Finance Bill

Luke Evans Excerpts

Committee of the whole House
Wednesday 11th December 2024 Commons Chamber

[James Murray]

My hon. Friend is right to point out that decisions on VAT reliefs are political choices. Indeed, the Opposition are showing which side of that choice they land on when it comes to education; through their new leadership, they are choosing to prioritise a tax break for private school fees over investment in state education. That is a political choice. I am very happy to stand behind where we are on that side of the debate.

I will turn to some of the clauses in detail. The changes made by clause 47 will remove the VAT exemption from which private schools currently benefit on the education, vocational training and boarding they provide. Let me be clear: this policy does not mean that schools must increase fees by 20%, and the Government expect schools to take steps to minimise the increases for parents. Schools can reclaim VAT paid on inputs and make efficiency savings to minimise the extent to which they need to increase fees. Many schools have already committed publicly to capping fee increases at 5% or absorbing the full VAT costs themselves.

[Dr Luke Evans (Hinckley and Bosworth) (Con)]

One of the schools in my area has posed a question on VAT. It has combined fees, within which things like meals are included. It is not clear from Treasury guidance whether the school would have to separate those fees out, creating another accounting problem—in order to have separate VAT and travel, for example, as part of the fees—when currently it is all one unit. Could the Minister provide clarity on that? When I met the Schools Minister, he was unable to give me an answer, and was going to go away and speak to the Treasury about what that looks like. This will have real impacts for this school, which will have to decide how to set out its accounting, and whether it has to include the fees or separate them out into several different blocks.

[James Murray]

I thank the hon. Gentleman for his specific question. Let me just be clear that I am not giving tax advice for that particular school in my response, because I would always assume that any school would get its own tax advice. In general, the VAT treatment of a particular supply is determined by the predominant supply, so there are options available to schools. I am happy to pick the matter up with him outside the Chamber and to make sure he has the details in writing. As I said, I would not want to give specific advice to that school, but it is worth the school getting advice on the VAT treatment of the fees it charges based on the predominant supply.

I will return to the impact of the policy we are proposing and the changes in clause 47. Government analysis suggests that the impact of the VAT policy on private and state school sectors is likely to be very small—ultimately leading, as I was saying a few moments ago, to 37,000 fewer pupils in the private sector, which includes both pupils who will never enter the private sector and those who will move.

--- Later in debate ---

[James Wild (North West Norfolk) (Con)]

I rise to speak on behalf of the Opposition, and particularly to new clause 8. Let me start by briefly considering the context in which we are debating the Bill. It comes after a Budget in which the Chancellor said that we must have

“an economy that is growing, creating wealth and opportunity for all”—[Official Report, 30 October 2024; Vol. 755, c. 811.]

But that is not what this Finance Bill delivers. Instead, the Budget is forecast to deliver lower growth, higher borrowing and higher inflation.

The Minister referred to choices, and the Government have indeed made choices. They have chosen to tax enterprise, to tax the wealth creators and to tax the farmers who are, again, outside Parliament protesting against the family farm tax—I wonder whether, on one of his rare jaunts to this country, the Prime Minister has gone out to speak to them. Rather than promote opportunity, it was the Government’s choice to bring in a new tax on aspiration.

[Dr Luke Evans]

My hon. Friend talks about choices, and one of the choices that independent schools are now going to have to make is how to use their own resources, such as their sports pitches, bursaries and scholarships. The kinds of things that benefited the wider local community may now have to be turned into fundraising and revenue-making machines to be able to deal with this change, which in turn means that other schools will not be able to use their community facilities, such as their football pitches. Those may all have to be charged more for, or indeed cut completely, as the independent schools have to make those difficult choices. That is not good for community cohesion at all.

--- Later in debate ---

[James Wild]

Absolutely; I completely agree with my hon. Friend. The Government hide behind the cloak of saying, “If you have an EHCP, everything is okay,” but 100,000 children in schools across our country will be impacted.

The next area we are concerned about is faith schools, which tend to be smaller and charge lower fees. The Independent Schools Council has warned that

“Low-cost faith schools will be faced with deficit and closure, communities will lose vital assets”.

There are small religious groups that do not have any state sector provision that can meet their needs as a denomination. Religious groups are mounting legal challenges as a result, battling for the right to educate their children and battling for the right to choose, which we on the Conservative Benches certainly support.

New clause 8(3) refers to the music and dance scheme, which provides grants to talented young people who could not otherwise attend world-class institutions such as the Royal Ballet school. We welcome the Government’s decision, under pressure, to delay taxing schools in this scheme until September next year, but that exemption should be made permanent.

To return to one of the points that has been made, in the Budget statement the Chancellor said:

“94% of children in the UK attend state schools. To provide the highest-quality support and teaching that they deserve, we will introduce VAT on private school fees”.—[Official Report, 30 October 2024; Vol. 755, c. 821.]

That is a deliberately divisive approach. The Opposition support 100% of pupils. We care about all children. We simply believe that parents should be able to choose.

We have consistently raised the situation of military families, to which the Minister referred, and argued that they should be exempt from this tax. The Government did not agree to that, but in response to our campaign they said:

“We will uprate the continuity of education allowance to reflect the increase in school fees from January.”—[Official Report, 18 November 2024; Vol. 757, c. 3.]

Well, the new continuity of education allowances have been announced and, as my hon. Friend the Member for Solihull West and Shirley (Dr Shastri-Hurst) pointed out, they fall short of protecting service families from the changes. That will have a direct impact on the retention and recruitment of our armed forces. There are 4,200 children who benefit. The allowance is in place to meet the needs of the armed forces when they have to move around the country or serve overseas and boarding schools or other provision is the only available option. Given the importance of this allowance for the retention of military personnel, why have the Government not met the commitment that they made to our armed forces?

[Dr Luke Evans]

Does my hon. Friend agree that the veterans’ commissioner that will be introduced by the new Government will be perfectly primed to look at this kind of problem to ensure that both Departments—the Ministry of Defence and the Department for Education—get the best? Is that not the purpose of the commissioner?

[James Wild]

I very much hope so. I know from my years as an adviser in the Ministry of Defence just how important the allowance is for retention. That is why it is so disappointing that the Government have broken their promise.

I am grateful to the many organisations that have shared concerns about the implementation of these clauses, especially as the measure is rushed and is taking place in the middle of the school year. The Chartered Institute of Taxation has called for a delay, saying that it is

“concerned that neither HMRC nor the private schools will be ready to implement the change in VAT liability effectively”.

In order to meet the mid-term deadline, HMRC has to register the schools in just five working weeks—an issue that new clause 8 could address.

--- Later in debate ---

[James Murray]

I am going to make some progress.

I thank my hon. Friends the Members for Falkirk (Euan Stainbank) and for Loughborough (Dr Sandher) for their comments. I feel that I am duty bound to add my congratulations to my hon. Friend for Loughborough on his engagement.

The hon. Member for Hinckley and Bosworth (Dr Evans) is not in his place—sorry, he is at the Bar. Perhaps he could come and take a seat on the Benches. He asked an important question to try to get some clarity about the VAT treatment of combined fees that cover school meals, transport and other services. I hope that my earlier answer gave him some reassurance on that.

I reiterate that I cannot provide advice for individual schools, but it is worth emphasising that the general principle is that if a school supplies a package of education for a single fee, that will normally be a single supply for VAT. That package could include a number of other elements such as transport or meals, alongside the main element of education. If it is a single supply, it is a single VAT liability. However, where a school supplies education and also supplies other elements for a separate fee, that will normally be treated as a separate supply. For example, if a school offers school meals alongside the education for a separate charge, those will normally be two different supplies, and they may have different VAT liabilities. Although the education would be subject to the standard rate of VAT, the school meals may be exempt, if they meet the conditions.

[Dr Luke Evans]

I am grateful for the Minister’s clarification on that point; I think he is hitting towards it. The school itself has everything grouped into one fee, which includes the transport, schooling and food. Its contention, therefore, is that it will have to break that all out, which means it will have to deal with all the accounting issues on top of this. It is just another burden to think about. I wonder whether the Treasury has thought about that and whether there will be further guidance—there is literally just one line in a piece of written guidance put out by the Treasury. Is there anywhere the school can raise this issue to work through the exact advice it needs? I appreciate that the Minister cannot give that advice directly to the school from the Dispatch Box.

[James Murray]

The way that we treat private school fees and the other charges that private schools may levy has to be consistent with the VAT principles more broadly, which is why I have tried to explain how the supply of education and the supply of other elements would interact with the VAT system more widely. I will hold back from giving specific advice about that individual school, but I would encourage it to contact HMRC to get advice about its specific registration. If the school staff read what I have just said in Hansard, I hope they will see some information that will help them to understand how to approach this issue.

--- Later in debate ---

[Dr Luke Evans]

The Minister mentions first-time buyers. However, the change to stamp duty is likely to affect them, because they are now being brought into paying stamp duty. How does that help first-time buyers to realise their aspiration of getting into the housing market?

[Tulip Siddiq]

I can tell the hon. Gentleman very confidently that the thing that will help first-time buyers in this country most is building more houses. His Government absolutely failed to do that, but we will be doing it.

Returning to the Bill, we estimate that approximately half of those paying the non-resident surcharge will also pay the higher rates for additional dwellings. This means that a non-resident purchasing an additional residential property worth £300,000 now pays £23,500 as a result of the change in rates, compared with £17,500 before the change, an increase of £6,000. This compares with a UK-resident purchaser buying their first home, who pays no SDLT, and a UK-resident home mover, who currently pays £2,500. This change therefore improves the comparative advantage of UK-resident home movers and first-time buyers—as the hon. Member for Hinckley and Bosworth (Dr Evans) might be pleased to know—while ensuring that no additional barriers are faced by those coming to the UK and buying their first or only home.

Those buying an additional property before they can sell their main residence will be liable for the higher rates for additional dwellings. However, this will be refunded if the previous main residence is sold within three years of the purchase of a new main residence, or longer if there are exceptional circumstances, such as delays in cladding remuneration. This ensures that only those who are genuinely liable for higher rates will be required to pay them.

Clause 50 increases the higher rates of SDLT on the purchase of additional dwellings by individuals and dwellings by companies from three percentage points above the main residential rates of SDLT to five percentage points. This applies to transactions with an effective date on or after 30 October this year and before 1 April next year.

--- Later in debate ---

[Tulip Siddiq]

I thank the right hon. Gentleman for his intervention. I am a landlord, and that is absolutely declared in my entry in the Register of Members’ Financial Interests. If I was meant to declare it for the purposes of this debate, I do apologise, but it is referenced very clearly in my entry. I would say that, as a landlord, I am very happy to pay extra tax if it is necessary to fix the foundations of our economy.

I do not agree with the right hon. Gentleman’s assessment of London. I think we are more resilient than that, especially in Camden, and I think we will be fine.

Clauses 50 and 51 will provide an advantage for first-time buyers and those moving home, and it will help to support home ownership. The OBR-certified costing estimates that increasing the higher rates for additional dwellings by 2 percentage points is expected to result in 130,000 additional transactions over the next five years by first-time buyers and others buying a primary residence. I hope that addresses some of the concerns of Conservative Members.

Clause 52 introduces special transitional rules to ensure no additional tax is payable for land transactions substantially performed before 1 April 2025. In most cases, SDLT is charged at the point of completion in the property-buying process. In some cases, however, such as where the buyer has performed their purchase by paying for the property or taking possession of it, the tax is chargeable at that earlier point. The clause in question ensures that buyers who have performed their transactions will not pay more tax as a result of the changes in rates brought about by clauses 50 and 51 when they complete their purchase.

Clause 53 increases from 15% to 17% the single rate of SDLT payable by companies and other non-natural persons when purchasing dwellings worth more than £500,000. The single rate of SDLT was introduced alongside the annual tax on enveloped dwellings to deter the practice of buying and owning UK residential properties within a corporate wrapper by increasing the rate companies pay. The single rate applies where companies and other non-natural persons buy a dwelling for more than £500,000 that they do not intend to use for a relievable purpose such as renting the property or developing it. Increasing the single rate keeps it aligned with the highest rate of tax paid on purchases of the most expensive residential properties, so that the tax remains effective as a deterrent to enveloping.

In summary, increasing the higher rates of SDLT will ensure that those looking to move house or purchase their first property have a greater advantage over second home buyers, landlords, and companies purchasing dwellings. The measure will raise more money than the manifesto policy, and go further to rebalance the housing market. The changes will raise £310 million per year by 2029-30, which will be used to support the Government’s first steps and other priorities.

[Dr Luke Evans]

rose—

[Tulip Siddiq]

I have already given way once to the hon. Gentleman.

--- Later in debate ---

[James Wild]

Indeed, and representing an area with some of the most attractive coastline in the country, I certainly recognise and share those concerns. There has been warning that the measures could make that issue worse. People also need to be able to rent in those areas, and if local people who need to work where the jobs are have to move from long-term lets to short-term, that does nothing to help.

[Dr Luke Evans]

The point is valid. The Government are trying to get more properties for people to buy, but at the same time they are changing back the threshold for first-time buyers. Those first-time buyers will be stifled when they want to buy a house because they will have to pay more tax. Introducing both measures simultaneously seems to cause a rub. Does my hon. Friend agree?

[James Wild]

I do. This is just another example of the impact of the Bill. The impact assessments, such as they are, are incredibly thin and do not get into the detail of the measures and the complications that arise. They are, I would say, wholly inadequate. Under clauses 50 to 53, taxes on property purchases will, as the Minister said, go up by £310 million. Clauses 50 and 51 increase the rate for additional dwellings, such as buy-to-let and residential properties, from 3% to 5%. Nationwide estimates that that could bring extra costs of £4,000 on the purchase of a typical rental home. At least clause 52 ensures that if transactions have been substantially performed before the increases come in, no additional tax will be charged. Clause 53 amends the single rate on purchases by companies of dwellings for more than £500,000. Let us not forget that the Government have also chosen not to renew the nil-rate stamp duty threshold, which is currently £250,000 but will halve to £125,000—I do not think the Economic Secretary to the Treasury mentioned that.

As I said, experts have warned that the changes could have damaging effects on the rental market, making it less attractive to provide homes for private rent; rents could increase as a result of the limited supply. Every hon. Member will know from their constituency the huge demand for rental properties. According to Zoopla, on average around 21 people are chasing every property that is put up for rent. This tax will do nothing to encourage the supply of new, decent, rented housing.

--- Later in debate ---

[James Wild]

I do not doubt the figures. I simply note that King’s Lynn and West Norfolk borough council, which is the council for my constituency, has met the housing need target it was set. Thousands of homes are being built in and around King’s Lynn, which will be a mixture of tenures—to rent and to buy. One of the big blockers is that the Government have not yet approved schemes that the previous Government were committed to—schemes for the roads and infrastructure needed to bring that housing online. I hope that the Minister will take that up with her colleagues, because if the Government are to meet their target of building 1.5 million homes, they need councils to deliver. That means funding the infrastructure. I am grateful to the hon. Member for enabling me to make that point.

We are concerned about the increased cost of private rent and a decreasing supply of rental properties due to this latest tax increase. New clause 6 would require the Chancellor to publish an assessment of the impact of the increased stamp duty rates on the private rental sector within six months of the Bill passing into law.

[Dr Evans]

It is important to have transparency. It is not controversial to say that we need more houses—Members on both sides of the House agree—but take Leicester, where new housing targets have been reduced by 31%. We will now have an exodus of people offering rental residences. Will that not compound the problem acutely? We will not have the number of homes. The target has dropped in Leicester, but we will have more people needing to rent. The homelessness rate could go up, because people are leaving the market. The Government need to think carefully about that. The new clauses would give transparency on whether there is a problem.

[James Wild]

My hon. Friend draws attention to the unintended consequences of the stamp duty measure. I wonder how much involvement the Deputy Prime Minister and her Department had in drawing it up, or whether it was drawn up in the Treasury just to get a line into the Red Book and fill out the Government’s spending plans.

New clause 7 would require the Chancellor to publish an assessment of the impact that increased rates for additional dwellings are having on the housing market as a whole, and in particular on the demand for homes in England and Northern Ireland. Pegasus Insight has reported that nearly 20% of landlords across England and Wales sold homes in the last 12 months, significantly more than the 8% who purchased properties in that period. We see increased rents as a result. The latest figures from the Office for National Statistics show average UK private rents increasing by 8.7% in the 12 months to October. When the cost of living is high and rents are increasing, why are the Government taking steps that could make matters worse for our constituents?

On the point made by the hon. Member for St Austell and Newquay (Noah Law), clauses 50 to 53 may increase the chance of properties switching from long-term to short-term lets, which is a concern in my constituency. We need a balance of properties—some that people can rent and those that people can buy—so that people can live and work in the area where they grew up.

The Government’s stated policy objective for the stamp duty measures is to disincentivise the acquisition of buy-to-let properties and free up housing stock for main and first-time buyers, but nowhere in their impact note is the private rental sector mentioned. My right hon. Friend the Member for North West Hampshire (Kit Malthouse) asked the Minister what impact she thought the changes could have, and what modelling had been done of the effect on the rental market; I am afraid that answer came there none. Hopefully she will have had some inspiration by the time she winds up the debate and can give some answers, because the impact note does not have any information on that point. I find that surprising. Once again, that is why it is essential that we review these measures to see what the real-world impact is on the rental market. Our new clauses would enable us to do just that.

Encouraging home ownership and helping first-time buyers to get on the housing ladder is the right thing to do. However, that should not come at the expense of the private rental sector. As the shadow Chancellor, my right hon. Friend the Member for Central Devon (Mel Stride), put it in the Budget debate, activity in the housing market will be dampened and people will be discouraged from downsizing, which will put pressure on housing supply and labour mobility.

I am proud that while in government, the Conservatives helped more people get on to the housing ladder through schemes such as First Homes, shared ownership, right to buy and the lifetime individual savings account, and doubled the threshold for stamp duty. However, with only one in eight renters able to afford to purchase a home in the area where they live, renting is the only viable option for many. What is the Minister’s response to those who say that increasing stamp duty will reduce the supply of rental housing, and that rents will increase as a result?

I must briefly address the structural tax issues that the clauses create. I am grateful to the Chartered Institute of Taxation for the discussions that we have had. There is now a top residential rate of 19%, compared with a top rate of 5% for purchase of a non-residential or mixed property, so taxpayers may be incentivised to argue that the property that they are buying is non-residential or mixed-use—for example, it may have a paddock that they would use—to take advantage of the lower rate. A number of those cases have come to the first-tier tribunal and higher court. I would be grateful if the Minister addressed the risk that she sees there, and told us what HMRC has advised her and whether increased compliance costs will arise as a result of the divergence.