John
Howell: Will the Minister give
way?
The
Chairman: Order. I have extended a certain amount of
latitude, but we are in danger of going back over what was said before.
Perhaps the Minister could move on to the
schedule.
Mr.
Timms: I am delighted to do so, Mr.
Atkinson.
In
introducing a temporary VAT reduction—the benefit has been
explained—businesses would have advance notice of a rate rise,
so they could attempt to arrange their affairs so that they paid VAT at
the reduced rate on goods and services provided after the rate goes
back up. Hon. Members have rightly acknowledged that that is what the
schedule addresses.
1.15
pm To
respond to the hon. Member for Henley, on previous occasions when the
VAT rate changed, we saw arrangements providing for prepayments of well
over £100 million covering future supplies over many years.
Recent comments from businesses and tax advisers made it clear that
anti-avoidance rules were needed to thwart those arrangements. We
estimate that £400 million of revenue could be at risk if such
measures are not taken. On 25 November, I announced that legislation
effective from that date would be introduced in the Finance Bill to
protect the public finances from such artificial avoidance. We intend
to stop arrangements designed to avoid payment of tax, but to leave
genuine
commercial transactions unaffected. I hope that I will be able to
persuade the Committee that we have achieved
that. John
Howell: Can the Financial Secretary tell us what
consultation took place with various professional bodies to ensure that
the schedule captures the problems that he wanted to address and is not
disproportionate?
Mr.
Timms: What the schedule does is enact what I said in my
statement of 25 November. Our intentions and approach were set out in
that statement. The draft of the schedule was published, I think, a
couple of weeks before the Budget, so there has been ample opportunity
to respond, and so far, as far as I know, no one has come forward with
alternative proposals. Of course, if there were some alternative ideas,
we would be interested in seeing them. The schedule contains the
distillation of learning from 20 or more years of experience, and I
think the judgment has been got right.
We listened
to a number of comments that were made and we have made some changes as
a result.
Mr.
Gauke: Will the Minister give
way?
Mr.
Timms: Let me just underline this point because it helps
to deal with the concerns raised. As a backstop safeguard, there is a
power in paragraph 15 of the schedule to remove transactions from the
scope of the provision by order, so that unintended effects can quickly
be rectified. If someone came forward with a particular kind of
perfectly legitimate commercial transaction that would be impeded by
the schedule, we could use that power to remove such transactions from
the scope of the schedule.
Mr.
Gauke: I have a genuine query. The Minister talked about
experience in this area. The focus is principally on the return of VAT
to 17.5 per cent., but did any problems arise when VAT was reduced from
17.5 per cent. to 15 per cent.? Was there a loss to the Exchequer
because the equivalent of that type of provision was not in place at
the time?
Mr.
Timms: I do not think that there were
difficulties—certainly not along the lines referred
to—when the rate was reduced. When tax is going to go up,
opportunity arises, and there is clearly a benefit for people who can
organise their affairs artificially so that they can do the transaction
now, rather than after the tax increase. The difficulty arises in cases
where the base of the tax is expanded, which is what happened at the
end of the ’80s when there was quite a lot of forestalling. As I
said, some £400 million of revenue could be at risk, and the
Committee will accept that we would be negligent if we allowed
loopholes to be created, or doors to be opened to avoidance.
Let me pick
up the point that the hon. Member for South-West Hertfordshire raised
about whether there would be an impact on banks part-owned by the
Treasury. We are not aware of any prepayment or similar transactions
between the banks now partly in public ownership that could fall within
the scope of this legislation, nor is there reason to think that such
transactions are likely. His point about connectedness might arise, but
there is no transaction that is likely to cause any difficulty and, as
I said, if there were we could use paragraph 15 of the schedule to deal
with it.
Amendments 5
and 6 would limit the connected parties test in certain circumstances.
It would not be difficult to set up prepayment arrangements,
particularly between connected parties, to enable large amounts of
transactions to escape the effect of the VAT rise. When parties are
connected, it is not clear in which circumstances there would be a need
for prepayments as opposed to any other method of financing that they
might arrange between themselves, so the legislation needs to provide a
robust defence against such artificial arrangements. I suggest that the
amendments would weaken the protection of the connected parties test
and could open the door to
avoidance. Amendment
5 would introduce an intention test into the legislation. I understand
the reason and the fairness argument for that, but in practice it would
be very difficult to assess intention. For obvious reasons, we cannot
be sure that tax avoiders would be wholly frank about their intention
if the success of some tax avoidance depended on it. Introducing such a
test would create uncertainty for taxpayers and for Her
Majesty’s Revenue and Customs, and the circumstances for which
the amendment is designed are unlikely to be common. I hope that the
Committee accepts that it would not make sense to introduce uncertainty
when the number of transactions is small. In any case, as I have said,
the schedule allows transactions to be excluded by order if we come
across transactions that would be
effective. Amendment
7, as the hon. Gentleman has set out, prevents retrospective orders
from extending the scope of the measure. I think that I can give him
the reassurance that he seeks, making the amendment unnecessary.
Paragraph 10 does not permit retrospection—it would not be
possible. To have the power to amend legislation by order
retrospectively, the primary legislation needs to give a power of
retrospection which the paragraph does not explicitly give. We do not
intend to apply such orders retrospectively. Perhaps the fact that I
have said that might help the hon.
Gentleman. I
hope that I have covered the issues raised by the three
amendments, and that I have persuaded the hon. Gentleman that
he can safely withdraw the
amendments.
Mr.
Gauke: I thank the Financial Secretary for his response. I
note his remarks about connectedness and about how amendments 5 and 6
might weaken the provisions, although proponents of the amendments
might say they would “narrow” the provisions. I recognise
his point about an intention test resulting in some uncertainty, but
the amendments have helped to flesh out the Government’s
position.
I am also
grateful for the right hon. Gentleman’s remarks about paragraph
10, for his comments that it is implicit that there is no retrospective
right to amend unless the primary legislation allows that, and his
assurances that the paragraph will not be used for retrospective
purposes. I am still uneasy about such a Henry VIII clause, but the
argument that presumably he would make—that it could only apply
in narrow circumstances—may be reasonable here. Consequently, I
beg to ask leave to withdraw the
amendment. Amendment
by leave
withdrawn. Schedule
3 agreed to.
Clause
10Thresholds
for residential
property Question
proposed, That the clause stand part of the
Bill.
The
Chairman: With this it will be convenient to discuss new
clause 3— Thresholds for residential
property— ‘(1) A
land transaction is exempt from the charge to stamp duty land tax
if— (a) it is a relevant
acquisition of land which consists entirely of residential
property, (b) the relevant
chargeable consideration for the transaction is not more than
£250,000, and (c) the
purchaser is a first time
purchaser. (2) In paragraph
(1)(a) a “relevant acquisition of land” means an
acquisition of a major interest in land other
than— (a) the grant of a
lease for a term of less than 21 years,
or (b) the assignment of a
lease which has less than 21 years to
run. (3) In paragraph (1)(b)
the “relevant chargeable consideration for the
transaction”
means— (a) the
chargeable consideration for the transaction,
or (b) where
the transaction is one of a number of linked transactions, the total of
the chargeable consideration for all those
transactions. (4) The Treasury
shall by regulation define the meaning of “first time
purchaser.”’.
The
Economic Secretary to the Treasury (Ian Pearson): It is a
pleasure to serve under your chairmanship this afternoon,
Mr. Atkinson, and to make my first contribution to the
Committee stage of the 2009 Finance
Bill. On
2 September last year, the Government introduced a one-year stamp duty
land tax holiday applicable to all residential purchases worth
£175,000 or less. The holiday was introduced at a time of
falling house prices and a volume of transactions far below that seen
in recent times. The holiday is a short-term measure to support home
buyers many of whom, despite falling prices, are finding it harder to
enter the housing market. The holiday ensures that more than 60 per
cent. of all residential purchases in the UK are currently exempt from
stamp duty. Approximately 90,000 transactions have already been
exempted from stamp duty over and above those falling below the
original £125,000 starting threshold. We expect that a total of
210,000 transactions will be exempted from stamp duty because of the
holiday. Budget
2009 announced an extension of the holiday to 31 December 2009, to
coincide with the end of the temporary VAT reduction and provide
further support for home buyers. We expect that approximately an extra
60,000 transactions will be exempted from stamp duty as a result of the
extension of the holiday. The decision to extend the holiday reflects
the continued difficulties facing the housing market since it was
introduced in September 2008. For example, transaction volumes are down
by two thirds from their peak in mid-2007 and prices have fallen
considerably in the last year.
Clause 10
provides for the extension, which should be seen in the context of the
other action taken in the Budget to support home owners, home buyers
and the housing supply. Those measures include continued support for
home owners in difficulty, through maintaining the standard interest
rate for support for mortgage interest
at 6.08 per cent. for a further six months; support for housing supply
through a £600 million fund to stimulate or kick-start
development in the short-term and boost capacity in the house building
industry for the recovery; and support for home buyers with the
extension of HomeBuy Direct and the launch of a guarantee scheme for
residential mortgage-backed securities. Against that,
new clause 3 appears to exempt first-time buyers from stamp duty land
tax when they purchase a residential property worth £250,000 or
less. The Government do not believe that raising the stamp duty land
tax starting threshold to £250,000 for first-time buyers would
be an effective use of public money. The new clause does not indicate
an effective date or give an indication of whether the measure is
intended to be permanent. A permanent increase, which I understand is
Conservative policy, would cost the Exchequer approximately
£290 million in 2010-11, rising to £430
million in 2012-13. A temporary increase in the threshold for
first-time buyers, extending only until the end of December this year,
would cost £50 million on top of the £340 million cost of
the existing
holiday. The
Government also estimate that, as a result of the existing stamp duty
holiday applying to transactions worth less than £175,000, some
75 per cent. of first-time buyers are already exempt from stamp duty
land tax. In addition, on 2 September 2008 we launched HomeBuy Direct,
which offers first-time buyers an equity loan of up to 30 per cent. of
the value of a new home to assist them in getting on the housing
ladder. Budget 2009 announced an expansion in the provision of HomeBuy
Direct as part of the wider kick-start housing delivery programme to
unlock sites that have stalled. We estimate that the shared equity and
shared ownership products being offered as part of that delivery
programme, including HomeBuy Direct, will provide approximately 5,000
properties to help first-time buyers get on the property ladder. Given
the action that we are already taking, we do not see a need to raise
the threshold further specifically for first-time buyers. Existing
measures, including the holiday at its current threshold, are a more
appropriate and targeted use of public
funds. 1.30
pm I
should add that new clause 3 does not provide a definition of a
first-time buyer. That introduces problems that themselves mean that we
cannot accept the amendment. Defining a first-time buyer is not
straightforward, and an exemption explicitly for first-time buyers may
give rise to new avoidance opportunities. For example, is an individual
who has previously purchased a property overseas to be considered a
first-time buyer? If such individuals are not to be treated as
first-time buyers, the definition of a first-time buyer could be
difficult to enforce or open to
exploitation. In
light of the difficulties of defining a first-time buyer, the potential
avoidance risks and the help that the Government are already offering
first-time buyers, raising the stamp duty land tax threshold to
£250,000 would not be an effective use of public money. The
action that we are taking, as reflected in clause 10, is
important.
Mr.
Gauke: I welcome the Economic Secretary to his first
participation in this year’s Finance Bill. As he has stated,
clause 10 raises the stamp duty threshold from
£125,000 to £175,000. More precisely, it extends the
existing holiday to 1 January 2010, rather than 2 September 2009. It is
not a dishonourable action for the Government to try to help the
housing market, so our criticisms are not of the proposal’s
intention. However, I wish to voice a number of concerns before
discussing new clause
3. We
must highlight how the policy of a stamp duty holiday emerged. The
Sun headline on 5 August read, “Brown to scrap stamp
duty”. It was very clear that the proposal was a personal
initiative of the Prime Minister’s, and I am sure that the story
caused much delight in No. 10 Downing street, if not in No.
11 too. One suspects that Mr. Damian McBride may have been
involved in the story’s publication, as it was written in a way
that reflected well on the Prime Minister. Unfortunately, however, the
policy had a disastrous effect on the housing market that August; a
number of transactions collapsed throughout the country. An estate
agent in Berkhamsted in my constituency told me of a number of
transactions that had collapsed. Why would people have wanted to enter
into a transaction when house prices were already falling and when they
knew that a more beneficial stamp duty regime was just around the
corner? The
details were not very clear at that point. The Sun headline, as
I have said, read, “Brown to scrap stamp duty”, which
seems exaggerated to say the least. I did not buy a copy of The
Sun that day, but I recall listening to the Chancellor of the
Exchequer being interviewed by James Naughtie on the
“Today” programme on the proposal for a stamp duty
holiday of some sort. The Chancellor, for understandable reasons, gave
a non-committal answer and, as a consequence, there were criticisms of
the confusion within the
Government. Mr.
Jeremy Browne: On the logic of what the hon.
Gentleman has just said, should people who anticipate the Conservatives
winning the next general election delay buying a house valued at
between £175,000 and £250,000? If the Committee does not
agree on it this afternoon, will new clause 3 be introduced if the
Conservatives win the general election?
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