Property Taxation

David Gauke winds up a debate on behalf of the Conservatives which focusses on the taxation of second homes and furnished holiday lets.

Mr. David Gauke (South-West Hertfordshire) (Con): It is a great pleasure to serve under your chairmanship, Mr. Cummings. I congratulate the hon. Member for St. Ives (Andrew George) on securing the debate. When I saw the title was "Property Taxation", I thought that that could cover a multitude of areas, so I am also grateful for his kindness and courtesy in indicating what he wanted to cover. I will focus the majority of my remarks on those specific points. He set out two key aspects: first, second homes, both within his constituency and the south-west as a whole, which is an issue that he has spent considerable time focusing on since 1997, and, secondly, furnished holiday lettings.

What lies behind the second homes issue is the significant concern that local people are unable to find local homes. In the south-west as a whole, figures suggest that house prices are typically eight times the local average salary. Those numbers are particularly significant in the south-west because it is hugely popular and the sort of place where people want to buy second homes. There is no doubt that that demand has played a considerable part in the housing problems. The hon. Gentleman is right to say that the south-west is not an area where there has been no house building; there has been an expansion of supply.

It is difficult to use the tax system, and specifically the council tax system, to address that issue. I take the point that there was originally a discount, but I am not sure how effectively the council tax system could be used, and whether the hon. Gentleman was getting support from his Front-Bench colleagues on whether it could be used. Given that Liberal Democrat policy is to replace council tax with a local income tax, it was interesting to note that it is not the case, as he suggested, that that would double the income tax, but I am still not sure what the answer is.

Andrew George: I expressed my personal view on the application of additional layers of income tax, because I think that that would be perfectly fair. The party takes a different view on that, which I did not expand on in answering the right hon. Member for Oxford, East (Mr. Smith). It would apply a locally collected business rate on second homes.

Mr. Gauke: I am grateful to the hon. Gentleman for providing that clarification. The way to address the genuine concerns that he has assiduously highlighted is to do more to encourage the building of local homes for local people. In recent weeks, we have set out our proposals for local housing trusts. Individual communities could bring forward limited development in their areas outside the local planning process. If there was strong local backing, it would be possible to develop local homes that local people would want, the make-up of which could be decided locally. We anticipate that some of that housing would be held in perpetuity for local people. Therefore, although I sympathise with the hon. Gentleman's concern, I am not convinced that the tax system is the right way to address it, but we can look at the planning system.

The second area that he highlighted was furnished holiday lettings, and I have great sympathy with his concerns. As the hon. Member for Southport (Dr. Pugh) pointed out, the Liberal Democrats requested a review when the Finance Act 2009 was being considered, as did the Conservatives on the Floor of the House. The background to that is that the regime in place since 1983 treats furnished holiday lettings as trading businesses rather than property investments. The significance of that is that it gives them a favourable tax regime through the availability of capital allowances and certain loss reliefs that would not be available if the lettings were treated as property investments.

At the moment, the regime applies to property based in the UK. The Government's advice says that, were they to be taken to the European Court of Justice, they would have to apply exactly the same regime to properties held elsewhere within the European economic area, which would involve an additional cost. Extending it more widely would involve a cost to the Exchequer-not necessarily a huge one but certainly a cost-so they are looking at removing the regime. There are concerns that that would have a knock-on effect in particular localities.

It is better for local communities that a property is let out, rather than used as a second home. There may be an argument, although not a particularly strong one, that those properties might go on to the market for local people if they were not used as furnished holiday lettings. If that were the case, it would change the nature of the argument, but what we hear is that, largely, those properties would simply become second homes used very occasionally by people living some distance away and adding very little to the local community. There is a legitimate concern.

Andrew George: I was attempting to emphasise that there are large numbers of purpose-built holiday chalets and other properties, with planning restrictions on their occupancy, that are clearly run within the curtilage of a holiday park. We are primarily concerned about those businesses. They may be using the business rating option to avoid the council tax option, in the manner that I described earlier, but they are clearly on the fringes of what we are talking about as they provide a holiday experience. They are trading rather than simply collecting money for the occasional letting of the property.

Mr. Gauke: The hon. Gentleman makes a good point and those cases are clear. In the one that he identified, I wondered at one point if he was going to provide the contact details as well. It sounded like a very tempting location for a holiday. I do not want to overstate the case that I was floating. Many of the properties are cottages that are likely to be bought as second homes. The likelihood is that they would not be bought by locals, but his point is fair; there are properties for which the changes are not an issue at all.

There is a lack of joined-up government on this. As I understand it, the Minister of State, Department for Culture, Media and Sport, the right hon. Member for Barking (Margaret Hodge) was first informed of the developments in the taxation regime in public and she had no idea that there was to be a change. There does not seem to have been any consultation between the Treasury and the Department for Culture, Media and Sport. Therefore, one suspects that there was no proper assessment of the impact on local communities.

Dr. Pugh: The hon. Gentleman is making the case for serious research into the effects of the change in fiscal measures very well. It strikes me that the effect may not be general but may vary from area to area depending on the attractiveness of the property, its proximity to London and so on.

Mr. Gauke: The hon. Gentleman is right, as he was in his earlier point about this being a particular issue for the south-west. Other parts of the country will clearly be affected, but one suspects that the problem is considerably concentrated in the south-west. If the Minister is able to shed any light on that in his remarks, it would be helpful.

We have raised the point in the past about whether there are other ways of dealing with the issue of the location of the properties. For example, the current rules require properties treated as furnished holiday lettings to be occupied for a minimum of 10 weeks and to be available for 20 weeks. By and large, we understand that-this was shown in the work produced by the Tourism Alliance-in the UK, those sorts of properties generally tend to be available for longer and occupied more than properties based elsewhere in the European economic area. Therefore, rather than scrapping the regime, if the minimum occupancy threshold was simply extended to more than 10 weeks-for example, to 15 or 20 weeks-the likelihood is that the Government could include most of the UK properties and exclude most of the EEA properties.

That would be a less disruptive change of regime than that proposed by the Government, which may have a knock-on effect on rural areas, as we have heard. I would be grateful if the Minister could say whether any work or research has been done on that matter and whether there are alternative approaches to dealing with the regime. The proposal depends on the numbers and the Treasury is well placed to do such research, but certainly the work produced by the Tourism Alliance suggests that such a system is a way of dealing with the matter.

Finally, very briefly, given the subject of the debate, I cannot resist highlighting the position of the Liberal Democrats on the broader issue of property taxation. I understand that the Liberal Democrats would scrap the council tax and replace it with a local income tax because the council tax is not based on ability to pay. That was certainly in their campaign at the last general election, and seems to be a move away from property tax per se. On the other hand, the policy of introducing a mansion tax on homes worth more than £2 million was announced at the last Liberal Democrat conference. That raises a few questions about how those properties will be valued, whether there will be distortions in the housing market, what would happen in relation to pensioners on low incomes and how improvements would be taken into account. The Liberal Democrats seem to be moving in favour of property taxes in that regard.

I recalled hearing a quote from the leader of the Liberal Democrats broadcast on "The Westminster Hour" on 29 November 2009, so I had a look for it. He stated that he has a

That appears to be a move away from taxes on earnings to taxes on property, which may well be the general direction that the Liberal Democrats want to go in. We can debate whether that is right or wrong, but I am curious about how that is reconciled with a policy of moving away from a council tax system towards an income tax system. I shall leave that mysterious matter in the air. I am grateful to the hon. Member for St. Ives for raising an important issue and for initiating a helpful and informative debate.

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