Land in disadvantaged areas
Mr. Flight: I beg to move amendment No. 168, in page 85, line 6, after 'dwelling', insert—
'without significant expenditure being incurred on it'.
I wish to make a number of points, most of which I shall confine to the second part of the debate, on
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clause 108 stand part. I shall initially deal explicitly with amendment No. 168, although its context is wider than that. The clause seeks to exempt from stamp duty commercial properties and certain other defined properties in disadvantaged areas if the proceeds of their sale are less than £150,000—the threshold for all other property is £60,000. That could lead to distortion on the borders of disadvantaged areas. The Law Society suggested the amendment because, under the clause as drafted, a building—the example often quoted is a church—could be adapted to residential use and, because it would be treated as a residential building, it would not qualify for stamp duty relief. The amendment would make it clear that it should so qualify.
Dawn Primarolo: In responding to the amendment and putting the intention of the relief clearly on the record, I hope that the hon. Gentleman may decide that he need not press it to a vote. I appreciate what he said about the wider debate that he wants on new clause 16 and will confine myself to the points that he made.
Let me start by saying that stamp duty relief for land in disadvantaged areas is clearly destined to be an important part of the current and future stamp duty regime. The level of representations and inquiries made to the Inland Revenue already suggests that our proposal to abolish stamp duty for non-resident transactions in these areas is of great interest. I well understand why the definition of what will be and, more importantly, what will not be treated as a residential property is exciting much interest and is the reason for the amendment.
I remind the Committee that, in the vast majority of cases, there will be no doubt whatever about whether a building is a residential property. However, a minority of cases will inevitably fall into a grey area. I suggest that practitioners and lawyers who considered the legislation in detail seem to be trying in the amendment to make the grey area much wider. I hope that the clarity with which I explain the definition will persuade the Committee to agree to leave the clause unamended.
The argument has been made that an office block or church might be suitable for use as a dwelling. I can state categorically that that argument is not acceptable for the purposes of the relief. However, to put people's minds at rest, the Inland Revenue will produce a statement of practice with key stakeholders, including representative organisations. The aim is for the statement of practice to be ready for publication when the differential regimes are implemented.
It may help the Committee's understanding still further if I explain why we thought it necessary to include a
''building . . . suitable for use as a dwelling''
as well as a building used as a dwelling within the definition of residential property. Quite simply, the intention is to ensure that existing dwellings that are unoccupied when sold or that are dilapidated or even semi-derelict are within the definition of residential property. For example, in London in recent years, a number of former squats have been sold by local
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councils and have been in a poor state of repair. It is not my intention to exempt such properties from stamp duty if they exceed the £150,000 limit. They are fundamentally the shell of a desirable home, and that is reflected in the purchase price. No additional stamp duty incentive is needed if such a property is worth more than £150,000. A less extreme example is the need to ensure that a vendor could not remove a bathroom suite from an otherwise perfectly kitted-out home to help the purchaser secure a stamp duty saving. Perish the thought of that happening, but experience teaches us that it could unless we ensure that it cannot.
In the consultative document on the clause, published at the end of last year, our approach was further explained by reference to the level of expenditure necessary on a former dwelling to make it habitable again. That is perhaps the reason why the amendment alights on expenditure as a guiding factor. The level of expenditure, however, will not always be the key. To introduce, as the amendment does, the concept of significant expenditure without any further definition will merely continue uncertainty. A detailed statement of practice is a far more sensible way in which to add clarity to the issue.
I reiterate that there is no intention to interpret ''dwelling'' in the phrase,
''suitable for use as a dwelling'',
as a church, an office block or similar commercial buildings. Nor is it intended to stretch the phrase to include land without any building on it but for which planning permission to build dwellings exists. That query has been raised since the Budget so it is best that I clarify it.
The amendment would not greatly assist the interpretation of the clause, and could unintentionally make the clause more difficult to interpret. I am confident that the proposed statement of practice will be more effective than the amendment in helping developers, and those involved in proposals in the inner city, clarify what is and is not included. However, I entirely accept the good intentions of the hon. Member for Arundel and South Downs; he is trying to ensure that the relief works well. On that basis, I hope that the hon. Gentleman will not press the amendment. If he has a particular interest in the area, I invite him to see the draft statement of practice—I shall rope him in as an unofficial adviser. He has been rather accurate in some of his comments. With that little bit of flattery, I hope that he agrees to withdraw the amendment.
Mr. Flight: I shall not prolong things more than necessary. I am delighted to hear that a statement of practice will address the problem and other issues. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Question proposed, That the clause stand part of the Bill.
The Chairman: With this it will be convenient to discuss new clause 16—Rate of stamp duty on commercial property—
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'.—(1) In Schedule 13 to the Finance Act 1999 (instruments chargeable and rates of duty) after paragraph 3 of that Schedule insert a new paragraph 3A—
''3A In the case of a conveyance or transfer of land which is not residential property within the meaning of section 92A of the Finance Act 2001 the rates of duty are as follows—
1. Where the amount or value of the consideration is £60,000 or under and the instrument is certified at £60,0000 Nil
2. Where the amount of the consideration is £250,000 or under and the instrument is certified at £250,0001%
(2) This section applies to instruments executed on or after 1st August 2002.'.
Mr. Flight: The proposals under clause 108 raise many issues. As in the debate on film incentives, I have reservations about tax measures designed to have specific beneficial economic effects; they are often used—or, as the Paymaster General said, abused—for other purposes, or they can cause unfairness in other directions. Of course, everybody wants to see disadvantaged areas prosper, and as I recollect, the definition of the territories is determined so that almost all MPs have one on their patch. Therefore, there is an apparent mutuality of interest. I just want to put down a marker that I anticipate many problems being raised. The obvious issue is that in a relatively defined region, if one gives attractive things to one territory, it is like giving unattractive things to another. My big worry is that one might succeed in rejuvenating the most disadvantaged areas, but leave the lesser disadvantaged areas to become the most disadvantaged fairly quickly. However, that is a wider issue of principle.
The second issue is that we have had four stamp duty increases since 1997. Stamp duty has become the window tax of our times: a nice easy way of raising lots of money. Given that the efficiency of tax raising is always top of the list of Government arguments, the implications have not necessarily been thought through. About 70 per cent. of the extra tax revenue has fallen on commercial property, due to what the Government have viewed as the operation of avoidance schemes. A series of blocking measures in the later clauses mean that revenue will fall on commercial property even more.
For a business, premises are really no different—depending on what one is doing—from the computers, equipment and so on. They are part of the productive process. High taxes on commercial property could turn out to be bad economic news. They restrict mobility when businesses are growing or contracting, and I do not see that there is a particular logic for having an increased turnover tax.
New clause 16 is designed to reduce the level of stamp duty on commercial property. It would amend the provisions setting the rates of stamp duty and reduce the maximum rate of duty on commercial property to 2 per cent. It would introduce a new paragraph into the Finance Act 1999, which sets out the rates of duty and the maximum rate of 2 per cent. applicable to transfers over £250,000 in value. The definition of residential property is taken from the
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current Finance Bill, which amends the Finance Act 2000 and provides an exemption from duty on land in disadvantaged areas.
That is what the new clause is about. Part of the reason why it has been put under this clause is that, when we raised the issue before as to whether commercial and residential property should be treated the same way for stamp duty purposes, the Government argued that that was not possible because it was too difficult to make the distinctions between the two. However, in clause 108, the distinction is made between land and buildings in disadvantaged areas and commercial property. I think that the Government have rather undercut their previous argument that the issue was too complicated to consider on principle.
Our first big point on the clause is to say that it is a nice easy earner, but have the Government really thought through the economic consequences? They are almost admitting that they have concerns, because if they deem it correct to give a commercial property and certain other properties in disadvantaged areas a big stamp duty advantage—in fact, no stamp duty at all—they perceive the economic difference between commercial and residential property.
A number of amendments were not, I am afraid, in time on Friday to be tabled and are starred. They are broadly probing amendments only. They raise some other issues relating to clause 108. If I may, I shall raise those issues briefly now.
The first point is a technical one about the definition of ''residential property''. I think that the original drafting was taken from the Value Added Tax Act 1994. Surely it would be sensible to ensure an identical definition of the same thing as it applies across different taxes. The most obvious definition to copy is the VAT definition, which is likely to be most relevant to commercial development. The list that the Government have set out in the Bill appears to be taken from the VAT Act list, but has been modified to obtain an acceptable result. If the Bill has the correct list, does that mean that the VAT Act should be amended? That point, as the Government know, has been made by the Chartered Institute of Taxation.
The second big issue is that clause 108 contains a list of properties that are clearly not commercial but that are exempted, for unprescribed reasons. I am again reminded of the list of assets relative to enterprise investment scheme and venture capital trust investments, which is now substantially out of date. That is one of the problems with having such lists. Our thinking is, ''What is the logic of the items on that list?'' Other properties that one could think of are not commercial but are just as important and worthy of exemption economically.
Hospices are included, but why not include accommodation provided for nurses in connection with their services at a hospital or hospice? That is a major issue in connection with getting enough nurses into the health service. We have other charitable ends in mind. A suggestion made to me was to ask about accommodation for staff working at such places as animal sanctuaries. More particularly, what about
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including accommodation made available for key essential workers in public services, where they have a problem, especially in the south-east? One could go on with a list of deserving cases, but we have such a list at present and it does not necessarily include all the most deserving. There may be some technical logic to the list but in terms of economic logic, which is what clause 108 is all about—fiscal incentives for economic improvement—it raises quite a big issue.
The final point is that, as hon. Members are aware, clause 108 requires state aid approval from the EU. I understand that the UK wrote to the EC on 21 December about its proposal to abolish the £150,000 limit on exemptions on transfers of non-residential property in disadvantaged areas. The UK has been invited by the EC to present its case, but the view has been expressed to me that, as when the Government last approached the EC over a lower rate of VAT for church repairs, there are indications that the EC is unlikely to be persuaded. That would completely scupper the clause. Does the Paymaster General have something to say on why the Government are apparently confident that the EC will give its approval?