people seeking to enter the
housing market than the deterrent effect of paying stamp duty at the
levels that we are talking
about. The
first factor is the unwillingness of banks to lend money to people,
particularly those who do not already have a big asset. Under new
clause 3, the bank might be quite generous in its lending terms to a
person who has never bought a house and wishes to buy a holiday
cottage, but whose spouse owns outright a house worth £1
million. However, what about first-time buyers, say, in their twenties,
who have managed to save up a bit of money? It is hard for people who
have left university and who are trying to establish themselves in a
place of work to accrue more than a few thousand pounds, unless they
inherit money or are given it as a gift. If they are looking to buy a
property for, say, £150,000, they might need a deposit of about
20 per cent. of that sum—£30,000. I venture that the
inability of a person on typical wages or perhaps even double typical
wages to raise a £30,000 deposit would be a much greater
deterrent to that person entering the housing market than a saving on
stamp duty. That is one reason why I fear that the provision will not
have the impact for which some might have
hoped.
I think that
I said I wanted to outline three factors that cause problems, but I
actually want to mention four. The second factor is that the market is
falling. Many people say that they aspire to get on the property
ladder—they regard it as a rite of passage and something that
would be economically and socially beneficial to them—but that
now is not a good time to buy because the properly market is falling on
average by the figures given by the hon. Member for South-West
Hertfordshire. The fall in the prices of some types of property, such
as one-bedroom or studio flats that might be particularly attractive to
first-time buyers, might often be greater than the
average. Quite
a few people are choosing to rent until the market has picked up or at
least turned a corner, or they could be trying to save up a bit more of
a deposit. They would not be induced to buy a property because of the
stamp duty holiday. In fact, we could ask ourselves an interesting
moral question: should we want them be? I was citing the example of a
£150,000 property. When the policy came into effect in the late
summer last year, the Government were trying to induce people to buy
that £150,000 property. What is that property worth today?
Perhaps £135,000. People were given a nominal incentive to buy
the house and their losses far outweigh the inducement they were given
by the Government to buy the house. I am not claiming that that is a
false prospectus, but if I had been lured into the housing market just
as it was falling rapidly, I might consider that the Government had not
done me such a big favour as they claimed to be doing at the
time.
Mr.
Gauke: I am tempted to dwell on the hon.
Gentleman’s point about the influence of the Liberal Democrats,
which suggests that they might be almost as
influential as Joanna Lumley—but by no means as pretty. He is
making an interesting observation, but it is very much a paternalistic
one, given his early remarks about belief in the free market. He now
seems to be arguing against individual responsibility for people making
house
purchases.
Mr.
Browne: I am not doing anything of the sort. Anyone who
has the money to buy property should be entirely free to do so. If they
judge for themselves that now is the time to make the purchase, that is
their decision. The question is whether our taxes should be used to
induce people to buy property, when we know with almost complete
certainty, as we did in late summer last year, that the value of their
asset would fall. People may think that it is up to the individual to
make that calculation, and it is. I was not saying that people should
be prevented from buying houses in those circumstances. They might take
a longer view and think that, in a 10 or 20-year scheme of things, that
is an intelligent purchase.
To return to
my original point, I do not think that people were necessarily deterred
from buying houses primarily because of the level of stamp duty. They
were deterred, first, because they could not borrow enough money to
cover the mortgage costs and, secondly, because they were wary of a
falling housing market. I have two more
reasons.
Mr.
Stuart: No one is suggesting that stamp duty is the key
component of anyone’s decision not to buy a house at the moment.
As my hon. Friend the Member for South-West Hertfordshire pointed out,
the hon. Gentleman contradicted himself by talking one minute about the
free market, and the next about inducements owing to the removal of
tax. If he were to accept that the forgoing of tax from first-time
buyers is a suitable policy instrument, would he not agree that the
time to implement it is when the housing market is in the doldrums, in
order to help to turn it around and to minimise the barriers to getting
on the housing market, rather than when prices are rising? Would he
introduce such an instrument then to further inflate a
bubble?
Mr.
Browne: I apologise for my lack of clarity, Mr.
Atkinson. I was saying that I thought that the volume of sales and the
price of property are determined by supply and demand, not by the
state. The state can nibble away at the edges by giving tax
inducements, but primarily the factors governing price and turnover are
not in the gift of the state. Anyone can buy a house if they meet the
legal criteria and have the money. However, is the highest priority for
the taxpayer, at a time when the nation is borrowing £20 million
every hour, to try to induce individuals to stretch themselves to buy a
property when the market is falling? Is that the best use of
taxpayers’ money?
That is a
reasonable question, because someone is likely to have stretched
themselves a lot if the inducement of this stamp duty measure makes the
difference between making the purchase and not. We are talking right on
the margins—those for whom that marginal benefit is sufficient
to make that decision. We are talking not about people putting down a
65 per cent. deposit and
who are pretty secure in the housing market, but about people who might
have been lured into the market in late summer last year and now might
be facing repossession. That is a perfectly plausible scenario. Those
facing repossession might wonder why their money, as taxpayers, was
spent on luring them into those circumstances. My point was not about
the free market. My third
reason is this: quite a lot of people are not only fearful about the
direction of the housing market—indeed, some think that it is
beginning to turn a corner, although it is difficult to make that
judgment. One wants to be just ahead of the pack when coming to that
conclusion. However, there is a wider concern about the economy as a
whole and, specifically, about unemployment. Historically, there has
been a correlation between confidence in the housing market and levels
of unemployment. That correlation is stronger than the actual
percentage of the work force in unemployment would suggest.
Of course,
the unemployed are not normally in a position to contemplate buying a
new property. However, people’s fear of unemployment is
often disproportionate to the statistical likelihood of their becoming
unemployed. For example, if one worked in a company with 100 employees
and it became evident that it was about to shed 10 per cent. of its
work force, all 100 employees might modify their behaviour accordingly
and hold back until they found out whether they were one of the lucky
90 or one of the unlucky 10. Of course, the reason that the Government
have temporarily reduced VAT is to try to give some sort of inducement
to people not to hold back because they are fearful of their future
economic prospects. In an earlier clause, the Government recognised
that there is that fear of the future in the population as a whole. I
contend that that fear is more likely to deter people from buying a
property, particularly at this level, than any inducement on stamp duty
that may or may not be given is likely to persuade them to
buy.
2.15
pm My
final argument is more contentious, because it relates to what MPs
often say in their constituencies. They often say that, if we wish to
see property prices that are more affordable for more people who are
trying to get on the housing ladder, we need to see whether or not
prices will return closer to their historical ratio to average
earnings. However, in many parts of the country there is a shortage of
supply of housing. The reason why I say that this argument is
controversial is that a lot of MPs, of all parties, accept it in broad
terms, but then rush back to their constituencies to have their
photograph taken next to the site of any proposed housing development
on their patch, saying how hostile they are to any changes in their
constituency.
Mr.
Mark Todd (South Derbyshire) (Lab): I was just wondering
if the hon. Gentleman would expand on what he said to his constituents
in Taunton, because he recognises the difficulty that
exists.
Mr.
Browne: I shall not turn this into a very long speech
about Taunton—unless people wish me to do so. However, Taunton
is quite a good case study, because the town is on a motorway and an
inter-city train line, with a population measured at 63,000 in the last
census. [Interruption.] Stick with me. Taunton has
been identified
by the Government as an area for potential extra development, because it
has some of those key transport infrastructure requirements.
I think that
there is scope for extra development in Taunton. What I am
uncomfortable about is the type of top-down command view of housing
development. Because of the free market instincts that I talked about
earlier, I am not sure that what we need is not something a bit more
organic and incremental than an imposed target of 20,000 houses.
However, I do not doubt that there is a shortage of housing supply in
my constituency. People come to see me frequently to say that they
would like to see what we now call social housing, that they feel that
there is not enough of that type of housing and that they would like to
get on the housing ladder for the first time.
The ratio of
wages to property values is particularly big in the south-west.
Although property values are quite a lot lower than those in London,
wages are a lot lower too. I think that the south-west may even have
the worst ratio of any region in the UK, in terms of the ability of
people who on typical pay to afford a typical property. Some people may
think that it is politically unwise of me to do so, but I often say to
residents in my constituency that I support some extra housing
development, which should be mixed; it should not consist of one type
of property. There also needs to be an emphasis on property that is
realistically affordable for people who are seeking to get on the
housing ladder for the first time.
Apart from in
some marginal cases, stamp duty is not a consideration that is the
determining factor for those people when deciding whether or not to
acquire a property. In many cases, it may be that the sheer shortage of
supply means that there are very few of those affordable properties on
display in the estate agent’s window in the first
place.
Mr.
Hands: I think that the statistic that the hon. Gentleman
cited is quite right, and that the south-west does have the widest
disparity between house prices and income levels. Does he therefore
agree with many of his parliamentary colleagues who campaign on banning
people from owning second homes in the south-west? Does he think that
such a ban might be a
solution?
Mr.
Browne: I am not in favour of the state telling people
where they can live. I suppose that the only caveat that I may add to
that statement is that there are some particularly unusual
circumstances, for example in national
parks—
The
Chairman: Order. We are going a little wide of the
clause. Mr.
Browne: I shall not do a tour of national parks,
Mr. Atkinson. My central point is that in towns such as
Taunton many people seeking to become home owners for the first time
face the problem of a severe shortage of the types of property they
might regard as being in their price range, and that overrides any
considerations about stamp duty.
Those are my
four concerns: the difficulty of borrowing enough money; the falling
value of property, which means that the decision not to buy property
being taken
by many people is quite rational; the uncertainty about the future of
the economy, specifically with regard to unemployment, which deters
some people from buying property, and; the shortage of supply in many
parts of this country, particularly of the type of housing that is
attractive to first-time buyers. I maintain that those reasons weigh
more heavily with people trying to decide whether to buy than any stamp
duty holiday, be it that envisaged in clause 10 or that in new clause
3. We are having a perfectly interesting and worthwhile discussion, but
I fear we are labouring under the delusion that all those
considerations across the population as a whole can be influenced
heavily by tweaking a few of the knobs and pulling a few of the levers
available to the Government. My view is
that entirely rational decisions being made by millions of people,
combined with a free market in housing, are much more likely to make a
difference, and that is why I fear that some of the claims being made
by both Labour and Conservative politicians in that debate are rather
exaggerated.
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