Council Tax Valuation Bands Bill [HL]

Lord Flight Excerpts

Friday 11th September 2015 Lords Chamber

[Lord Flight (Con)]

My Lords, the proposals of the noble Lord, Lord Marlesford, for reforming council tax valuation bands strike me as inherently sensible and fair. I am surprised that none of the political parties has taken up this model.

It seems to me ridiculous that for a long time the top valuation bands in London have started at a value of a mere £320,000, when, in Kensington, you can get little more than a garage for that money, and the difference between the amounts paid at the top and bottom bands is far too small in relation to the values of the properties and, indeed, the potential local authority services being used. The existing difference in council tax bills between modest and grand houses is, as I say, far too small, and so greater rate progression is justified. In addition, very large houses often have more people living in them, and to the extent that council tax is there to finance local authority services, they are burning up more of those services.

It was very clever of the noble Lord, Lord Marlesford, to take April 2000 as the cut-off date and, as he said, make it possible, on a going forward basis, to use the purchase prices recorded in the Land Register and save all the hassle of valuation and revaluation in the future. I do not see any great problem in leaving pre-April 2000 dates of purchase properties with the old rate. Over time, obviously, it will change to the new rate as ownership changes and people move on or die.

Council tax is also a cheap and easy way to collect tax. I would be interested to know whether the arithmetic of the proposals of the noble Lord, Lord Marlesford, means that local authorities would become virtually self-financing, which I think is also extremely desirable. Should the same formula be applied to Greater London as to the rest of the country, when house prices in the Greater London area are clearly wildly in excess of those outside London? At the end of the day, the size and luxury of the accommodation are what matter. It is debateable whether the noble Lord’s proposed progression arithmetic of increasing the ratio between the lowest and the highest band from three to 42 is right. Arguably, it might be a little too high. It might be an idea to, as it were, cap the maximum that is payable, but those are only minor points.

However, my major quid pro quo or proviso concerns stamp duty. Irrespective of whether these changes are made, there is, in any case, as a matter of principle, a need to reduce stamp duty rates. The reform of the slab effect is fine but stamp duty bills in London are now far too high and are already considerably damaging turnover in the market. In many parts of central London a fairly ordinary family home with a garden now costs in the order of £3 million, and the stamp duty bill is £117,750—a cash cost. It is no wonder that everyone is digging out their basements or adding another floor to their houses because that is a lot cheaper than moving house. This situation may also discourage older citizens from trading down as they incur a substantial stamp duty cash cost.

It may sound as if I am shedding crocodile tears for the more fortunate. However, it is bad enough that young professionals in London have to borrow huge sums and mortgage their future to buy somewhere decent to live, but the addition of stamp duty cash costs means that they cannot afford to move to a larger house as and when they have a family and need more space and, they hope, a garden. The top rates of 10% and 12% are self-evidently too high and are a rip-off. They make even lawyers’ charges look cheap. Unbelievably, you do not get much in central London for £1.3 million, but the stamp duty at that level is £36,000. That means that those whose career requires them to move around the country cannot move their families as they cannot afford the cash cost of such large stamp duty bills. Therefore, you get the unsatisfactory situation whereby someone rents a room near where they work and leaves their family a long way away, and often the marriage breaks up as a result. That is unfair. Teachers are particularly hit by this situation. How on earth they can afford to pay these stamp duty bills on their remuneration I cannot imagine.

From a practical point of view, I also suggest that the Government have their estimates and calculations wrong of the level at which to pitch stamp duty to optimise revenues. I think they did the same thing with the CGT changes. The present charges are already reducing significantly the volume of transactions. A recent analysis by Knight Frank showed that sales of £1 million-plus properties were down 21% in the year to this April. In addition, it is a discriminatory tax on those living in London. While Greater London transactions accounted for 13% of the total, Greater London stamp duty revenues in the first quarter of this year were nearly half of the national total, so this tax is silently affecting major redistribution from London and the south-east to other parts of the country. From a purely practical point of view, it would be sensible to pitch stamp duty charges at a level that at least optimises revenues rather than at a level which, Laffer curve-like, potentially reduces revenues as well as messing up the market.

The noble Lord, Lord Marlesford, is absolutely on the right track. It is necessary and fair to move in that direction, but it needs to be accompanied by some sensible reductions in the rates of stamp duty.

--- Later in debate ---

[Lord Flight]

On both death and gifting, valuations are required for IHT and capital gains tax reasons, so it is going to happen automatically, anyway.

[Lord Marlesford]

Exactly, there are valuations in those cases. But there is a very big difference between doing it just for those and doing it for everything. The argument has always been that we cannot have a complete revaluation. The Minister used again that very old argument, which I reject, and I have tried to meet it by saying that, fortunately, we have the Land Registry and, fortunately, for well over half of dwellings at the moment, we have the actual prices that have been paid. As for the poorer people at the bottom of the market, very few people at that end will find that they pay a higher council tax. The movement in my banding from £40,000 to £250,000 would include virtually all the people in band A anyway—it is very unlikely that people would find themselves in band B. Quite a lot of the people currently in band B will remain in band B, because that goes up to £500,000. So there is a certain automatic adjustment from the price mechanism and the market in that respect.

I shall not continue now, because a lot of these points need to be studied in detail. I hope that the Government will show themselves perhaps a trifle more open-minded, rather than merely trying to produce old and jaded arguments and persuade some unfortunate Minister to put them forward for them. I ask the House to be graciously prepared to give this Bill a Second Reading.