Select Committee on Environmental Audit Minutes of Evidence

Examination of Witnesses (Questions 120 - 139)



  120. If we are talking about protecting the countryside and regenerating our inner cities, one of the central recommendations within the Rogers' report was to harmonise the VAT in order that there is far more than just planning incentive, fiscal incentive for builders to renovate and a disincentive to build on greenfield sites. At the moment greenfield sites are zero rated and we get zero rating for environmental reasons. That simply does not stack up. What was the thinking as to why you would not harmonise? At the very least you could argue that it should be far more on a greenfield site to protect the countryside and much less on renovating and getting more from what we already have.
  (Mr Timms) May I first of all go back to what you asked me about a moment ago and the position with the EU to correct what I said? The adjustment to the scope of the zero rate for the sale of refurbished, previously vacant dwellings is just adjusting an existing zero rate. It will affect dwellings which have been continuously vacant in the time from 1973 to 1990 and then refurbished and sold after April 2001. In other words there was an existing zero rate in place for properties which have been vacant since 1973. What we are saying is that in future it will be properties which have been vacant for ten years or more. My understanding is that amending an existing zero rate in that way does not in fact require EC authorisation.

  121. But we do not know how many.
  (Mr Timms) We put in a figure of how many buildings we think are involved. What I do not know is the source of that data and that is what I shall come back to the Committee on. On your question about changing the basis for VAT, as you know, in Lord Rogers' report there was a large number of recommendations; 105 of them all together. What we have done in the Pre-Budget Report and in the Urban White Paper is pick up very much the spirit of the report's recommendations. We subscribe entirely to Lord Rogers' vision of a major urban regeneration and I think that the package of proposals, not just on VAT but on stamp duty and other things as well which are in the Pre-Budget Report and Urban White Paper will enable us to take forward that vision. It is perfectly true that we have not introduced all the individual measures which were recommended by Lord Rogers but we have picked up the spirit of his report and we are going to see very significant progress as a result of these measures in the direction he has called for.

  122. Would you agree that of the 103 recommendations the one I have referred to was number one? I think that is the general consensus, certainly from what Lord Rogers has said in the press in response to the Pre-Budget Report.
  (Mr Timms) It was quite an important point in Lord Rogers' mind. It is important to make the point as well though that Lord Rogers has warmly welcomed what we said, particularly on stamp duty. I am not saying that we have done everything he has called for but we have made very significant progress in these announcements in the directions he has called for.

  123. On stamp duty, how are you going to account for pockets of valuable property within deprived areas, so we do not have Lords of the Manor in a great big mansion getting money for doing up their properties, when we want to see the money being put into more modest property, particularly in certain parts of the UK where property might be below £60,000?
  (Mr Timms) The key driver here is business property rather than residential. What we really want to do is to encourage enterprise into the most disadvantaged wards in the country. Removing stamp duty from public transactions in those wards will be quite an effective measure in encouraging businesses to locate in those areas and I think that will have a very substantial beneficial effect in regenerating those areas. There will of course be a knock-on effect for residential property and on the whole if we are talking about the most disadvantaged wards in the country, then making residential property there somewhat more attractive than it otherwise would be, would probably have a beneficial effect as well. It is really the business side which is important.

  124. Can you confirm that where there is immediate tax relief for property owners on conversion, that is conversion from flats into a single house as well as a house into single flats? I was talking to my colleague from Hastings and they actually have a shortage of family houses but an excess number of flats, Victorian properties?
  (Mr Timms) I can confirm that.

Joan Walley

  125. I want to press you a little more about how we are going to achieve what the Rogers' report set out to achieve. I agree with Mr Shaw that the number one priority really was to get this level playing field. I am thinking about constituencies like my own where, as welcome perhaps as the stamp duty proposal is, I wonder how effective it will be because it might be that there might be properties which would not reach that basic minimum level anyway. There is the added issue about VAT and its relationship not just to houses and to residential properties but I have an inner city area with lots of buildings where we are not necessarily looking for the buildings or the land to come into residential use, but to come to use which should be for business, small enterprises and so on and so forth. That does not really seem to be covered in quite the way Lord Rogers perhaps anticipated it would be.
  (Mr Timms) I am sorry, I did not quite understand the point about business premises.

  126. I am saying that as I understand it under the proposals in the budget on the stamp duty exemption for disadvantaged communities if you have derelict factories or buildings which were used for manufacturing purposes, then maybe the value of those will not bring such relief that would encourage growth because they would not be worth that much from the very beginning. I am saying as well that in terms of residential properties, okay, you are looking at the prospects of VAT reform to encourage additional conversion of properties for residential use, but I can think of a lot of buildings in my constituency where we would not necessarily want residential use, we would want some of the former potteries, pot banks and so on to be converted into small-scale small- and medium-sized enterprises and units within those. I do not see how these proposals will really bring about the investment that we are all crying out for on a scale that we need.
  (Mr Timms) If there is a derelict factory somewhere in one of the areas which will benefit from this change, and somebody acquires that, stamp duty will not be charged, whereas stamp duty will be charged on an equivalent property in a different area. It is a significant new incentive for businesses to locate in disadvantaged areas and that is what we are aiming to achieve.

  127. I was just looking at what the value of that dispensation or that exemption would be on the stamp duty where the value of property is very low in the first place.
  (Mr Timms) If we are talking about a disused factory—

  128. Small factories.
  (Mr Timms) My guess is that on the great majority of factories stamp duty certainly will be payable so the exemption will be a significant new incentive for businesses to use properties there rather than elsewhere. It has to be part of a broader package and the package is set out in the Urban White Paper. As an element in a strategy to bring enterprise into disadvantaged areas is going to be very useful.

  129. So you will be keeping a very close monitoring brief on how effective the proposals are compared to the ones which were set out in the Rogers' report.
  (Mr Timms) Yes, we shall certainly be following that with great interest.

  130. May I ask very quickly about the issue of VAT for listed buildings and places of worship? When I heard the Budget statement, I immediately understood that many, many derelict or older churches would be eligible and I did not immediately pick up on the fact that it was only relating to listed buildings. In many of our heartland areas, inner city areas, not all church buildings are listed buildings. I am thinking for example of Methodist churches and buildings such as this where we really want to make sure this relief extends right the way across the board. Will you be reviewing that or is it absolutely the case that it will only apply to places of worship, churches, which are listed buildings?
  (Mr Timms) Yes, we are only proposing it for listed places of worship but that does include Methodist chapels and I understand that there are certainly Quaker Meeting Houses which are listed, synagogues, mosques. It is not just traditional parish churches which will benefit but we are only proposing the exemption for listed places of worship.

  131. That will exclude a lot of run-down churches in some of the most deprived inner city areas, will it not, or even the edge of town estates where we would want to be improving the quality of these houses?
  (Mr Timms) It is targeting the relief on those buildings which are the most valuable, which is why they have been listed. That is the right priority to set.

  132. That is not directed towards the environmental benefit which would come about from addressing social exclusion and buildings which are going into disrepair because there is not the money to bring them into repair.
  (Mr Timms) No, it is not going to solve all the problems. By targeting listed buildings, including those in disadvantaged areas with high degrees of social exclusion, this could make a significant impact because raising the quality of those buildings which have that heritage potential can make a significant contribution towards improving the overall environment in the area.

Mr Shaw

  133. That could actually benefit wealthy areas, therefore you are not targeting to deprivation in inner cities. If the building requires to be listed in order to qualify for the grant, it could be in the most wealthy constituency in the country and it would qualify but the rundown church in constituencies such as yours would not qualify.
  (Mr Timms) We do have some listed churches in Newham. It is neutral. It is true that this measure is not targeted at disadvantaged areas; that is true.

  134. This measure comes under regenerating Britain's towns and cities and it is not doing that.
  (Mr Timms) No, it is, but it is true that this is not targeted just at disadvantaged towns and cities.

Mr Loughton

  135. Whilst I do not wish to accuse the Government of being spiritually divisive, it is true, is it not, that 90 per cent of the churches which will qualify are Church of England churches and it is the Methodist chapels and Catholic churches which tend to be unlisted and newer which will not? However, I do not want to pursue that point particularly as I have a vested interest as my father is a Church of England vicar. I want to come back to be clear on the stamp duty matter.
  (Mr Timms) Just as a matter of interest, the 90 per cent figure is not correct. You are right that the bulk are, but I can tell the Committee that we think there are about 13,000 listed Church or England churches and over 3,000 others. It is not 90 per cent but it is the bulk.

  136. It is convincing. We will not use the word "extremely" but it is pretty convincing. Let us go back to stamp duty because this is one of the key considerations for me in the regeneration package. What you have said now, which is not what has been said before, because I have questioned this matter with the DETR Ministers in particular, is that the stamp duty exemption is to be targeted to businesses. On the basis that last year stamp duty brought in approximately £2.1 billion, of which I believe just under £1.1 billion was residential property and just under £1 billion was business, that is roughly a 50:50 split, then surely there is going to be a big knock-on effect on residential, not just a knock-on effect but a big knock-on effect because of where it is actually coming from. Why do you not exempt residential property if the real aim is to advantage business investment in these disadvantaged areas which you have not yet defined?
  (Mr Timms) I hope I have not confused the Committee. I am not saying that this relief is targeted at commercial property. What I am saying is that the real importance of it in regeneration terms is going to be the benefit for commercial property because that will encourage businesses to locate in disadvantaged areas when they might not otherwise do so. That could have a potentially huge impact on regenerating those areas. The benefits of the relief of course will be available for residential property transactions as well, but the real regeneration game, although that is helpful too, will be on the commercial property side.

  137. The problem is that this is not focused, is it? What I want to get at is first of all what qualifies as the disadvantaged area. You spoke in terms of wards as well. Is it not the case, certainly within wards in London and the South East and places like Hackney and Islington, that the biggest beneficiaries by far are the Georgian terraced houses worth over half a million pounds who will be exempt from four per cent stamp duty? Against that, the number of properties in the whole of the country last year which sold for less than £60,000 is 660,000. Some 45 per cent of all residential property sales last year did not qualify for stamp duty at all. If you take out London and the South East the vast majority, a significant majority, of residential property sales, particularly in the most deprived areas, did not qualify for stamp duty at all, therefore there will be no knock-on effect to the most deprived areas who have very low property prices. Is that not the case?
  (Mr Timms) There will be benefit for commercial property transactions in those areas and that is the real gain from this, that it will encourage businesses to locate in disadvantaged areas when they would not otherwise have done so and that is going to be a powerful incentive for regeneration in those areas. You asked about how we are going to identify what those areas are. There is a DETR index of deprivation at the ward level. Other approaches have been developed in the other countries of the United Kingdom and we shall be working with the administrations there to come up with a nationwide uniform assessment of disadvantage which will then apply across the country.

  138. You have again come back to saying the biggest advantage, the biggest boost, will be given for commercial property, businesses investing in disadvantaged areas.

  (Mr Timms) No, I am not saying that. I am saying the biggest benefit in regeneration terms will be the commercial property advantages. That is the point I am making.

  139. I agree with you. I completely agree with you. On the figures I have given you therefore the knock-on effect on residential property will benefit very significantly people who do not need to be benefiting from stamp duty exemptions, that is benefiting from four per cent exemption on a £0.5 million property, £20,000 to a resident of Islington. Why not, on what you are saying, limit it to commercial property, or at least cap it on an upper value of a house? Are you actually now confirming, because nobody has yet, that it will be determined on a ward by ward basis where inevitably you will have the Georgian terraces slap bang next to the tower blocks and the poor areas, particularly in London and the South East?
  (Mr Timms) Let us wait and see until we know what the basis of the assessment will be. My view is that it will need to be on a ward by ward basis because making an assessment on a sub-ward basis would be practically very, very difficult. If one does select the most disadvantaged wards in the entire country, my guess is that the number of half million pound houses in those wards across the country will not be very great. Let us wait and see what the selection is. I would not favour introducing a different stamp duty regime for residential as opposed to commercial property. That has never been done in the past by the previous government either. That would introduce a degree of complexity to the stamp duty system which would not be warranted.

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