Stamp Duty Land Tax Bill

David Gauke Excerpts

Monday 12th January 2015 Commons Chamber

[The Financial Secretary to the Treasury (Mr David Gauke)]

It is a great pleasure to serve under your Chairmanship, Mrs Riordan, and to debate the Bill.

Clause 1 amends section 55 of the Finance Act 2003 to change the basis of calculation for stamp duty land tax on residential property transactions, and provide a new table of rates and thresholds that apply to those transactions. It also introduces the schedule that makes the consequential changes to SDLT, and to the method of calculating the amount of tax due when certain reliefs are claimed. As right hon. and hon. Members will be aware, the measure came into force through a resolution under the Provisional Collection of Taxes Act 1968 for transactions whose effective date—usually the date on which the purchase contract is completed—is on or after 4 December 2014.

Let me briefly remind the House why we have introduced this important and comprehensive reform to SDLT on residential property. In essence, the stamp duty system on residential property as it previously stood was flawed and widely criticised, and it created an enormous hike in taxes at certain thresholds. Someone paying £250,000 for a house would pay £2,500 in stamp duty, but if they paid £250,001, they would pay £7,500—three times as much. Inevitably that created peaks in transactions at those thresholds and dead zones above them, and that big distortion affected a significant number of properties. We have got rid of the inefficient and distorted old system and replaced it with a fairer new system that cuts SDLT for 98% of those who pay it. No buyer of a property under £937,500 will pay more SDLT than they would have done before 4 December. We have provided a calculator on the HMRC website so that people can work out how much tax they will pay, and I am happy to confirm that to date it has been used more than 1.25 million times.

[Jonathan Edwards (Carmarthen East and Dinefwr) (PC)]

As the Minister points out, this change will result in savings for the vast majority of people purchasing a home. What assessment has he made of the impact on house price inflation as a result of the changes?

[Mr Gauke]

There may be a slight impact on house prices, but we must put that in context. Many factors determine house prices, and on the evidence before us our view is that the changes will not have a significant impact on the overall level of house prices. They are likely to have a bigger impact on removing some of those dead zones and distortions in the housing market, which is beneficial in creating a more efficient and effective housing market.

The reform has been welcomed by right hon. and hon. Members in all parts of the House and by outside bodies, including the Council of Mortgage Lenders, the Institute of Directors and the Institute for Fiscal Studies. Jonathan Isaby, from the TaxPayers Alliance, called it:

“an early Christmas present for young people looking to get on the housing ladder.”

[Mr John Redwood (Wokingham) (Con)]

Will the Minister comment on the impact on revenue? He may collect more revenue where rates have been cut, but lose revenue at the top end.

[Mr Gauke]

That is not our assessment. My right hon. Friend is an eloquent and distinguished advocate of the argument that it is possible to raise more revenue by reducing rates, and he has over many years demonstrated cases where that would apply. I do not believe that we will quite see that dynamic effect to that extent in this case. I think more revenue, and certainly a greater proportion of it, will be raised from properties above £2 million. Undoubtedly, we will see a few more transactions, which will mean additional revenue that would otherwise not come in. On balance, we will see a reduction overall in revenue across the SDLT regime, but we believe that that is none the less the right thing to do to ensure that we deliver a reform that benefits the vast majority of people who pay SDLT.

Under the rules as they applied on 3 December, the amount of tax payable was a percentage of the chargeable consideration—the purchase price—for the acquisition of the property. Different scales of percentages, table A and table B, applied respectively to transactions consisting wholly of residential property and to transactions that consisted of, or included, non-residential property. The clause substitutes a new table A, setting out the new tax rates and bands that apply to a transaction consisting wholly of residential property. It also amends the calculation rules for those transactions, so that each rate of tax applies only to that part of the consideration that falls within the relevant band. The total tax due is then the sum of the amounts of each band.

[Mrs Anne Main (St Albans) (Con)]

I stress again how welcome the change has been for residents in St Albans, particularly at the lower end of the market where there have been big savings. Has consideration been given to expanding the scheme to commercial properties, and not just keeping it to wholly or partly residential properties?

[Mr Gauke]

All these matters are kept under review. My hon. Friend has been a consistent and doughty campaigner for reform in this area. If we had exactly the same system in place for commercial property, with the same thresholds and so on, we would be imposing a much greater burden on commercial property transactions, because by their nature they tend to be of a more substantial size. There is a higher level of consideration in place than for most residential property transactions. The argument for reform for residential property was particularly strong, which is why we took these steps. Consideration of whether there is a strong and persuasive case for reform for commercial property is perhaps a matter for another day.

[Mrs Cheryl Gillan (Chesham and Amersham) (Con)]

I join my hon. Friend the Member for St Albans (Mrs Main) in welcoming the provisions, which will provide a great deal of assistance to the housing market.

The Minister knows that for some time I have been pursuing stamp duty land tax for all those affected by the notorious HS2 infrastructure project. Is the Minister willing, while he is looking into this matter, to review those provisions? The SDLT relief applies to only a very narrow number of properties. To keep the property market operating normally, it should be possible to extend it to properties up and down the line that are being so adversely affected by the project.

[Mr Gauke]

I am grateful for that observation from my right hon. Friend and constituency neighbour. I know well how the issue of SDLT in general must be relevant to many of her constituents. On the specific point about HS2, the Government remain to be persuaded that SDLT is necessarily the right measure for addressing the concerns that she identifies and on which she provides an articulate voice in defence of her constituents and others affected by the project. We remain to be convinced, but I know that she will continue to make her argument, and we will continue to look at it carefully. As I said, however, we are not yet convinced that reform of SDLT, or an exemption or relief, would necessarily provide the right support for those with properties affected by HS2.

Clause 1 substitutes a new table A setting out the new tax rates and bands applying to a transaction consisting wholly of residential property and amends the calculation rules for these transactions so that each rate of tax applies only to that part of the consideration that falls within the relevant band. The total tax due is then the sum of the amounts for each band. The new calculation rules extend to linked transactions—those that form part of a scheme arrangement or a series of transactions between the same buyer and seller. In this case, SDLT applies to the aggregate consideration for all the linked transactions.

The new rules do not apply to transactions to which table B in section 55 of the 2003 Act applies—transactions or linked transactions consisting wholly of non-residential or a mixture of residential and non-residential property. The clause introduces the schedule, which makes consequential amendments to SDLT legislation to take account of the reform. The main changes are to the method of calculating the tax due under certain SDLT reliefs. The first relief is for statutory leasehold enfranchisement, where leaseholders of flats club together to buy the freehold of their block. This relief formerly operated by setting the rate of SDLT according to the amount paid for the freehold, divided by the number of qualifying flats. Under the new arrangements, first we divide the amount paid for the freehold by the number of qualifying flats and calculate the amount of tax due on that sum. We then multiply that amount of tax by the number of qualifying flats in order to arrive at the total tax due.

Secondly, a similar change is made to relief for purchasers of multiple crofts from a landlord by a crofting community body under the crofting community right to buy scheme. This relief only applies in Scotland so will only be relevant until 1 April 2015, when SDLT in Scotland is replaced by the devolved land and buildings transaction tax.

Finally, a similar change is made to multiple dwellings relief, which applies to purchasers of more than one dwelling in either a single transaction or linked transactions. This relief was previously subject to a minimum rate of 1%. Under the new rules, the amount will be equivalent to 1% of the chargeable consideration given for the dwellings, which in practice gives the same result.

Right hon. and hon. Members raised several important points on Second Reading. I would like to take this opportunity to explain in a little more detail the Government’s position on some of those issues. First, it has been asked why we have chosen not to apply the new rules to non-residential—commercial and agricultural —property as well as to residential property. That point was raised just now by my hon. Friend the Member for St Albans (Mrs Main). As I said, the market for non-residential property is very different from the market for residential property. For example, non-residential properties have a higher value on average and many are held on market rent leases granted for a small or no premium. At this time, the Government do not feel it appropriate to make changes to non-residential SDLT, although all taxes are kept under review as part of the policy making process. Any change to non-residential SDLT would have to be considered very carefully.

Some concern has been expressed about the possibility of purchasers avoiding SDLT by designating the property as either residential or non-residential in order to obtain a more favourable result. What constitutes residential property is set out in the legislation. Property can be either residential or non-residential, which is a matter of fact. There is no option, as it is has been suggested there is, to flip property between one and the other. I can reassure the Committee on that.

Finally, it has been suggested that the highest rate of tax payable under the new rules might reduce the disincentive to envelope residential property provided by the 15% higher rate SDLT charge, which applies to purchasers of residential property by a company or other non-natural person. The highest marginal rate of SDLT for the purchase of residential properties above £1.5 million is now 12%. However, SDLT is charged at 15% on the whole value for residential properties bought through corporate envelopes for more than £500,000. We are not proposing to make any changes to the 15% higher rate charge. However, in the autumn statement, we announced that the annual charges of the annual tax on envelope dwellings—ATED—would increase by 50% above inflation for the chargeable period 1 April 2015 to 31 March 2016 in order further to discourage the use of enveloping. The Government keep all taxes under review where individuals continue to hold property within corporate wrappers. They should be prepared to pay their fair share of tax.

These reforms to SDLT will remove the previous economic distortions in the system, benefiting the housing market and improving the fairness and efficiency of the tax system. They will give another boost to people looking to fulfil their aspirations of owning the place they live in and will make a real tangible and positive difference to the lives of people up and down the country.

[Shabana Mahmood (Birmingham, Ladywood) (Lab)]

It is a pleasure to serve under your chairmanship, Mrs Riordan.

I thank the Minister for his introduction to clause 1 and schedule 1. Let me confirm from the outset that we support these measures, as we did in the previous two debates on the Bill. We will do so again today. As I say, we have already had a couple of debates and it is a small Bill, so many of the issues have been debated thoroughly before. I am grateful to the Minister for dealing with some of the questions that arose on Second Reading. I have just a couple of points on which I would like to press him, and I will be grateful to hear his response in his summing up.

First, can the Minister provide us with an update on HMRC’s handling of the queries that arose when these measures were announced? Can he confirm the number of queries that HMRC had to deal with, clarify the nature of the queries that the public or their advisers raised and confirm whether all outstanding queries have been dealt with?

Secondly, let me press the Minister a little further on the revenue. I put some points to him on Second Reading about the expectations of revenue, but that matter has not been fully covered by the responses we have received. The Minister knows that these measures are expected to cost £395 million in 2014-15, rising to £760 million in 2015-16. Research by Lonres and Dataloft has found that more homes changed hands on the day of the autumn statement than on any other day in the past decade, so one in six of all homes sold in London’s most expensive areas in the last three months of the year changed hands on 3 December. The research by Lonres and Dataloft estimates that, as a result, buyers saved £9.4 million in taxes. Is that in the order of the behavioural change that was expected, as modelled by the Treasury in its costings? I am sure the Minister will repeat that they have been independently certified by the Office for Budget Responsibility.

I should like to know whether the number of transactions and the cost in Exchequer revenue after the announcement of the measures in the autumn statement are along the lines that the Government were expecting. As the Minister knows, the Office for Budget Responsibility, which applies a rating system to the “certainty” of costings, has said that it considers the costings to be medium to high risk. How confident is he about the numbers, and about the extent of the behavioural change that is expected?

--- Later in debate ---

[Mr Redwood]

Yes, indeed there could.

This is difficult to predict, because all these things need to be modelled. The level of the reduction in some cases is quite large, and it will be difficult to make up for all that lost revenue through increased transactions. That is why it would be interesting to probe the Treasury a little more on its forecasts. I expect it thinks that there will be quite a big revenue gain where the rate has gone up, but that effect might not prove to be as strong as it hopes, because there will definitely be a disincentive effect at the top end following the introduction of the very top rate for the privileged few who can afford those types of properties. Those people are often in the fortunate position of owning more than one property, and of being able to decide whether they wish to buy property in this country or elsewhere. There will be some kind of disincentive effect, and we need to look at relative taxes and relative prices in relation to London and other centres.

It would therefore help if we knew a little more about the Treasury’s numbers at this stage of the debate, so that when we review this policy in a year or two, we can see what was right and what was wrong. For example, does the Treasury think that there will be extra revenue from the higher rate? That has clearly not been the case in relation to the two big taxes that I have mentioned. Does it envisage a loss of revenue despite the effect on transactions at the lower level? It would be good to have more detail, so that we can have some benchmarks as we try to assess the financial impact of the policy.

[Mr Gauke]

I thank all right hon. and hon. Members for their contributions to this short debate on clause 1, and I shall attempt to address as many as possible of their questions. The hon. Member for Birmingham, Ladywood (Shabana Mahmood) raised a number of points about the impact of the changes. First, let me deal with her question about HMRC’s handling of inquiries. I do not have all the detailed numbers available, but, as I mentioned earlier, about 1.25 million hits have been made on the HMRC calculator, which is a substantial number. There have been relatively few queries made over the telephone or in writing. In practice the great majority of those can be dealt with by HMRC’s stamp tax helpline or by reference to ongoing guidance. More complex queries are escalated to HMRC’s technical specialists. As I say, I cannot give the numbers but I do know that the view within HMRC is that this process has gone smoothly, including in respect of the helpline provided on the day of the autumn statement, when, as has been pointed out, a number of transactions were accelerated in order to benefit from the transitional regime. All that has gone smoothly and I am not aware of any particular difficulties in that area.

--- Later in debate ---

[Mr Gauke]

My hon. Friend brings me to an important point, which is that, over the course of this Parliament, the Government have been determined to address stamp duty land tax avoidance. It was a problem in the tax system. One certainly heard both anecdotally, and in the concerns of HMRC, of transactions being made to envelope properties and so on, which is why in 2012 we announced the introduction of the annual tax on envelope dwellings. It is why, over the course of this Parliament, we have taken a number of actions to deal with that avoidance. Had we not done so, it would have been difficult to make the reforms that we have in front of us today in an affordable way, as we would not effectively have been able to raise additional revenue from the top end of the housing market to counteract the reductions in revenue that will occur in the rest of the market.

Increasing rates would not have led to much, if anything, by way of additional revenue, because we would have found that it would have increased avoidance activity and we would not have got in the money that we would otherwise have done. As a consequence, the costs would have been unaffordable.

[Mr Redwood]

Are there not two obvious ways in which certain groups of people in the higher value properties decide not to pay this tax? The first is people who are in a two to three-bedroom flat or a small house in a very expensive part of the UK, normally London, may decide that they do not want to swap properties or downsize or upsize because it is too expensive. The other is that the very rich people at the top end coming in from abroad may decide that this is the straw that breaks the camel’s back on the transaction. Some people might welcome that but it could still be a behavioural impact of this particular provision.

[Mr Gauke]

My right hon. Friend is right to say that there will be behavioural responses. Some people might be dissuaded from entering into a transaction and decide to remain in the same place as a consequence of a higher level of duty. There may also be an impact on the attractiveness of the UK as a place in which to locate, but as he is well aware, that is but one factor among very many. I can think of greater threats to the attractiveness of the UK. I should not get drawn into what those threats may be, but they certainly exist. I am tempted to turn to the Opposition’s mansion tax, but I dare say you would haul me into line, Mrs Riordan, so let me not be drawn into what others might say. There is much I want to say, but it would probably not be in order.

I hope that my remarks are helpful to the Committee, and that the clause will stand part of the Bill.

Question put and agreed to.

Clause 1 accordingly ordered to stand part of the Bill.



Clause 2

Citation, commencement and transitional provision etc

Question proposed, That the clause stand part of the Bill.

[Mr Gauke]

The clause provides for the new method of calculating SDLT introduced by the Bill to apply to transactions where the effective date is on or after 4 December 2014. It introduces transitional provisions that apply in cases where contracts were exchanged before 4 December, but the contract was completed on or after that date. Under the rules, a purchaser may elect that the new rules do not apply. The election is made in a land transaction return, and must comply with any requirements specified by the Commissioners for Revenue and Customs.

I should clarify a remark made by my hon. Friend the Exchequer Secretary on Second Reading in response to a question asked by my right hon. Friend the Member for East Yorkshire (Sir Greg Knight). The requirements are set out in the HMRC guidance published on 3 December, and simply serve to explain how the taxpayer should make an election; they do not restrict the application of the legislation in any way.

An election for the transitional provisions to apply is made simply by self-assessing the relevant amount of tax due in the return, or by amending the return, which may be done within 13 months of the effective date of the transaction. The transitional provisions are designed to protect purchasers who, before the changes were announced, entered into a binding contract in the expectation that the old rules would apply. In practice, more than 98% of purchasers will benefit from, or at least be no worse off under, the new rules. The transitional rules will ensure that those who exchanged contracts before 4 December are not disadvantaged as a result of the changes introduced by the Bill.

Question put and agreed to.

Clause 2 accordingly ordered to stand part of the Bill.

Schedule agreed to.

The Deputy Speaker resumed the Chair.

Bill reported, without amendment.

Third Reading

[Mr Gauke]

I beg to move, That the Bill be now read the Third time.

Let me start by thanking all right hon. and hon. Members who have contributed to the scrutiny of the Bill and who have done so in a constructive and positive manner. There has been considerable consensus and agreement on its contents and I welcome the support received from right hon. and hon. Members on both sides of the House.

The Bill makes important and comprehensive reforms to stamp duty land tax on residential property. The move from a slab to a slice system will cut SDLT for 98% of people who pay the tax—99% in Scotland, Wales and Northern Ireland, and 91% in London. It will reduce distortions in the housing market and will be of particular benefit to first-time buyers and those making the first few moves up the housing ladder. It will ensure that nobody paying up to £937,500 for their home will pay any more SDLT than they would have done under the rules as they applied on 3 December last year.

The aspiration to own the place one lives in has been the driver of Britain’s prosperity for centuries. SDLT is an important source of Government revenue, raising £6.5 billion in 2013-14 to pay for the essential services Government provide and support, but as a tax it must be imposed fairly and reasonably, and to put it quite simply, it has not been until now. These reforms will boost people’s aspirations and, critically, ensure that SDLT is paid in a fair and applicable manner that minimises avoidance. They are part of a much wider suite of Government measures designed to get Britain building the homes it needs. Almost 217,000 affordable homes have been delivered since April 2010 and between 2011 and 2015 some £19.5 billion of public and private investment is going into affordable homes, putting us on track for the highest rate of affordable house building for at least two decades. A family buying a Help to Buy property at the average cost of £185,000 will be £650 better off as a result of the reforms—a significant sum, especially at a time when cash is most likely to be tight.

I welcome the efficient and effective debate we have had so far so. The measures will make a tangible and positive difference to the lives of people up and down the country, which has been recognised and welcomed by Members on both sides of the House. I hope that Members will see fit to read this Bill a third time and to pass it.

European Union Finances (Annual Statement)

David Gauke Excerpts

Thursday 18th December 2014 Written Statements

[The Financial Secretary to the Treasury (Mr David Gauke)]

I am today laying before Parliament, “the European Union Finances 2014: statement on the 2014 EU budget and measures to counter fraud and financial mismanagement” (Cm 8974). This is a routine annual publication. It is the 34th in the series.

The statement gives details of revenue and expenditure in the 2014 European Union (EU) budget, recent developments in EU financial management and measures to counter fraud against the EU budget. It also includes an annex on the use of EU funds in the UK.

UK Film Investment (Tax Relief)

David Gauke Excerpts

Tuesday 16th December 2014 Westminster Hall

[The Financial Secretary to the Treasury (Mr David Gauke)]

It is a great pleasure to serve under your chairmanship, Mr Crausby. I thank my hon. Friend the Member for North Devon (Sir Nick Harvey) for securing the debate. It had two key and linked themes: investment in the film industry and concerns about tax avoidance. On both those issues, the Government have a strong, clear message. We of course strongly support the UK film industry and want to encourage genuine investment in film, but equally—and unapologetically—we condemn the use of tax avoidance schemes. We want low taxes and a competitive regime, but we expect those taxes to be paid.

We have in the United Kingdom a vibrant and successful film industry, of which we should be proud. In the past three years, employment in the creative industries has grown at five times the rate of the wider economy. The past year has seen film and television production in the UK boom, with, to pick names at random, “24” being filmed in London, “Outlander” in Scotland, “Da Vinci’s Demons” in Wales and “Game of Thrones” in Northern Ireland.

It is right that as a Government we lend our support to those who want to invest in the industry. We now have a robust corporate film tax relief, which was expressly designed to minimise the risk of tax avoidance and which has been in place since 1 January 2007. The new relief goes straight to those making films—in other words, it is the production company that gets the direct benefit of the regime.

The new regime has proved very successful in attracting inward investment. It is highly popular with film-makers and has helped to make the UK one of the top film-making destinations in the world. Since the film tax relief was introduced in 2007, 1,680 film productions have become eligible to claim the new relief, and total production expenditure by films claiming the relief was £7.8 billion, of which 72% was incurred in the UK.

As a Government, we have made the relief even more effective. From 1 April 2014, we increased the rate of relief for larger budget films, reduced the level of minimum UK expenditure and modernised the system of film tax relief qualification. To ensure that our creative industry flourishes across sectors, we announced in the autumn statement that we would introduce tax relief for children’s television and for orchestras.

With regard to the concerns raised by the hon. Member for Huddersfield (Mr Sheerman) and by my hon. Friend the Member for Westmorland and Lonsdale (Tim Farron), I should say that we have a successful record in this country. The existing film tax relief is working well and continuing to attract investment to the UK. I am pleased to confirm that there has been no reported avoidance activity with the new film tax relief.

[Mr Sheerman]

I hope the Minister takes the point that those of us who have spoken in the debate do not agree with tax avoidance, which is carried out by a minority. We are at a critical stage, having had such good news in the autumn statement—Opposition Members do not often congratulate the Minister on such things—about raising the social investment tax relief scheme to a much higher level, and about the seed investment scheme. The Minister knows that I am very keen on crowdfunding and crowdsourcing, and we are seeing a new beginning when it comes to vibrant theatre and social investment across our country. The Minister must not send a message in his response to the debate that some of that might be seen as tax avoidance. We are talking about social investment and investment in our arts, and it is to be welcomed.

[Mr Gauke]

The hon. Gentleman is nothing if not consistent; I have never known him to fail to take the opportunity to extol the virtues of crowdfunding and some of the other measures that we are taking. The point that I am making is that we have a film tax relief system that is working well and attracting investment. Nothing in what I am about to say should undermine that.

Our system is working, but I cannot, unfortunately, say the same about all investment under the film relief that was in place before 2007. The old relief was heavily exploited by partnerships of wealthy individuals. Typically, they sought to obtain tax relief out of all proportion to their economic investment. Many schemes used artificial and contrived arrangements to create excessive tax claims. In short, investors abused the relief to try to dodge paying their fair share of tax.

My hon. Friend the Member for North Devon argued that the old legislation was working well. The previous Government took significant legislative action over a number of years to try to prevent the various forms of abuse that were occurring, but they concluded in 2007 that they had to scrap the old regime and replaced it with a much better scheme that now works. HMRC is actively investigating and countering schemes under the old regime about which it has concerns.

[Sir Nick Harvey]

I am not dissenting from the Minister’s proposition that the post-2007 arrangement has been better than the arrangement that ran for the previous 10 years. Nor would I take issue with his assertion that there was some abuse of the previous system. However, when he says that investors used those schemes for the purposes of tax avoidance, is he seriously contending that every single investor who availed themselves of a tax relief that the Government had created was doing so for tax avoidance purposes, or does he accept that there were good and bad among those investors? Will HMRC please do more to distinguish between the two?

[Mr Gauke]

HMRC is not taking a blanket approach to all such schemes, and I will return to that point in a moment.

It might be helpful if I set out some of the problems with the old regime. At the extreme, the situation was so bad that some films were produced solely for the purpose of avoidance schemes, and they were never destined for release beyond the minimal qualifying requirements. Other schemes involved genuine commercial films, but the structure of the financing was designed to generate tax relief in excess of the scheme user’s genuine economic investment. Alongside the schemes that used the relief, other avoidance schemes were created that happened to use films as the avoidance vehicle of choice, even though they did not rely on the specific film relief.

Everyone should be clear that the use of films for tax avoidance is bad for the reputation of the UK film industry. I suspect that there is no dispute among us on that point. Such avoidance is unfair on the vast majority of the public who pay their fair share of tax, and it is correct for HMRC to tackle avoidance in whatever form it takes. HMRC has a strong track record in the courts, winning about 80% of tax avoidance schemes that go to litigation. In 2013-14, HMRC’s 30 wins protected some £2.7 billion of tax. HMRC has a strong track record of defeating film schemes in court. It is right for HMRC to challenge avoidance schemes, because that is its job, but it has not taken a blanket approach of opposing all schemes that involve the old film tax relief. If someone believes that HMRC’s view on a scheme is wrong, they can take the matter to the courts for a decision.

My hon. Friend the Member for North Devon has raised the concern that HMRC has not always worked the case properly. I cannot comment on specific cases or schemes, but let me reassure him that the resolution of existing tax avoidance schemes is a top priority for HMRC. During the past year, HMRC has created a dedicated counter-avoidance directorate, bringing together technical, policy and operational expertise from across the Department in one place to concentrate focus on tackling marketed tax avoidance. The Government have consistently supported HMRC’s work to counter marketed tax avoidance by introducing new legislation and investing in its resources.

That brings me to this year’s Budget, in which the Chancellor announced that from 17 July 2014, individuals and businesses involved in tax avoidance schemes must pay HMRC the disputed amount of tax up front while the dispute is being resolved. That new power, which is called accelerated payments, came into force as part of the Finance Act 2014, and it removes the cash flow advantage that those who deliberately try to bend the tax rules by avoiding tax previously had over the majority of taxpayers who pay their tax up front.

I am pleased to say that the collection of tax from avoiders has accelerated enormously since the introduction this year of accelerated payments, and avoiders have already agreed to pay more than £30 million since Parliament introduced that measure. It is quite right that the users of avoidance schemes involving films or film relief should also pay up front.

[Mr Sheerman]

Can we send the message to HMRC that although it must catch the rascals and make them pay, it needs to be more discriminating? If it is not, we on the Back Benches will put a lot of attention and focus on to making sure that it becomes so, to ensure that people who have innocently invested are not picked on. We have many powers, through Select Committees and from the Back Benches in Question Time, to keep our eye on HMRC and ensure that it does the job properly.

[Mr Gauke]

I am sure that that point has been noted, and I do not disagree that HMRC must pursue those who have engaged in tax avoidance and not pursue those who have not. However, an important part of HMRC’s role is to pursue tax avoidance thoroughly. It would be inappropriate for me to comment on any ongoing litigation, but I stress that neither accelerated payments nor any other HMRC action to tackle avoidance will stop genuine investment in UK films.

The UK film industry goes from strength to strength, supported by a successful, avoidance-free film tax relief that goes directly to film producers. We want to continue to support investment in the UK film industry so that it can grow. Tax relief, properly due, has an important place in helping to provide that support. As the hon. Member for Huddersfield has made clear, further announcements of such support were made in the autumn statement. Tax avoidance has no place in a modern film-making environment. The UK has a hard-won reputation for world-class creativity, but we want that to be expressed in the creation of films, not in the creation of tax avoidance schemes.

Barnett Formula

David Gauke Excerpts

Tuesday 16th December 2014 Westminster Hall

[The Financial Secretary to the Treasury (Mr David Gauke)]

It is a great pleasure to serve under your chairmanship this afternoon, Sir Alan. I congratulate my hon. Friend the Member for Milton Keynes South (Iain Stewart) on securing this debate and setting out his case in a characteristically thoughtful and analytical way. He brings great knowledge and expertise to the matter. I also thank other hon. Members for their contributions to this short debate, the timing of which is very appropriate. Given the momentous referendum in Scotland not that long ago and the Smith commission’s subsequent report, this subject has never been more topical. Furthermore, hon. Members will have seen that the Government have published a Command Paper today looking at the options for devolution in England. The paper acknowledges that the treatment of tax and spending decisions that impact on funding to the devolved Administrations will need to be considered in any solution.

Since its introduction over three decades ago, the Barnett formula has proved to be a durable and robust method of calculating changes to the block grants for the devolved Administrations, providing population-based shares of comparable UK Departments’ changes in spending. The leaders of the three main UK parties have confirmed that the Barnett formula will continue, and the House of Lords report in 2009, as we heard, recognised advantages such as simplicity, stability and the absence of ring-fencing. However, we also recognise the concerns expressed about the formula and we welcome all views on its continued implementation.

[Jonathan Edwards (Carmarthen East and Dinefwr) (PC)]

The vow has been made to the people of Scotland that the Barnett formula will be preserved and that Barnett funding will be preserved at its current level. Does the Minister not agree with my analysis, therefore, that a new benchmark has been set for what we would term fair funding? Whereas before the argument was for some sort of needs-based formula, the argument is now about making sure that the people of Wales, for instance, are not disadvantaged compared with the people of Scotland in terms of public funding per head.

[Mr Gauke]

Let me turn to the issue of fairness for all parts of the United Kingdom, including for Wales—I assure the hon. Gentleman that I will get to that eventually. As my hon. Friend the Member for Milton Keynes South has mentioned, there is a perception, particularly in parts of England, that Scotland is overfunded because it offers generous policies on university tuition fees, for example. However, I must emphasise that devolved Administrations do not receive any additional funding for those policies. They accommodate them within existing budgets by prioritising those policies over others—for example, by not protecting school spending during this Parliament, as we have in England.

One of the purposes of devolution is to allow the devolved Administrations to make different policy choices. That was set out in 1997 in the statement of principles, which states:

“The key to these arrangements is Block budgets which the devolved administrations… will be free to deploy…in response to local priorities.”

In contrast, commentators in Scotland, Wales and Northern Ireland tend to be concerned about the Barnett squeeze convergence property of the Barnett formula, whereby the percentage changes in devolved Administration spending are lower than in England. However, the Barnett formula itself does not change the budgets of the devolved Administrations disproportionately to England’s: an extra pound per head in England means an extra pound per head in the rest of the UK. The so-called Barnett squeeze reflects the higher levels of spending per head in Scotland, Wales and Northern Ireland that have existed over many years, before and since devolution in the 1990s.

I know that some hon. Members consider Wales to be relatively underfunded as its spending has converged towards the level in England. In fact, spending per head there is 11% above England’s and has more than doubled in cash terms since devolution. Wales also benefits from large EU structural fund spending, having been awarded £1.9 billion from 2007 to 2013 and a similar amount for 2014 to 2020.

However, we recognise that there are concerns about relative levels of funding for Wales; that is why we have established a bilateral process to consider that in advance of each spending review. The most recent assessment, before the 2013 spending round, determined that convergence was not forecast to occur through to 2015-16 and that the existing level of Welsh funding was within the range suggested by the Holtham commission. The Government have now further agreed with the Welsh Government to review that process in the light of the tax and borrowing powers contained in the Wales Bill.

[Glyn Davies]

The Minister may have just answered the question I was going to ask, but perhaps he might reassure me on the uncertainty about the size of what I call the Barnett deficit in Wales. Everybody thinks it has decreased substantially over the last few years as a result of the change in public spending levels. Are we moving to a position where we will know precisely what that Barnett deficit is, because it is very important for the discussions that we are having about the powers over income tax that the Welsh Government should be taking on?

[Mr Gauke]

My hon. Friend raises an important point. I know that he has been very active in ensuring that the Welsh Government take advantage of the powers that may be available to them, and I know there is an issue of funding there. I hope that I did address his point by saying that the Government have agreed with the Welsh Government to review the process in the light of the tax and borrowing powers in the Wales Bill. I hope that process will satisfy him by shedding light on the issue that he raised.

I turn to the issue of the needs-based formula. I have heard it said that the Barnett formula does not take sufficient account of needs. The most basic issue here is that no one has been able to say how we would agree a needs-based assessment that would suit every part of the United Kingdom. However, far from being a static formula, the Barnett formula is regularly updated to take account of changes in population and levels of devolved responsibility.

The budgets of the devolved Administrations cover a very wide range of devolved spending programmes. It is, of course, for the devolved Administrations to decide how to allocate their overall budget to individual programmes, reflecting their own policies and their own assessment of the needs of each country. The Barnett formula allows them the freedom to do that.

However, we believe that financial accountability can be improved in Scotland, Wales and Northern Ireland as the devolution settlements evolve. The Government’s record on that speaks for itself. Both the Scotland Act 2012 and the Wales Bill currently in Parliament will devolve new tax and borrowing powers. We have also committed to implementing Lord Smith’s heads of agreement in full. As we devolve further powers, Scotland and Wales will be responsible for raising far more of their funding, so their block grants will become less important. The impact of the Barnett formula on overall levels of funding will decline.

Finally, in highlighting today’s debate in The Daily Telegraph, my hon. Friend the Member for Milton Keynes South set out that the debate would be better informed if we had

“detailed and incontestable territorial public accounts”,

which is a point he made earlier. The Government do not disagree, but this is a complex matter. The Office for National Statistics is considering the development of sub-national accounts as part of its implementation of the European system of accounts, and it is also undertaking work on the comparability of official statistics across the United Kingdom.

It is right that a formula that has set out devolved spending for over a third of a century is continually kept under review to make it fit for the needs of the current day. The three main party leaders have stated that the Barnett formula will continue, and that is therefore what will happen. However, we continue to listen to the strong views on the formula from all parts of the United Kingdom, which have been represented in this debate this afternoon. In that spirit, I thank everyone for their contributions today. I particularly thank my hon. Friend the Member for Milton Keynes South, who has brought to this debate careful, thorough and thoughtful analysis. He has succeeded in shedding some light on an important issue and has highlighted some matters that can often be lost in this important debate.

[Sir Alan Meale (in the Chair)]

Mr Stewart, would you like to add anything? We have a short period of time left.

Employment Intermediaries: Temporary Workers

David Gauke Excerpts

Tuesday 16th December 2014 Written Statements

[The Financial Secretary to the Treasury (Mr David Gauke)]

At Autumn Statement 2014 the Government announced that they would review the increasing use of overarching contracts of employment by employment intermediaries such as “umbrella companies”. These arrangements enable workers to obtain tax relief for home to work travel that would not ordinarily be available.

The Government are today publishing a discussion paper inviting representations from interested parties to inform potential future action on this issue. The discussion document can be found on the gov.uk website.

Finance Bill 2015

David Gauke Excerpts

Wednesday 10th December 2014 Written Statements

[The Financial Secretary to the Treasury (Mr David Gauke)]

The Government have consulted on a number of tax policies following their announcement at Budget 2014. Today, the Government are publishing responses to these consultations alongside draft legislation to be included in Finance Bill 2015. This fulfils our objective to confirm the majority of intended tax changes at least three months ahead of publication. Draft legislation will be open for technical consultation until 4 February 2015.

The Government are publishing draft legislation on policies announced at Budget 2014 and earlier, including:

A package of four changes in response to the Office of Tax Simplification’s recommendations for simplifying the system of employee benefits and expenses;

The introduction of capital gains tax on future gains made by non-residents disposing of UK residential property from April 2015;

A measure to allow the Government to make regulations which give non-charity intermediaries a greater role in operating gift aid;

A registration scheme for alcohol wholesalers to reduce the illicit trade in alcohol products.

The Government will also publish draft legislation on policies announced at the autumn statement 2014 including:

An increase in the level of the income tax personal allowance to £10,600 from April 2015;

A new tax relief for the production of children’s television programmes.

A new tax—the diverted profits tax—to counter the use of aggressive tax planning techniques used by multinational enterprises to divert profits from the UK will be applied from 1 April 2015 using a 25% rate;

Legislation that gives the UK power to implement the G20-OECD agreed model for country-by-country reporting;

The Government have also published draft legislation for the following Finance Bill 2015 measures, with effect from 10 December 2014:

Inheritance tax simplification of trust charges and new rules to target tax avoidance through the use of multiple trusts

The Government are introducing rules about adding property to trusts on the same day to target inheritance tax avoidance through the use of multiple trusts. This will apply to all charges arising on or after 6 April 2015 in respect of all relevant property trusts created on or after 10 December 2014. To prevent forestalling, it will also apply to relevant property trusts created before 10 December 2014 where property is added on or after this date to more than one trust on the same day. The Government are also making changes involving the relevant property rules relating to appointments for the benefit of the deceased’s surviving partner, which will apply to all deaths on or after 10 December 2014.

Simplifying “link company” requirements for consortium claims

With effect from 10 December, the Government have published draft legislation to simplify the tax system by removing all requirements relating to the location of the “link company” for consortium claims to group relief.

Detail of the clauses published today can be found in the “Overview of Legislation in Draft” document, which also includes tax information impact notes for each measure. All publications will be available on the gov.uk website.

Stamp Duty Land Tax Bill

David Gauke Excerpts

Wednesday 10th December 2014 Commons Chamber

[The Financial Secretary to the Treasury (Mr David Gauke)]

I beg to move, That the Bill be now read a Second time.

My right hon. Friend the Chancellor announced in last week’s autumn statement an important and comprehensive reform to stamp duty land tax—SDLT—on residential property. Many Members made their views known on the SDLT changes in last week’s debate on the provisional collection of taxes motion. Today is an opportunity for others to raise their voices, although looking around the Chamber, it appears possible that the House’s appetite for debating this matter was sated last week.

With effect from 4 December, the structure, rates and thresholds of stamp duty land tax have changed, and stamp duty has moved from a slab to a slice arrangement.

[Alok Sharma (Reading West) (Con)]

Of course I, like many colleagues, welcome the measure. My constituents are some of the most aspirational people in the country, and they think that this is a great move by the Government. What assessment has my hon. Friend, or perhaps the Office for Budget Responsibility, made of likely increases in the volume of property transactions as a result of this change to stamp duty?

[Mr Gauke]

This is likely to have an impact, with more transactions for properties on which the stamp duty bill has fallen—some 98% or so—and slightly fewer transactions when a larger stamp duty bill will apply. Although there will be an element of behavioural change as a consequence of the measure, property transaction numbers and house prices will be affected by a whole range of factors, so it can be difficult to ascribe any particular changes to one particular reason. However, it is likely that there will be more transactions, and that has certain advantages, such as for labour market mobility, and if it means that people are living in the homes that they want to live in as opposed to feeling trapped in their property to a certain extent. I think that the measure will have a beneficial impact on the housing market.

Each new SDLT rate is now payable only on the portion of the property value that falls within each band. That is in contrast to the old system, under which tax was due at one rate for the entire property value. Moving from a slab to a slice arrangement is right in terms of fairness and economic efficiency. The new arrangement will cut SDLT for 98% of people who pay the tax, and no one who is buying a home worth up to £937,500 will pay more.

This Government believe in aspiration. The aspiration to own our own house is one of the elements of human nature. It is something that, for generations, has been totemic for people in this country. This is a Government who will help people to achieve that ambition, and do so in a fair and equitable way.

The previous stamp duty system was flawed. It had been criticised by hon. Members on both sides of the House, industry and think-tanks. It was

“one of the worst designed and most damaging of all taxes”,

according to the director of the Institute for Fiscal Studies, and “unfair” according to the Building Societies Association. According to the Royal Institution of Chartered Surveyors, it did not

“work as it stands and creates large distortions”.

The problem with the previous system was simple. The slab approach created an enormous hike in taxes at certain thresholds. If someone paid £250,000 for a house, they would pay £2,500 in stamp duty. If they paid £250,001, however, they would pay £7,500—three times as much. In reality, of course, nobody did; they would have been crazy to. What happened was that there were dead zones—in this case a little above £250,000—in which almost no transactions actually took place.

To return to the intervention made by my hon. Friend the Member for Reading West (Alok Sharma), this change is likely to result in a substantial increase in the number of transactions in those dead zones because of the ending of the bunching effect, which should help us to have a more efficient market. Let me again give an example that I cited in last week’s debate: in 2013-14, there were over 30 times as many sales between £245,000 and £250,000 as there were between £250,000 and £255,000. Given that the average UK house price is around £275,000, this was a big distortion affecting a significant number of properties.

What also happened was that people owning properties a little under the threshold were reluctant to improve them for fear that that would be money thrown away if they came to put the property on the market. Also, people wishing to move up the property ladder as their families grew, but who found themselves on the wrong side of the step upwards, had to find a significant—and arbitrarily imposed—lump sum precisely at a time when there are hundreds of other one-off expenses to worry about. We have got rid of the inefficient and distortive old system, and replaced it with a fairer new system that cuts SDLT for 98% of people who pay it.

Under the new structure, no buyer purchasing a property will pay anything at all up to the first £125,000. Buyers will be charged 2% for the portion from £125,000 to £250,000, and 3% for the portion from £250,000 to £925,000. Those individuals buying a house worth more than £925,000 will be charged 10% for the portion of the price between £925,000 and £1.5 million, and buyers will pay 12% tax for any portion of the price above the £1.5 million threshold.

I stress that the tax will be paid once, and once only, at the point when the purchaser has the cash to do so. Once it has been paid, that is it, because we do not believe in introducing a system that would require homes to be revalued every year, or in imposing a large liability on people who may be asset-rich but cash-poor.

[Ian Swales (Redcar) (LD)]

I welcome the rate profile that my hon. Friend has put into the Bill. Does he agree that the measure is another example of this Government increasing taxes for the wealthy and making those with the broadest shoulders bear the biggest burden?

[Mr Gauke]

It is an example of that. In yesterday’s Treasury questions, in the context of the reduction of the 50p rate of tax to 45p, I pointed out that the proportion of income tax paid by the top 1% has been higher—and is projected to be higher—in the years since that cut than it was when the 50p rate was in place. There is a similar point to be made here. For properties, we estimate that the top 1% will be paying just under 40% of all stamp duty yields, whereas in 2010, under the old system, the top 1% were paying only 19% of all yields. Stamp duty has become more progressive as a consequence of our changes.

[Mr Jim Cunningham (Coventry South) (Lab)]

How does that affect the shrinking tax base? This is a genuine question, by the way. The tax base seems to be shrinking at the moment, so will this change have an impact on the tax base, or will it be neutral?

[Mr Gauke]

I do not know whether the hon. Gentleman is referring to the fact that there has been a deliberate shrinkage of the tax base, in that we have taken 3.4 million people out of income tax. Perhaps that was not what he meant, but I am happy to draw the House’s attention to that policy none the less. The Government have, on a number of occasions, made the tax system more progressive. At a time when the public finances are in a difficult position and we need to consolidate them, we have ensured that the wealthiest in society bear a significant burden, and this measure is an example of that. We have made stamp duty land tax more progressive by reducing the burden on ordinary households and collecting more tax from the top end, where there has been a significant appreciation in values in recent years.

[Alok Sharma]

My hon. Friend talked about the yearly property tax that others have proposed, but irrespective of whether such a tax were introduced, is it not the case that it would not help those who want to buy their own house? Does he agree that the Government are introducing aspiration into home buying, which is something that we should all be encouraging?

[Mr Gauke]

Indeed; that is right. These measures will be helpful for those who want to get into the housing market and who often face significant challenges in putting together a deposit and meeting the transactional costs involved. I believe that it will be helpful that we have been able to reduce the transactional costs. I return to the point I made a few moments ago: this measure will help households up and down the country and we, as a Government, believe in aspiration.

Let me stress that in every city, town and county in the United Kingdom, a large majority of people will benefit from the new system. No buyer of a property under £937,000 will pay more tax than under the previous system, and there will be a tax cut for 98% of home buyers who currently pay SDLT. In London, 91% of home buyers who pay SDLT will see their tax bill cut. In Scotland, Wales and Northern Ireland, over 99% of those paying SDLT will see the rewards in their pockets. A buyer of the average Help to Buy home priced at £185,000 will be £650 better off as a result of these reforms.

The reforms came into force at midnight on 4 December to avoid creating undue distortions in the market, meaning that a stand-alone Bill was necessary. The Bill was introduced in Parliament on 4 December, following a provisional collection of taxes motion at the end of the autumn statement. If a person had exchanged contracts before 4 December but completes on or after that date, our transitional arrangements mean that they can choose whether to use the old or the new rates and structure. We have provided a calculator on the Her Majesty’s Revenue and Customs website so that people can work out how much tax they would be paying, and I am happy to confirm that it has been used more than 880,000 times since it was put in place on Wednesday.

It is a bit of a standing joke that the UK is a country obsessed with house prices, but for most of us, buying a home involves the biggest amount of money we will ever spend. Stamp duty land tax is an important source of Government revenue. It raised £6.5 billion in 2013-14 to pay for the essential services that the Government provide and support. However, it is only reasonable that the tax should be imposed fairly and equitably. As a result of difficult decisions that we have taken elsewhere, we are now able to forgo £800 million of revenue to introduce these changes.

The changes have been warmly welcomed. They are

“great news for those buying a home or considering a move”,

according to Nationwide. They are particularly good for

“first time buyers and second steppers”,

according to Savills, and

“a shot in the arm for families and growing firms”,

according to the CBI. My particular favourite came from a Mr Tom Whipple—a science correspondent for The Times—on Twitter, who wrote:

“We are moving home next week. Osborne just saved us £400. I’m calling our new fridge freezer George.”

That is how to become a household name in politics!

On a more serious note, I would like to touch on how the change affects Scotland. From 1 April 2015, the land and buildings transactions tax—LBTT—will replace stamp duty land tax in Scotland. Up until that point, these reforms will apply to all residential property transactions in the UK, including Scotland. This will ensure that home buyers in Scotland do not miss out on a potential tax cut before the LBTT comes into operation.

I am aware that there are some in the UK who will be unaffected by this change. As housing has become less affordable, the rate of home ownership has fallen from its 2003 peak of 70% to around 65%. Many are wondering whether they will ever get on to the housing ladder. Our reforms to SDLT will assist those households by reducing the amount of cash needed at the point of purchase. It should be stressed that SDLT is part of a much wider set of reforms designed to get Britain building, to increase radically the supply of housing units, and to release some of the pressure on our housing market.

[Alok Sharma]

The Minister cites the schemes that the Government have implemented to help people to buy their own homes. Will he tell us how many people have benefited from the Help to Buy scheme? Will not these changes give a further boost to the scheme?

[Mr Gauke]

My hon. Friend raises an important point. Indeed, I am about to mention some of the measures that we have taken in respect of helping the housing market, including Help to Buy.

We are investing billions of pounds of public money to provide affordable new homes, including £4.5 billion during this spending review period to provide 170,000 new units, and a further £3.3 billion to deliver 165,000 more units over three years from 2015. As announced in the autumn statement, there will be another £1.9 billion between 2018 and 2020 to continue delivering homes at the same rate. We are also reforming planning laws. The autumn statement package contains commitments on releasing land with capacity for up to 150,000 homes and new measures to support up to 133,000 homes.

[Mr Jim Cunningham]

Will the Minister give way?

[Mr Gauke]

I should like to make some progress, as I want to answer the question asked by my hon. Friend the Member for Reading West.

In September, we introduced a new £400 million rent to buy programme, boosting the building of new rental homes to help people to upgrade into home ownership. The programme allows people to rent affordably and to save for a deposit, and then to buy that home or another one. To answer my hon. Friend’s question, more than 66,000 households have benefited from the Help to Buy equity loan and mortgage guarantee schemes, four fifths of whom were first-time buyers.

[Mr Cunningham]

Obviously we want people to be able to own their homes, but there is another facet to this: social housing, either through local authorities or housing associations. What element of the money that the Government are putting into these schemes is going to that end of the market? The drop from 70% to 65% that the Minister mentioned earlier probably relates to people going into the rental market.

[Mr Gauke]

The hon. Gentleman should bear in mind that almost 217,000 affordable homes have been delivered since April 2010. Between 2011 and 2015, some £19.5 billion of public and private investment is going into affordable homes, and we are on track for the highest rate of affordable house building in at least two decades. The Government are delivering on all aspects of how we ensure that we give people the opportunity to have decent housing. These SDLT reforms will give another boost to people wishing to fulfil their aspirations to own the place they live in.

[Jake Berry (Rossendale and Darwen) (Con)]

I apologise to the House for not being here for the start of the debate. I am sure that the Minister will be aware that when the previous Government introduced a new SDLT regime, there were several avoidance schemes, most of which involved sub-selling at below the market value. I applaud the Bill and look forward to its passage through the House. Will he confirm that the anti-avoidance measures under the previous regime will be read over to this Bill to stop the abuse of the tax system?

[Mr Gauke]

I am grateful to my hon. Friend for raising that point, because the Government have addressed this issue fully during this Parliament. A few years ago, SDLT was starting to develop a reputation as a tax that was easily abused—he mentioned one means by which that was done—but this Government have introduced several measures to deal with that. We have seen a substantial decline in the marketing of SDLT avoidance schemes, and the introduction of the annual tax on enveloped dwellings has been successful in discouraging avoidance. He is right to highlight the issue, but we are making changes in the context of an SDLT that is perhaps less leaky than when we came into office a few years ago. That enables us to make our changes, which benefit properties in a way that is, none the less, affordable for the Exchequer. As the Chancellor made clear last week, the policy will deliver a tax bill cut for 98% of people who pay SDLT, and the previous economic distortions in the system have been removed, which benefits the housing market generally.

[John Stevenson (Carlisle) (Con)]

First, I apologise for being late, as I was serving on a Delegated Legislation Committee. I welcome the reforms for the residential market, but do the Government have any intention to introduce similar provisions for the commercial market?

[Mr Gauke]

I am grateful to my hon. Friend for raising that point, which we debated briefly last week. Particular issues with the residential market meant that we needed to address that quickly, and some of the pressures to reform the system applied particularly to the residential market. Clearly, any Government will want to keep this matter under review, so I would not want to rule out looking at the commercial market. However, the imperative was to press on for the residential market, and no doubt commercial property and SDLT is a matter to which the Government will wish to return in the future. I know that he welcomes these reforms, and I should point out that more than 99% of transactions in his constituency will benefit from our changes.

[Jake Berry]

What will be the SDLT position when there is a mixture of residential and commercial property? How will a shop with a flat above it, for example, be treated under the new SDLT regime?

[Mr Gauke]

The residential property would be considered under the new residential regime, and an evaluation would be needed to distinguish between the commercial and the residential premises.

This reform will improve the fairness and efficiency of the tax system. It will make a real, tangible, positive difference to the lives of people up and down the country, and I hope that hon. Members will think fit to give the Bill a Second Reading.

Oral Answers to Questions

David Gauke Excerpts

Tuesday 9th December 2014 Commons Chamber

[Mr Iain McKenzie (Inverclyde) (Lab)]

3. What recent estimate he has made of how much the reduction in the additional rate of income tax to 45% is worth for a person earning £1 million a year.

[The Financial Secretary to the Treasury (Mr David Gauke)]

The cost of reducing the additional rate of income tax to 45% is estimated at about £100 million a year. That is set out in table 2.2 of Budget 2013. We have not broken down the impact by income ranges, because there is a significant behavioural response associated with the additional rate of income tax. That behavioural response is estimated in aggregate and reflected in the costing.

[Mr McKenzie]

Christmas is coming and it is a time for giving, but the truth is that this Government have been giving to millionaires for some time. The average tax cut to millionaires is worth £100,000 a year. Will the Financial Secretary confirm that that figure for the Government’s tax giveaway to millionaires is correct? How many of my constituents in Inverclyde have benefited from that reduction in tax?

[Mr Gauke]

What is a fact is that the proportion of income tax paid by the top 1% for the years since the 50p rate was cut has in every year been higher than in any of the years in which the 50p rate was in operation. It is this Government who have made changes to stamp duty land tax—that was just last week—and to capital gains tax, and who have dealt with reliefs and exemptions, to ensure that the wealthiest play a greater share than they have in the past.

[Steve Baker (Wycombe) (Con)]

Is it not the truth that people are able to change their behaviours to reduce their tax liabilities, and is it not the case that if the Government want to raise more from the wealthiest, it is necessary to lower the rate to a point where it encourages them to earn and to pay?

[Mr Gauke]

As I said a moment or so ago, in the two years since the 50p rate was reduced to 45p, a greater share has come from the top 1% than in the previous three years. There is a lesson to be learned there. It is probably the reason why the previous Labour Government had a 50p rate for only 35 days out of their 4,758 days in office.

[Shabana Mahmood (Birmingham, Ladywood) (Lab)]

Will the Minister rule out a further cut to the additional rate of income tax for the top 1% of earners? Will he rule out another tax cut for millionaires?

[Mr Gauke]

The priority of the next Conservative Government will be increasing the personal allowance to £12,500, and the rate at which higher-rate taxpayers pay the 40p rate to £50,000 a year. The truth is that our focus is on ensuring that we can lift people out of income tax, which is not a record of which the previous Government can boast.

[Shabana Mahmood]

I will take that as a no. The Minister has failed to rule out another tax cut for the richest 1% of earners in our country. As he signalled in his answer, the Prime Minister has made £7 billion-worth of unfunded tax promises for the next Parliament. We did not find out in the autumn statement where the money is coming from to pay for these promises, so unless the Minister can stand at the Dispatch and categorically rule out raising VAT again, will not people just conclude that the only way the Chancellor can pay for his unfunded tax promises is with another Tory VAT rise?

[Mr Gauke]

Our plans do not require us to raise taxes. [Interruption.] The shadow Chief Secretary, the hon. Member for Nottingham East (Chris Leslie), is heckling, but I have to say that when he was asked that question on television last week, he refused to rule out raising VAT. Our plans do not require taxes to rise, unlike—I have to say—those of the Labour party.

[Sir Tony Baldry (Banbury) (Con)]

Does my hon. Friend agree that a fair tax system should see everyone contributing to reduce the deficit, with those with the largest earnings making the largest contribution? Am I correct that the top 1% of taxpayers actually pay nearly 30% of all income tax receipts at present?

[Mr Gauke]

My right hon. Friend is correct in that assessment. That proportion is higher than occurred in any year under the previous Labour Government or, indeed, when the 50p rate was in place.

[Mr Speaker]

I call Pat Glass. Not here.

[Charlie Elphicke (Dover) (Con)]

5. What estimate he has made of corporation tax receipts in each year since 2010; and if he will make a statement.

[The Financial Secretary to the Treasury (Mr David Gauke)]

Her Majesty’s Revenue and Customs publishes annual corporation tax statistics every August. They show that revenues from corporation tax, excluding the ring-fenced oil and gas regime, were £35 billion in 2010-11, £33 billion in 2011-12, £35 billion in 2012-13 and £36 billion in 2013-14. The Government have delivered major cuts to corporation tax, but increased growth and investment in the UK mean that revenues from the main regime were higher last year than in 2010.

[Charlie Elphicke]

Is my hon. Friend aware that non-oil corporation tax receipts have risen 16% over the course of this Parliament so far, compared with a rise of just 8% over the entirety of the previous 13 years? Does that not show that if you cut the rate, you up the take? [Interruption.] How will the diverted profits tax work?

[Mr Speaker]

Order. The question was simply too long. The hon. Gentleman should have cut it off when he was winning, instead of going on for too long, which is what he then continued to do.

[Mr Gauke]

It is right that we have reduced the corporation tax rate. Next year, it will give us the lowest rate in the G20. That is resulting in greater investment in the UK. It would certainly be a mistake to reverse that policy, as the Labour party intends. In terms of the diverted profits tax, I would point out that it will help to deal with aggressive tax avoidance. We will publish the draft legislation on that tomorrow, setting out the full details of how it will operate.

[Mr Barry Sheerman (Huddersfield) (Lab/Co-op)]

The House knows that I am an avid listener of the “Today” programme. Did the Minister hear the interview this morning, which showed how ineffective it is to have this great gap between the rich and the poor in our country? The tax system is increasing that gap, not helping it. What is he going to do about it, because it makes our economy less efficient?

[Mr Gauke]

As it happens, the distributional analysis shows that our policies have narrowed the gap. The point is that we have made changes to our tax system to ensure a greater contribution from the wealthiest in terms of stamp duty land tax and capital gains tax. We have reduced some of the reliefs and exemptions that meant some high earners did not pay taxes. I am afraid that the idea that a 50p rate was effective in achieving such objectives—including raising revenue—is simply wrong.

[Ian Swales (Redcar) (LD)]

Further to the Minister’s answer on the diverted profits tax, will he confirm whether it will cover businesses that run substantial operations in the UK, but that invoice from Ireland or Luxembourg to avoid tax?

[Mr Gauke]

We are confident that the measure will be effective in targeting multinationals that use aggressive tax planning and contrived structures to avoid UK tax. The diverted profits tax will be charged at 25% and will raise more than £1 billion over the scorecard period.

[Stephen Timms (East Ham) (Lab)]

The current corporation tax rate is the lowest in the G7 and there are good reasons why that is the case. However, on small business Saturday last weekend, many of us were reminded of the heavy burden of business rates. Would it not be better, instead of reducing the corporation tax rate further, to use the same money to reduce business rates?

[Mr Gauke]

I remind the right hon. Gentleman, who performed the role of Financial Secretary with great distinction, that in his time in office there were no measures to reduce business rates in the way that we have done in the last two autumn statements by putting in place a cap of 2%, bringing in a rebate for retailers and extending small business rate relief. This Government have an excellent record on business rates—a message that I am sure many hon. Members heard on small business Saturday at the weekend.

[Jim McGovern (Dundee West) (Lab)]

6. What estimate HM Revenue and Customs has made of the amount of uncollected tax in the UK.

[Sarah Champion (Rotherham) (Lab)]

14. What estimate HM Revenue and Customs has made of the amount of uncollected tax in the UK.

[The Financial Secretary to the Treasury (Mr David Gauke)]

HMRC published its latest tax gap estimates on 16 October 2014. The tax gap in 2012-13 was estimated to be £34 billion, which was 6.8% of the total tax due.

[Jim McGovern]

Last week in the autumn statement, the Chancellor announced plans to address tax avoidance. If he and the Treasury are serious about that, why did they vote down an amendment that said that the quoted eurobond—I am sorry, but I cannot quite remember the words. They did not support that amendment, costing this country £500 million per year.

[Mr Gauke]

The reason we have not pursued that policy is that, having looked at it carefully, we do not believe that it would raise anything like the revenue that has been suggested, nor that it would do anything for the UK’s competitiveness. The Government have consistently taken action on tax avoidance, tax evasion and aggressive tax planning. I would happily list the measures, Mr Speaker, but I suspect that you would not allow me the time to do so. By 2015-16, we believe that those measures will be bringing in £7.6 billion a year.

[Sarah Champion]

I thank the Minister for his answers to Question 5 and to these questions. Will he explain why I am fighting against funding cuts for families in crisis in Rotherham because the council does not have enough Government funding to support them, while some big companies are getting away with not paying a penny in corporation tax?

[Mr Gauke]

Very difficult decisions have had to be made to deal with the deficit that we inherited. On the contribution from larger companies, as we have heard, the tax take from large companies through corporation tax has continued to rise and we have continued to take measures to deal with tax avoidance. As I have said, just last week, we announced that we would operate the diverted profits tax, the details of which will be set out tomorrow. That is an example of where the Government are taking tough, practical action to ensure that everybody pays what is required under the law.

[Stephen Mosley (City of Chester) (Con)]

Will my hon. Friend confirm that, as a result of the investment and effort that have been put into tackling tax avoidance and evasion since the general election, a record number of people are being prosecuted, with 2,600 people having been prosecuted in this Parliament alone?

[Mr Gauke]

Yes, my hon. Friend is correct—we have substantially increased the number of prosecutions in that area. The yield brought in by HMRC as a consequence of its enforcement action has also increased substantially, and in the autumn statement it was announced that that yield is anticipated to be £26 billion in 2014-15—around £9 billion more than when we came to office.

[Cathy Jamieson (Kilmarnock and Loudoun) (Lab/Co-op)]

The Minister has made much of what the Government are doing on tax avoidance, but will he tell the House by how much tax receipts were revised down in the autumn statement?

[Mr Gauke]

It is the case that tax receipts were revised down, but so was expenditure on debt interest payments. This country continues to face the major challenge of living within our means, and it is important to have a Government who stick to the long-term economic plan that delivers that.

[Cathy Jamieson]

The Minister gave a very partial answer because he did not mention the fact that the Institute for Fiscal Studies has said that tax receipts have been revised down by £25 billion by 2018-19. Is one key reason for that the fact that wage growth has been revised down again, and that the Government’s failure to raise living standards for working people is why they have also failed to meet their promise to balance the books by next year?

[Mr Gauke]

The answer to increasing wage growth is not just to observe that it would be nice if wages went up but to have no policies to do that. If we want wage growth, we need investment in the UK, which we are getting. We want more people in jobs, and a record number of people are in jobs. We want to improve our training and education system, and record numbers of people are taking up apprenticeships. We want to improve our transport infrastructure, and the Government have committed to the biggest road building programme since the 1970s. If we want wage growth, we must stick to the long-term economic plan.

[Jackie Doyle-Price (Thurrock) (Con)]

7. What recent estimate he has made of the level of employment.

--- Later in debate ---

[Stephen McPartland (Stevenage) (Con)]

9. What recent steps he has taken to reduce tax avoidance.

[The Financial Secretary to the Treasury (Mr David Gauke)]

We set out the next set of steps in our plan to tackle tax avoidance in the autumn statement last week. We are introducing a new diverted profits tax from 1 April 2015 using a 25% rate to counter the use of aggressive tax planning techniques used by multinational enterprises to divert profits from the UK. We are also strengthening the disclosure of tax avoidance schemes—DOTAS—regime, coupled with a further suite of measures that build on the work we have already done to tackle marketed tax avoidance such as accelerated payments of disputed tax in avoidance cases.

[Stephen McPartland]

My constituents work hard and pay their taxes and rightly expect other people and businesses to do the same. Does the Minister agree that the autumn statement last week showed that it is Government Members who are serious about delivering fairer taxes for all?

[Mr Gauke]

My hon. Friend is entirely right. As a Government, we believe in competitive taxes but we also believe in a system in which people and businesses pay those taxes.

[Mr Frank Roy (Motherwell and Wishaw) (Lab)]

If the Government are serious on tax avoidance, why has the much-heralded Swiss tax deal brought in only a third of the projected income?

[Mr Gauke]

That particular measure has not brought in as much as was forecast, but I can point to others that have brought in more than was forecast. One example is disguised remuneration, which the Office for Budget Responsibility highlighted last week and has brought in more than was anticipated. We anticipated that it would bring in £750 million a year; it will bring in more than that. By the way, that measure was opposed by the Labour party.

[Mark Lazarowicz (Edinburgh North and Leith) (Lab/Co-op)]

10. What recent assessment he has made of the effect of the housing market on the economy.

--- Later in debate ---

[Mr Philip Hollobone (Kettering) (Con)]

17. What the basic rate personal tax allowance was in May 2010; what that rate would have been in May 2015 if indexed to inflation; and what that rate will be in May 2015.

[The Financial Secretary to the Treasury (Mr David Gauke)]

The tax-free personal allowance was £6,475 in May 2010. It would have risen to just £7,485 by May 2015 through inflation, but the Government announced at autumn statement 2014 that the personal allowance would be increased to £10,600 from April 2015, and this is being legislated for in the Finance Bill 2015.

[Mr Hollobone]

By next May how many people does my hon. Friend estimate will have been taken out of paying income tax altogether in (a) Kettering, (b) Northamptonshire, and (c) the country as a whole?

[Mr Gauke]

By April this year the Government’s measures, including increases in the personal allowance for those born after 5 April 1948, are estimated to have taken about 3.4 million individuals out of the income tax system altogether. Some 248,000 of these individuals live in the east midlands region, which of course includes the constituency of Kettering in Northamptonshire.

[Fiona O'Donnell (East Lothian) (Lab)]

T1. If he will make a statement on his departmental responsibilities.

Stamp Duty Land Tax

David Gauke Excerpts

Thursday 4th December 2014 Commons Chamber

[The Financial Secretary to the Treasury (Mr David Gauke)]

Inadvertent though it may have been, may I begin by apologising to you, Mr Speaker, and to the House for my late arrival for this debate? May I also thank my right hon. Friend the Minister for Pensions for moving the motion and the hon. Member for Birmingham, Ladywood (Shabana Mahmood) for permitting me the opportunity to address the House on this important matter? May I also thank you, Mr Speaker, for your encouragement and support on delivering this important reform and for having the opportunity to discuss the parliamentary procedure in advance?

Yesterday, as we have heard, the Chancellor, in his autumn statement, announced an important reform to stamp duty land tax. Moving from a slab to a slice arrangement is right in terms of fairness and economic efficiency. As the Chancellor set out, 98% of people who pay the tax will benefit, and the previous economic distortions in the system have been removed, benefiting the housing market generally.

[Sir Oliver Heald]

The Minister will be aware that in north Hertfordshire house prices are challenging for first-time buyers. I believe that 91%-plus of people will benefit from this reform and that the relief for the purchaser of an average house costing £275,000 is as much as £4,500. I do not know whether he can confirm that, but I just wish to pay tribute to the reform, which will help a lot of people to get on to the housing ladder.

[Mr Gauke]

I thank my hon. and learned Friend for his thoughtful and timely intervention. He raises an important point and is exactly right in saying that the purchaser of a house worth £275,000, which is the average house price in the UK, will pay £4,500 less in stamp duty land tax than they would have done under the old system. The purchaser of a property worth the London average of £510,000 will pay £4,900 less SDLT, and in every region, nation or city of the UK people will pay less in the vast majority of transactions.

[Mrs Anne Main (St Albans) (Con)]

I am delighted that the Treasury has been persuaded of the argument I have been making for some time. I recall saying to the Minister that this would be on my Christmas wish list for my constituents, and I have already received e-mails congratulating the Chancellor and his Department on doing this. It is going to save a lot of young people a lot of money when they are trying to get on in the difficult housing market.

[Mr Gauke]

I am keen that this does not become a Hertfordshire-dominated debate, but let me thank my hon. Friend, who has been tireless in campaigning on this issue. Indeed, she attracted attention to it in an Adjournment debate earlier this year, expressing her views clearly. In particular, she made the case for helping those who want to get on to the housing ladder, and I know that is a big issue in her constituency, as it is in mine, where house prices are above the average. She has made some important points in this area.

[Richard Graham (Gloucester) (Con)]

rose—

[Mr Gauke]

In an attempt not to keep this debate restricted to Hertfordshire MPs, let me give way to my hon. Friend.

[Richard Graham]

I stand to speak on behalf of my constituents of Gloucester, providing the geographical diversity the Minister was seeking, where the average house price is about £165,000—considerably less than the national average of £275,000. So the vast majority of my constituents buying houses will benefit from either a zero rate of SDLT or the 2% rate he has mentioned. Does he agree that it would be helpful if the Treasury were able to provide information to all of us as to what the savings will be for our constituents, based on the average house price?

[Mr Gauke]

My hon. Friend raises an interesting and important point, and we could provide information on the basis of local authorities figures. What I can tell him is that in the Gloucester local authority area—I am not sure whether it is coterminous with his seat—more than 99% of those who pay SDLT will pay less as a consequence of these changes.

It is striking to note the diversity of commentators who have been positive. Estate agents, professional bodies and others have all shown support. The Royal Institution of Chartered Surveyors has called it a “long overdue” reform. The director-general of the Council of Mortgage Lenders said:

“This fundamental reform has been a long time coming...the vast majority of mortgaged transactions will benefit from lower tax as a result of this move.”

The Building Societies Association has welcomed the announcement. It said:

“It will help individuals and families buy their own home, and smooth out the crazy tax jumps buyers have suffered around the top of each band.”

This is a principled reform that exemplifies the Government’s commitment to a fairer and more efficient tax system.

The previous SDLT regime created distortions in the housing market, imposed perverse incentives and made it harder to get on and move up the property ladder, or indeed move down the property ladder for those wishing to downsize. This major and, as some have argued, overdue reform demonstrates that even in the past six months of this Parliament, we are a Government who are continuing to make radical change for the benefit of the British people.

We realise that this is a big change, even for those who will benefit at such a significant moment in their lives. We have ensured that the changes have been properly explained. Her Majesty’s Revenue and Customs has produced full guidance on the Government website, including a calculator that compares the old and the new systems. As of 9 am this morning, that calculator had been used almost 500,000 times, with no significant delays reported, showing the level of interest in this reform among the public. Critically, HMRC’s specialist call centre was manned until midnight last night when the changes took effect, and is open now. HMRC specialists responded to around 250 inquiries by telephone and all but 3% were resolved immediately, and the remaining handful are being followed up.

[Steve McCabe]

Will the Minister confirm that, under the Labour party’s mansion tax proposals, it would take more than five years for a person in a £2 million property to pay the same amount of tax that they will pay on a single transaction under these proposals? Is that a recognition that people in those properties are simply not paying enough tax?

[Mr Gauke]

The point I would make, as the hon. Gentleman draws me into that issue, is that it is better to collect this tax at the point at which people are entering into transactions, the revenue is available, and there are not the same cash-flow difficulties and problems with the asset-rich cash poor. This is a much better policy than a mansion tax, which would create very significant difficulties—a point that was repeatedly made by a number of Opposition Members who represent London seats.

[Sir Oliver Heald]

My hon. Friend talks about Opposition Members, but they are not here in the Chamber. The hon. Member for Birmingham, Selly Oak (Steve McCabe) is the only one and he has come in to moan about a policy that will help 98% of homebuyers. What sort of party is that?

[Mr Gauke]

Again, my hon. and learned Friend makes a valuable point. Just on percentages, in Birmingham, more than 99% will benefit from this change. I am sure that the hon. Gentleman’s constituents will welcome these matters.

[Mrs Main]

The other point that the hon. Gentleman fails to realise is that the mansion tax that Labour proposes would be on top of this measure, so therefore he is doubly worried about the millionaires whom he wishes to protect. On top of that, Labour would roll up the mansion tax into a death tax for millionaires.

[Mr Gauke]

As my hon. Friend has raised that point, I will make this observation. Labour says that more money should be raised from properties worth more than £2 million. In 2015-16, this measure will raise more than £300 million from such properties. Obviously, that is a useful sum for the Exchequer, but if the view is that Labour wants to raise £1.2 billion from the mansion tax on those properties, will it drop that figure down to £900 million? That is a question that the hon. Gentleman will no doubt be seeking to respond to later.

[Robert Jenrick (Newark) (Con)]

This policy was hugely welcomed in my constituency—Newark and Bingham, two of the fastest-growing towns in the east midlands, have lots of first-time buyers—but will the Minister provide some reassurance over rates? Will the rates, which are very high at the top, keep pace with rising house prices? We do not want reasonably affluent people on middle incomes being drawn into these rates in five, 10 or 20 years.

[Mr Gauke]

We have set out the rates as they stand. If there is to be any uprating, it will be a matter for future Budgets and autumn statements, but I stress that across the country 98% of transactions where stamp duty is paid will see a reduction in SDLT. My hon. Friend raises a matter that might be an issue in the future, but in every city, town and county the majority will benefit.

So far, I have touched on the administrative transitional steps for the major reforms introduced yesterday and on HMRC’s support. We have also put in place arrangements for individuals who have exchanged contracts but not yet completed. When the new system came into force, transitional rules ensured they would not lose out compared with what they expected to pay in SDLT. In those cases, people have the choice to choose the lesser of the tax rates under the old and new systems. That is only fair.

I look forward to debating the reforms in full as the stamp duty land tax Bill progresses. As my right hon. Friend the Leader of the House made clear earlier, that discussion will begin on Second Reading next Wednesday. However, today, I would like briefly to explain our rationale for introducing the measures via two motions under the Provisional Collection of Taxes Act 1968. First, it was important to act quickly, because reform to SDLT was long overdue. Usually, the measures would have formed part of the annual Finance Bill following a Budget, which is why the stand-alone Bill I am introducing today is premised on the same financial motions as those that would follow a Budget. The first motion, which the Chancellor moved yesterday at the end of his statement, gave effect to the changes from midnight. That was important to give people certainty and to avoid forestalling.

Secondly, hon. Members will understand that the measure was subject to strict confidentiality. Given the potential impacts on the housing market of a tax change of this significance, it was right that the measure was announced first by the Chancellor to the House. We ensured that the motion passed yesterday was available in the Vote Office immediately the Chancellor sat down after his main speech and then voted on at the end of questions and answers. The motion is effectively the Bill I hope to introduce in a few moments. For the reasons I set out, it was necessary to have two motions under the Provisional Collection of Taxes Act and today to allow for a fuller discussion.

I look forward to discussing the Bill in greater depth next Wednesday, but today is also an opportunity for the House to debate the matter, and I commend the motion to the House.

--- Later in debate ---

[Shabana Mahmood]

My hon. Friend is absolutely right. The Government said in their autumn statement that everything was on course. If the finances are in such a good state, why will they not adopt an ambitious programme of house building? Until we have action on the supply side, we will not be able to get to grips with this lop-sided housing market.

We need to get more homes built, and we also need to deal with the underlying causes of the crisis. For example, we know that too much land is being held as a speculative investment even though local people need homes, and that the trickle of new developments that are being built are snapped up long before people from the area can benefit from them. We also know that our country’s capacity to build homes has shrunk drastically. Fifty years ago, the public and private sectors between them built more than 300,000 homes a year; now we rely on a small number of volume house builders and, as a result, we build far fewer homes.

A number of measures are needed to deal with the underlying causes of the housing crisis and to get the number of homes built that this country needs. We have proposed new powers for local authorities, as well as a help to build scheme to run alongside the Government’s Help to Buy scheme, which we support. We particularly want to see an increase in the role of small and medium-sized construction firms, because the resulting diversity in the market would help to get more homes built and deal with the underlying causes of the crisis. As I have said, we need to see supply-side measures in conjunction with the proposals on stamp duty and the Help to Buy scheme. That would help us to get to grips with the crisis and arrive at a position where the dream of home ownership was not so far out of the reach of our constituents across the country.

I also want to mention our proposal for a tax on high-value properties—the so-called mansion tax. We believe that that is a necessary measure to get an annual sum of money into our national health service, which is in crisis and in desperate need of further, stable funding. It is interesting that the Chancellor has accepted, in his stamp duty proposals, the principle that very high-value properties in this country are under-taxed. Earlier in this Parliament, he introduced the annual tax on envelope dwellings—the ATED—which is described as a kind of mansion tax for high-value properties held by companies in a corporate envelope. Now, the Government are characterising the new stamp duty changes as their version of a mansion tax. I wonder why, as they creep towards an actual mansion tax, they will not make that final leap and simply adopt our proposal, thereby guaranteeing an annual sum for our national health service.

The Prime Minister is reported to have remarked some time ago that the Government could never introduce a mansion tax because the Conservative party’s donors would not accept it. I wonder whether that is the only thing holding the Government back. The truth is that they should go further and adopt our proposal. There is a difference between what they are doing today and our proposal. Stamp duty is a transaction tax, but our tax on high-value properties would be an annual charge that would provide a stable source of revenue for the national health service.

One of the Government’s regular criticisms of our proposal is that it would hit those who were asset rich but income poor. However, we have already set out how that could be dealt with through a system of deferral for anyone with an income of less than £42,000 a year—in other words, a basic rate taxpayer. That would be a perfectly sensible and adequate way of helping those people. We could then fairly and progressively introduce a tax that would help to get the national health service’s finances back on track.

[Mr Gauke]

I should like to ask the hon. Lady a practical question about her policy of excluding from the mansion tax those with an income below £42,000. She will be aware that some of the richest people in this country live off their capital rather than their income. Does she acknowledge that such people could conceivably fall within the proposed exemption?

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

Order. We need to be a bit careful here. We should not really be discussing the policies of the Opposition. The debate is about stamp duty. We have already had a difficult start, and I do not want things to get any more difficult.

--- Later in debate ---

[Mr Gauke]

It is a pleasure to reply to this debate. I am grateful for the warm support for this measure. I am sometimes so enthusiastic about these changes to SDLT that I am almost breathless, but thankfully on this occasion I am not. A number of points have been raised about this measure. Of course, there will be an opportunity to debate the legislation on Second Reading next Wednesday, when we might pick up some of those points. However, I will attempt to address some of the issues that have been raised in the debate.

The hon. Member for Birmingham, Ladywood (Shabana Mahmood) asked why we are not reforming non-residential SDLT at the same time. The argument I would make is that the market for non-residential property is very different, and the urgency for change is not the same, so I think that a different case needs to be made in that regard. We are not persuaded by the need to change that at present. Of course, all taxes are kept under review and the Government will consider that ahead of future fiscal events.

The hon. Lady also asked about the impact on the housing market. As I have said, our reforms will change the amount of SDLT due for the majority of homes, leading to a cut in the cost of moving home in the vast majority of cases. That will have a small impact on house prices overall, although the size of that effect is expected to be lower than the usual fluctuations in the housing market caused by many factors that occur year on year. I am not denying that there will be an effect, but there are many factors that come into play when it comes to house prices—

[Mark Reckless]

rose—

[Mr Gauke]

And one of those factors, I suppose, could be the selection of an unfortunate party, but I will give way to the hon. Gentleman at that point.

[Mark Reckless]

Was the Minister citing his own view just now, or merely regurgitating that of the OBR, because the major change in its forecast, of course, is that it has just changed its forecasting method from assuming that it will be average earnings in future to employing a model that it had only used in earlier years?

[Mr Gauke]

The hon. Gentleman brings me to his points about the OBR assessment. I was interested to hear what he said about modelling. He argued that the consequence of the changes we are implementing would be more beneficial for the economy than the OBR has set out in its projections. It is right that the OBR is independent and reaches its own conclusions. If the numbers are of a cautious nature, as he argues, then it is better to err on the side of caution. He made an interesting argument. I believe that these changes will have a beneficial effect in terms of labour market mobility and so on, and should therefore be welcomed. In putting the numbers into the public finances, it is right that we follow the independent body.

As I said earlier, my hon. Friend the Member for St Albans (Mrs Main) has been very prominent and persistent in making the case for reform of stamp duty. I am pleased that she welcomed these reforms so enthusiastically. I shall certainly ensure that the Chancellor is made aware of the views of Lori, her constituent, who is putting up a poster of him as a consequence of the reforms. I am very pleased that they have pleased Lori, and, I am sure, many other residents of St Albans. My hon. Friend made an important point about “zombie zones”; I think the hon. Member for Birmingham, Ladywood referred to “bunching”. The OBR statistics on how the pattern of transactions can be distorted are interesting. For example, there are 30 times more transactions in the £5,000 band below the £250,000 threshold than in the £5,000 band above it. That gives an indication of the scale of the distortions in the previous regime.

The hon. Members for Rochester and Strood (Mark Reckless) and for Redcar (Ian Swales) asked whether cash-neutral reform would be possible. It would have been very difficult to make these changes without some cost to the Exchequer in terms of forgone revenue. That might answer the question, “Why do this now?” As a consequence of other measures brought forward in the autumn statement, we can afford to fund these reforms, and it is right that we took that opportunity.

The hon. Member for Redcar referred to avoidance. Stamp duty land tax was being avoided far too often. One of the significant achievements of the Government and HMRC in the past few years is that we have managed to address that in relation to the number of SDLT schemes marketed by tax avoidance advisers, if I may put it that way—promoters of tax avoidance schemes. The amount of that avoidance has reduced very sharply. We have brought in a number of effective measures. For example, the annual tax on enveloped dwellings has played an important role. We have made great progress on this. For that reason, we are able to get the revenue that we will get because of the changes affecting high-end property.

My hon. Friend the Member for Nuneaton (Mr Jones) highlighted the reasons for ensuring that there is no gap between announcement and implementation. That is why this is a PCTA motion. I remember him making that point to me in private some months ago, so he may well have influenced the way in which the Government have proceeded, given the need to move forward.

My hon. Friend the Member for Esher and Walton (Mr Raab) made a very thoughtful speech, and I am grateful for his observations. He is a long-standing critic of the stamp duty regime, and he has been very energetic in highlighting some of the failures in the system. He talked about future uprating. He was also the first speaker to use the expression “long-term economic plan”, so I congratulate him on rectifying a grievous omission from the debate until that point. On future uprating, as I said to my hon. Friend the Member for Newark (Robert Jenrick), we have set out the bands. We have not set out plans for indexation or future uprating, but future Governments will clearly wish to return to that in the long term. As my hon. Friend the Member for Esher and Walton said, we will no doubt have this debate on a number of occasions. I dare say that he will be very energetic in campaigning for uprating in future, and I look forward to receiving his representations.

I thank the House for its support for this measure, and reiterate my apology for not being here at the very beginning of the debate. I hope that the motion will have the support of the House.

Question put and agreed to.

Ordered, That a Bill be brought in upon the foregoing Resolutions relating to Stamp Duty Land Tax (Residential Property Transactions);

That the Chairman of Ways and Means, the Prime Minister, the Deputy Prime Minister, Mr Chancellor of the Exchequer, Danny Alexander, Secretary Eric Pickles, Mr David Gauke, Priti Patel and Andrea Leadsom bring in the Bill.

Stamp Duty Land Tax Bill

Presentation and First Reading

Mr David Gauke accordingly presented a Bill to make provision about stamp duty land tax on residential property transactions; and for connected purposes.

Bill read the First time; to be read a Second time tomorrow, and to be printed (Bill 132) with explanatory notes (Bill 132—EN).

Autumn Statement 2014: Measures with Immediate Effect

David Gauke Excerpts

Wednesday 3rd December 2014 Written Statements

[The Financial Secretary to the Treasury (Mr David Gauke)]

This Government are committed to delivering a tax system that is fair and promotes growth and competitiveness.

As part of the autumn statement 2014, the Government have announced a number of measures to reform stamp duty, land tax, help tackle tax avoidance, address unfair tax outcomes and support investment. The legislation for these measures will have immediate effect.

Stamp duty land tax: reform of structure, rates and bands

The Government are introducing legislation which reforms stamp duty land tax on purchases of residential property with effect on and after 4 December so that it will be payable at each rate on the portion of the purchase price which falls within each band, rather than at a single rate on the whole transaction value. The legislation also amends the rates and thresholds to ensure this change is introduced in a fairway.

Corporation tax: restricting relief for internally-generated goodwill transfers between related parties on incorporation

The Government are introducing legislation to restrict a company’s corporation tax relief where internally-generated goodwill and customer related intangible assets are acquired on the incorporation of a related party’s business. The change will be effective for all acquisitions occurring on or after 3 December 2014 to prevent forestalling.

Capital gains tax: restricting entrepreneurs’ relief for goodwill on incorporation

The Government are introducing legislation to prevent claims for entrepreneurs’ relief on disposals of the reputation and customer relationships associated with a business (the “goodwill”), to a close company to which the seller is related. The change will be effective for disposals of goodwill on or after 3 December 2014 to prevent forestalling.

Capital gains tax: entrepreneurs’ relief and deferred gains

With effect from 3 December, the Government will allow gains which are eligible for the 10% capital gains tax rate provided by entrepreneurs’ relief (ER), but which are instead deferred into investments which qualify for the enterprise investment scheme, or into investments eligible for social investment tax relief, to remain eligible for ER when the gain is realised. Draft legislation for this measure will be published on 10 December.

Income tax: miscellaneous loss relief

The Government are introducing legislation to counter avoidance of income tax involving losses from miscellaneous transactions. Legislation denying loss relief where a miscellaneous loss, or miscellaneous income, arises from relevant tax avoidance arrangements will have effect from 3 December 2014. Legislation will also be introduced with effect from tax year 2015-16 to limit relief to miscellaneous income of the same type as the loss.

Bank loss-relief restriction

The Government will introduce legislation in the Finance Bill 2015 to restrict the use of brought forward losses by banks. The legislation will have effect from 1 April 2015, except for anti-avoidance rules that come into effect from 3 December.

High pressure, high temperature cluster area allowance

The Government are introducing legislation to create a new cluster area allowance to support the development of high pressure, high temperature projects and encourage exploration and appraisal activity in the surrounding area or “cluster”. The allowance will exempt a portion of a company’s profits from the supplementary charge. The amount of profit exempt will equal 62.5% of the qualifying capital expenditure a company incurs in relation to a cluster area on or after 3 December 2014.

Inheritance tax exemption for medals and other awards

The Government are extending the existing inheritance tax exemption for medals and other decorations that are awarded for valour or gallantry. From 3 December 2014, it will apply to all decorations and medals awarded to the armed services or emergency services personnel, and to awards made by the Crown for achievements and service in public life. Draft legislation for this measure will be published on 10 December.

Corporate debt

The Government are introducing legislation to repeal rules concerning the tax treatment of deferred interest and discounts on debt issued to UK companies by a connected company in a non-qualifying territory. The repeal will have effect for loans entered into on or after 3 December 2014; for loans already existing at that date it will be effective in respect of interest accruing after 31 December 2015. If the creditor or the terms of an existing loan are changed between 3 December 2014 and 31 December 2015, the repeal will have effect for that loan in respect of interest accruing after the change.

Further details on the measures listed above can be found on the gov.uk website.