Variation of Stamp Duties Regulations 2001

[back to previous text]

Mr. Edward Davey: I welcome you to the Chair, Mr. Cummings.

I should like to ask the Minister about the rationale behind the proposal. I am sure that hon. Members are familiar with the urban taskforce report. The urban taskforce, which was chaired by Lord Rogers, was the first Government body to propose this measure. It first suggested the idea in June 1999 as a way in which to help the demand side of the urban housing equation by encouraging people to move to deprived urban areas. Many of us were interested in that argument and wanted to have it tested. As the hon. Member for Arundel and South Downs (Mr. Flight) said, there is always concern that when one messes around with the taxation system one might not achieve one's objective, however laudable it may be.

In the cases of the housing, property and land markets, the value of tax relief often gets capitalised in the price, which confers no real advantage. The measure might not change behaviour because it may simply give a one-off benefit to those who currently hold housing assets. That would not provide the shift of people into deprived areas, which means that income and wealth levels would not improve.

My question, which follows on from the point made by the hon. Member for Arundel and South Downs, is what studies have the Government done to check whether Lord Rogers's proposals are sensible? I should hope that the Treasury has done some background modelling to check whether this type of incentive has worked elsewhere, and I hope that the Minister can share that information with the Committee. My reading of Lord Rogers' report was that this was a nice idea with which he and his colleagues had come up. That is fine, because we need new ideas to stimulate the policy debate, but we must ensure that those ideas are effective. Lord Rogers's excellent report did not provide the economic analysis, which would include modelling and experience from

Column Number: 7

other countries, that I should want if I were a Minister. The Government's objective is correct, and we must ensure that our deprived areas, both urban and rural, can share in the nation's prosperity. That objective is laudable, and I hope that all hon. Members share it.

The question for the Committee is whether this measure is the best way to achieve that objective. Will we obtain best value for the money that we are putting in through this tax relief? I make that point because I want to check who will benefit. As the hon. Member for Arundel and South Downs suggested, perhaps it will be the landlords.

In many inner London areas, for example that represented by my hon. Friend the Member for Southwark, North and Bermondsey (Simon Hughes), many houses are owned by the council. The people on the lowest incomes live in social housing, which they rent. They will not derive a direct benefit from this because they do not own property and their chances of moving are limited. However, the Minister may argue that the wider community will benefit because there will be a greater mix in the social make-up of those areas. That argument is similar to what Baroness Thatcher described as the drip-down effect, except the effect would occur in a local community. Perhaps the thinking behind his analysis is neo-Thatcherite?

If the idea is that yuppies will benefit from the measure, but by spreading their wealth in nearby businesses and shops that will feed through to those on lower incomes, that is not a direct way of targeting help. Perhaps there are other ways to target help such as job creation measures through the new deal. I want to test the Minister to see whether he can come up with good arguments in Committee.

I also want to check how the Minister will define these deprived areas in the legislation. We have been given a wonderful map, we have checked the website and we have seen the wards that will benefit, none of which—as the Member for Arundel and South Downs has already been informed—is in my constituency. I want to know how the Minister will define deprivation and how that definition will stand the test of time. If this works, the areas that benefit will not be the most deprived. The index of multiple deprivation, which seems to lie behind the analysis, could be criticised for the way in which it is compiled.

When the Deputy Prime Minister referred to ''leafy Kingston'' in his local government grant settlement in 1997, it did not go down well in those parts of my constituency where there is severe deprivation. Those areas may not be picked up by this index, but there are poor people living in wards such as Norbiton, which hon. Members will see stands out on the map. Wards may contain wealthy areas, but in a particular postcode there may be deprived areas. I can think of several wards in my constituency that would never be described as deprived on such an index, but people on very low incomes live there.

That analysis might be useful for any studies that the Government might want to undertake on the effectiveness of the measure. It is not true, certainly in

Column Number: 8

my constituency, that because affluent people live in part of a ward, the poverty of other people living in that ward is tackled. There is no trickle-down effect. I could take the Minister to parts of Old Malden where people in two or three roads live in social housing in severe deprivation, but cheek by jowl with wealthy people on high incomes. The wealth and prosperity have not trickled down to those living in the next streets. That suggests that the Government should think at least twice about whether this is the most effective way of spending money.

In summary, I want the Minister to convince the Committee that this is the most effective way of spending money to tackle deprivation and I want him to be very clear about the legislative definition of deprived areas. Will the proposal be effective in targeting those areas that most need targeting?

4.51 pm

Mr. Nick Gibb (Bognor Regis and Littlehampton): I am concerned about the vires of the regulations. The Minister said in his introduction that they are being introduced under powers in paragraph 1 of schedule 33 to the Finance Act 2000. That should immediately alert hon. Members, because the measure emanates from the Finance Act 2001, not the 2000 Act. He has pressing political reasons for wanting to get the cap through, but that is not a reason for the Government to use a power that they are not entitled to use.

Schedule 33 to the Finance Act 2000 was introduced to provide the Government with powers to allow stamp duty avoidance devices to be countered as and when they arise instead of having to wait until the following Finance Bill. That was sensible. As soon as the Revenue gets wind of a tax avoidance device, it can close it immediately, at midnight that night, and within 28 days the Minister can come to the Committee under the affirmative resolution procedure and close the loophole.

The hon. Member for Welwyn Hatfield (Miss Johnson), the then Economic Secretary to the Treasury, introduced that anti-avoidance measure in the Finance Bill Committee and made its purpose clear. She said:

    ''Clause 116 and schedule 33 provide the powers . . . to allow stamp duty avoidance devices to be''

countered

    ''as they arise. At present, there is no mechanism to allow a change in stamp duty to take immediate effect, other than at the time of the Budget. That sets stamp duty apart from other more modern taxes, including stamp duty reserve tax, income tax and corporation tax. Without such a mechanism, there can be no rapid response to devices that would reduce the rate of stamp duty payable.''

She then said that the schedule ensures

    ''that, where an avoidance device involving land or shares threatens to undermine the stamp duty base, the Government will have the power to make regulations that will have immediate effect.''--[Official Report, Standing Committee H, 22 June 2000; c. 909-10.]

The then Economic Secretary set out specifically and clearly in Hansard the purpose of that anti-avoidance measure. It was introduced not to enable Ministers to change the rate of stamp duty, nor to enable them to change the thresholds at which stamp

Column Number: 9

duty becomes payable. As one would expect, measures to do that must be made in primary legislation. The regulations seek to put a cap on the exemption from stamp duty introduced in last year's Finance Act, which, as the Minister said, relates to properties situated in disadvantaged areas. The introduction of a cap of £150,000 is clearly the introduction of a threshold and not the closure of an anti-avoidance loophole.

To illustrate that point in black and white, I refer members of the Committee to the opening line of the instrument, which states that the power to make the regulations is contained in paragraph 1 of schedule 33 to the Finance Act 2000. The stamp duty exemption was introduced under section 92(1) of the Finance Act 2001, which states:

    ''No stamp duty shall be chargeable . . . if the land is situated in a disadvantaged area.''

That is how the law stands at the moment.

Section 92(4) of the 2001 Act gives the Treasury the power to issue regulations to designate and describe which areas are to be regarded as disadvantaged. The relevant instrument—Statutory Instrument No. 3747—was published on 29 November. It listed the wards in England, Wales and Northern Ireland, and the postcodes in Scotland, that are to be regarded as disadvantaged areas for the purposes of the Act.

That is the only enabling power in section 92. It does not give the Treasury the power to introduce a £150,000 cap. How did the Government get round that problem? They searched around for a power that would enable them to introduce the cap, and found it in schedule 33 of the Finance Act 2000. However, hon. Members did not pass the power in that schedule to enable the Government to do that, but solely as an anti-avoidance measure.

Regulation 3(2)(a) says that the exemption from stamp duty contained in section 92 of the Finance Act 2001 will not apply where

    ''the amount or value of the relevant consideration exceeds £150,000''.

That is clearly a threshold.

Schedule 33(3) of the Finance Act 2000 says:

    ''The power conferred by paragraph 1''—

that is, the power that the Government are using to change the threshold—

    ''does not . . . include power to vary—

    (a) the rate . . . of . . . stamp duty''

    ''(c) any threshold specified in paragraph 4 of Schedule 13 to the Finance Act 1999''.

I am not giving an interpretation of the provision—it clearly and expressly spells out an exclusion from using the power to change the threshold. The thresholds in paragraph 4 of schedule 13 to the Finance Act 1999 are the four thresholds of £60,000, £250,000, £500,000 and beyond. Imposing a £150,000 level beyond which a zero rate of stamp duty will not apply is clearly imposing a threshold. The regulations not only go beyond the vires of schedule 33 but contravene the spirit and intention of that power by using it for a purpose for which it was clearly not intended.

Column Number: 10

The issue is made even clearer by regulation 3(2)(b), which says that exemption from stamp duty contained in section 92 of the Finance Act 2001 will not apply where

    ''the instrument could not be certified under paragraph 4 of Schedule 13 to the Finance Act 1999 at £150,000 or under if that threshold were specified in the Table in that paragraph.''

In effect, that deems that the £150,000 threshold is to be included within the threshold figures set out in paragraph 4 of schedule 13 to the Finance Act 1999. It introduces a threshold into that paragraph, which is expressly forbidden by schedule 33(3) of the Finance Act 2000. Use of the words ''as if that threshold were specified'' cannot be a way round the abuse of this power.

It must be evident to the Minister, now that I have explained it so clearly, that the regulations are being introduced under powers that cannot be used for such purposes. I know that they have passed through the Joint Committee on Statutory Instruments, but it can get things wrong and in this case it has. He is introducing legislation that is ultra vires. Have the Law Officers ruled on the matter?

To be fair to the Minister, I do not blame him personally for what I regard as an abuse of powers conferred by the House. Eminent barrister though he is by training and experience, he cannot be expected to spot every technical breach. He is a busy Minister, and Ministers should not have to deal with such matters.

 
Previous Contents Continue

House of Commons home page Parliament home page House of Lords home page search page enquiries ordering index


©Parliamentary copyright 2001
Prepared 11 December 2001