Finance Bill

Public Bill Committee, 3 June 2003.

Standing Committee B

(Except Clauses 1, 4, 5, 9, 14, 22, 42, 56, 57, 124, 130 to 135, 138, 139, 148 and 184 and Schedules 5, 6, 19 and 25, and any new Clauses and Schedules tabled by Friday 9th May 2003 relating to excise duty on spirits or R&D tax credits for oil exploration.)

Roger Gale (Conservative, North Thanet)

Good morning, ladies and gentlemen. Welcome back from the break. I trust you are all refreshed.

I have one housekeeping notice. While I am in the Chair, hon. Members may, if they wish to do so for their comfort, remove their jackets. I cannot speak for Sir Nicholas Winterton or Mr. McWilliam on that point. They will have to exercise their own judgment on your behalf.

Gerry Sutcliffe (Labour, Bradford South)

On a point of order, Mr. Gale.

Good morning, and welcome to the Committee. There may be a problem regarding Thursday's planned afternoon sitting. I have notified my opposite number, the hon. Member for Spelthorne (Mr. Wilshire), that we may need to seek a change in the programme, which will mean that the Programming Sub-Committee will need to sit. I hope that that does not cause great inconvenience to the Committee. The proposed change is caused by a clash of Government business on Thursday. We shall endeavour to enable the smooth running of the Committee and due process.

David Wilshire (Conservative, Spelthorne)

Further to that point of order, Mr. Gale. I am grateful to my opposite number, the hon. Member for Bradford, South (Mr. Sutcliffe), for speaking to me a few minutes ago. As I said to him, I should be grateful if you would give me a while to talk to my hon. Friends, who have only just discovered what the situation is. We shall co-operate and come back to the Committee as soon as we can with a Programming Sub-Committee resolution.

Roger Gale (Conservative, North Thanet)

I am grateful to both hon. Gentlemen for that information, which I am sure will be of value to the Committee. Should the Committee choose not to sit on Thursday afternoon, the Programming Sub-Committee will have to meet to vary the programme motion. I understand that talks are talking place to see whether it is possible to rearrange business to accommodate other matters and facilitate Members' presence.Clause 43 Land transactions

Clause 43 - Land transactions

Mark Prisk (Conservative, Hertford and Stortford)

I beg to move amendment No. 4, in

clause 43, page 30, line 7, leave out from 'provision' to end.

Welcome to the Chair, Mr. Gale, after our pleasant break, during which some of us felt like GCSE students. I suspect that the Chief Secretary and I shared that delight in making sure that we were intimate with every aspect of the Bill. I welcome the Chief Secretary to his place, and I am sad to hear that there may be a clash of business on Thursday Naturally, if the Economic Secretary wanted to get into the saddle then, we would be more than happy to play ball.

Before I refer to the amendment, I draw the Committee's attention to my entry in the Register of Members Interests. Hon. Members who have not recently referred to it may not know that I am a non-practising chartered surveyor, although it would probably be more accurate to say that I am an out-of-practice chartered surveyor. That means that I am a member of the Royal Institution of Chartered Surveyors, the leading property professional body, to which, among many other august bodies, I shall refer. It is important that the Committee is aware of that interest, which I put on the record for its benefit.

Clause 43 introduces one of the most fundamental changes that the new stamp duty land tax represents—the taxation of land transactions. The clause thereby replaces a 200 or 300-year-old stamp duty, which is not a tax on land transactions, but a charge on documents. I hope to consider the clause in its entirety later in a clause stand part debate, and I shall for now restrict my remarks to amendment No. 4.

The amendment would delete from subsection (2) the words ''by operation of law'' and is intended to probe the reasoning and intent behind the clause. At present the subsection reads:

''Except as otherwise provided, this Part applies however the acquisition is effected, whether by act of the parties, by order of a court or other authority, by or under any statutory provision or by operation of law.''

Subsection (2) is therefore remarkably wide in its scope. Unfortunately, that is typical of this whole part of the Bill, which deals with the stamp duty land tax, in that it involves over-reliance on sweeping powers and scope and overuse of vague language. The problem with that rather crude approach is threefold. First, the lack of clarity creates needless uncertainty for taxpayers. Secondly, the danger of unintended consequences is substantially increased. Thirdly—this is surely a concern from the Government's point of view—such an approach actually undermines measures to restrict tax avoidance.

Amendment No. 4 would remove the phrase ''by operation of law''. Many legal and other professional experts fear that the clause will adversely affect people whom the Government do not intend to hurt. Let us take as an example two people who are not married—perhaps a sister and brother—living together in, and jointly owning, a house. It appears that when one dies, the survivor would be liable to the new tax. That is not the case under the existing stamp duty, but it could be the case under the Bill.

Will the Chief Secretary make it clear who would and who would not be liable in such circumstances, and will he identify which transactions that are not chargeable under existing arrangements for stamp

duty will be liable to this tax? Will he also say how much additional revenue these specific transactions—not overall transactions—would generate in a full year, excluding, obviously, anti-avoidance measures?

This is a simple, probing amendment. Its purpose is to help us to examine the subsection with care. I hope that the Chief Secretary is able to provide the clarity that is lacking and which potential taxpayers will seek. If he can do that, I would be prepared to consider withdrawing the amendment, but, naturally, we shall want to hear what he has to say and the conclusions of the debate.

Roger Gale (Conservative, North Thanet)

Before we proceed, may I say that the debate has already gone slightly wider than the amendment? I have absolutely no problem with that, as those who have served under my chairmanship will know. As far as I am concerned, the Committee can have a stand part debate at the beginning of a clause or at the end, but it cannot have both. Therefore, if the Committee chooses now to widen the debate to embrace the stand part debate, that is all right by this Chairman. However, please understand that I am likely to rule later that there should not be a stand part debate.

John Burnett (Liberal Democrat, Torridge and West Devon)

I welcome you, Mr. Gale, and the Chief Secretary. I shall take up the invitation to widen the debate slightly, particularly in the light of comments that have been made on the clause and the very wide definition of ''purchaser''.

The Law Society of England and Wales suggests that it would be of considerable assistance to delete the words ''or is a party to'' from subsection (5). I hope that the Chief Secretary will consider that. The provision makes the tax bite extremely widely. For example, if a lessee requires a landlord's consent for the grant of a sub-lease and, as a result of consent being given, there is an increase in the value of the landlord's interest—that would be possible if the outgoing sub-tenant were a company of straw or a company of less value, and if the incoming sub-tenant were a FTSE 100 company, which would be a valuable tenant—that would constitute an acquisition of a chargeable interest under clause 3(3)(c)(i) by the landlord, who would become a purchaser, notwithstanding the fact that he had given no consideration. In those circumstances, the landlord and lessee would be treated as joint purchasers under clause 103, and the landlord would be jointly liable for any stamp duty land tax chargeable on the lessee, even though the landlord had paid no consideration. I am anxious for the Chief Secretary to put on the record his views of the operation of the clause in the light of those points.

I reiterate what the hon. Member for Hertford and Stortford (Mr. Prisk) said. The tax has a long history—I think that the hon. Gentleman said some 200 to 300 years. It was a voluntary tax in many ways. People did not have to pay it, but they could not register a property if they had not stamped the written documents, and they could not litigate on any document that required stamping.

George Osborne (Conservative, Tatton)

The hon. Gentleman says that the tax was voluntary. The American colonists did not think so when the stamp duty was imposed on them. It led directly to the American revolution.

John Burnett (Liberal Democrat, Torridge and West Devon)

I regret that my knowledge of that aspect of history is incomplete. I can tell the hon. Gentleman only that unless a document was stamped, it could not be exhibited in court. In addition, people could not register their title if the property was unregistered.

The tax was presaged by a momentous debate on electronic conveyancing in Westminster Hall on 9 November 2000, for which I was fortunate enough to draw the short straw. The Government spokesman was Mr. David Lock, the former Member for Wyre Forest and an able Minister, who, regrettably, is not still with us.

David Wilshire (Conservative, Spelthorne)

Regrettably?

John Burnett (Liberal Democrat, Torridge and West Devon)

Indeed.

A system of electronic conveyancing is going to be introduced. There will be substantial changes in stamp duty law. The message that I receive from the professional bodies and other practitioners is that there has not been sufficient scrutiny of the effects of the legislation, and that there is a lacuna. Let us hope that we hear some reassurance from the Chief Secretary and that we have adequate time to debate and scrutinise far-reaching changes to the law.

Ann McKechin (Labour, Glasgow Maryhill)

I want to raise a question about how the clause will affect leases in Scotland, where there is a principle of tacit relocation. I declare an interest: I am a member of the Law Society of Scotland—[Interruption.]

Roger Gale (Conservative, North Thanet)

Order. Conventions that apply on the Floor of the House do not apply in Committee. It is possible to pass notes between civil servants and those on the Floor, but not to engage in conversations.

Ann McKechin (Labour, Glasgow Maryhill)

The application of tacit relocation is that if neither party gives due notice of its intentions to end at the expiry of the terms, the lease is continued by tacit relocation on the old terms, except with reference to duration. In that respect, if the lease was for less than a year, continuation for the same period is inferred. If it was for more than a year, it continues on a year-by-year basis. It is not clear whether renewal of a lease by tacit relocation is the acquisition of a chargeable interest within the meaning of the clause, and I would be grateful if my right hon. Friend the Chief Secretary would clarify that when he replies and confirm that, in such circumstances, leases renewed by tacit relocation will not be covered.

Michael Jack (Conservative, Fylde)

I, too, remind the Committee of my business interests, particularly my non-executive directorship of a retail tile company that has a property interest. I felt that the Committee should know that before I started to speak.

I am concerned about the speed with which the measures from clause 43 onwards have been brought before the Committee. When challenged on Second

Reading, the Chief Secretary said, as I recall, that there had been no edict from the Inland Revenue, the Treasury or Treasury Ministers that consultation on such matters should be stopped. However, I hear that such an edict was put out. Given that my hon. Friend the Member for Hertford and Stortford has already moved a probing amendment, will the Chief Secretary tell us exactly how the initial consultations on the matter were curtailed? I understand that further consultation has begun. If that is the case something must, by definition, have ended for a second go to begin. I am sure that the Chief Secretary will be only too happy to enlighten the Committee about that with his usual bonhomie.

It is clear from the representations received on the clause and other parts of stamp duty land tax that the Law Society of England and Wales has expressed considerable concern at the speed with which the measure has been introduced. It was supposed to be a fundamental change to a 300-year-old tax, as my hon. Friend said. The fact that it has been introduced with such speed makes one question why so many amendments have been tabled to this and other clauses.

We appear to be on shifting sands because the Treasury and Revenue are still in consultation about certain elements of the provision, while we are being invited to put unfinished business into law. Will the Chief Secretary explain why the Committee is being invited to begin that voyage when it does not know where it will end up? Normally, one has a complete piece of legislation. The tax is effectively brand new, and the Treasury has not finished its job of mapping out the territory over which it is to be introduced.

The clause deals with land transactions. If the lease is connected with a transaction in land, which in most cases is effectively an opportunity to occupy a building, not to acquire it, will the Chief Secretary tell us why that is included as a land transaction? That raises some interesting questions. Leases are a modern way for people without initial capital to purchase an asset and to acquire the use thereof under the stated terms. I know of no other aspect of leasing in which a transaction tax is effectively levied on the asset. That set of circumstances applies uniquely to land. I appreciate that that is so because history has made it such, but this is a new tax. An element of history is being reconfirmed by virtue of the clause.

I am also interested in the wider context of clause 43 and its revenue-raising ability. Will the Chief Secretary explain the effect during the first year of the clause and others associated with it, and give us a breakdown of the extra revenue gained because the measure deals with avoidance, because it is a tax on such transactions, because the price of property has increased and because of the new formulation touched on in the clause and subsequent parts of the Bill. It would be a great help to the Committee to have that type of background information, so that we can form a proper view on the direction that the Government are taking.

Finally, the clause talks about ''transactions'' in tax. I am sure that the Chief Secretary will have examined every detail, because they will all have been

furnished to him, so can he tell us whether this is a new transaction tax? It was my understanding—I may be wrong, so I put my hands up and plead that I am wrong before I say what I am about to say—that member states of the European Union were allowed to have only one transaction tax. If that is the case and this is a tax on land transactions, perhaps the Chief Secretary can help me to understand why we appear to have two.

Norman Lamb (Liberal Democrat, North Norfolk)

Welcome to the Chair, Mr. Gale. I, too, declare an interest. I am a member of the Law Society and shall refer at various stages to its submissions on these provisions.

We share the concerns expressed by the hon. Member for Hertford and Stortford. The scope of the provisions seems very wide, and there is a clear over-reliance on regulation to be tabled in due course, which leads to inadequate scrutiny of the detailed provisions. That is not good law making. It is not the right way to proceed with a substantial new body of law that introduces new obligations on taxpayers. Moreover, the language used in this and other clauses is vague in a number of ways, which again does not give the citizen certainty.

Several professional bodies have said that the Bill contains an incomplete set of provisions. Substantial areas remain to be dealt with, such as subsale relief, the treatment of leases, the transfer of land into partnership and complex commercial transactions. It seems extraordinary that the Government are introducing so many incomplete provisions, leaving so much of the detail still to be fleshed out. We hear from other hon. Members about the extent to which consultation has restarted, and the position has been described as one of shifting sands, which does not make for good law.

I urge the Chief Secretary to respond to those concerns and to give us specific examples of what the phrase ''by operation of law'' covers. There is a great deal of concern, not only in this Room but among professional bodies that deal with this law all the time, and it is incumbent on the Government to try to address that concern.

George Osborne (Conservative, Tatton)

It is a pleasure to serve under your chairmanship, Mr. Gale. Taking up your invitation to have a slightly broader debate now, I wish to express my broad concerns. As has been said, stamp duty is a very old tax. Although the tax that is being introduced is called a stamp duty land tax, it is not stamp duty as originally conceived; the Government have used the name to conceal the fact that it is a brand new tax. It is not a charge on the imprint of a Government mark on documents, which the tax historically was. As I said in my intervention on the hon. Member for Torridge and West Devon (Mr. Burnett), that was what led directly to the American revolution. I hope that the Chief Secretary does not share the fate of Lord Grenville, who introduced stamp duty to America. I want the right hon. Gentleman to be present at Thursday's Cabinet discussion on the euro, which is why we shall have to reschedule our sittings.

My first concern is about consultation. All Committee members will have received many letters

from people in our constituencies and from the various representative organisations saying that they have not been properly consulted, that consultation was broken off, that this is a complex and novel form of taxation and that they have not had a chance to have their say and make their points. I share the concern already expressed that much of the detail of the tax—the devil is in the detail, as we all know—is unknown to us at this stage.

I very much share the concern of my right hon. Friend the Member for Fylde (Mr. Jack) about the revenue implications. The tax has been presented to the Committee as a measure to prevent tax avoidance, but the Government expect to raise large sums of money as a result—from memory, I think they expect between £350 million and £450 million in the first couple of years. Can the Chief Secretary tell me whether those large sums arise strictly from closing tax avoidance loopholes, or is this really a stealth tax, which is how the commercial property sector views it? That sector will see its tax burden go up considerably. I should like to see the breakdown for which my right hon. Friend asked the Chief Secretary.

I am not an expert on EU law, sadly, but, as I understand it, the EU allows only one transaction tax. When the Labour Government wanted to abolish VAT on fuel in 1997, they could not do so, because tax harmonisation law covers transaction taxes. They therefore had to drop VAT to 5 per cent. rather than to 0 per cent., as they had promised. It would be interesting to know how clause 43 fits in with EU law.

I have a feeling, as do many others, that this tax is based on a false idea that entering into a lease is somehow a tax avoidance measure, when it is, in fact, a way in which many companies that are not in the commercial property business and do not have large up-front sums of capital can legitimately rent property. A perfectly legitimate commercial property market provides that service.

This very complicated tax seems, to me and to others, to be being rushed in. If the Chief Secretary seriously believes that the old stamp duty regime is antiquated and inadequate, why does he not introduce a much simpler form of property tax of the kind found in many other countries? Why is he going through all these hoops and jumping over all these hurdles to introduce what he calls a stamp duty land tax but which has nothing to do with stamp duty?

Mark Prisk (Conservative, Hertford and Stortford)

By engaging with the amendment, hon. Members have clearly widened the debate. I take your guidance, Mr. Gale, and I assume that that will allow me to take my thoughts a tad wider.

The debate has been fascinating, because contributions from both sides of the Committee have shown that the language used and the extraordinarily wide scope of the provision undermine the effectiveness of the legislation that the Government seek to introduce. As hon. Members have shown, the provision to which the amendment refers goes back many years. Yet the process of consultation has been

rushed through in a few months, in spite of the Chief Secretary's non-verbal denials.

For a tax to work effectively, it must have the confidence of the lawful majority. In ''Modernising stamp duty'' the Financial Secretary to the Treasury sets out clearly the objectives of the consultation—fairness and a reflection of modern commercial practice. The worry is that the Bill achieves neither of those aims, which we and professionals in the market support.

Hon. Members have highlighted the disappointments for many people. People are disappointed about the slab effect and the significant tax increases for lessees, which my right hon. Friend the Member for Fylde discussed. We shall later discuss the question of a tax on tax, but I shall not stretch your patience any further on that Mr. Gale.

I say in all sincerity that following what people perceive to be botched consultation, the overwhelming view of the experts is that the clause is ill conceived and ill considered. Given that another £350 million of revenue will be drawn in from those affected, the feeling is that the clause is not modernisation of an old duty, but another stealth tax from new Labour. That is the genuine feeling of people outside the House.

I have several questions that relate to those raised by hon. Members and my hon. Friends. An excellent question was asked about the impact of the clause on small businesses. I hope that the Chief Secretary will reply to that, particularly as it affects leases. One question referred to the cost breakdown. How much will it cost the different sectors? What is the breakdown for next year of the additional £350 million? I am sure that the Chief Secretary will have the answer to hand.

Most pertinently, and presciently—as always—my right hon. Friend the Member for Fylde referred to the EU sixth directive. Hon. Members may determine that I am a sad individual, but, as one does when considering such matters, I tucked into the joyous orange tax book. It sets out clearly what the sixth directive includes, and in particular, the reference in article 33 to how the EU actually works. Will the Chief Secretary tell the Committee whether the new tax is fully compatible with our treaty obligations, whether those are in the sixth directive or elsewhere? Will he bring to the Committee's attention the legal advice that he has received on that and put it on the record that the tax is legal and does not require any subsequent affirmation by Brussels?

If I may stretch the Committee's interest a little further, I have a couple of other brief points. The word ''acquisition'' is in the first line of the clause. That appears straightforward, but perhaps the Chief Secretary can help me. The clause includes the creation, surrender or variation of a chargeable interest. That is fair enough. I assume that it includes the granting of a right of way or the agreement to a restricted covenant, but what about the release from a restricted covenant? Who would be charged for a lease or property right, such as that referred to by my hon. Friend the Member for Tatton

(Mr. Osborne), when that is varied? In other words, who is the purchaser in such a transaction?

On subsection (3)(b), several lawyers have highlighted the worry of double counting. That could lead to a double charge, if one took the meaning of the law as written in subsection (3)(b)(i) and (ii). Will the Chief Secretary comment on that and confirm that that is not his intention?

Subsection (5) states:

''A person is not treated as a purchaser unless he has given consideration for, or is a party to, the transaction.''

That implies that anyone who is a party to the transaction is a purchaser. Will the Chief Secretary confirm that that is not his intention?

The hon. Member for Glasgow, Maryhill (Ann McKechin) mentioned the applicability of the provision to Scotland and businesses there. Is the use of ''appurtenant'' or ''pertaining'' in subsection (6) intended to include only heritable rights, or is it intended to include non-heritable rights? For example, the right to fell trees with a lease of land is particularly relevant to Scotland, and I am grateful to the Law Society of Scotland for highlighting a point that I have to confess was not immediately obvious to me.

We have some grave reservations about the scope of the clause. The amendment would allow for clarity. I hope that the Chief Secretary will be able to answer our questions in order to set the record straight. If he is able to do that, we will consider withdrawing the amendment.

Jonathan Djanogly (Conservative, Huntingdon)

The explanatory notes outline the Government's reasoning for replacing stamp duty with the new tax—that is what it is. They state:

''Stamp duty is over three hundred years old and the legislation was last consolidated in 1891. It is a charge on documents that transfer property, and when duty is paid, stamps are still impressed physically on the document concerned. Unlike more modern taxes there is no provision for the tax to be collected directly from taxpayers by assessment.''

That says it all. It proves straightaway that we are talking about a new tax. The Government want to get at assessment. Stamp duty is about stamping documents and not about entering into negotiations with the Revenue. Let us have no doubt that this is not a cleaning-up exercise; perhaps it is, given the way in which the Government talk about cleaning-up exercises in relation to the EU constitution, but to my mind it is not a cleaning-up exercise. The clause drags new people into a new tax net. That is much more than simply considering anti-avoidance.

Hon. Members have repeatedly referred to the consultation that was launched as an initiative in last year's Budget. The Inland Revenue initiated a series of consultative committees to examine technical issues involved with the stamp duty reform programme. However, for some reason—the Government have not given any particular reason—all that came to an abrupt halt in January. It would be helpful if the Chief Secretary would tell us why that happened. One thing is for sure: all hon. Members have been bombarded by notes from professional organisations and people involved in the property industry. In that regard, I

would be interested to hear from the Chief Secretary exactly how many requests he has had for further consultation. I imagine that it is a substantial number. I pick one response from many. The Royal Institution of Chartered Surveyors believes that the Government have opened a Pandora's box in reforming lease duty in this fashion.

I want to go a little further into the objectives of the reforms, which were touched on by my hon. Friend the Member for Hertford and Stortford. The Government set out their objectives in their initial consultation document. They mentioned three main things. First, they mentioned fairness. The document stated that

''the Government is concerned about the increasing extent to which stamp duty is being avoided.''

However, the reforms go rather further. I understand that something like £350 million will be reaped in the first year, and that is only the start. I also have doubts about how the lack of consultation can be equated with fairness. Exemptions, such as the 2,000 disadvantaged areas, mean that places such as Holborn and Lincoln's Inn Fields will be subject to total avoidance of the clause. I do not see how such exemptions, and the amount of money that property developers will make, can be equated with fairness.

The second principle stated in the consultation document was e-business. It mentioned creating

''a regime that supports the Government's e-business agenda''.

How dragging e-business into the new tax will help budding technology entrepreneurs I know not. Again, I would be most grateful for the Chief Secretary's advice on how that is to be the case.

We come next to the Government's favourite concept. The third principle was modernisation. The document mentioned creating

''a legal framework for stamp duty in line with more modern taxes''.

George Osborne (Conservative, Tatton)

We all know what that means.

Jonathan Djanogly (Conservative, Huntingdon)

We do—new taxes! If the Chief Secretary can advise me how the new tax will modernise the transfer of properties in a way that is conducive to the conduct of business in this country, I would be much enlightened.

Paul Boateng (Labour, Brent South)

I join the hon. Member for Hertford and Stortford in welcoming you to the Chair, Mr. Gale. It is always a pleasure to serve under your chairmanship. Your latitude in matters sartorial and in respect of the breadth of debate are well known, as is your strictness in matters to do with the conventions of the Committee. You have already demonstrated that during the few minutes we have spent in consideration of the clause.

As I listened to the contributions of the right hon. Member for Fylde and the hon. Member for Torridge and West Devon, it seemed to one who has served on this Committee before that we had never been away. It is perfectly true that there are a few fresh faces—unfortunately, mine is not among them. Nevertheless, the whole tone of those speeches was all too sadly familiar.

I have a great deal of respect for the right hon. Member for Fylde, who served as a Treasury Minister in previous Administrations, but, to some degree, his criticisms of the Government were disingenuous. I must take issue with him and, I regret, with the hon. Member for Torridge and West Devon, on the consultation, because this Government, more than any of our predecessors, have engaged in consultation on a series of budgetary measures. I believe that that is almost universally agreed. After all, it was this Government who introduced the concept of the pre-Budget report and who time and again have sought to involve stakeholders in discussions on changes in taxation.

Mark Prisk (Conservative, Hertford and Stortford)

Will the Chief Secretary give way?

Paul Boateng (Labour, Brent South)

No, let me get a bit of steam up. I feared that less charitable Opposition Members would make an accusation about consultation, so I had some research done. The right hon. Member for Fylde will appreciate that the research reveals that the consultation exercise on modernising stamp duty was one of the most intensive ever undertaken by the Inland Revenue. It engaged external consultees for some 280 hours. Those who serve on this Committee and who are required to consider this tax will understand the figure of 280 hours.

Mark Prisk (Conservative, Hertford and Stortford)

Will the Chief Secretary give way?

Paul Boateng (Labour, Brent South)

No, I have not finished yet. Indeed, the consultation went beyond that, because officials from several Government Departments were engaged for some 310 hours. Such was the extent of consultation on the measure.

Mark Prisk (Conservative, Hertford and Stortford)

I am grateful to the Chief Secretary for giving way. In a similarly charitable tone let me say that, yes, the Government initiated consultation. If he listened carefully, he will know that we welcomed that. However, why on 21 January, without warning or explanation, did Ministers specifically instruct the Revenue to stop the consultation?

Paul Boateng (Labour, Brent South)

That canard has been raised on the Floor of the House. I hope that the right hon. Member for Fylde will be able to correct a misunderstanding among Conservative Front-Bench Members about the processes of Government. We had extensive consultation and, as a result of that listening process, it became clear that there were matters that had to be considered internally within the Government. The whole point of consultation is to tease out issues that require further consideration and reflection. That was done and, having teased out the issues, it was then for Ministers to consider the policy implications with civil servants.

Michael Jack (Conservative, Fylde)

The Chief Secretary has clearly considered the matter in great detail. [Interruption.] No doubt the pager that has just gone off will result in even more information. The director general of the British Retail Consortium wrote to the Financial Secretary on 19 February. Perhaps the Chief Secretary can explain why the letter states:

''Subsequently the consultation process between the Revenue and interested bodies was suspended.''

Why was it necessary for the director general to use such a term in his letter to the Treasury? He said not that it was concluded, or brought to a happy and satisfactory ending, but that it was suspended.

Paul Boateng (Labour, Brent South)

I thought that I had explained that; obviously, I have not succeeded. There was extensive consultation. As a result, issues were identified that required further consideration and reflection by civil servants and Ministers. Of course, it was not possible to continue with external consultation while that was taking place. The right hon. Gentleman knows very well that that is how government operates. To suggest that there is anything sinister in that—I am tempted to use the word ''silly'', but I shall not—exhibits a degree of paranoia on the part of Opposition Members, as if everyone is out to get them and to close down discussion. That was the furthest thing from our mind.

John Burnett (Liberal Democrat, Torridge and West Devon)

I do not think that it is paranoid or untoward to raise the fact that some major areas that have not been addressed were to be consulted on, including major, complex commercial transactions such as sales and lease-backs. What will happen on those matters?

Paul Boateng (Labour, Brent South)

We will address them in some detail when we reach that part of the Bill. I hope that the hon. Gentleman will agree that the Government have demonstrated that we are prepared to listen to the industry in order to get the legislation right. We are committed to doing that, and will continue to do it.

On sales and lease-backs, I believe that the hon. Gentleman will find many examples of our willingness to listen in order to ensure that we end up with a piece of legislation that does credit to the seriousness of the industry's purposes and intentions and to the need to safeguard the interests of the taxpayer. I hope that those aims are held in common by all members of the Committee.

George Osborne (Conservative, Tatton)

I am enjoying the Chief Secretary's master class in government. I seem to remember that when the Labour party came into office, it said that it would make much less use of external consultants. While in Opposition, it ran a great campaign about the cost to the Conservative Government of using external consultants. Today, the Chief Secretary has boasted that the Treasury employed consultants for 280 hours. What did that cost?

Paul Boateng (Labour, Brent South)

The hon. Gentleman needs a master class, because he has confused consultees with consultants. To my knowledge, we did not pay for any of the 280 hours that external consultees were good enough to devote to the activity. I want to record our thanks to the external stakeholders who were engaged in the consultation for giving their time gratuitously to ensure that we ended up with legislation that was fit for purpose.

What I find difficult to understand in this attack on the consultative process is that it does not give credit to those who ensured that Ministers and officials could benefit from detailed discussions on a variety of issues. Those discussions were reflected in a final package of proposals announced in the Budget—for example, for

deciding the precise weight and structure of lease duty. Anyone engaged in that consultative process will tell Opposition Members how valuable it was.

Several hon. Members rose—

Roger Gale (Conservative, North Thanet)

Order. We all enjoy a certain amount of political knockabout, but even by my legendary standards of tolerance, we are going a trifle wide of the mark. It would be helpful if we now returned at least to the clause under discussion, if not to the amendment.

Paul Boateng (Labour, Brent South)

I shall do that immediately, Mr. Gale.

I shall begin by dealing with the important issue that Opposition Members raised—it reflects an obsession, but it is important nevertheless—about Europe and European legislation. EU rules limit use of turnover taxes. We have taken advice and are confident that stamp duty is not a turnover tax. Indeed, most EU countries have a charge on the acquisition of real estate.

The right hon. Member for Fylde raised an interesting point about the nature of a lease and seemed to question whether a lease was an interest in land. It is well established that a lease is an interest in land. Indeed, outside the environs of this Committee, I had a discussion with the hon. Member for Hertford and Stortford in which I bemoaned the fact that, as an adolescent—I was fresh-faced then—I had to spend a year studying land law prior to 1925. Indeed, the first time that I have ever been called on to make any use of what Professor Hornby and others taught me has been in the course of preparing for this debate. Amongst all that one learned about advowsons, transfers of manners and the like, one learned that the very first section of the Law of Property Act 1925 made it clear that a lease is an interest in land. That has been recognised for many years, and, indeed, it is recognised by the existing stamp duty. I am surprised that the right hon. Member for Fylde should have raised that issue.

Mark Prisk (Conservative, Hertford and Stortford)

How fascinating it is to hear about the Chief Secretary's education. On that note, in terms of his legal education, he neatly tap danced—that is the best description I can give—through the tricky issue of the application of the law to the clause and this tax. He said that the sixth directive related to turnover taxes, but I see that the title includes the words

''a common system of value-added tax''

and ''transaction taxes''. Can the Chief Secretary elaborate further? Is the Bill compatible with all our treaty obligations?

Paul Boateng (Labour, Brent South)

I assure the hon. Gentleman that it is compatible with our treaty obligations. As any Government would, we do all that we have to do to show that we are fully mindful at all times of our treaty obligations. We are satisfied, the necessary checks having been made, that that is the case in relation to the clause.

John Burnett (Liberal Democrat, Torridge and West Devon)

I hope that the Chief Secretary will draw further on his extensive knowledge of land law. He took me down memory lane when he referred to advowsons, because I once had the misfortune of trying to value one for the old estate duty purposes.

Will the Chief Secretary remind the Committee whether leases of all durations are interests in land?

Paul Boateng (Labour, Brent South)

The hon. Gentleman begins to trespass into an area that we will explore in due course concerning the distinction between leases and licences. I suggest that by applying the de minimis principle, any leases with which he is likely to be concerned relating to valuation, and any leases with which the Inland Revenue is likely to be concerned relating to the impact of the tax, are clearly interests in land.

Michael Jack (Conservative, Fylde)

Just for the avoidance of doubt, will the Chief Secretary confirm that leases whose value is dependent on the commercial performance of the enterprises using them are not caught as transaction taxes?

Paul Boateng (Labour, Brent South)

We will come to that in considerable detail in due course, but by the time we have finished, the right hon. Gentleman will be satisfied that the law is properly applied.

The amendment would exclude from the scope of stamp duty those land transactions that take effect by operation of law. The vast majority of such transactions are for no chargeable consideration, and, in those circumstances, no stamp duty land tax will be payable. I have been asked for examples, and they include acquisition of ownership by legal doctrine of adverse possession, the transfer of ownership from one joint owner to another following death by the legal doctrine of survivorship—the point specifically made by the hon. Member for Hertford and Stortford—and the acquisition of land by the operation of natural forces under the legal doctrine of alluvion or accretion. That will no doubt cause the heart of the hon. Member for Torridge and West Devon to miss a beat because it can create enormous difficulties in valuation when, over the years, a meandering river throws up silt that slowly and gradually causes a field to increase as the result of the dropping of sediment on its borders.

The Committee should understand that where there is a chargeable consideration for such a transaction, the stated policy in the legislation is to charge tax—as would be expected. That must make sense because we are seeking to apply the tax on substance rather than form. The tax is on transactions, not on documents, as stamp duty was. That is why, despite the smears of some Opposition Members, the clause is an act of modernisation. It recognises that, in the world in which we live, the transaction, not the document, should be subject to charge. Any other policies would allow avoidance, which we are determined to clamp down on.

Michael Jack (Conservative, Fylde)

Will the Chief Secretary give way?

Paul Boateng (Labour, Brent South)

I really must make some progress, then I shall give way.

The most obvious example of a transaction that takes effect by operation of law and for which there is, or may be, chargeable consideration is a surrender by operation of law. It is possible for a tenant to surrender a lease for a premium—that is, to sell the lease back to the landlord—without any documentation, simply by the tenant vacating the

premises and the landlord taking back the keys and handing the tenant a cheque. While that is no longer possible for registered leases—currently those for terms longer than 21 years—it is still possible for unregistered leases. If the consideration for the surrender of the lease is less than £60,000—£150,000 for non-residential premises—no tax will be payable in any event.

I am grateful to the hon. Member for Hertford and Stortford for saying that his was a probing amendment. I appreciate that it is so, but must say that it would allow landlords to buy back valuable leases from their tenants and avoid the payment of the stamp duty land tax that would otherwise be payable, which is clearly not the hon. Gentleman's intention.

That is one example of a transaction that takes effect by operation of law; another is foreclosure, when a mortgagee takes ownership of land mortgaged to him following the default of the mortgagor and the grant of a foreclosure order. Currently, stamp duty is payable on foreclosure orders. Although they are rarely used in practice, under the new regime foreclosures will, similarly, attract stamp duty land tax. If they did not, that would again result in the possibility of avoidance by the unscrupulous.

The hon. Gentleman asked specifically whether grants of right of way, grants of covenant and releases of covenant are chargeable. They are all potentially chargeable, but they would only rarely be subject to a charge. In my response to the amendment, I gave the hon. Gentleman the example of a surrender of lease for a sum of less than £60,000, or £150,000 for non-residential premises, for which no tax would be chargeable because of the nil rate band. In the case of a grant of a right of way or covenant or a release of a covenant there would be no doubt about who the purchaser was, if a larger sum was being paid. I assure the hon. Gentleman that there would be no need to report such transactions, because minor interests are not chargeable. That goes back to the de minimis point that I made to the hon. Member for Torridge and West Devon. I do not want to encourage him simply by mentioning his name.

I want to deal with the definition of ''purchaser'', because I know that that is of concern to the hon. Gentleman and a number of other right hon. and hon. Members and has been confirmed as a matter of concern by the Law Society of England and Wales. I am happy to give the reassurance that is sought to this extent. It is intended in these circumstances that two separate land transactions would have occurred, with the result that the landlord and the lessee would not be treated as joint purchasers and the landlord would have no liability to stamp duty land tax. Why is that?

In the specific example given by the Law Society of the wide definition of purchaser, the concern was that if the landlord and lessee were treated as joint purchasers under clause 103, the landlord would be jointly liable for any SDLT chargeable on the lessee, even though the landlord had paid no consideration.

Therefore, I can give the assurance that is sought. Revenue guidance will be issued in due course to confirm that. No amendment is required, because clause 103(1) makes it clear that the clause applies only if the purchasers will be jointly entitled to the interest acquired, and that is not the case in the example that the Law Society gives as the basis of its cause for concern about the wide definition of ''purchaser''.

My hon. Friend the Member for Glasgow, Maryhill asked a specific question about the law in Scotland. I am grateful to her for raising the issue because it is one of the few Scottish-specific issues on which the Inland Revenue is currently working with Scottish counsel and the Law Society of Scotland in order to ensure clarity. The matter relates to a unique feature of Scottish law, and it will be necessary to ensure that it is addressed. If amendments are necessary as a result of the dialogue that is taking place between the Law Society of Scotland, Scottish counsel and ourselves, they will be laid on Report. I give my hon. Friend that assurance. I am grateful to her for raising the matter in the manner that she did.

I want to address one matter—I hope that it will not be necessary to labour it—raised by the hon. Member for Huntingdon (Mr. Djanogly). I have heard the point about docklands before and I understand it. The relief is intended to help the most deprived areas of the United Kingdom. The indices of deprivation that we have used provide the best available evidence of disadvantage. No one seriously queries those indices, but, undoubtedly, in the example that the hon. Gentleman gave, there are pockets of great affluence amid areas of real disadvantage. Anyone who knows the area would recognise that, in those parts of real disadvantage, it is important that some relief is provided by the legislation. We will come on to the matter, so I do not want to stretch Mr. Gale's patience by going into it in any great detail now. I am happy to do so in due course, but I wanted to do the hon. Gentleman the courtesy of at least indicating that I had noted his point.

Jonathan Djanogly (Conservative, Huntingdon)

I was merely asking how building skyscrapers in Docklands for people who are not local be of any use to anyone other than the property developers who get the exemptions.

Paul Boateng (Labour, Brent South)

It is odd to have that charge put by right hon. and hon. Gentlemen from the Opposition, because the very reason given in the first place for the docklands development corporation, and for what amounted in the eyes of some local residents to parachuting such developments into long-established communities, was that the presence of such buildings and the affluent people who work and live in them would benefit the surrounding area.

Jonathan Djanogly (Conservative, Huntingdon)

Trickle down.

Paul Boateng (Labour, Brent South)

Out of the mouths of babes and sucklings. The reality is that that has happened in those areas.

George Osborne (Conservative, Tatton)

The right hon. Gentleman opposed it at the time.

Paul Boateng (Labour, Brent South)

It is possible, on occasions, to learn from experience. I strongly commend—but not too

strongly—that approach to Opposition Members, although they should take their time about it. It is important to learn from experience, and the experience in docklands has shown that those areas have benefited from the presence of businesses and, particularly, well-heeled residents. The measure recognises that there continues to be real deprivation in such areas, but we will return to that matter in due course.

Roger Gale (Conservative, North Thanet)

Order. I ought perhaps to remind the Committee that clause 57 on disadvantaged areas relief was in fact taken on the Floor of the House and, therefore, will not be debated further.

Paul Boateng (Labour, Brent South)

I am grateful, Mr. Gale. It is unfortunate that I have been denied by circumstance the opportunity of dealing with the matter in as much detail as I would have liked. I remember well the long speeches of the hon. Member for Arundel and South Downs (Mr. Flight) and others who went on at some length. Had they not gone on as long as they did, we might have been able to deal with the matter.

Mr. Howard Flight (Arundel and South Downs) indicated dissent.

Paul Boateng (Labour, Brent South)

Well, there is one of the main culprits. I do not wish to pursue the matter, but I hope that the point has been taken. Through your latitude, Mr. Gale, we now have an opportunity to consider the issue, albeit indirectly through our consideration of clause 43. I hope that hon. Members will accept that the aim of the relief is to raise standards in poorer areas surrounding pockets of wealth and advantage, so that they too can benefit from the investment that has been made and that is enjoyed by their more affluent neighbours.

George Osborne (Conservative, Tatton)

My hon. Friend the Member for Huntingdon mentioned the Holborn area. Lincoln's Inn Fields is a particularly wealthy area in a deprived community. Will not the provision just create another loophole that property companies will exploit to build in areas that are already very affluent? As such, wealth would not spread to more deprived communities . The problem seems to be the rather crude determination of deprived areas by using postcodes.

Roger Gale (Conservative, North Thanet)

Order. That is an interesting point, but I am not prepared to allow a debate on clause 57 by proxy.

Paul Boateng (Labour, Brent South)

Thank you, Mr. Gale.

I wish to move on to deal with avoidance and loopholes. It has from time to time been suggested that the provisions are unnecessary and are really a stealth tax. Such suggestions do not do justice to what we seek to do in clause 43 and elsewhere in the measure. The fact is that the impact of avoidance schemes has been thoroughly detrimental to the interests of the ordinary taxpayer. We must close the loopholes and prevent a situation in which avoidance is given free rein.

I shall give a few examples, although there are many. An avoidance scheme that has been publicised as the double drop has been used to perpetuate special purpose vehicle avoidance by exploiting a loophole in the Finance Act 2002 clawback provisions. I see that the hon. Member for Hertford and Stortford is

familiar with it. I hope that he shares with me the belief that dealing with such avoidance schemes is a perfectly legitimate use of Executive power. [Interruption.] The double-drop method involves a transfer of land through two subsidiary companies before both are sold out of the group. [Interruption.]

Roger Gale (Conservative, North Thanet)

Order. I encourage hon. Members who wish to engage in private conversations to use the green benches outside the Room that the authorities have so thoughtfully provided.

Paul Boateng (Labour, Brent South)

As the two subsidiary companies are still in a group on exit, no clawback is triggered. That was an avoidance mechanism. We closed that loophole in the existing stamp duty legislation with immediate effect from Budget day 2002. When land is transferred from A to B and B pays a consideration for the deal to A, but they do not complete their conveyance, that avoids stamp duty, which applies only to conveyances. The clause would prevent that by bringing contracts that are substantially performed into the charge. I do not think that Opposition Members are seriously suggesting that that is not a legitimate purpose.

Mark Prisk (Conservative, Hertford and Stortford)

The Chief Secretary knows perfectly well that Opposition Members are as determined as he is to ensure that illegal evasion and undue attempts to avoid legitimate tax commitments are dealt with by the Executive. That is entirely right and proper. Our critique in this amendment is about the vague language and wide scope, which create a loophole. That is the pertinence of the amendment, and I hope that the Chief Secretary will be able to come back to that.

George Osborne (Conservative, Tatton)

We are trying to help.

Paul Boateng (Labour, Brent South)

I hear what the hon. Gentleman says. We will hold him and his right hon. and hon. Friends to that. If he is genuinely trying to help, he will recognise the spirit in which the provision has been introduced and will not attempt to describe it, as he has, as a stealth tax. He will also recognise that, far from being vague and uncertain, the clause sets out clearly and comprehensively the nature of the stamp duty land tax, its replacement of the current stamp duty on land and buildings and its renaming so as to distinguish between transactions that are subject to the reformed charge and those that remain subject to existing stamp duty.

Mr. Jack rose—

Paul Boateng (Labour, Brent South)

It seeks to do that in a way that is fairer and more modern. I believe that it creates a more robust tax regime for land and building transactions in the UK by addressing long-standing distortions and loopholes in the current charge, which have increasingly been exploited by big commercial players at the expense of the majority of taxpayers. Our concern remains for the many, not for the few. [Interruption.] Opposition Members do not like it, because that is the big distinction between them and us.

Michael Jack (Conservative, Fylde)

Will the Chief Secretary give way?

Paul Boateng (Labour, Brent South)

I think that I have been very generous. Having said what I have and on that note, which makes a clear distinction between them and us, I

commend the clause to the Committee and urge it to vote against any attempt to press this so-called probing amendment to a vote.

John Burnett (Liberal Democrat, Torridge and West Devon)

I am grateful to the Chief Secretary for his reasonably helpful comments on the ambiguity in subsection (5), especially in relation to the words

''or is a party to'',

but I believe that the Bill should be in plainer language. Notwithstanding what the Chief Secretary has said and the doctrine in Pepper v. Hart, I draw his attention to clause 103(1) and the words ''who are''. Those words cause ambiguity and uncertainty. I hope that the Chief Secretary will consider that point again, and on reflection will table a sensible amendment so that the legislation says what it is supposed to mean. Innocent parties, who are innocent by the Chief Secretary's admission, should not be caught by the tax in future.

Michael Jack (Conservative, Fylde)

In a way, I hope that the Chief Secretary does not reply to what I am about to say because then it will sit on the record. Had the Chief Secretary given way, I would have probed him a little further on the remarks he made on avoidance, and the comments in his winding-up speech about the double drop provision. I was going to ask him why—or if—all the special purpose vehicle arrangements that had been established to circumnavigate the old tax had been fixed in the new tax. That was part of the extensive consultation exercise to which the Minister referred.

In the 280 hours of intense, detailed and exacting examination of the measure that has led to such a comprehensive torrent of criticism, those special purpose vehicles were not dealt with. The impression that the Chief Secretary has given is that all the avoidance mechanisms were comprehensively dealt with. It is my understanding that that part of the consultation document to which the Chief Secretary referred—the modernisation of stamp duty—has not been enacted. If the Chief Secretary is trying to tell us that it is all a matter of avoidance, perhaps the words will hang on the record that the Chief Secretary was not prepared to tell the Committee why that part of the huge consultation exercise has not resulted in any provision in this clause or any other that deals with those avoidance vehicles.

Howard Flight (Conservative, Arundel and South Downs)

May I repeat two specific questions to the Chief Secretary that he has not yet answered? Several of my colleagues made the point that the Government have said that they expect an extra £350 million of revenue in the first year and £450 million in the second. We have asked for a breakdown of that. We have received substantial representations, particularly from small and medium-sized businesses, which see the potential for fourfold increases in their liabilities.

Secondly, the Chief Secretary danced nicely over the issue of the European Union, but he confirmed in his words that the tax is a transaction tax. I do not have intimate knowledge of continental European equivalents, but my recollection is that the payment is analogous to the old stamp duty in the UK, and where

instruments comparable to leases are involved—to the extent that they exist—there is no form of transaction tax. I would be interested to know whether the Government have had appropriate discussions with the relevant European bodies to confirm that there is not going to be any objection raised by them to the provisions in the Bill.

Roger Gale (Conservative, North Thanet)

I call Mr. Prisk to wind up the debate.

Mark Prisk (Conservative, Hertford and Stortford)

It has been an interesting debate. I am grateful to members of the Committee, and to the Chief Secretary for his fascinating replies. I am grateful to him for trying to answer several of the questions raised. My colleagues have, however, identified several questions that were not answered. Sadly, the question on costs has not been answered.

Paul Boateng (Labour, Brent South)

I would like to respond to a number of points made by right hon. and hon. Members, but perhaps I should do so after the hon. Gentleman has finished making the points that he wants to put to me.

Mark Prisk (Conservative, Hertford and Stortford)

I am perfectly happy to listen to those responses later on.

One question raised by several colleagues that has not been answered concerns the terms ''appurtenant'' or ''pertaining to''. I am sure that the question of heritable rights has not slipped the Chief Secretary's mind, and that he will come to that among the other questions.

The central argument that we are trying to make in the amendment is that the Bill as drafted, particularly clause 43, produces uncertainty and allows for more tax avoidance, which contradicts the Government's aims. Our concern is that the combination of vague language and all-compassing clauses such as this one is self-defeating of the Government's aim. That is our concern. We share the Government's wish to tackle illegal attempts to avoid due tax liability, and we understand that. That is not our criticism. We are criticising the way in which the Bill has been introduced and, as hon. Members have said, the botched consultation—[Interruption.]

The Chief Secretary shakes his head and denies that the consultation was stopped unduly, but the truth is that every one of the professional bodies that responded to the consultation said that it was stopped arbitrarily. He referred earlier to Conservative Members being paranoid and silly, but we were repeating the concerns of the professionals. Were they paranoid and silly? I hope that the Chief Secretary can answer that.

Roger Gale (Conservative, North Thanet)

Order. I called the hon. Gentleman to wind up the debate, but if the Chief Secretary wishes to respond, I shall allow him to do so. He does not, so I shall return to the hon. Gentleman.

Mark Prisk (Conservative, Hertford and Stortford)

Having heard the Chief Secretary's comments, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

The Chairman, being of the opinion that the principle of the clause and any matters arising thereon had been adequately discussed in the course of debate on

the amendment proposed thereto, forthwith put the Question, pursuant to Standing Orders Nos. 68 and 89, That the clause stand part of the Bill.

Question agreed to.

Clause 43 ordered to stand part of the Bill.

Clause 44 - Contract and conveyance

Paul Boateng (Labour, Brent South)

The clause relates to contracts for land transactions. If such a contract is ''substantially performed'' before it is formally completed, stamp duty land tax will be payable at the time of substantial performance.

An example of a contract being ''substantially performed'' before it is formally completed is when the purchaser has paid substantially the whole of the contractual price, when the purchaser obtains the keys to the door and is entitled to occupy the property, however that is documented, or when the purchaser of a building that is let becomes entitled to receive rent. In such cases the clause ensures that a transaction is charged to stamp duty land tax only once.

The clause is also designed to prevent avoidance or postponement of tax by the technique of resting on contract. The clause applies even if the contract is conditional. If the condition is not satisfied, the stamp duty land tax paid can be reclaimed. Reclaim is also possible if the contract is rescinded or annulled.

The context is anti-avoidance and the provision seeks to ensure that revenue yield is not adversely affected. In a previous debate, a number of right hon. and hon. Gentlemen referred to revenue yield. I can tell the hon. Member for Arundel and South Downs that the fullest breakdown of revenue yield is available in table A2.1 of the Red Book. In the first full year, 2004–05, anti-avoidance measures will yield £210 million and lease duty will yield £190 million. Part of that yield is offset by the increased zero rate threshold for commercial property and the changes to the treatment of VAT in consideration, which I shall not go into now, but I have no doubt that we shall return to that at some length during our deliberations.

A question was asked about the charge on special purpose companies. To put the matter into context, I shall make the position clear for the avoidance of doubt, because I know that it concerns the right hon. Member for Fylde. The Government recognise the property industry's concern about a charge on special purpose companies. However, we are determined to take tough action against avoidance. Even the industry admits that avoidance is widespread and that cannot be right, so the Government are tackling the problem of avoidance using special purpose vehicles by building on the success of the anti-avoidance rules introduced in 2002. Some of us spent a lot of time listening to my right hon. Friend the Paymaster General and the hon. Member for Arundel and South Downs, and we all know the care that has gone into that process and the introduction of the anti-avoidance rules. The Revenue will continue to monitor the area carefully, precisely in

order to deal with the sort of SPVs that have led, I fear, to abuses in the past.

Mark Prisk (Conservative, Hertford and Stortford)

I am grateful to the Chief Secretary for his opening remarks. As he said, the tax is on transactions. The stamp duty land tax does not ordinarily need a document, or an instrument, but the clause provides for those transactions when a contract or conveyance exists. The Chief Secretary said in his opening remarks that central to the proposals is the need to strengthen anti-tax-avoidance measures. He will know that we strongly support the Revenue and the Government where they seek to tackle illegal tax evasion or to challenge unreasonable actions that seek to enable someone to avoid their fair tax liabilities.

The clause and its vague language undermine the whole process of minimising tax avoidance. In short, without clarity of language and clear definitions, such tax laws leave new loopholes. For example, let us consider subsection (4), which states:

''A contract is 'substantially performed' when—

(a) the purchaser takes possession of the whole, or substantially the whole, of the subject-matter of the contract, or

(b) a substantial amount of the consideration is paid or provided.''

What does that mean in the real world? How does the Chief Secretary define ''takes possession of''? In enforcing that provision, what evidence will the Revenue require as to what possession is. May I give an example? If someone takes possession of a shop or office to fit it out, does that trigger a tax liability? On the face of it, the clause means that every shop, club, bar and restaurant would be subject to a stamp duty land tax when fitted out. Is that the Government's intention? If not, how will the Chief Secretary seek to determine ''takes possession of''? The language used in subsection (4)(b) is equally woolly. What constitutes ''substantial''? Is it a fifth, 25 per cent., a third, 50 per cent., or does it have to be 51 per cent.? Who will determine that definition and when?

I hope that the Chief Secretary realises that that lack of clarity leaves considerable uncertainty in the minds of potential taxpayers in relation to the problems of ensuring that they comply with the legislation. I hope that he will provide the clarity that is sadly lacking in the clause. For example, if a 20 per cent. payment of the purchase price, or the rent, is paid over by a new occupier will that constitute ''a substantial amount''? Equally, does ''substantial amount'' relate to the sum rather than the percentage? If the 20 per cent. were £100,000, would that be ''substantial''? I hope that the Chief Secretary will be able to clarify that, or, if he is not, that he will ensure that the clause is redrafted prior to enactment to ensure that it is more effective.

Many professionals have a separate concern about the clause. It would appear to be based on section 115 of the Finance Act 2002, yet it seems to have been drawn up with a far wider remit than that Act. Will the Chief Secretary explain why there is that differential, despite the apparent link?

Vague language in tax law is the enemy of the Revenue and the law-abiding majority. The Conservatives believe that the clause, among others, fails to provide the clarity and cohesion expected of principal clauses relating to a new tax. I hope that the Chief Secretary will be able to explain how he intends to correct the deficiency.

Norman Lamb (Liberal Democrat, North Norfolk)

We share the concerns about the apparent vagueness of the clause, especially in subsection (4), which has been brought to hon. Members' attention by, among others, the Institute of Indirect Taxation. The hon. Member for Hertford and Stortford has already referred to ''substantial'' and to the concept of taking possession. Will the Chief Secretary confirm that clear guidance will be provided to show how the Revenue will interpret this subsection in particular?

Secondly, in a submission to the Treasury the Institute of Indirect Taxation, says:

''We are concerned that this provision could create a trap for a prospective purchaser of a property who is permitted, following exchange of contracts but before completion, to enter the property as licensee . . . to carry out works.''

That could be in a residential setting or in the business setting referred to by the hon. Gentleman. The institute refers specifically to the ''Standard Conditions of Sale (Third Edition)'', which is often incorporated into contracts for sales of property. It says that it appears as if, under the clause, a purchaser who enters into the property under a contract which incorporates the standard conditions of sale would trigger a tax at that point under the new regime, unless condition 5.2.2(e) is specifically excluded. Will the Chief Secretary deal specifically with that?

Thirdly, the hon. Member for Hertford and Stortford referred to section 115 of the Finance Act 2002, on which the clause appears to be based, although its scope is significantly wider. Will the Chief Secretary outline the areas in which the clause will affect a liability that was not covered by the original section 115? It is important to have clarity on these matters, and I should be grateful if he could deal with those concerns.

Michael Jack (Conservative, Fylde)

I am disappointed that the clause does not seem to be the subject of the clear drafting principles established by the tax law rewrite exercise, because it is a difficult part of the Bill to read as a non-expert. How does the provision operate if, for example, somebody causes a warehouse to be built and, when it is built, they put it on the market and wait for somebody to come along and lease the space therein? Subsection (5) states:

''For the purposes of subsection (4)(a)''—

this relates to the ''substantially performed'' point—

''a purchaser takes possession if he receives, or becomes entitled to receive rents and profits''.

If the building has been built but not leased, one does not know whether one is entitled to receive the rent or profit yet, because there is no agreement that says that one is entitled to receive it.

I then looked for further guidance at subsection (6)(b), which contains the phrase:

''if the only consideration is rent, when the first payment of rent is made''.

However, under some lease arrangements there is a postponement of the period—a free bit—when one can occupy the premises rent free. I will not use the word ''ignorant'', because my points come not from a representative body but from somebody who is not a detailed property man. Surely the clause could have been written more clearly and made easier to understand, so that the lay person reading it could follow what happens in the real world. I refer the Chief Secretary back to the clarity of language in the Capital Allowances Bill, the first tax rewrite Bill. One could read that like a novel. It did not have much of a novel's quality to it, but one could start at the beginning and know what the capital allowance was, read one's way through, and understand where one was at the end.

The clause is a lawyer's paradise, and I do not think that the House, in the day and age of the rewrite Bill, should be asked to agree to clauses that are drafted with so many interactive sections that they become difficult to understand. Questions such as mine should not have to be raised, but I look forward to the Chief Secretary's explanation.

Paul Boateng (Labour, Brent South)

I confess that I find aspects of what the right hon. Member for Fylde has just shared with us very attractive. In drafting legislation, it is important to ensure that it is as clear and readable as possible. Let me give the hon. Gentleman the assurance that if in the course of our deliberations we find areas in which we could be clearer and the legislation could be better drafted, we shall bear his comments in mind. However, it is a bit too much to expect that parliamentary draftsmen should be the J.K. Rowlings of fiscal legislation—[Interruption.] Nor should they be, as the hon. Member for Hertford and Stortford puts it, the J.R.R. Tolkiens. We should try to be as clear and readable as we can, and we will bear that in mind as our consideration progresses.

I take that general point, but I would like to deal with some of the specific points that have been raised. I begin with a question asked by the hon. Member for Hertford and Stortford in relation to the definition of ''substantially the whole'' used in subsections (4)(a), (6)(a) and (6)(c)(i), and the phrase

''a substantial amount of the consideration''

in subsection (6). That is clearly an area in which we have to ask whether enshrining any particular proportion in the wording of the statute would benefit anyone other than those seeking to exploit some sort of advantage. It could enable an unscrupulous minority to plan around that wording with a view to reducing the revenue take. We do not want that to happen. We shall, however, issue guidance in due course.

Part of the reason for subsection (4) is to prevent payment of a deposit from triggering a charge. That is clearly unacceptable in relation to house purchases. The guidance will indicate that

''a substantial amount of the consideration''

is equal to or greater than 90 per cent. That was the approach taken for the Finance Act 2002, and it will inform the guidance to be issued in due course. [Interruption.] It would not help anyone but the unscrupulous minority, as my hon. Friend the Member for Wolverhampton, South-West (Rob Marris) indicated from a sedentary position, were we to go further than that.

Mark Prisk (Conservative, Hertford and Stortford)

I thank the Chief Secretary for clarifying subsection (4)(b), but my concern with subsection (4)(a) did not concern the words ''substantially the whole'', but the phrase ''takes possession of''.

Paul Boateng (Labour, Brent South)

I am coming to that, because it was the second detailed point. The hon. Gentleman raised it in relation to the fitting out of premises, which is a perfectly reasonable consideration. Allowing someone into possession for fitting out purposes will often trigger the first payment of rent. In those circumstances, subsection (6)(b) will of course apply. In other circumstances, however, the person will continue to occupy or trade from those premises once the fitting out works are completed, in which case subsection (4) will apply. Again, the treatment of such cases will be covered by guidance to be published by the Revenue. There is nothing unusual or sinister about that: it is the traditional way in which we have proceeded in order to avoid the mischief that I mentioned.

The hon. Member for North Norfolk (Norman Lamb) made an important point about the third edition of the standard conditions of sale. It is commonly incorporated into contracts for sale of property, provided at condition 5.2.2 (e), that a purchaser who is permitted to enter property in the above circumstances is entitled to any rents and profits from any part of the property that he does not occupy. The concern is that a purchaser who enters property under a contract that incorporates the standard conditions of sale would trigger a tax point under the new regime unless condition 5.2.2 (e) was specifically excluded. The point is made that that should not be the case, especially if the property does not produce income and the purchaser does not receive any income. That is a perfectly fair point. My response, that it will be a question of fact in each case whether a contract has been substantially performed, will not come as a surprise, because how else could one proceed? I imagine that I shall say that on several occasions during our deliberations on the measure, which is all about substance, not form.

The Revenue anticipates that condition 5.2.2 (e) will typically be excluded if the purchaser does not intend to receive any income. That would seem to be the reasonable thing to do. It could be done either when the contract is drawn up or when the purchaser goes into possession of the property. If it is excluded, the problem does not arise.

I hope that my clarification of those points will enable members of the Committee to see that the clause does what it is meant to do.

Question put and agreed to.

Clause 44 ordered to stand part of the Bill.

Clause 45 - Contract and conveyance:

Paul Boateng (Labour, Brent South)

The clause deals with the treatment of subsales and other situations in which the purchaser's rights under a contract are transferred to a third party. The basic rule is that each transfer of rights will be charged to stamp duty land tax. One result of the operation of the clause is that there will no longer be a general relief on subsales. The Government will consult on possible targeted replacements, which the Opposition will be concerned should happen.

Some practitioners have asked how the clause will operate in schedule 19 during the transitional period from stamp duty to the modernised system. I shall take this opportunity to make it clear how the clause will work. Some have suggested that if A subsold to B in 2001, B subsold to C in 2002, C subsold to D after Royal Assent, and D exercised his right to require a conveyance to himself from A after the implementation of SDLT, the act of calling for the conveyance would make B, C and D chargeable to SDLT on their contracts. I assure the Committee that that is not the intention. D would be chargeable in this case, as the conveyance gives rise to a charge even if substantial performance occurred after Royal Assent but before implementation. However, the conveyance should not bring B into the charge. It is not our intention that the charge should arise on C if the contract between B and C has been substantially performed before Royal Assent.

Some practitioners have suggested that the Bill does not make that clear, so I have asked the Inland Revenue to ensure, either by an amendment on Report or in guidance, that the provision achieves that result. With that assurance, I hope that members of the Committee will find it in their hearts to give the clause a fair wind.

John Burnett (Liberal Democrat, Torridge and West Devon)

I am grateful to the Chief Secretary for his explanation of the transitional point, but there is further confusion and uncertainty. The Law Society takes the view that, given the very wide meaning of consideration in clause 43(3)(b)(ii), it should be made clear that the reference to consideration in that paragraph excludes any amount taken into account in clause 45(3)(b)(i). I understood the Chief Secretary's point that there is no longer to be a general relief on such sales, but I believe that everyone would welcome an analysis of how the provision will apply to the purchaser under the original contract; that is, the subselling purchaser, for want of a better expression.

Generally, examples of how the clause is intended to operate in respect of assignments and subsales would be welcome. That is particularly the case, as the Law Society has stated that the example in paragraph 9 of the explanatory notes is extremely confusing because of the transposition of references to A and B and because of the incorrect figure on which tax is due from C.

For the benefit of the Committee, I ask the Chief Secretary to work through an example of very simple transactions, all of which take place in one tax year—that is not particularly relevant, but let us keep it that way. A contracts to sell Blackacre to B for £1 million. There is no completion, and B does not take possession of Blackacre. B subsells Blackacre to C for £2 million. The transaction is completed, and C takes possession and pays the £2 million consideration. I would like the Chief Secretary to tell the Committee what the stamp duty consequences will be for B and C.

Howard Flight (Conservative, Arundel and South Downs)

May I ask the Chief Secretary whether my understanding is correct that the intent of the clause is that forward sales, which have become an important financing method in the new housing market, will be hit by the new stamp duty tax? As he knows, the off-plan market relies on forward sales, even though, typically, the building of the property is not actually complete. Construction may not even have begun at the time of the first forward sale.

The Chief Secretary hinted that the Government were considering some other method to address the issue, but if the subsales release wipes out forward sales for the off-plan market in new properties, it would be seriously damaging economically to the development of the new housing that is wanted and needed.

Mark Prisk (Conservative, Hertford and Stortford)

I am grateful to the Chief Secretary for telling us that the Government are listening to outside concerns. We look forward to perusing the amendments, but we have the greatest reservations about the clause because it will end the relief for subsales and would tax each element of such transactions. We are also concerned about the defective drafting of the clause, as with other clauses.

For those right hon. and hon. Members who are beginning to sink from trying to understand subsales, I shall regurgitate my non-practising chartered surveyor knowledge to explain the background and why subsale relief is thought to be important. As with stamp duty, it dates all the way back to 1782 and I am told that it was introduced while Pitt the elder was in charge. Today, it resides in section 58(4) and (5) of the Stamp Act 1891. That is some history for my hon. Friend the Member for Tatton and others—[Interruption.] I am not sure whether it was during the time of Pitt the elder or Pitt the toddler.

The relief limits existing stamp duty payable when the property is on-sold, as the Chief Secretary explained, whether in whole or in part, to a subpurchaser. The result is that the duty is paid only once according to the consideration paid by the subpurchaser. Various hon. Members have referred to the Inland Revenue's example, and an unfortunate mistake in the explanatory notes makes something that is difficult to understand almost impenetrable. I shall attempt to explain it, and I hope that the Committee will forgive me if I use the A, B and C method. I shall not attempt to name properties, as the hon. Member who spoke for the Liberal Democrats did.

If A contracts to a buy property for £100,000 and sells that property to C for £110,000, and both contracts are completed in a single transfer of legal title from A to C, B will pay stamp duty land tax on £100,000 and C will pay it on £110,000. The contrast with the existing situation is that, under current stamp duty rules, B's purchase escapes the charge. That is a critical change.

It is also intended to apply the new charge to cases in which B assigns the benefit of contract to C, who completes the acquisition. I understand that the Revenue quoted an example involving A contracting to sell to B for £100,000 and so on. The net result would be multiple charges. There would be charges on three parties even though there were only two transactions. I am grateful to the Chartered Institute of Taxation for helping me through the maze. The feeling is that the Government are making a significant error in going down that path, because subsale relief helps to ensure that the commercial market and residential property market operate efficiently. I shall give an example so that we can all understand why that matters.

The Chief Secretary referred to sale and leaseback, which are increasingly important in modern commercial practice. They are vital for many businesses because they help those businesses to release capital, whether for new operations or investing in factories and so on. Sale and leaseback enable them to expand their businesses, but also enable many public and private organisations to outsource what they do. Subsale relief helps by limiting the total charge to the price moving from the subpurchaser. Many experts, whether in valuation, property surveying or accountancy, believe that removing that relief will jeopardise a wide range of sale and leaseback deals, because they will be hit twice: once on initial restructuring and again on any intended on-sale. That is the sort of problem that the change would cause in the commercial market.

The Committee may ask about the residential market. The Government are keen to build many new homes and, as Member of Parliament for Hertford and Stortford, I am rather anxious about the Deputy Prime Minister's proposals, but I shall not stretch your patience, Mr. Gale, by going down that path. [Interruption.] I shall not even respond to those murmurings.

Conventionally, in the process of building new houses, house builders buy land, parcel it up and sell it on, having erected a property on that land. As the clause is drafted, house builders, having lost their relief under the new tax, will want to pass on the cost of their stamp duty land tax to home buyers on top of the house sale tax liability. That will push up house prices. It will also, as my hon. Friend the Member for Arundel and South Downs pointed out, kill the market for off-plan developments. Those are important because there are many urban areas in which the ability to sell off-plan helps to bring in the capital that enables a tower block, for example, to be regenerated. The off-plan market matters; we have received representations about that from accountancy firms

and leading legal practices such as Norton Rose. It is an important issue.

The clause would fuel house price inflation and create another barrier to home ownership, particularly for first-time buyers. After all, it is often first-time buyers who buy new homes, and whom the clause will most concern. That is why the measure could prove to be perceived by the public, if they feel that they have been charged a second time, as another stealth tax—I know that the Chief Secretary does not like that phrase. I hope that he will persuade the public and the Committee that that is not so.

As a non-practising chartered surveyor, I would also say that property intermediaries, notably the commercial market, help the very important markets in question to work more efficiently. Subsale relief encourages that, and so contributes to better working of the market. There is a precedent for subsale relief in section 88(a) of the Finance Act 1986, relating to the sales of shares to stock exchange intermediaries.

What we are discussing involves a key point of principle about a 250-year-old arrangement that most people feel has worked well. Of course, there are problems and gaps, but on the whole it has worked well. Last year, the Government recognised that fact when they reversed a proposal that would ''inadvertently'' have scrapped the relief for sales of over £10 million. I love the word ''inadvertently''—it is one of the best euphemisms I have heard.

I hope that the Chief Secretary notes the point of principle; the matter will have a direct impact. The Government have to understand the need to bring back targeted reliefs—we shall come to a whole raft of targeted reliefs—to try to fill in the gaps. We understand the original motivation, but the approach may be mistaken.

Another aspect of the clause that merits consideration is the language used. The way in which the clause is set out does not, as hon. Members have said, make it clear whether the purchaser under the original contract is necessarily liable for tax. That is not simply my interpretation, but that of experts from, for example, the Chartered Institute of Taxation, the Institute of Chartered Accountants and many legal practices. I hope that the Chief Secretary will show exactly where the matter is spelled out in the clause.

This clause would delete a relief that is tried and tested. The result would be to undermine sales and lease-backs in commercial property markets; to reduce liquidity and opportunities for company re-finance; to hit out-sourcing in both public and private operations; and to add to the cost of home purchase, which would especially hurt first-time buyers and those on low incomes.

I am sure that the Chief Secretary will respond constructively, because after the consultations were aborted in January, the half offer of new talks to deal with certain provisions—mentioned in the explanatory notes and which I believe began on 22 May—was regarded with the greatest of scepticism among many professional bodies. We will, of course, listen with

some care to what the Chief Secretary has to say , but we regard the proposal for the abolition of subsale relief as misguided, and we may vote against the clause.

George Osborne (Conservative, Tatton)

As my hon. Friend has just eloquently explained, clause 45 gets to the nub of whether stamp duty land tax is, as the Government claim, a device for stopping tax avoidance, or a new stealth tax. They propose to abolish a tax relief that has existed for more than 200 years. That is a major step, and, as my hon. Friend pointed out, an extraordinary one given that they mistakenly abolished part of the relief in last year's Finance Bill only to reinstate it. Now, they propose to abolish it again, and there has been general confusion as a result.

I have tried to make sense of the explanatory notes. They seem to state that the Government intend to impose a tax on multiple charges in a way that they have not done before. The explanatory notes cite an example: A contracts to sell to B for £100,000. B pays a deposit of £10,000. B then assigns the benefit of that contract to C for £20,000—partly to reflect the deposit paid and partly to make a profit of £10,000. C then completes the acquisition and pays A the balance of the £90,000 due under the contract.

That is the kind of transaction that one sees all the time in the commercial property market. The Government propose to impose tax on the £100,000 consideration under the contract, on the £20,000 consideration payable by C for the purchase of the benefits of the contract, and finally on the £90,000 consideration remaining payable by C under the contract. In effect, they are imposing three taxes on only two transactions; the first is the original sale of the property for £100,000, the second is the sale of the benefit for £20,000. That confirms my suspicion that the entire stamp duty land tax, which has been presented as a means of modernising stamp duty and preventing tax avoidance, is in fact a new Government tax.

Mark Prisk (Conservative, Hertford and Stortford)

As always, my hon. Friend is prescient. His suspicion is that the provision is about generating more tax. The Chief Secretary, in an earlier debate, highlighted the fact that additional tax revenue, over and above tax avoidance, will total £190 million. Does my hon. Friend share my concern that the cat is out of the bag and that we can see the proposal for what it is?

George Osborne (Conservative, Tatton)

I very much share that concern. The Government intend to raise very large sums of money as a result of the new tax. The taxes will bear down on businesses and, as hon. Members know, taxes on businesses are also taxes on jobs, investment and so on. The nub of the argument is whether the clause is about preventing tax avoidance, as the Government say, or is a new form of taxation. I cannot see how the Government can plausibly claim that the abolition of a tax relief that has existed for more than two centuries is simply a measure to prevent tax avoidance.

John Baron (Conservative, Billericay)

I, too, add my concerns about the clause and particularly the ambiguity of certain aspects. I can only agree with the hon. Member for Torridge and West Devon, who quoted one or two instances of how badly worded is

the example in paragraph 9. I put it to the Chief Secretary again that it appears, if one looks carefully at the example, that the references to A and B after the first line and the amount of tax due by C are incorrect. I would appreciate it if the Chief Secretary would comments in order to guide the Committee.

It is alarming that there appear to be two stamp duty land tax charges when one conveyance completes two contracts. In certain circumstances, it appears that that can lead to the same consideration being taxed more than once. I refer again to the example in the explanatory notes on clause 45. When consideration is outstanding on the first transaction, stamp duty will be charged on the full amount of the consideration payable on the first transaction by the original purchaser, and on any unpaid consideration from that transaction, together with the amount payable on the second transaction. In the example in the explanatory notes, the £90,000 appears to be taxed twice. Does the Chief Secretary agree that that is the case? If he does, I suggest that the claims made by my hon. Friend the Member for Tatton and others that this is another stealth tax are valid.

One other aspect needs clarification: is it intended that clause 45 should have a penal effect, as it appears to? Is the clause aimed at a particular mischief? The clause appears to make it clear that the chargeable consideration for the second transaction is the consideration for that transaction plus any amounts outstanding under the first transaction. It appears that the only amount that should be chargeable on the first transaction is the £10,000 deposit as consideration given, in accordance with paragraph 1 of schedule 4. I have tried to make my points clear but they are confusing, particularly to laymen. I ask the Chief Secretary to clarify those points not only for the sake of the Committee, but for the general public.

Jonathan Djanogly (Conservative, Huntingdon)

Another clause has received a burst of comments from confounded professionals. It seems that the notes are patently wrong, or at the very least confusing. My hon. Friend the Member for Hertford and Stortford rightly raised the serious implications arising from the drafting itself and the practical implications for the property trade. The Minister himself all but admitted that the clause is poorly drafted, that amendments will have to be brought forward and that there will have to be further consultation. That sounds like a dog's dinner of a clause, as far as I am concerned. Why can we not simply withdraw the clause and bring it back when it has been thought about and consulted on? We are rambling through a whole series of provisions and no one has any idea of what they mean. I look forward to the Minister's explanation. I suggest that the clause be thought about more carefully.

The Institute of Indirect Taxation raised the point that it is in any event unclear how clause 45(3) will apply in the case of a contract for the assignment of agreement for lease. Is it intended that the consideration on which the tax will be chargeable on such an assignment will include the rents payable

under the lease that is to be granted pursuant to the agreement?

Paul Boateng (Labour, Brent South)

I am afraid that I shall disappoint the hon. Member for Huntingdon. No way will we withdraw the clause, for a very good reason, touched on by the hon. Member for Tatton, who was right in one respect, if in one respect alone. The clause is very important; we have had a good debate, and some serious points have been made. Its importance is that it goes to the heart of the Bill's philosophy. The clause has a modernising effect and is not a new tax. We want to address the reality of the transaction rather than the form of the document. The clause is a move from a document-based tax to a transaction-based tax. That is why it is necessary to bring subsale contracts in to charge. There is no intention of damaging the industry or of reducing its capacity to respond to market needs, and to do so in a way that leads to new housing opportunities not only for first-time buyers in particular but generally. There is no intention either of doing anything that would lead to house price inflation, as suggested by the hon. Member for Hertford and Stortford. We intend to ensure that we move from a document-based tax to a transaction-based tax.

Having said that—I was asked for clarification and I am happy to give it—subsales would be stampable if completed by a series of conveyances from the original owner via the subsellers to the ultimate purchaser. At the moment, the ultimate purchaser often avoids the duty by taking a conveyance directly from the original owner. The clause prevents that. We are, however, considering providing relief for subsellers who do not substantially perform the original contract. We want to ensure that we do not fall into the trap suggested by the hon. Gentleman and others, so we shall consult on other targeted reliefs. We want that dialogue with industry. The impact on the forward off-plan market is, and has to be, of concern to us.

George Osborne (Conservative, Tatton)

Will the Chief Secretary give way?

Paul Boateng (Labour, Brent South)

May I just get under way a bit?

The housebuilding business is very important. We are aware of the structures implemented by housebuilders, and further discussion on those will be a valuable part of the forthcoming consultation on future targeted relief. I assure Opposition Members that we will take into account the points that they have made during this important and serious debate.

Mark Prisk (Conservative, Hertford and Stortford)

I wish to put it on the record that it is unsatisfactory for the Minister to refer to consultations parallel to our proceedings that may affect substantial parts of the Bill, when members of the Committee are able to debate only the Bill before us. I register our strong protest at such an approach.

Will the right hon. Gentleman clarify the point that he has just made? If a housebuilder buys a parcel of land and breaks it up, then builds on it and sells it, will he be liable for stamp duty land tax?

Paul Boateng (Labour, Brent South)

Let me go back to first principles surrounding substantial performance. That is the basis on which the test is made. We recognise that there are

issues around subsales on which the industry needs to be consulted. The hon. Gentleman and his colleagues cannot have it each and every way; I understand why they would want to, but I cannot see how they can. They chastise us for not having consulted enough, but when we have consulted they say that we should not have done so. What are we to do? We have a responsibility to safeguard the interests of the taxpayer. We are fulfilling our responsibility to modernise a 200-year-old piece of legislation and drag it, with Opposition Members kicking and screaming, into the 21st century.

John Burnett (Liberal Democrat, Torridge and West Devon)

Will the Chief Secretary give way?

Paul Boateng (Labour, Brent South)

I will come to Blackacre in a moment; the hon. Gentleman will have his reply then.

I do not think that we should be chastised, or taken to task in the way that we have been, for consulting. We will return on Report to the impact that consultation has had on the Bill, and all will become clear. In the meantime, some very valuable points have been made, and I am not disparaging that.

John Burnett (Liberal Democrat, Torridge and West Devon)

I note that the Chief Secretary is going to consult on subsale relief. The impression that I got from the start of his speech was that the Government are considering preserving the relief in certain circumstances. We have a break coming up soon and it would be interesting if, after that break, the Chief Secretary could provide some indication of what subsale relief he proposes to preserve.

Paul Boateng (Labour, Brent South)

I can do that now. I do not need a lunch break—well, I do need a lunch break actually; I think the whole Committee needs one. I do not, however, need a lunch break to say that we regard the forward off-plan market as a perfectly legitimate market and that we will make sure that it is not adversely affected by the measure. That seems palpably obvious, and that is why this has been an important debate, enabling me to clarify that in order to avoid doubt. I am surprised that there would be doubt but if there is, I am only too happy to put it to rest.

I will not allow the hon. Member for Torridge and West Devon to go to his lunch without my having addressed his point about Blackacre. In his example, where the original contract is not substantially performed within the meaning of clause 44, and where the substantial performance is affected by means of a conveyance in favour of a subpurchaser, he is concerned about why there should be any objection to general relief for subsales in cases in which clause 44 has not been satisfied in that way. He gave the example of Blackacre, and it is not our intention to place a charge on what he called, in his example, B. That is not our intention, provided that there is no substantial performance by B—and of course we would not want B to be caught by the charge. In due course, to avoid any doubt about that, we will propose some clarifying amendments on Report, but that is not our intention, provided there has been no substantial performance. That is the test, and if the hon. Gentleman believes it needs to be clearer, and if we are satisfied that clarification can be made, it will be made on Report.

John Baron (Conservative, Billericay)

Following the Chief Secretary's remarks about Blackacre, will he attempt to answer my question about the example given in the explanatory notes? That would help the Committee. Without going through it all again, it appears—if one follows the example—that £90,000 is taxed twice. Will the Chief Secretary answer a simple question: is the £90,000 taxed twice—yes or no—and give an explanation?

Paul Boateng (Labour, Brent South)

I say with the utmost respect to the hon. Gentleman that, if we had proceeded on a yes or no basis, we would have gone considerably beyond the clause that we are now considering five minutes before lunch. Therefore, I hope that he will excuse me if I decline to answer yes or no to his question, which I fear I shall have to revisit at some considerable length after lunch.

There is one answer that I can give in the remaining time—to a question put by the hon. Member for Huntingdon. He asked me whether the rental element of a lease will count as consideration on assignment of agreements for a lease—a question that concerned the Institute of Indirect Taxation. The answer is no—for assignments of agreements for lease or, indeed, for leases themselves. It is the consideration for the assignment that is within the charge. We will not be looking back at the rent that has been charged on grant of the lease that is subject to the level and nature of the relief. I hope that that answer has given him a degree of satisfaction.

At the outset of the debate, I made the point that we are looking at substance rather than form. It will be on examination of the substance that the susceptibility of an action to charge will be judged. It is on that basis that I will approach the example given by the hon. Member for Billericay (Mr. Baron), which I will deal with in some detail after lunch.

Before that, I will reflect on an issue that was raised in the case of Swayne v. CIR [1900] 1 QB 172. Already I see the hon. Member for Torridge and West Devon almost salivating, not so much at lunch but at the prospect of my detailed reflection on that case. That is important because it is relevant to the concern expressed by the Institute of Indirect Taxation that, under subsection (3), the consideration on which a sub-purchaser will be liable to duty will include not only the consideration that he provides for the transfer of rights but the consideration under the original contract that remains to be paid or provided. The IIT considers that that would effectively reverse the principle enshrined in the judgment in the CIR case, and would give rise to multiple liability to duty on consideration that is ultimately borne by a single party: the subpurchaser.

I assure the Committee that it is our intention that the subpurchaser will be charged SDLT on the basis of the price payable to the original seller for the sale of the land, plus any profit in excess of that that is paid to the subseller. That is on the total paid by the subpurchaser to the original seller and to the subseller. There is no intention to charge on the basis of a higher price. The Revenue is actively considering whether any amendments are necessary in order to clarify that that is how the clause should operate.

That is a happy note on which to adjourn for lunch. The clarification sought by hon. Members, who were inspired to raise such issues by the institute and have properly done so, has been provided.

John Baron (Conservative, Billericay)

On a slightly less happy note, I suggest that what the Chief Secretary has just said does not marry with certain sections of the explanatory notes, particularly the example that I gave earlier. I look forward to the explanation after lunch.

Roger Gale (Conservative, North Thanet)

Order. Before we draw stumps, may I advise the Committee that the Programming Sub-Committee may be required to sit at 7 o'clock—

immediately after the afternoon sitting. Unfortunately, I have been unable to afford this afternoon's Chairman the courtesy of asking whether he will be able to chair that Sub-Committee. In the event that he is not, I will. Any determination reached by the Programming Sub-Committee will, of course, have to be approved by this Committee at the start of the sitting on Thursday morning.

It being One o'clock, The Chairman adjourned the Committee without Question put, pursuant to the Standing Order.

Adjourned till this day at half-past Four o'clock.

Standing Committee B

(Except Clauses 1, 4, 5, 9, 14, 22, 42, 56, 57, 124, 130 to 135, 138, 139, 148 and 184 and Schedules 5, 6, 19 and 25, and any new Clauses and Schedules tabled by Friday 9th May 2003 relating to excise duty on spirits or R&D tax credits for oil exploration.)

Nicholas Winterton (Conservative, Macclesfield)

I bid good afternoon to all members of the Committee. I give notice that, at the Government's request, there will be a meeting of the Programming Sub-Committee at whatever time is appropriate. It may be 7 o'clock, it may be after, it may be before, but I give notice to hon. Members who sit on it, so that they can make the appropriate arrangements.

I gather that some progress has been made in my absence, but perhaps not enough. I am dependent on the co-operation of the Government Whip, the Opposition Whip and the minority parties. Let us see what we can do this afternoon. I understand that the Financial Secretary was speaking—[Interruption.] It was the Chief Secretary—I do apologise, because there is rather a difference in salary, let alone anything else. The Chief Secretary, whom I have known for many, many years, as he appeared in debates even before he entered this place and was formidable even then, was talking to clause 46 stand part.

Clause 45 - Contract and conveyance: effect of transfer of rights

Paul Boateng (Labour, Brent South)

Sir Nicholas, I bid you a good afternoon on behalf of the whole Committee.

Nicholas Winterton (Conservative, Macclesfield)

I am sorry, we are discussing clause 45. I am trying to make progress.

Paul Boateng (Labour, Brent South)

We can take a hint, Sir Nicholas. I think that we all feel a bout of co-operation coming on. [Interruption.] Maybe we do not. Certainly you can rely on the co-operation of Government Members, as ever, Sir Nicholas.

Let me give evidence of that at the outset by responding to the hon. Member for Billericay (Mr. Baron). I promised that I would reflect over lunch on his contribution to the morning's deliberations. I did

that. I had a take away, he will be glad to hear, such was the extent of my reflection and deliberation and, as a result, I owe him an apology.

There has been what is best described as a fundamental transposition. There are two words in the wrong place—I fear two rather vital words. The first sentence of paragraph 9 of the explanatory notes, which currently reads

''A enters into a contract to buy land from B for £100,000'',

should read ''A enters into a contract to sell land to B for £100,000''. As a result, all should now be clear, where before I fear it was not only less than clear but positively erroneous. I apologise to the Committee and the hon. Gentleman for having inadvertently misled them through that unfortunate, fundamental transposition.

On the further point of substance that was raised, I want to make clear the practical effect of clauses 44 and 45 by reference to the figures in the example in paragraph 9, as corrected. C will be charged to stamp duty land tax on a total chargeable consideration of £110,000, which is the aggregate of the £20,000 he pays to B and the £90,000 he pays to A. In other words, C is charged on the same amount as if A had conveyed to B and then B to C.

As regards the charge on B, we have recently received representations about situations in which a subsale relief might be legitimately incorporated in stamp duty land tax. We accept many of the concerns that have been expressed. Let me make this crystal clear for the benefit, in particular, of the hon. Member for Torridge and West Devon (Mr. Burnett)—I indicated earlier that I hoped that I would be able to put his mind at rest. It is not the Government's intention that, in the example in paragraph 9, as corrected, B should be chargeable to stamp duty land tax, unless the contract between A and B is substantially performed. We hope that that will address the concerns of off-plan market makers. I have gone further than that. I have asked my officials to ensure that the legislation has that effect, with a view to introducing any necessary clarifying amendments on Report for the avoidance of any doubt at all.

If the contract between A and B is substantially performed—for example, by B taking possession or receiving rent—B will be charged to stamp duty land tax on the contractual consideration of £100,000. I am sure that the hon. Member for Torridge and West Devon would accept that not to charge B when there has been substantial performance would be to permit the continuance of a stamp duty avoidance scheme. I do not believe that that is justified; nor, I suspect, does anyone on the Committee. I described the avoidance scheme, which is known as resting on contract, this morning.

I hope that the undertaking that I have given on relief for B when a contract is not substantially performed will go a long way towards allaying the fears that exist in the industry, but we are anxious to explore other problem areas in the consultation process. As I indicated, if matters emerge in the course of that process, we will take steps to revisit them.

John Baron (Conservative, Billericay)

I thank the Chief Secretary for spending such a productive lunch considering the matter. I just want to be absolutely clear about it. The matter is somewhat confusing, and I appreciate his efforts to clarify it. Will he confirm that there is no way whatever that the £90,000 could be taxed twice? As I understand it, we have effectively taken A and B out of the equation, because the example was badly phrased. Will he confirm that with regard to the example given? The example illustrates the fact that the area is terribly complex, and we should be as precise as we can in relation to wording because it can lead to great misunderstandings and cause some consternation in the world outside. I am sure that that point will be taken on board.

Paul Boateng (Labour, Brent South)

B is out of the equation, so there can be no question of double taxation, if there is no substantial performance. I return to the point that I made this morning. The test is always whether there is substantial performance. If there is, the possibility arises; if there is not, no possibility exists of payment twice on the £90,000.

Mark Prisk (Conservative, Hertford and Stortford)

I am delighted that the Chief Secretary clearly had a conducive luncheon, which led him to this step forward. May I remind him—this relates to the point raised by my hon. Friend—of the question that I raised twice? I hope that he is about to answer it, but I do not see any sign of that. I asked whether, when a housebuilder buys land, parcels it up, develops it and sells the house on, they would be subject to stamp duty land tax on the land. I did not get an answer. The question relates to the current point. I hope that I will get an answer now.

Paul Boateng (Labour, Brent South)

I am not sure that I will be able to assist the hon. Gentleman on that point without some considerable elaboration that we will come to when we deal with a clause that we have yet to consider.

Let me return to the point raised by the hon. Member for Billericay in relation to the question of substantial performance. Where there is no substantial performance, there is no charge. The example that the hon. Member for Hertford and Stortford (Mr. Prisk) gave is that one could envisage circumstances in which there might be substantial performance, but I do not want to go down that route at this stage. I have no doubt that we will revisit it, and I hope that when we do he will be satisfied with what I say to him.

John Baron (Conservative, Billericay)

I apologise to the Committee for pressing the point, but clarity is required. Half way through the example given in the explanatory notes is the following:

''B will pay stamp duty land tax under clause 44 on the chargeable consideration payable under the first contract, £100,000.''

Is that a typing error? Should it read ''the first £10,000''? That is what I mean when I say that we are double charging on £90,000. I would appreciate if the Chief Secretary would clarify that point. It is a confusing sentence, and I may be reading it the wrong way.

Paul Boateng (Labour, Brent South)

It is confusing only if the figures are wrong, and I have no reason at this stage to believe that they are. Caution precludes me from saying that they are not, but I have absolutely no reason to believe that the figures quoted are wrong, and that one should read ''10'' for ''100''. The important point to recall—I keep going on about it, but it is at the heart of what we are talking about—is that the charge for B will be £100,000 if there is a substantial performance, not £10,000.

John Baron (Conservative, Billericay)

There is a big difference between £100,000 and £10,000, and if the figure stands at £100,000, I put it to the Chief Secretary that there is a double tax charge on £90,000. I would appreciate it if the Chief Secretary would clarify the point. Is that figure of £100,000 meant to read £10,000, which would clear the matter up, or is it meant to be £100,000? In that case, we need further clarification from the Chief Secretary. Even if we change A and B, as the wording stands, there is still the double charge on the £90,000.

Paul Boateng (Labour, Brent South)

I do not want to labour the point, but I can give the hon. Gentleman another example, or I can revisit the worked example that he raises in questions in correspondence. Were I to take the former course, I fear it would delay the Committee more than Sir Nicholas would wish, so perhaps I should take the latter course and write to him about the worked example.

John Baron (Conservative, Billericay)

I apologise to the Committee for testing its patience, but could I ask the Chief Secretary to clarify the example in the explanatory notes, if possible during this sitting, or by the time of the next sitting, instead of writing to me in correspondence with another example, as that would be more useful to all concerned? Is the figure £100,000 or £10,000? If it is £10,000, it is a single tax charge; if it is £100,000, it is a double tax charge. The example should be worked on rather than something new produced.

Paul Boateng (Labour, Brent South)

I do not intend to give the hon. Gentleman another example, particularly in the light of what he has just said. I do intend to work through the example given in the explanatory notes so that he fully understands it. If he then has a problem with that, we can return to it on Report rather then deal with it now. That is probably the best way of making progress.

Nicholas Winterton (Conservative, Macclesfield)

Order. I am sure that the Chief Secretary will accept that any such letter that goes to the hon. Member for Billericay should go to the Chairman and every member of the Committee. I understand the Chief Secretary's position.

Paul Boateng (Labour, Brent South)

I shall certainly ensure that every Committee member, including the hon. Gentleman and you, Sir Nicholas, receives a copy of the letter, which will make things abundantly clear to all who have been following the exchange closely.

John Baron (Conservative, Billericay)

If I may test your patience, Sir Nicholas, I would like to ask that that letter be produced in time for our discussions on Report, so that the Committee can examine the issues again.

Paul Boateng (Labour, Brent South)

Whenever, in the course of our deliberations, I promise to enter into a correspondence—I hope that it will not be often—you can be sure, Sir Nicholas, that it will be completed before our discussions on Report. I know that you would not have it any other way.

John Burnett (Liberal Democrat, Torridge and West Devon)

May I welcome you, Sir Nicholas, to the Chair?

I am heartened by what I have heard from the Chief Secretary, and some credit must go to the revenue law committee of the Law Society, which drew my attention and that of other Committee members to the confusion and lack of precision in the example given in the explanatory notes to clause 45. I have taken comfort from what the Chief Secretary has said, because from what I can gather the Government will table clauses on Report that will preserve subsale relief in certain instances. What comes out of the Government new clauses will obviously require considerable scrutiny. I hope that outside professional bodies and individuals will be consulted on the new clauses as swiftly as possible. This is an important matter and we have had an important debate. The fact that the Government have said that they are prepared to reconsider the matter and are not wedded to abolishing subsale relief is welcome.

Mark Prisk (Conservative, Hertford and Stortford)

I also welcome your chairmanship, Sir Nicholas, which I know will be firm but fair.

At the beginning of this debate, I said that those on the Conservative Benches were deeply concerned about the way in which the abolition of subsale relief was proposed in the clause. Many of those reservations remain, although I agree with the hon. Member for Torridge and West Devon that we have seen, if not a rapid change in the Chief Secretary's position, certainly welcome commitments to bring forward significant changes to the nature and application of the clause. We still have a fundamental reservation, however, about why it was right last year to reinstate the relief and right this year to abolish it.

My hon. Friend the Member for Billericay highlighted a concern of many outside professionals and he is to be commended for his persistence in drawing out that information—that is why we are here. I do not want this to become too much of a back-slapping session, but I also commend the Chief Secretary for his willingness to respond to the matter in writing. I suspect that I am not the only one struggling with B, A and C and the figures of £90,000, £10,000 and £100,000, so we would all welcome having that explained in writing. Information in writing will be of particular use to those outside for whom this could be of concern.

John Burnett (Liberal Democrat, Torridge and West Devon)

Will the hon. Gentleman, like me, be interested if the letter contains elaborate examples of part performance? It is important for the general public and professional advisers to know exactly what the Revenue means by part performance. Does it mean only payment of rent or receipt of profits, or will the Revenue consider other matters to be part performance, such as taking possession?

Mark Prisk (Conservative, Hertford and Stortford)

I am not sure that I would necessarily use the word ''elaborate'', but I hope that the letter will provide a full range of options. Although my request was not responded to on three occasions, I hope that we will finally receive an answer about the housebuilder, the first-time buyer and the parcels of land. Does the Minister want to respond to my question? He does not. What a shame. I hope that he will do so in his letter. Such matters are of crucial importance to first-time buyers, if they are to face a second charge—a stealth tax—under the provision. I began the debate by saying that we want to hear what the Chief Secretary has to say about the matter and that we have reservations about the way in which the clause will operate.

Michael Jack (Conservative, Fylde)

Does my hon. Friend, like me, believe that the whole episode is an interesting reflection on the quality and output of the 280 hours of consultation that prefaced our discussions?

Mark Prisk (Conservative, Hertford and Stortford)

As always, I am grateful to my right hon. Friend who is prescient, if notthing else. [Interruption.] Of course, he is many other things. He has much more experience that I do in such matters and understands the issue. My right hon. Friend will appreciate the fact that many organisations, including the Chartered Institute of Taxation, have said that the measures and the absence of subsale relief are unsatisfactory and require a major rethink. My right hon. Friend is right. The compensation process has been inadequate. It has failed to provide the information that the Government could have provided to make the Bill full, clear and open for all to see. That is not the case now.

George Osborne (Conservative, Tatton)

Does my hon. Friend agree that one of the problems is that we are still being asked to pass a clause that abolishes the relief? Although the Government say that there will be many exceptions and that they will come forward with them, the Committee does not have a clear idea about what the exceptions will be, their extent or the proportion of transactions that they will cover. That is an extremely unsatisfactory position.

Mark Prisk (Conservative, Hertford and Stortford)

As my hon. Friend knows, I made a heartfelt plea to the Chief Secretary about the matter. We are in a bizarre situation, and I know that you, Sir Nicholas, will be concerned about it. The Chief Secretary referred to a consultation process that is taking place as we debate the matter. It may change the nature of the clause, yet we cannot scrutinise it. The right hon. Gentleman said consultation was a good thing. Of course, it is. However, for it to run in parallel when we, as parliamentarians, are scrutinising the Bill, not knowing what the consultation process will

deliver, is wholly unsatisfactory. My hon. Friend the Member for Tatton (Mr. Osborne) has made a pertinent point.

In the spirit of good will, I am tempted not to vote against the clause, but only on one proviso, which is that the Chief Secretary will tell the Committee that he will listen to all propositions put forward by outside bodies and that substantial changes will be made to the clause. If he cannot do so, Conservative Members will still feel the need to vote against the clause. Will he advise us of his intentions?

Paul Boateng (Labour, Brent South)

I do not know whether I can make myself more clear than I have already. It has been interesting to watch the exchange between the hon. Member for Tatton and the hon. Member for Hertford and Storford, who leads for the official Opposition in Committee. I sense that one hon. Gentleman was egging on the other, as I sense that the still, small voice of reason was at work in the mind of the hon. Member for Hertford and Stortford, but was overcome by the hon. Member for Tatton. That is sad, and if it is to be the hallmark for the future, we shall spend considerable time until the guillotine falls debating such provisions.

Let me give an assurance that I hope will satisfy all Opposition Members. We will move clauses on Report to make it clear that relief will be available in wider circumstances than would otherwise be the case under the clause as it is drafted. I hope that that important point is clear and understood and that it provides a reason for not dividing the Committee at this stage.

As I have said, it is not the intention to charge a contract that is not substantially performed. In the example in paragraph 9 in the explanatory note, which we have discussed in some detail, there would be no charge on B. I hope that that sets at rest the mind of the hon. Member for Billericay. That aside, the effect of the clause is to charge contracts that are substantially performed, which may excite the hon. Member for Tatton, who seems hell bent on stirring it in the Committee. That is the whole point; that is why we are gathered here.

Michael Jack (Conservative, Fylde)

On a point of order, Sir Nicholas, I would be grateful for your guidance. I recall that in the past when members on the Government Benches in the Committee considering the Finance Bill had doubts about a clause, that clause could, if they so wished, not be moved while awaiting further work to be done on it. Does that facility still accord itself to the Chief Secretary today, if he so wished?

Nicholas Winterton (Conservative, Macclesfield)

This clause has been moved from the Chair. Therefore, as with all clauses on stand part, it must be disposed of. I seek only to give guidance to the Committee; the Committee will do what it wishes. The Chief Secretary appears to have given certain assurances to the Opposition. If that is not good enough, so be it; members can continue to pursue the point. Nevertheless, the clause must be disposed of.

Paul Boateng (Labour, Brent South)

I am grateful, Sir Nicholas. Opposition Members will have heard your wise words.

John Baron (Conservative, Billericay)

Will the Chief Secretary give way?

Paul Boateng (Labour, Brent South)

Or not, as the case may be.

John Baron (Conservative, Billericay)

The Chief Secretary made the point—the first time I have heard him make it—that there will be no charge on B. Can I be clear that the sentence on which I have been dwelling, about paying

''stamp duty land tax under clause 44 on the chargeable consideration payable under the first contract, £100,000''

does not stand and that it will be taken out of the equation?

Paul Boateng (Labour, Brent South)

Let me suggest to the hon. Member for Billericay that it would be unwise to revisit a point that we have laboured extensively. I shall write to him about the worked example, in order to clarify it.

I reiterate that there is no charge if there is no substantial performance. That point has sunk in in some quarters, although I saw the hon. Member for Tatton busily stirring it with the hon. Member for Billericay. The hon. Gentleman made a good point to which I have responded. I will write to him. He must resist the blandishments on his left hand side and in front of him. If he does not, he will be led into error. That is my experience of the hon. Member for Tatton. I feel that it is necessary to give some counsel.

John Baron (Conservative, Billericay)

Will the Chief Secretary give way briefly?

Paul Boateng (Labour, Brent South)

I am tempted, but I am not going to. We must, with your agreement, Sir Nicholas, draw this to a close.

The effect of clause 45 is to charge contracts that are substantially performed. Of course, as we have said all along, that issue and the wider questions about where further targeted reliefs might be granted will be the subject of further consultation. I have given the hon. Gentleman as strong an indication on that as I possibly could. That is our intention. The consultation will take place. We will come back to the Committee if further targeted reliefs are justified. I cannot say fairer than that. What more can I do? I hope that, with that, even the hon. Member for Tatton will be satisfied and Opposition Members will not press the clause to a vote. However, it is a matter for them.

Mark Prisk (Conservative, Hertford and Stortford)

On three occasions I have asked for an answer with regard to house builders and on three occasions the Chief Secretary has either chosen not to, or failed to, provide such an answer.

We have a number of other concerns about the clause. The Chief Secretary has tried to answer some of them, but I have listened to him with care and unless he has further information that he wishes to reveal, Opposition Members are not convinced about this set of changes. Therefore, we shall take the clause to the vote.

Question put, That the clause stand part of the Bill:—

The Committee divided: Ayes 14, Noes 7.

Clause 47 - Exchanges

Mark Prisk (Conservative, Hertford and Stortford)

The clause also refers in part to paragraphs 5 and 6 of schedule 4 and we wish to ensure that there is a full debate on it. Indeed, I hope that the Chief Secretary will be able to respond to a number of questions.

The clause would remove the relief provided by stamp duty on exchanges. At present, the stamp duty is paid by the purchaser of the more expensive property. By abolishing the relief, both parties would pay stamp duty land tax, as the clause interprets such an exchange as not one transaction but two.

Members of the House and those outside have a number of concerns. The first one is perhaps a little more technical. Given the wide definition of consideration, which is set out in more detail in paragraph 5 of schedule 4, what is the purpose of clause 47 (1)? I shall not labour the point by reading that subsection in detail, but many lawyers have looked at it and asked whether it is superfluous.

Subsection (3) refers to paragraphs 5 and 6 of schedule 4. I do not intend to stray into schedule 4 more than that. Yet, paragraph 5 of schedule 4 seems merely to restate subsection (1) almost word for word. Can the Chief Secretary tell the Committee what the precise purpose of paragraph 5 is? What does it add that is not already elsewhere in the Bill but is needed to define the scope of the tax?

That is my first concern to which I hope the Chief Secretary will respond, but I have others of a less technical and more practical nature. The clause will create significant distortions—for example, when a landlord and tenant exchange properties or leases. I shall refer to one example and I am grateful to the Law Society of Scotland for raising it with me. The society argues that when a landlord accepts a renunciation of

a lease for no cash consideration but as part of a deal to provide the tenant with a new lease at market value rent, it is not clear how the clause and schedule 4, to which it relates, will apply. I shall return to A and B for the sanity of the Chief Secretary. Suppose that tenant A renounces a lease to landlord B and, as part of the transaction, B grants to A a new lease on a new building. Paragraph 5(3)(a) of schedule 4 seems to suggest that if landlord B's interest in the lease that is being renounced has a value, the renunciation will be taxed on that value and the new lease will be taxed on the rent.

Schedule 5 governs the taxation of the rent. If the renunciation was seen to be the supply of services, it would create a chargeable consideration for the purposes of paragraph 9 of that schedule and the market value of that chargeable consideration would become taxable, possibly at 4 per cent. Can the Chief Secretary confirm that that is not the Government's intention? The Bill is unclear and his confirmation that that is not their intention would assuage the concern of many people. Does he accept that the rate should not include the value of a lease that is then subject to renunciation?

That is one example of the way in which the clause will distort the marketplace. The danger with urban renewal schemes is that the clause could act as a restraint on proactive agencies and developers who decant businesses from older properties so that they can be refurbished because it would prevent them from moving those decanted businesses into newer or refurbished properties. That activity is crucial to urban renewal and if the process is not available, much urban regeneration of our cities will be prevented. After all, the Government recognise the need to provide relief for residential relocation in clause 59, so why are they ignoring company relocations? Can the Chief Secretary explain the logic of that and, if he accepts that an exchange of properties is not a double transaction but a single event, why impose a double charge?

The Chief Secretary has been enthusiastic in pronouncing the aims of the new tax. The consultation and his comments during earlier debates emphasised the need for fairness, modernisation and reflecting commercial practice. However, the clause and the way it will affect the marketplace do not reflect commercial practice today and most certainly are not fair, so why impose the double charge? I hope that the Chief Secretary can explain the thinking behind the clause and how he believes it will fulfil the objectives of what he still claims to be modernisation of stamp duty.

Jonathan Djanogly (Conservative, Huntingdon)

The concept that there are two transactions in the exchange fascinates me because in other areas of tax, such as capital gains tax on an exchange of shares, there is deemed to be one transaction.

With something like roll-over relief, one transaction rolls into the next and the gain is held over until the final transaction, but the Bill seems to break with that way of thinking. I would be interested to hear the Chief Secretary's views on why that decision has been taken.

Paul Boateng (Labour, Brent South)

Stamp duty land tax is paid on the chargeable consideration for a transaction and that chargeable consideration comprises money or money's worth. Money's worth can include another interest in land being given in exchange for the interest being acquired. Subsection (1) of the clause makes it clear that if interests in land are exchanged in that way, each acquisition of an interest counts as a separate acquisition on which tax may be payable.

There is nothing new in that situation, which reflects the stamp duty position since 1994. However, since 1994 the Inland Revenue has, by concession, allowed a scheme known as the single sale route to attract only one payment of stamp duty rather than two. Members of the Committee may know how the scheme works. Let us say that two individuals agree to exchange their houses. If the transaction is described in the documentation as an exchange, with each individual agreeing to buy the other's house, two stamp duty liabilities will arise. However, if individual A agrees to buy individual B's house and agrees to satisfy the payment for the house by transferring his house to B, only one stamp duty liability will arise.

To return to the principles that run through the legislation, an aim of stamp duty land tax is to ensure that tax arises on the substance rather than the form of transactions. In the example that I have just given, the form is everything. Therefore, to go to the heart of the matter—the transaction—it is necessary to make it clear that under the new dispensation there is no place for the single sale route, which always relied on documentation being drafted in one form rather than another. Subsection (2) makes it clear that the single sale route will no longer be available.

Of course, the Government recognise that urban renewal has an important role to play and that recognition has been the linchpin of the Labour party's approach to such issues. Therefore, I have no problem in giving the hon. Member for Hertford and Stortford the assurance that he seeks. I do not want to get party political at 12 minutes past 5 in the afternoon, but no one can say that we have not done our bit in promoting urban regeneration. Undermining it would be the last thing that we would do.

The Government recognise that simply abolishing the single sale route might cause hardship, particularly for housebuilders who have used the route as a tax-efficient way of offering part-exchange deals to potential buyers of their properties. As I said in earlier debates, there is no intention to interfere with that. The Government have listened to representations—consultation has worked—and clause 58 therefore contains a targeted relief for part exchanges of that type.

As the hon. Gentleman said, the method of calculating the chargeable consideration for exchanges is dealt with in paragraphs 5 and 6 of schedule 4, which we shall consider later in conjunction with clause 50. Schedule 4 also introduces additional reliefs for the exchange of minor interests and the partitioning of property.

The Government believe that the clause, when considered in conjunction with the reliefs that are being introduced, fulfils the principle of taxing the substance of transactions rather than the form. The part-exchange relief will guard against a particular hardship for housebuilders that the blocking of the single sale route might otherwise cause. I hope that the Committee will not have difficulty with the clause, particularly when one considers my response to the specifics raised by the hon. Gentleman.

Jonathan Djanogly (Conservative, Huntingdon)

Is not the point, therefore, that we are talking not about a question of avoidance, but a new tax?

Paul Boateng (Labour, Brent South)

It is not a new tax. We are closing loopholes and ensuring that opportunities for avoidance are removed.

John Burnett (Liberal Democrat, Torridge and West Devon)

It would help the Committee if the Chief Secretary explained the current law. If two properties each worth exactly £1 million were exchanged, what would be the stamp duty repercussions under current law?

Paul Boateng (Labour, Brent South)

May I come to that in conjunction with the detailed responses? I hope that it will then be made clear.

Michael Jack (Conservative, Fylde)

Will the Chief Secretary give way on that point?

Paul Boateng (Labour, Brent South)

No, I am afraid not. The right hon. Gentleman will have the opportunity to intervene on my response to the intervention of the hon. Member for Torridge and West Devon.

I have been asked what the clause is for. Given the wide definition of consideration in schedule 4, is it really necessary? That is the substance of the charge. The clause and exchange paragraphs in schedule 4 contain special rewards for chargeable consideration when land is being exchanged. The general rule for chargeable consideration is that it is the market value of the consideration given for the transaction, which would imply that one values the land one is giving to determine tax on the land one is receiving. That would be unnecessarily complex, so instead the parties are charged on the market value of the interest that they are acquiring, which is the same as the current position under stamp duty. The clause and schedule simplify the rules in relation to exchanges rather than adding to them. There is nothing otiose or superfluous about the clause. It simplifies matters, and I would have thought it would be welcome.

Mark Prisk (Conservative, Hertford and Stortford)

The Chief Secretary has perhaps misheard me. My concern about the superfluous nature of clause 47(1)—not subsection (3) that he is now referring to—is that subsection (1) is almost verbatim a copy of schedule 4(5). It was a narrower point. I am grateful for that wonderful tiptoe through the clause as a whole, but I was saying that subsection (1) is almost identical to schedule 4(5). I think that the Chief Secretary was trying to answer a different question.

Paul Boateng (Labour, Brent South)

I do not think so because my point bears repeating in the context of the schedule. It is necessary for the avoidance of doubt that it should be included in that way. I do not think that the hon. Gentleman would want us to remove it—if we did so, it might well lead to one of the famous lacunae of the hon. Member for Torridge and West Devon. That would never do. The provision is included for the avoidance of doubt, and I hope that it is accepted as such.

At the instigation of the Law Society of Scotland, the hon. Member for Hertford and Stortford pointed out how the change will affect surrenders and re-grants that arise from operation of law. We touched on that earlier. Surrender and re-grant of a lease can occur by operation of law when the duration of that lease or its area is amended. It is assumed that the existing lease is replaced with a new lease on the same terms save for the amended duration or area. That could lead to a fresh liability to pay stamp duty land tax on the new lease. There is nothing new about that because it was also a potential problem in relation to stamp duty. In the modernised regime, we want to improve the situation by including paragraph 14 of schedule 4, which we will discuss later. The tax will still be payable based on the net present value of the rents due under the re-granted lease. In fact, a surrender and re-grant by operation of law can be fairly easily avoided and it is not something that should normally arise; for example, an extension of a let area could be documented by way of a supplementary lease of the additional area. We do not therefore see any pressing need for a further change to stamp duty as a result of modernisation.

Further representations have been received from a variety of sources that want more reform that would go beyond that that is available in relation to the stamp duty regime. We will happily consider any representations during the consultation on lease duty. I hope that on that basis the hon. Gentleman will, for the time being, feel that the point made by the Law Society of Scotland has been dealt with. Concern has also been expressed about how the treatment of exchanges will adversely affect the building trade.

Michael Jack (Conservative, Fylde)

In his remarks to justify clause 47 to date, the Chief Secretary has prayed in aid the property exchanges that occur between a housebuilder and somebody who wants to buy a new house. Can he explain how the process that he describes differs from clause 58, which appears to deal with the same thing differently? Why do we have two different ways of dealing with exchanges?

Paul Boateng (Labour, Brent South)

A study of the Bill will reveal that the context of clause 58, to which we shall come in due course and to which amendments have been tabled, and that of clause 47 are different. On the change in the treatment of exchanges adversely affecting the building trade, a new relief will apply when a developer acquires a property in part exchange for a new property. The relief will re-enact the current single sale route in a modified form for that situation—that is contained in clause 58. A further relief will apply when

certain minor interests in land are exchanged for each other. If the two reliefs are taken together, their effect is to represent a better deal for builders than that which was proposed in the original consultation document. The original proposal caused a certain amount of concern in some quarters. Those concerns were made known to us, we listened to them and as a result we have the current proposals.

I shall deal, albeit briefly, with one other matter related to exchanges: exchanges linked to transactions. That issue was raised by the hon. Member for Huntingdon (Mr. Djanogly) and touched on by the hon. Member for Hertford and Stortford. If a taxpayer acquires two properties in exchange for one, the two acquisitions will be linked to each other and the rate of tax will be based on the aggregate value. However, the two sides of the exchange will not be linked to each other because the party who is the purchaser on the one side will be the vendor on the other. Therefore, if two £300,000 properties were exchanged the rate would be 3 per cent., not 4 per cent., because the consideration of £300,000 on each side would be aggregated due to the link: the purchaser on one side and the vendor on the other. I hope that that explanation of how the links work addresses the hon. Gentleman's concern.

Jonathan Djanogly (Conservative, Huntingdon)

For the sake of clarity, is the Minister saying that the effect would be to disaggregate those, so that rather than getting the stamp duty in one part, which could be a lower rate, the Government would get it in two parts, which could be a greater amount?

Paul Boateng (Labour, Brent South)

The point is to be fair and not aggregate the two, otherwise it would be £600,000. This is modernisation, but it is also fair. The charge falls at 3 per cent., not 4 per cent.

John Burnett (Liberal Democrat, Torridge and West Devon)

Will the Chief Secretary confirm that there will be one charge to tax on an exchange of two properties worth £300,000 each, as in his example, and that it will be for the parties to work out and calculate who pays what proportion of the tax?

Paul Boateng (Labour, Brent South)

Where the party who is the purchaser of one property is the vendor on the other, in an exchange in which two properties are exchanged for one and the two acquisitions are linked to each other, the rate will be based on the aggregate value. In the example I have given the Committee, where the exchanges will not be linked to each other because the party who is the purchaser on one side is a vendor on the other, the value is £300,000, attracting a rate of 3 per cent. One charge on an exchange of two properties that are each worth £300,000 will create a situation in which two charges go to tax, but only at the 3 per cent. rate, not 4 per cent.

John Burnett (Liberal Democrat, Torridge and West Devon)

The Minister will know that such transactions are usually done on one deed that says, ''In consideration of transfer A, we transfer B'', and vice versa. In such circumstances, there is one deed. Let us say that there is exact equality of consideration and the value of each property is £300,000. The Committee

would like to know what would be the charge to stamp duty and how it would be apportioned between the parties.

Paul Boateng (Labour, Brent South)

That goes back to the point made earlier on an exchange of two properties worth £1 million. At present, stamp duty can be avoided and paid on only £1 million if documents are drafted in a particular way. That wheeze will no longer be available. That is the point. We are considering the substance, not the form. That applies whether it is £1 million or £300,000.

We want to be fair as well as to modernise. That is why we want to bring forward the release in the way we do. The right hon. Member for Fylde (Mr. Jack) effectively found in clause 58 a relief that applies to clause 47. That is the connection between the two. Is there a charge? Yes there is, to prevent the type of avoidance wheeze that I outlined. At the same time, there is a relief when one is due. I hope that with those assurances the Committee will find it in its heart to agree to the clause without further debate.

Mark Prisk (Conservative, Hertford and Stortford)

I am well aware that the Chief Secretary has dealt with this matter at some length, so I do not intend to detain the Committee any further than is necessary. I feel, however, that it is important to respond. I do not accept his argument that by making two transactions chargeable in both cases, which is not the case at this stage, that means everyone suddenly has a better deal. He referred to clause 58, which we will come to in due course, although he will know, as members of the Committee who have studied that clause know, that it contains a limited relief that in no way helps the cover that he has suggested. It is not a wide application of relief; it is very narrow.

Paul Boateng (Labour, Brent South)

This is the point that the right hon. Member for Fylde made. He asked why clauses 47 and 58 treat the same thing in different ways. The answer is that clause 58 is effectively a relief applying to clause 47. Surely the hon. Gentleman welcomes the relief. We recognise that a relief is due; we provide one. Certainly the clause is drafted in such a way as to prevent avoidance, but that is what the Committee is about—preventing avoidance and the sort of wheeze outlined by the hon. Member for Torridge and West Devon.

Mark Prisk (Conservative, Hertford and Stortford)

The Chief Secretary describes clause 58 in a way that most professionals who read it would not accept. I do not intend to stray too far into clause 58, because, as he will know, that provision is available only for the small number of people who wish to trade up and not down. However, I shall not press that point further.

I hope that in the parallel consultation that is taking place while we are trying to consider the Bill—I again register my concern and protest about that process—the Government will listen to the representations and amend the clause accordingly.

John Burnett (Liberal Democrat, Torridge and West Devon)

Does the hon. Gentleman agree that one can hardly characterise the arrangements that I outlined of one document and two properties being exchanged as a wheeze? It has been a matter of fact and something that has happened for many years, probably for the duration of stamp duty, and is considered by most professionals to be a legitimate exemption.

Mark Prisk (Conservative, Hertford and Stortford)

We come to the nub of the issue about the way in which reliefs are removed wholesale—subsales are a good example, if you will pardon the pun, Sir Nicholas, and exchanges—and then narrow and prescriptive targeted reliefs are provided later.

This approach will create many more loopholes and will incense many law-abiding taxpayers, because they will see it as inherently unfair. That is why, as we have said on a number of clauses, we believe that the tenor, the aspects and the way in which the clause and others are drafted will not help the Revenue to draw in and tackle genuine attempts to get rid of taxes. I accept the point that the hon. Member for Torridge and West Devon made.

Question put and agreed to.

Clause 47 ordered to stand part of the Bill.

Clause 48 - Chargeable interests

Mark Prisk (Conservative, Hertford and Stortford)

We come to the clauses that deal with chargeable interests, chargeable transactions and chargeable considerations. The clause specifically defines chargeable interests, where the acquisition of such interests constitutes a land transaction. Therefore, it relates back to clause 43. I am sure that in his reply the Chief Secretary will make similar references.

Subsection (1) defines the clause as a whole. It says:

''In this Part 'chargeable interest' means—

(a) an estate, interest, right or power in or over land in the United Kingdom, or

(b) the benefit of an obligation, restriction or condition affecting the value of any such estate, interest, right or power''.

Many experts who have studied this provision from an accountancy, legal or taxation point of view feel that the scope is incredibly wide. The problem is then compounded by subsections (5) and (6), in which the Government give themselves the almost endless ability to amend the power as and when they see fit. That creates the problem of a lingering uncertainty as to exactly where the law-abiding taxpayer stands. A number of people have questioned the definition of the phrase

''power in or over land''.

Is it restricted to the appointment of trustees of a settlement? Or does it extend wider? Will the Chief Secretary explain what is not included in the phrase?

There is a further example. Will the Chief Secretary confirm that subsection (1) does not apply to the interest of a discretionary beneficiary, other than as

already identified in schedule 16? I ask that because the definition of chargeable interest in subsection (1) appears to include rights of way, that is to say easements, and covenants—such as we discussed earlier—not to build on land. It appears that, in trying to strengthen the anti-avoidance powers, the Government have strayed far beyond what any reasonable person would regard as fair. That is not simply my view; it is the view of taxation experts. Much of the assurance that the Chief Secretary gave when we debated clause 43 is contradicted. I ask him to clear up the confusion and the contradiction between his assurance and the Bill.

On subsection (2), will the Chief Secretary explain the Government's understanding of a licence? I may have missed it in my intimate reading of the Bill, but in my interpretation of clauses 116 onwards, I could not find a definition of a licence. I would be grateful if the Chief Secretary would confirm his understanding of its meaning in the context.

The clause, like so many others, in many ways typifies the unsatisfactory approach to the tax. The Government want to grant themselves the widest possible powers and the ability to alter those at any point. The result is to leave maximum uncertainty. The first danger is that that creates the risk of people paying tax simply because the Treasury has not correctly identified them as being outside its purpose. Secondly, there is the danger that that will lead to more tax avoidance because of the loopholes, confusion and lack of clarity.

Paul Boateng (Labour, Brent South)

There is no confusion, lack of clarity or contradiction. The clause defines a chargeable interest. The acquisition of a chargeable interest constitutes a land transaction. The SDLT applies to land transactions. The definition in subsection (1) is broad, and subsection (2) then lists exclusions from that definition, which are defined as exempt interests.

A chargeable interest includes freeholds and leaseholds, and their equivalents in Scotland and Northern Ireland, rights over another's land, and powers of appointment exercisable in the context of trusts of land. The benefits of restrictions and obligations that bind another's land are included only in so far as they affect the value of that land.

Exempt interests are: under paragraph (a), security interests, such as mortgages; under paragraph (b), licences to use or occupy land; and, under paragraph (c), in England, Wales or Northern Ireland, tenancies at will and advowsons, franchises and manors. As would be expected, the Treasury has the right by regulation to expand the list of exempt interests.

That addresses the points that the hon. Gentleman makes. Let me just deal with the issue of powers, which seems to exercise him. In practice, the only powers that are likely to be caught by the SDLT regime are powers of appointment exercised by trustees of land. If such powers were not caught, there will be possibilities for avoidance of SDLT—a fact that is patently obvious. If it were possible for trustees to exercise a power of appointment, that would drive a coach and horses through our proposals because it would open up a new area of avoidance mechanisms.

Jonathan Djanogly (Conservative, Huntingdon)

I should be grateful if the Minister would explain the current position. If stamp duty is not payable on the sale of equitable interest in land, is it the case that the proposal will be a new tax in that respect?

Paul Boateng (Labour, Brent South)

The proposal is not a new tax. I have been asked how SDLT will apply to trusts. The Chartered Institute of Taxation asked for confirmation that clause 48(1) will not cover the interests of a discretionary beneficiary, other than is provided for under paragraph 2 of schedule 16.

I shall give a detailed answer to avoid any doubt, and I shall choose my words particularly carefully. Paragraph 2 of schedule 16 does not cover discretionary interest, but equitable interest. A person who has a discretionary interest in a trust does not have an equitable or any other interest in assets under English law. If someone is named as a beneficiary of a trust when the trustees have discretion over the disposition of assets, that person does not acquire an interest in land so there is no land transaction. The type of interest covered under the paragraph is a non-discretionary interest of which the most obvious example is a life interest in possession trust or an accumulation trust. That will mean, for example, that the purchase of a reversionary interest and an interest in possession trust when the asset is land is a land transaction. That seems obvious and necessary to stop avoidance mechanisms.

John Burnett (Liberal Democrat, Torridge and West Devon)

The Chief Secretary is talking about interest in possession trusts or accumulation in maintenance trusts. When there is an appointment or, for example, a surrender of a life interest for no consideration, I am sure he will agree that, under the present regime as under the past stamp duty regime, no stamp duty will be payable.

Paul Boateng (Labour, Brent South)

None of what I have described affects discretionary interest. Paragraph 7 of schedule 16 applies to the exercise of a discretion, and the explanatory notes set out how that paragraph works. In essence, if a person pays trustees to exercise their discretion to give him land, the acquisition of the interest in land is a land transaction under the general rules. That is obviously necessary, otherwise one would again have an avoidance mechanism. The payment to the trustee is consideration for that land transaction. It closes down what would otherwise be a straightforward way in which to avoid the tax. The purchaser could argue that the payment was for something other than for acquiring land.

Paragraph 7 of the schedule applies in the same way to a payment to exercise a power of appointment. The mischief that it is designed to avoid is the same mischief: the use of something artificial, the power of appointment or the payment of a consideration to make a trustee exercise his discretion in a particular way. However, the provision does not cover all the possibilities in respect of trusts. It is possible to avoid a charge to SDLT using trusts and powers in another way, so it is necessary to be vigilant in that regard to stop abuse.

A point has been made in some detail about why there is no definition of licence. If my memory serves me well, there is no definition of licence in statute, because licence is an ancient creature of common law. The last people who I would have expected to suggest that we throw over 1,000 and more years of tradition in the common law in order to give something a statutory definition that has never previously been so treated are those who are fighting so tenaciously to hold on to legislation that has not been reformed for 200 years.

I am surprised that we are under pressure to define licence. For a start, it would spoil the fun of countless examiners who have, over the years, presented hapless students with lists of circumstances and asked them whether they denote a licence or a lease. I note that several Opposition Members have done that, either as examiners or students.

In my experience, the best way to answer such a question is to suggest what the characteristics are of a lease and what those are of a licence, and hope to glean some marks for having got some of them right. We will not reverse established practice and statutorily define what we know is a matter of common law. A licence is a personal right; a lease is an interest in land. In general, an arrangement will be a lease if it grants exclusive possession of land, especially if it were for a substantial time and not terminable on notice. I have given a broad explanation of some characteristics of the distinction between a licence and a lease, and I do not intend to go any further than that.

John Burnett (Liberal Democrat, Torridge and West Devon)

Can the Chief Secretary help the Committee on stamp duty, land tax and trusts? What would happen if there were a gratuitous surrender of a life interest in land, so that the land reverted to the remainder man with no consideration passing. I am sure that it is fairly simple for the Chief Secretary to say that, in those circumstances, there should be no stamp duty or land tax.

Paul Boateng (Labour, Brent South)

No, I shall not say that. It would be most unwise. The hon. Gentleman must look at the substance, not the form. If I say otherwise, I shall open up the potential for an ingenious and highly paid adviser to use my words to set up a new wheeze for avoidance. We are considering the substance, not the form. That is the approach that the Revenue will take and one that I suspect the courts will take. I urge all those who seek to open up new areas of avoidance to bear that in mind. I hope that, with that assurance—if, indeed, it is an assurance; it is certainly an assurance to the honest, law-abiding taxpayer—clause 48 will be given a fair wind.

Question put and agreed to.

Clause 48 ordered to stand part of the Bill.

Clause 49 - Chargeable transactions

Mark Prisk (Conservative, Hertford and Stortford)

The clause defines chargeable transactions through schedule 3 by providing for exemption. I trust therefore that it is in order for me to refer to that schedule, Sir Nicholas.

The Chairman indicated assent.

Mark Prisk (Conservative, Hertford and Stortford)

Thank you for that guidance, Sir Nicholas. Under paragraph 2 of schedule 3, certain leases are exempted specifically for registered social landlords. I have studied the explanatory notes in detail to elicit the background to the provision. They state that the purpose of the proposal is

''to encourage social landlords to enter into such arrangements.''

Clearly, it is important that, when lettings to the homeless or other vulnerable groups are affected, barriers should be removed.

Can the Chief Secretary tell the Committee what representations he has received from registered social landlords about the applicability and enforceability of the clause? He admitted earlier that, over and above the money clawed in from anti-avoidance measures, there will be an additional gain for the Revenue of £190 million from the new land tax. Can the right hon. Gentleman say what estimate the Treasury has made of the money to be saved by granting the exemption for social landlords?

Paragraph 3 of schedule 3 will exempt transactions in connection with divorce. I wish to make two points, one of which is minor. I trust that it was not intentional to omit the word ''land'' from line 35. Clearly, only land transactions would or should be affected by the schedule, yet the word has been omitted. I am sure that the Chief Secretary will want to clear up that mistake. Has he considered altering or extending the provision so that it will help a brother or sister who live together, a matter that was referred to earlier? What representations has the right hon. Gentleman received about such matters?

I turn now to paragraph 4 of schedule 3, which is wonderfully entitled ''Variation of testamentary dispositions etc''. In plain English, that relates to wills and intestate estates that are varied. As such, I assume that the word ''land'' has been left out of paragraph (4)(1). Clearly, a transaction should relate only to a land transaction. I hope that the Chief Secretary can confirm that omission. Can he also confirm that the terms are identical to the existing arrangements in their meaning and scope? If they are not identical, how do they differ and whom will the provisions affect?

Nicholas Winterton (Conservative, Macclesfield)

Before the Minister replies, I note that the hon. Member for Hertford and Stortford seems to have directed all his remarks to schedule 3. I am not unhappy that he should have done that but, if he considers that there will be a lengthy debate on the schedule, I must disappoint him.

Mark Prisk (Conservative, Hertford and Stortford)

No, Sir Nicholas. Having looked at clause 49 and understood that it effects its purpose through the schedule 3, it is not my intention to revisit schedule 3 in its entirety.

Nicholas Winterton (Conservative, Macclesfield)

I am grateful to the hon. Gentleman. I am sure that the Chief Secretary wishes to reply.

Paul Boateng (Labour, Brent South)

I am grateful for the reassurance that there will be no further debate on schedule 3.

The clause defines chargeable land transactions as those that are not exempt. Chargeable transactions will usually give rise to a charge, unless, for example, they are for consideration below the charging threshold, which is £60,000 for residential land and £150,000 for non-residential or mixed-use land. Schedule 3 lists certain exempt transactions, the first of which includes gifts, transfer of policy following the death of the owner, transfers of property to beneficiaries under a trust in accordance with the terms of the trust, and most acquisitions by operation of law. That reflects the current position. I give the hon. Gentleman an assurance about that.

Secondly, certain leases are granted by registered social landlords under agreements to house the homeless. That is a new exemption that reflects Government policy to encourage such agreements. The hon. Gentleman asked how many representations the Government have received from registered social landlords in respect of that provision. I am not able to give him the answer for the whole Government; I personally have received one, which welcomes the provision. That is probably typical of the general response of the social landlord sector to the provision.

Thirdly, the Bill deals with transactions made in connection with the ending of a marriage. That reflects the current position. The Treasury has no power to add further exempt transactions by regulation. I hope that that reassures those who are always concerned about the potential of the Treasury to assume further powers in relation to such matters.

I was asked whether paragraphs 3 and 4 of the schedule should apply only to land transactions. The answer is yes, but the provision is not an error, because paragraph 1 contains a reference to land. Only land transactions are brought into charge into the first place, so the reference to transactions refers to paragraph 1. There is nothing unusual or erroneous in that. The additional cost of exempting registered social landlords—something I believe to be widely welcomed by the sector—will be marginal. Our estimate is that the additional cost will be less than £1 million per annum.

Mark Prisk (Conservative, Hertford and Stortford)

I am grateful to the Chief Secretary for his clarification of some of the language used. He has confirmed that the benefit to social landlords is under £1 million or thereabouts, and I am grateful for that clarification.

Question put and agreed to.

Clause 49 ordered to stand part of the Bill.

Schedule 3 agreed to.

Clause 50 - Chargeable consideration

Mark Prisk (Conservative, Hertford and Stortford)

We come to a very important clause. I shall restrict my remarks to clause 50. Others may also wish to do that, under your guidance Sir Nicholas. Although some aspects dealt with specifically under schedule 4 relate to clause 50, I would prefer to restrict my remarks to the clause.

The clause deals with what is termed a chargeable consideration. It does so by referring to schedule 4. However, subsections (2) and (3) provide the Government with the ability to amend or appeal any part of that crucial definition. It gives the Government the power to do that as and when they choose. Although we fully recognise that the Government need the ability to amend legislation to reflect changing circumstances and practice, I must register the concern felt on our Benches and by outside practitioners about the inadequacy of the drafting of the clause, and the huge uncertainty it creates for those who will seek to comply with it.

Is the Government's aim fairness, and if so how can the ability to change the way in which a tax affects people be justified? If the Chief Secretary's purpose is to reduce tax avoidance, why seek to enact a new tax that is so open to misinterpretation? We shall debate later what a chargeable consideration actually is, but I am concerned that there is a serious question of clarity for the taxpayer in relation to clause 50. People need to know where they stand in their tax affairs to be able to plan their private lives and their businesses. Many small businesses find it difficult to cope with the fact that the tax regulations chop and change. That is the root of our concern and I hope that the Chief Secretary will reflect on that in his response.

Michael Jack (Conservative, Fylde)

I apologise for being ever so slightly slow from the starting blocks, but I want to reinforce and underscore my support for the argument that my hon. Friend has put forward. Interestingly, in the notes on clauses we are told that the negative resolution procedure will be used to make the changes to which he referred. That means that the chances of such measures being properly debated in the House are to say the least, from the Opposition's standpoint, slim. A more generous interpretation is that that will be totally in the gift of the Government of the day.

We do not know by what mechanism the changes will be made. The clause states:

''The Treasury may by regulations amend or repeal the provisions of this Part relating to chargeable consideration and make such other provision as appears to them appropriate''.

That is a three-way bet. The Government can knock the provision on the head, introduce something new or do something completely different. We have no indication as to the scope, scale or contingency that the provision seeks to address, yet we are being asked to

give carte blanche to Treasury Ministers to make changes in the law contingent on events of which we have no knowledge. That is bad legislation.

In another dimension, I have been faced with drafting legislation to reflect subsequent changes in the real world, but it was then possible to give some indication of the scope and scale of what might have to be done. Occasionally, the use of regulatory powers is useful so that primary legislation need not be revisited. However, the theme of our debates on this part of the Bill has been that it is complex, detailed and difficult territory and already the Minister, in an act of reckless generosity, has indicated his willingness to reconsider and redraft. I appreciate some of the difficulties. When I was responsible for Finance Bills, we occasionally got things wrong and had to sort them out, but that was in the context that we knew what we were trying to get right. Here, there is an open-ended opportunity to change.

It would be helpful if the Chief Secretary would sketch in for my and the Committee's greater understanding the circumstances in which he envisages using that sort of power. I do not recall seeing such a power conferred upon the Treasury to do whatever it wants in amending something that starts out as primary legislation, but my memory is not infallible and if there was a case that I cannot remember, I shall apologise.

John Burnett (Liberal Democrat, Torridge and West Devon)

I join the hon. Member for Hertford and Stortford and the right hon. Member for Fylde in deprecating the procedure that the Government are seeking to arrogate to themselves to change particularly complex legislation. I agree that there will be changes and some of them, according to the Chief Secretary, could be in favour of the taxpayer. Change must, of course, take place and sometimes it will involve primary legislation, but the far-reaching provisions on stamp duty affect virtually all our fellow countrymen and it is essential that they are properly scrutinised, consulted upon and debated in the House. The negative procedure is not good enough and I join the right hon. Member for Fylde and the hon. Member for Hertford and Stortford in strongly condemning the procedure and asking the Chief Secretary to reconsider the matter and, at the very least, to have the affirmative procedure so that we know that it will go before the House.

Paul Boateng (Labour, Brent South)

At least the hon. Member for Torridge and West Devon does not have any form on negative resolutions, nor is he likely ever to have such form because the higher responsibilities of government are unlikely to come the way of his party. Were they to do so, I have no doubt that the burden of responsibility of office would fall on his shoulders; however, that is unlikely to happen. As he does not have any form, he is entitled to take us to task, as he did, for using the negative resolution procedure. If I were in his position, I would do the same.

However, the right hon. Member for Fylde has form as long as your arm in Finance Bill after Finance Bill. For him to suggest that the Government are doing something untoward in using the negative resolution procedure beggars belief. Of course, the Government will use the procedure because it makes sense to have available to the Treasury powers with the most rapid and flexible disposals for making necessary changes to correct unintended hardships or—this is very important—to deal with changing commercial practices.

There is nothing untoward, suspicious or at all reprehensible about the use of such a power. Given the mass of new legislation, it is inevitable that from time to time small problems will be identified. When they are, it is necessary to deal with them in the most expeditious way possible, which is why we have the regulatory power in clause 50.

Mark Prisk (Conservative, Hertford and Stortford)

I enjoyed the Chief Secretary's theatrical performance of shock and horror at my right hon. Friend the Member for Fylde. [Interruption.] He even brings along his own Greek chorus—what a lovely prospect.

However, I hope that the Chief Secretary will respond to my concern. We have already discussed the fact that the measure is ill conceived and ill considered—that is the outside view of professionals. The consultation was scrapped and a parallel consultation is taking place at exactly the time that we are trying to consider the measure in Committee.

We also have what I can describe only as adding insult to injury. I would be pleased to hear from the Chief Secretary what the limits are to clause 50(2). As I see it—I have no form, according to the Chief Secretary—there is no limit under subsection (2) to how the Treasury may change the provision with which we are dealing. That concerns us as parliamentarians, but it also concerns our constituents. I hope that the Chief Secretary will respond in a more positive manner.

Paul Boateng (Labour, Brent South)

The hon. Gentleman may have no form, but he certainly has a positive intention, if ever given the opportunity. Our intention is to keep the mens rea and actus rea completely separate for as long as possible. I do not mean to pull his leg unduly and I do not blame him for making his point. However, I do not accept that the legislation is ill conceived or ill considered. It has been extensively consulted upon and the Government continue to consult on the remaining concerns.

I reject the notion that we should do other than what we are doing, which is finding a sensible way forward and tackling avoidance while allowing flexibility to respond to issues that have been identified in the lead-up to the operation of the new regime. We are bound to do that if we are to exercise responsibly our powers and avoid some of the pitfalls into which he suggested that we would otherwise fall. Therefore, I cannot accept his arguments about the entirely reasonable and sensible powers.

Rob Marris (Labour, Wolverhampton South West)

Does my right hon. Friend feel able to assure the Committee that these broad powers will not be used retrospectively to increase an individual's tax bill?

Paul Boateng (Labour, Brent South)

I can give my hon. Friend the assurance that the measures will at all times be used fairly and in a way that represents the best interests of the taxpayer. We will maintain our commitment to flexibility, avoiding hardship—that is very important and addresses my hon. Friend's point—and ensuring that we properly reflect current commercial practice in a way that is consistent with our intentions, which are always to examine substance not form. We want to ensure that we bear down on ingenious avoidance schemes that manipulate the legislation to the advantage of a few and the disadvantage of the many.

John Burnett (Liberal Democrat, Torridge and West Devon)

I am sure that the Chief Secretary agrees that it cannot be in the best interests of taxpayers retrospectively to increase their burden of tax.

Paul Boateng (Labour, Brent South)

I do not want to go down the road of retrospectivity, or respond to hypothetical cases where something may or may not apply to individual taxpayers. That is not desirable. We are committed to fairness and to modernising this area of the law. We are committed—I do not want to labour the point, but I shall—to the best interests of the majority of taxpayers. I must always have in mind the majority of taxpayers, rather than individuals who may or may not be the subject of one of the hon. Gentleman's interesting hypothetical examples.

Norman Lamb (Liberal Democrat, North Norfolk)

So, is the answer to the question of the hon. Member for Wolverhampton, South-West (Rob Marris) that the Chief Secretary is not ruling out possible retrospective application?

Paul Boateng (Labour, Brent South)

I really am not going down that road, as it would not be helpful. On individual cases, it is tempting to make promises, but it would not be helpful to do so. We have no intention of going down a road that is justified by anything other than the principles that underpin the legislation. Those principles are an emphasis on substance rather than form; an emphasis on fairness and modernisation; and bearing down heavily on avoidance mechanisms. I can do no more than give those assurances.

Michael Jack (Conservative, Fylde)

I do not find the Chief Secretary's words on retrospection or his response to the concerns that have been raised at all satisfactory. The explanatory notes to subsections (2) and (3) contain the words:

''and as to how chargeable consideration should be calculated in specific cases.''

What concerns me—it is why I challenged the Chief Secretary on the negative approach—is that although he is right that the situation is not unknown in Treasury circles, this is a new tax. In his remarks on the exercise of powers conferred under clause 50, the Chief Secretary offered no comfort to the Committee or bodies beyond it that there would be any form of consultation about the measures. He knows exactly how the order-making power works and that once the

order has been laid, after a certain number of days it effectively comes into operation unless the House annuls it.

I am concerned that the Revenue could, if it did not like the look of something in specific cases on a transaction-by-transaction basis, propose an order to change the basis on which the chargeable consideration calculation was made—almost on a whim. Therefore, if I have understood the words correctly, the citizen would have no opportunity to mount a challenge through the commissioners on a decision that has been made and no chance of going to court to challenge whatever happened. It is almost like saying, ''Well, if we do not like it, we'll introduce a regulation, slam, bang, thank you m'am, and it's all gone.'' That is not the way to operate a brand new tax. Perhaps I do not understand it. The Chief Secretary has given us no comfort. He talked about changing circumstances and the need to act quickly if he noticed an avoidance scheme.

The Chief Secretary knows well that when the Inland Revenue spot an avoidance scheme—there are many, it is fertile territory—an Inland Revenue and/or Treasury press notice is normally issued, giving due notice that a particular activity will be dealt with in law and indicating the time scale in which events will occur. There is no reassurance that any such mechanism would be employed in the operation of the clause. Given the nature of a new tax, it is incumbent on the Chief Secretary to be a darn sight more specific than he has been in telling the Committee how the powers will operate. The notes on the clause say:

''should be calculated in specific cases''.

That could almost mean that I could, on a transaction-by-transaction basis, change the rules if I did not like the numbers and the way they were worked out. How on earth is the taxpayer to know where he is? The Chief Secretary should do the Committee the courtesy of being a little clearer about how the powers would operate in the real world.

David Wilshire (Conservative, Spelthorne)

I rise to speak partly because I have been sitting here quietly all day and I can at least stretch my legs, and partly because I did not like what the Chief Secretary said.

I know that it is the conventional wisdom that the usual channels try to keep out of debates and do not get their minds round the technicalities. However, I heard a generality that bothered me, and I would like the Chief Secretary to put me out of my misery and tell me he did not really mean it. I think he said that he was interested in what was best for the majority, not in what was best for the individual. He told the Committee about his desire to be fair and his belief in fairness. I am not sure how one can be fair and say that one is not interested in what is good for the individual. I like to think that I have misunderstood the right hon. Gentleman. I am sure that he can confirm that I have and that he will tell me what he really meant.

Mark Prisk (Conservative, Hertford and Stortford)

I said at the beginning of the debate that we hoped there would be a clear response from the Chief Secretary that would, in the interests of law-abiding taxpayers, provide some clarity about how the clause would affect them. I have considerable reservations about the fact that it will allow statutory instruments to put things through. However, I wanted to hear the Chief Secretary and listen to whether he was willing to make positive noises. There was no real attempt to answer the hon. Member for Wolverhampton, South-West on retrospectivity, or the question asked by my right hon. Friend the Member for Fylde. That is a grave omission, and I hope that the Chief Secretary will correct it. If he does not, the Opposition are minded to vote against the clause on the strict understanding that we are not satisfied that he has set out the justification for why there is an all-encompassing power for the Treasury to change the new tax in any way it chooses. He was not clear about that. I hope that he will correct his omission. If he does, we will support the clause; if he does not, we shall not.

Paul Boateng (Labour, Brent South)

Let me be as clear as I possibly can. To my hon. Friend the Member for Wolverhampton, South-West, let me say for the avoidance of doubt that we have no intention of using the regulations retrospectively. I hope that that answers his question.

I make no secret of, nor do I apologise for, my concern always to ensure that nothing that I say in the Committee can bring any comfort to those who, given half a chance, would exploit the regulations for their own personal interest and develop new avoidance schemes. I have a high regard for the hon. Member for Spelthorne (Mr. Wilshire), but I would never in a million years be tempted to put him out of his misery. However much he might find himself in that condition, I am happy that he should remain in it. However, I can set his mind at rest and say that it was in the context of concern about those who would exploit the regulations that I made my remarks about the individual taxpayer in relation to the generality of taxpayers. I cannot have it said that the generality do not benefit if an avoidance mechanism is closed off for one taxpayer, because a loophole or an avoidance scheme that benefits one individual may work very much against the interests of the majority. I would be failing in my duty if I were not concerned about that.

I hope that the next point is clear to the hon. Member for Hertford and Stortford. The notion that was suggested by the right hon. Member for Fylde that if the Inland Revenue dislike something, they can change the legislation on the basis of what is contained in the clause, and that the clause is therefore a sign of a new tax, is not correct. That is not what the explanatory notes imply. We must work on a transaction-by-transaction basis. I have given an assurance that the provision will not be used retrospectively. It cannot be used in the way that the right hon. Gentleman suggests.

I believe that we have struck the right balance. The intention is to allow SDLT changes to be made quickly and at the earliest opportunity by regulation—if necessary, between Finance Bills. We recognise the

concern of hon. Members about negative resolution. We all understand that concern, and have expressed it ourselves. However, there is nothing sinister about that which is proposed—it is perfectly clear.

I do not believe that I can give any further assurance. I hope that the hon. Member for Hertford and Stortford will not press the clause to a vote.

Mark Prisk (Conservative, Hertford and Stortford)

It would be ungracious of me not to recognise and welcome the concession from the Chief Secretary on retrospective tax and the way in which the provision might be changed. However, after listening to his response, I do not believe that those whom we represent are any clearer at the end of this debate as to how their tax matters will be handled. Therefore, I shall oppose the clause.

Question put, That the clause stand part of the Bill:—

The Committee divided: Ayes 16, Noes 9.

Schedule 4 - Stamp duty land tax: chargeable consideration

Mark Prisk (Conservative, Hertford and Stortford)

I beg to move amendment No. 5, in

schedule 4, page 155, line 38, leave out from beginning to end of line 3 on page 156.

We move to the substance of schedule 4. The amendment would remove paragraph 2, under which stamp duty land tax would be charged on a chargeable consideration, but a consideration that includes VAT. That is a tax on tax and is accordingly inherently unfair, in which it runs counter to the stated aims of the Government's so-called modernisation, to which the Chief Secretary is so keen to refer. Many professional and small business organisations have told me that they believe that that tax on tax is wrong in terms of business practice and in principle. How does the Chief Secretary justify maintaining that outmoded and unfair element of the old duty? It is not just a question of being a tax on tax; it is a transaction tax on a transaction tax.

We discussed earlier whether the tax is legal under the European Community's sixth directive, which requires each nation to have one transaction tax, and there is a danger that there may be a contravention of our treaty obligations. Can the Chief Secretary explain whether, given our treaty commitments both in the EU and beyond, it is legal to levy a transaction tax on an existing transaction tax? If it is, what is the legal basis for such an assertion? The Economic Secretary is as aware as I am that double taxation treaties have kept us in entertainment and employment in recent months. Here is a classic cross-question, and I hope that the Chief Secretary will be able to answer it.

I hope that the Chief Secretary will at least see some sense on this issue. I genuinely believe that this tax on tax, or transaction tax on transaction tax, is wrong. It runs counter to the Government's modernisation approach, and if we are not satisfied with his answers, I shall press the amendment to a vote.

Norman Lamb (Liberal Democrat, North Norfolk)

We support the amendment. It cannot possibly be justifiable to have a tax on a tax. I know that many have campaigned on that issue for many years. The Law Society suggests another way of dealing with the issue by simply changing ''include'' in line 39 in paragraph 2 to ''exclude''. That is a simpler way of making it absolutely clear that the VAT element should be excluded from the chargeable sum. In essence, we support the amendment, which seeks to remove VAT from the equation.

John Burnett (Liberal Democrat, Torridge and West Devon)

We deprecate clause 54 and think it entirely wrong that there should be double taxation.

We are talking about what is almost a constitutional impropriety. We talked earlier about retrospective taxation and we received some comfort from the Chief Secretary during discussion of the last clause. Now the Economic Secretary to the Treasury is with us. He cannot stand up and justify double taxation; it should be anathema to all of us from both sides of this House. We hope to hear that he fully concedes the fact that the clause should be deleted.

Mr. Boateng rose—

Nicholas Winterton (Conservative, Macclesfield)

The hon. Gentleman is going to hear from the Chief Secretary, as he has now come back.

Paul Boateng (Labour, Brent South)

The hon. Member for Torridge and West Devon will once again be disappointed. I certainly can justify double taxation, as could my hon. Friend the Economic Secretary were he fortunate enough to have drawn this particular straw.

Amendment No. 5 attempts to eliminate paragraph 2 from schedule 4, which deals with whether VAT is to be treated as a consideration. Schedule 4 is a crucial part of the stamp duty land tax. It deals with quantifying the amount to which the rate is applied to calculate the tax charge. Paragraph 1 sets out that amount—the ''chargeable consideration''—is

''any money or money's worth given . . . directly or indirectly''

for the property being acquired by the purchaser or a person connected to him. That is subject to express provisions to the contrary, which are contained in some of the 15 other paragraphs of the schedule.

One of the most important aspects of consideration to clarify is a treatment of any VAT that is or may be paid by the purchaser. Under existing stamp duty case law, it is dictated that VAT should be included as consideration. Conservative Members take exception to that. Moreover, for new leases it is assumed that VAT is charged unless the lease specifically prohibits it. By eliminating paragraph 2 altogether, amendment No. 5 would reduce clarity in the new legislation and throw us back to the case law principles whereby VAT would be treated as consideration unless prohibited from being charged.

The rest of the debate is in Hansard.