Variation of Stamp Duties Regulations 2001

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Fourth Standing Committee on Delegated Legislation

Tuesday 11 December 2001

[Mr. John Cummings in the Chair]

Variation of Stamp Duties Regulations 2001

4.30 pm

The Financial Secretary to the Treasury (Mr. Paul Boateng): I beg to move,

    That the Committee has considered the Variation of Stamp Duties Regulations 2001.

The regulations are part of a trio of statutory instruments needed to implement the stamp duty exemption for property transactions in disadvantaged areas. As hon. Members will recall, my right hon. Friend the Chancellor announced in his pre-Budget statement on 27 November that the first phase of the exemption would be implemented on 30 November. Under it, property transactions for prices up to £150,000 in some 2,000 qualifying areas throughout the United Kingdom, identified by reference to each county's latest index of deprivation, are exempt from stamp duty. More than 14 million people live in those areas and will benefit from the exemptions.

More commercial property deals will be taken out of duty under phase two, which we expect to implement next year once state aid approval is obtained. Home buyers, businesses and developers will all benefit directly. As was said at the time of the Chancellor's statement, the Government are committed to providing economic opportunity for all. The stamp duty measure will help to attract development and encourage the purchase of residential and commercial property in Britain's most disadvantaged areas.

The exemption is only one element in a £1 billion package of fiscal measures, the urban White Paper fiscal package, which will help regenerate Britain's cities over a period of five years in response to the recommendations made by the urban taskforce, chaired by my noble Friend Lord Rogers. All the measures, with the new community investment tax credit and the new community development venture capital fund due to start next year, bear out our determination to raise living standards in our less well-off communities.

The need for the regulations arises from our decision to restrict the exemption for the time being to property transactions with prices up to £150,000. For residential property, that cap reflects the Government's desire to avoid the benefit of the exemption going to higher-value properties where its impact is likely to be marginal. We have listened to representations on that and have responded accordingly. Introducing the cap has allowed several hundred more areas to come within the relief at no extra cost. Even so, it allows 80 per cent. of residential transactions in the qualifying areas to fall outside stamp duty. I am sure that hon. Members of all parties will welcome that.

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For commercial property, we intend to raise the £150,000 limit significantly or abolish stamp duty altogether for non-residential transactions in the qualifying areas once possible state aid issues are resolved. On state aid, we believe that the careful targeting of the measure at the most disadvantaged areas of the country does not represent any distortion of competition or trade within the European Union. However, I am sure that hon. Members will agree that it is right and sensible for us to discuss the issues first with the Commission, in accordance with our responsibilities.

I turn briefly to the detail of the regulations. Schedule 33 to the Finance Act 2000 gives the Treasury power to make provision by regulation for the variation of an existing stamp duty. That is what these regulations do. The existing stamp duty referred to here is the exemption for disadvantaged areas in this year's Finance Act. We are varying the original terms of the exemption principally to provide for the £150,000 cap, for the reasons that I set out. Had we not used this regulatory route, we would have had to wait until the next Finance Act—well into 2002—to implement the exemption with a cap. We did not believe that that would be right, appropriate or in accordance with our commitments. The regulations also make two relatively minor modifications to the exemption as enacted, by removing from its scope the duty on the rent under the grant of a new lease and instruments attracting one of the fixed £5 stamp duties. Those exclusions help to ensure that the rules for the exemption are kept as straightforward as possible.

I have two other observations to make. First, I am required to tell the Committee about the status of the regulations in relation to the European convention on human rights. I am pleased to say that they are in full conformity with the convention.

Secondly, I would like to remind hon. Members that under the terms of our enabling legislation, not only do these regulations require affirmative approval, but they have only a limited life and will expire after 18 months if not revoked in the meantime. We will, as is right and proper, consider what alternative legislative arrangements are appropriate for the longer term. I commend the regulations to the Committee.

4.35 pm

Mr. Howard Flight (Arundel and South Downs): I welcome you to the Chair, Mr Cummings. Where measures are effective in encouraging urban renewal and preserving our countryside, we are supportive of them. Looking at the designated areas to which the regulations will apply, I cannot avoid commenting that we seem to have a further case of the Chancellor's pork barrel measures—although I question whether the result will be as intended.

Mr. Boateng: The hon. Gentleman describes these as pork barrel measures, yet by any examination of the breakdown of the wards, he himself has got his nose in the trough. The wards of Arun, Littlehampton River and Littlehampton Ham, along with Worcester and St. Barnabas, in the constituency of the hon. Member for Mid-Worcestershire (Mr. Luff), all benefit. Indeed, the

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only members of the Committee who do not have wards benefiting are Liberal Democrats. I would hardly describe that as pork barrel politics.

Mr. Flight: I regret that the Minister is mistaken, in that the wards that he refers to are not in my constituency but in that of my hon. Friend the Member for Bognor Regis and Littlehampton (Mr. Gibb). I think that he will have to agree that an overall analysis of the areas that benefit tell of predominately Labour and marginal constituencies. The real question about the regulations is what is the Government's intended objective.

As sure as night follows day, if stamp duty goes on one property but not on another, the price of the one will rise against that of the other. No one seems to have made the case that it is actually in the interests of improving disadvantaged areas for property prices in them to increase. It is like a fiscal transfer from the taxpayer in general to the owners of property in disadvantaged areas. Who are the owners of property in such areas—even residential property? They are more often landlords than private individuals.

The Government should make the case that putting upward pressure on property prices in disadvantaged areas is good for their regeneration.

Mr. Boateng indicated dissent.

Mr. Flight: The Minister shakes his head, but I am sure that he understands that any tax advantage, or disadvantage, is passed straight on in the price. It does not just sit there leaving prices unaffected. What, specifically, is the Government's objective in these measures?

Mr. Edward Davey (Kingston and Surbiton): The hon. Gentleman makes a very interesting point about the capitalisation of tax advantages in property. Did he support the abolition of mortgage interest tax relief for those reasons?

Mr. Flight: I cannot recollect that I spoke either in favour of or against mortgage interest tax relief. For 20 years, the debate has continued about whether one of the effects of mortgage interest relief was to drive house prices higher than they would otherwise have been. What is the rationale for the ceiling of £150,000? Self-evidently that has different implications in different parts of the country because properties of that price will be more substantial in some areas than in others. There must have been a rationale and an economic objective in choosing a cap of £150,000 for the whole country, but we have not heard that rationale.

I should be grateful if the Minister would remind the Committee of the criteria for the designation of disadvantaged areas. The practical point is that there will inevitably be problems in locations that abut disadvantaged areas. Some will argue that although they are just outside the boundary they are, in reality, part of the same economic environment. I am aware of the fact that there are criteria, but I would be grateful to hear what they are.

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Is varying stamp duty part of Government policy in relation to general economic circumstances? Will the Government vary stamp duty on property to regenerate economic activity if economic conditions decline over the next two or three years and the UK economy enters recession?

The Minister may have covered the answer to my next question in his preamble, but I should still like to know why new leases are specifically excluded from the measures? Is that a technical point or a policy point?

What is the estimated cost of the measures? I appreciate that that is difficult because the volume of property transactions is unknowable, but given that the Government are taking measures that will reduce revenues, by how much do they think that they will fall?

My hon. Friend the Member for Bognor Regis and Littlehampton has certain legal issues on which he has conducted in-depth research that he wants to raise. The crucial issue is whether the Government are happy that they have the legal powers to introduce the measures in the guise of a statutory instrument.

4.42 pm

 
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Prepared 11 December 2001