Council Tax and Second Homes

Rishi Sunak Excerpts

Tuesday 26th June 2018 Commons Chamber

[The Parliamentary Under-Secretary of State for Housing, Communities and Local Government (Rishi Sunak)]

I commend my hon. Friend the Member for St Ives (Derek Thomas) for securing this debate. The issue of second homes is a subject that I know he cares about passionately and has raised repeatedly in the House. It is right that he voices his constituents’ views on this topic, for they deal with the issue of second homes more than most. When we look at the percentage of a local authority’s housing stock accounted for by second homes, we find that the Isles of Scilly ranks second among authorities in England and Cornwall ranks 13th. I have some personal familiarity with this issue, due to the reasonably high prevalence of second homes in my rural constituency of Richmond (Yorks), especially in the Yorkshire Dales national park. As we heard, in areas where the number of second homes comprises a significant proportion of the housing market, there is a risk that local people, particularly those who might be looking for their first home, might be priced out of the local market. There are legitimate concerns about the effect on local services, as well as on community cohesion.

However, it is also important that we do not lose sight of the benefits of second homes: the boost they can give to local economies and the tourism trade. Many local livelihoods will depend on tourism. This Government are not in the business of removing people’s right to choose where they want to purchase property. There can, of course, be many reasons for owning more than one property. Although second homes are frequently referred to as “holiday homes”, they can just as easily be properties that enable someone to work in and contribute to the local economy of an area, while being able to return to a family home in another part of the country on a regular basis.

However, we do recognise the concerns, which have been set out so clearly by my hon. Friend in this debate. As such, I would like to highlight for the House the range of actions the Government have put in place to mitigate the impact of second homes in affected areas and pass on more benefits to local residents. Let me start with the second home discount. The Government inherited a situation where second homes were automatically entitled to council tax discounts. There was a presumption that those who do not use local services for much of the year should pay less, but we shifted away from that approach. From 2013, the law was changed so that local authorities were no longer required to offer council tax discounts in this way, allowing them to target any discounts as necessary, according to their particular circumstances. I am pleased to report that that change has made a difference. Last year, no local authorities still offered blanket exemptions for second homes; nearly a third of billing authorities offered no discount at all on second homes; and, perhaps most clearly, fully 92% of second homes were charged the full rate of council tax.

Secondly, although that was a positive step, we have gone further. Beyond council tax, the Government raised stamp duty rates for those buying second homes. Since April 2016, anyone who has purchased a second home has paid a stamp duty charge of three percentage points above the current rates. Since then, more than half a million people have bought their first home, and first-time buyers now make up an increased share of the mortgage property market. It is worth noting the other significant support for first-time buyers, in the form of the total removal of the need to pay stamp duty on homes worth up to £300,000, which will benefit many people in the constituency of my hon. Friend the Member for St Ives.

Thirdly, the community housing fund is helping to channel funds back into local communities. It has allocated part of the additional revenue raised from the higher stamp-duty rates to areas with the potential to deliver community-led housing. That specifically includes areas with high rates of second-home ownership. Community-led housing is affordable at local income levels and is almost exclusively additional to any housing developed by other sectors, because it is brought forward on sites that would not normally be granted planning permission to speculative house builders.

The community housing fund has provided revenue and capital funding for numerous schemes since 2016, as I have seen at first hand in my own constituency, where the Hudswell community centre used the funds to develop affordable homes for people with local connections to that village. I was delighted to open up the homes and see how the scheme had enabled tenants with strong family ties to the local area to move in. I am aware of other shining examples throughout the country. Indeed, in the first round of the scheme, Cornwall received £5 million to support community housing projects, including the Cornwall Community Land Trust, which I am sure was welcomed by my hon. Friend and others across Cornwall.

Fourthly, through neighbourhood plans, communities have the direct power to develop a shared vision for the future of their areas. Over 590 such plans have been completed so far. The plans allow communities to make decisions on where new homes, shops and offices should be built, what they should look like, and what facilities and infrastructure should be provided. I am delighted that the Government have committed more than £20 million to support communities in the development of neighbourhood plans over the next few years.

Through the neighbourhood-plan process, residents can develop plans that manage second-home ownership of new builds. We are aware that communities in areas such as Cornwall and Northumberland have put in place neighbourhood plans with such restrictions. Indeed, one of the more well-known plans that does exactly that is in my hon. Friend’s constituency of St Ives, where new open-market housing is permitted only where there is a restriction to ensure its occupancy as a principal residence. It is quite right that local residents should have the opportunity to express their views on the design of their areas and ultimately to approve neighbourhood plans via a referendum.

Lastly, my hon. Friend expressed his concern about the possibility that some second-homeowners may be registering their properties for business rates and consequently not paying their share in council tax. Indeed, I have discussed this issue not just with my hon. Friend, but with my hon. Friends the Members for St Austell and Newquay (Steve Double), for North Cornwall (Scott Mann), for Suffolk Coastal (Dr Coffey) and for Totnes (Dr Wollaston), among others.

Holiday lets are a valuable part of the local business landscape in many communities. It is absolutely right that such genuine businesses should pay business rates and, as such, be able to avail themselves of small business rate relief, where appropriate. In the case of holiday-let accommodation, the properties are assessed for business rates rather than council tax if they are currently available for short-term lets for 140 days or more per financial year. This rule is widely understood and provides a clear method of deciding whether a property should be liable for council tax or business rates. It also ensures that properties do not switch between the two systems year to year merely due to success in letting out the property.

However, I assure all hon. Members that the Government take any suggestion of council tax avoidance or gaming extremely seriously wherever it occurs. My hon. Friend the Member for St Ives is absolutely right to point out the potential impact on his area. A reflection of this is that 17% of all holiday lets registered for business rates in England are to be found in Cornwall, and 97% of those have rateable values of £12,000 or below, so may potentially be eligible for small business rate relief.

[Bob Stewart]

I thank both you, Mr Speaker, and my hon. Friend for also allowing me to intervene. Does a business rate raised on a holiday let go to the local council or to central Government? In other words, if it is roughly the same as council tax, does the local council get the same amount?

--- Later in debate ---

[Rishi Sunak]

In general, business rates are split between central and local government. Depending on the particular area, that share may be more or less, but a rough rule of thumb is 50:50. Obviously, the particular question that my hon. Friend the Member for Beckenham (Bob Stewart) asked as to the level of difference between the two will depend on the rateable value of a typical business. The thing to bear in mind, as I said, is that 97% of holiday lets registered in Cornwall, for example, have a rateable value below £12,000, which means that they will be eligible for small business rate relief and to pay no business rates at all, and therein lies the issue that my hon. Friend the Member for St Ives highlighted.

Clearly, if these properties ought not to be eligible for business, rates this could represent a financial loss to both the local and central Exchequer and that would not be fair. I know that there are different approaches to how such properties are taxed. Wales is a case in point. There, such properties must provide evidence of actual letting in the previous year in order to be valued for business rates, rather than for council tax. There may indeed be merits to such an approach, and I am happy to listen to views and ideas on this.

I very much understand the concerns that my hon. Friend the Member for St. Ives has raised. As he knows, I have been looking at this issue for some time and have tasked my officials to investigate this matter in detail, and especially to speak to their counterparts in Wales about their experience there to see whether we should change the criteria under which holiday lets are valued for business rates. Whichever approach is taken, it is crucial that we strike a balance between ensuring that properties pay the right tax at the right level, and also ensuring that genuine small businesses receive the reliefs that they deserve.

To conclude, I have explained the wide-ranging measures that this Government have put in place to deal with the issues raised by second homes—from abolishing mandatory council tax discounts to increasing stamp duty rates, and from allocating funds to community-led local affordable housing to supporting neighbourhood planning. I hope that hon. Members will agree that the Government have been proactive in this area. However, ever restless to ensure that we are taking all sensible steps to address any issues, I am also examining the particular concern raised by my hon. Friend with regard to business rates and look forward to reporting back on this issue to him and to other Members in due course.

I end where I started: by commending my hon. Friend for so tenaciously and passionately continuing to raise this vital issue for his constituents. He is making a real difference to them by putting their issues directly on the Government’s agenda, and I know that he will continue to do exactly that in the days and months to come.

Question put and agreed to.