Lord Newby
Main Page: Lord Newby (Liberal Democrat - Life peer)Department Debates - View all Lord Newby's debates with the HM Treasury
(9 years, 6 months ago)
Lords Chamber
That the Bill be read a second time.
Relevant document: 16th Report from the Delegated Powers Committee
My Lords, the Chancellor’s Autumn Statement last December announced an important and comprehensive reform to stamp duty land tax—SDLT—on residential property. With effect from 4 December, the structure, rates and thresholds of stamp duty land tax have changed for residential properties, and stamp duty has moved from a “slab” to a “slice” arrangement. 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.
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 government provides and supports. However, the old system was increasingly seen as unfair and inequitable, especially for those looking to move on and up the housing ladder.
Under the new structure, no buyer purchasing a property will pay any SDLT at all for the portion of the property up to £125,000. Buyers will be charged 2% for the portion from £125,000 to £250,000, and 5% for the portion from £250,000 to £925,000. Those buying a house worth over £925,000 will be charged 10% for the portion of the price between £925,000 and £1.5 million. From £1.5 million onwards, buyers will pay 12% SDLT for the proportion of the price above that threshold.
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 buys a home worth up to £937,500 will pay more compared to the previous system.
The stamp duty system as it then stood was a flawed system. It had been criticised by policymakers, industry and think tanks. The “slab” system created a significant hike in taxes at particular thresholds. It created the absurd situation where if you paid £250,000 for a house you would end up paying £2,500 in stamp duty, but if you paid £250,001 you would have to pay £7,500—three times as much. In reality, of course, nobody did. In 2013-14, there were over 30 times as many sales between £245,000 and £250,000 as between £250,000 and £255,000. That represented a significant distortion in the housing market, given the average UK house price of around £275,000, and one which is removed by the Bill.
Not only does the Bill eliminate the previous flaws in the stamp duty system, but it does so in a way which gives a helping hand to those at the bottom of the housing ladder. A family buying a Help to Buy property at the average cost of £185,000 will be £650 better off—a significant sum, especially at a time when cash is most likely to be tight. As I said, nobody buying a home worth up to £937,500 will pay more SDLT under the reformed system, and many will be left with substantial sums in their pockets. Overall, 98% of purchases nationwide will pay the same SDLT or less. That is 99% in Scotland, Wales and Northern Ireland, and 91% in London.
These reforms came into force at midnight on 4 December, to avoid creating undue distortions in the housing market. This stand-alone Bill was introduced in the other place on 4 December, and its provisions have had statutory effect under the Provisional Collection of Taxes Act since the end of the Autumn Statement debate on 3 December. The Government ensured that if a person had exchanged contracts before 4 December but completed on or after that date, transitional arrangements were in place to ensure that they would not lose out.
We also paid particular attention to how this change would affect Scotland. From 1 April 2015, land and buildings transaction tax is due to replace SDLT in Scotland. However, up until that point, these reforms apply to all residential property transactions in the UK, including Scotland. That will ensure that home buyers in Scotland do not miss out on a potential tax cut before their own tax comes into operation.
This change was met enthusiastically by industry, with the CBI labelling it,
“a shot in the arm for families and growing firms”.
It sits as part of a wider scheme of government policies that are designed to boost home ownership and homebuilding, relieving the pressures on the housing market and helping to make people’s aspirations a reality. I beg to move.
My Lords, I am grateful to noble Lords who have taken part in this debate.
The noble Lord, Lord Northbrook, asked me several questions. He started by asking whether this change would have the effect of increasing foreign ownership at the top end of the market. It is far too early to tell how it will affect the market more generally. A number of suggestions have been made but we must see how things turn out before we can draw any firm conclusions about that. The noble Lord asked why we had not adopted the same approach to non-residential property. The Government think that the market for non-residential property is very different from that for residential property. For example, the data show that the current non-residential SDLT structure has less of a distortive effect around the rate thresholds than the old residential SDLT rules, non-residential properties also have a higher value on average and many have large leases and small premiums, which is rare for residential properties. Because of these differences, we do not think it follows that a reform to non-residential SDLT should accompany the reform that we are talking about today.
The noble Lord raised the Swiss system of dealing with under-occupied properties. I will, of course, happily pass that on to my colleagues in the Treasury. He suggested that we should insert more council tax bands at the top end. I thought for a moment that he was advocating Liberal Democrat policy, but then I discovered that he wanted to do that instead of the changes proposed in the Bill rather than in addition to them. We feel that, through the Bill, we are dealing with a system that has widely distorted the market over a long period and have replaced it with something which is more progressive and less distorting.
The noble Lord, Lord Tunnicliffe, pressed on the House the Labour Party’s proposal for a mansion tax and the need to build more houses. The election will include much debate on the mansion tax and I do not think I would serve a very useful purpose by entering into it this evening. On the noble Lord’s second point, while I agree, and the Government definitely agree, that we need to build more houses, I would point out that the Government have taken significant steps to support housing supply, including introducing the new National Planning Policy Framework, investing £7.8 billion to deliver 335,000 new affordable homes between 2011 and 2018, which is the most ambitious affordable housing programme for 20 years and being done in very difficult economic times, and providing £3.6 billion to facilitate access to finance for SME builders. The Autumn Statement includes a raft of further measures which will substantially boost housebuilding.
I am extremely grateful to noble Lords who have spoken in favour of the principles of the Bill and therefore I ask that it be given a Second Reading.