PARLIAMENTARY DEBATE
Holiday and Second Homes Regulation: Cornwall and Isles of Scilly - 23 October 2024 (Commons/Westminster Hall)

I beg to move,

That this House has considered the regulation of holiday and second homes in Cornwall and the Isles of Scilly.

I am delighted to have secured the opportunity to debate this motion. It is worth emphasising that this is about not the politics of envy, but the politics of social and housing justice. Many people are concerned about the proper provision, allocation and use of property, particularly residential properties, in those areas with a significant preponderance of holiday and second homes. The tourism industry in such areas is vital, but it is important to get the balance right in the usage of properties and how, and which, properties are used in the industry. In such areas there is often a big mismatch between earnings levels and house prices, given the large amount of wealth that wishes to invest in those properties, so we need to ensure a proper balance.

It is also important to understand the distinction between second and holiday homes. Often, in discussions and media commentary, the two are confused. They are two sides of a coin, but in regulatory terms they are significantly different. Some properties flip from one form of regulation to the other, from being second homes operating under the council tax regime to the holiday lettings sector, which operates in the business rates system.

I commend the hon. Gentleman for securing this debate. In previous Parliaments, he has proven himself to be an advocate for those who have such issues. Does he not agree that we need to make the most of tourist potential—as we seek to do in the incomparable Ards peninsula, which I represent—but a fundamental need is to have housing stock available for people to live and raise their children in, without being outpriced by the demand for second homes?

Indeed I do agree, and I am grateful for that intervention emphasising the points that I and many of those present wish to make. Although we are talking about Cornwall and the Isles of Scilly specifically, the subject clearly has wider impact across the country as a whole.

The context is important in Cornwall and the Isles of Scilly. Over the past decade, more than half a billion— £500 million—of taxpayers’ money has been handed out to holiday home owners in Cornwall alone under a variety of different and variable tax incentives available to the holiday lettings sector, such as the small business rate relief system for furnished holiday lets. Perhaps most scandalously, because those properties were entitled to such relief, they were entitled to covid aid as well—£20,000 to each one of them, for no very good reason.

The latest figures in Cornwall show nearly 14,000 second homes and more than 11,000 properties registered as short-term lets, as far as businesses are concerned. The most recent trawl through the larger of the holiday letting websites showed nearly 22,000 active listings. That figure was recorded on an initial trawl, but it does not represent the full scale of holiday lets available.

In the hon. Member’s discussions with the public, private and voluntary sectors, is there any higher imperative across the whole of Cornwall than dealing with the issue of holiday and second homes? In my experience, there is no higher priority than grasping the challenges we are facing, which impact not just coastal areas, but towns in the middle of Cornwall, because people move from the coast to inland towns.

The hon. Member is absolutely right. On the one hand, we are trying to address the desperate housing needs of local families. We have in excess of 20,000 families on the local housing register, and we know that is merely the tip of the iceberg—the need is a great deal more. On the other, a lot of local families are being evicted from their private rented accommodation to make way for yet more holiday lets. If we do not recognise that, we are failing to grasp the full picture, so he makes a strong point.

I acknowledge that this is an important part of the Cornish economy, but it is worth noting that when one looks for accommodation in places such as Cornwall and the Isles of Scilly, the hotel and guesthouse sector is just as—if not more—important, in the sense that it competes with the holiday letting sector without many of the incentives and benefits that the self-catering sector enjoys. For example, many operate above the VAT threshold, whereas those in the holiday letting sector, if they take it down to a single property, do not. Of course, they face many other regulations as well.

Does my hon. Friend agree that second and holiday homes have a big impact on the hospitality sector, because businesses find it difficult to find accommodation for their staff, especially in places like Cornwall and the Isles of Scilly where there is limited accommodation, which then makes it difficult for them to run their businesses?

That is absolutely the case. As a visitor to the Isles of Scilly, my hon. Friend knows that that is a significant problem, because people cannot commute to the Isles of Scilly to work. It is difficult to commute to work for businesses providing those kinds of jobs in many of the coastal areas around Cornwall, and many people find themselves living in very informal settings, including caravans, because nothing else is available to them.

I will rapidly run through some of the regulations concerned: council tax; small business rate relief; the furnished holiday lettings scheme; holiday business registration, which the last Government proposed, and the planning use class changes. First, on council tax, going back to the pre-history where this all originated, when the Conservatives originally introduced the council tax system—what they called the community charge—they introduced a 50% council tax discount for second homes, because they said second home owners were not using all the services and therefore should not have to pay for them. That was the justification back in the 1990s.

The hon. Member mentioned some of the solutions. Would it not be a good idea to consider giving a suite of powers to a local authority so they could pick and choose which of those would suit that local authority and those particular circumstances?

I am grateful to the hon. Member for that intervention. Indeed, she anticipates something that I will come on to in a moment.

Going back to that pre-history, we managed to make that change under the previous Labour Government. Indeed, I remember well a debate in this Chamber on 9 February 2000 when I raised these issues almost a quarter of a century ago. Chris Mullin was the Under-Secretary of State responding to that debate. I had raised the issue of the unfairness of the 50% council tax system. I had been campaigning pretty much on my own for some time until that point. I made the point to the Under-Secretary that the responses I had received from Government had been complacent. I hope the Minister, who I am pleased to see in his place today, will consider the precedent set by Chris Mullin when, towards the end of his response, he said:

“The hon. Gentleman said that he had received a rather complacent response from the Government, and, indeed, I have here a rather complacent response, which I will not read out. I merely say that the issue was reviewed about a year ago, and at the time there were no sufficiently cogent reasons for a change. I am, however, willing to follow up the point in my Department. Perhaps we can discuss it later.”—[Official Report, 9 February 2000; Vol. 344, c. 112WH.]

Chris Mullin and I did discuss it later, and the policy was changed.

One of the lessons from that is that we can effect change through these debates if Ministers are receptive to the arguments we put forward. I hope the Minister will consider that. The last Conservative Government responded to pressure. A lot of us were arguing very strongly against the way second holiday homes were being treated, although I was outside Parliament during my nine-year sabbatical. They could not withstand that political pressure; they had to respond to it. Indeed, they announced the intention to increase the premium on second homes by up to 100%, to be imposed by local authorities.

Have the new Government carried out any kind of impact assessment on the change in council tax arrangements for second homes? Have they considered whether it would have a counterproductive impact, if it was not married with a suite of other regulatory changes? People might switch from council tax to business rates and use the small business rate system, for example, and pay nothing at all. They may take other options rather than paying council tax.

My hon. Friend is making an excellent speech. To build on the point made by the hon. Member for Truro and Falmouth (Jayne Kirkham), does he agree that we need local councils in Cornwall, the Isles of Scilly and elsewhere to be given greater powers to ensure that second home owners pay properly towards mitigating the overall impact of those homes on local communities? This is not about banded council tax or business rates; it is about the wider implications, for which we need to perhaps consider changes.

My hon. Friend makes an important point. It is not just the housing impacts; it is the wider societal and community impacts property investors have on local communities. I hope that when the council tax increase comes in, the Government will be clear on what local authorities can do. Will the council tax increase provide additional income that local authorities can use to address housing need, or will it result in a reduction in the central Government support grant to local authorities? Cornwall is staring down the barrel of a £100 million deficit, so that issue is very significant. A number of us are making the argument that council tax could go up by 200% or 300%, rather than 100%, in some areas because of the impact second homes are having, in order to adjust things as we believe they should be adjusted.

I have already referred to the impact small business rate relief has had. It has clearly been a major incentive for property investors to invest in holiday lets in areas such as Cornwall and the Isles of Scilly. Although the small business rate relief system is due to expire next year, could the Minister be clear about the Government’s plans for the future? There are no doubt pressures from that sector to reintroduce a similar rate relief. Although I do not think that is justified, for very obvious reasons, there are parts of the sector, particularly those holiday lets under an occupancy restriction, that could perhaps be included. We have had a campaign success, in that the last Conservative Government insisted on a 70-day use to justify the rate relief, but that needs to be reviewed.

I hope that the Government will be clear about how the registration scheme will be introduced, and I know that Cornwall council has offered to assist the Government in that. The council has expertise and is keen to introduce the registration system, but it needs to know how the scheme will work, what level of verification and inspection will be required by the council and what income can be raised. It will be an expensive process and Cornwall is offering to be a pilot area, if the Government wish.

Let me turn to the proposed planning use class change, which the Liberal Democrats have long argued should apply to all non-permanent occupancy residences. In other words, second homes and holiday lets should all be within one category, because we believe that the impact is the same on local communities, and therefore the change should apply not only to holiday lets but to second homes.

I hope that the new C5 use class for short-term rentals, which was announced by the previous Government, will be looked at with care, particularly the fact that it appears to fall under permitted development rights. In other words, local authorities specifically have to apply an article 4 direction to avoid a situation where someone converting a property to a holiday let simply announces it to the local authority and does not need to seek permission. I hope that the Minister will look at that issue. In the Liberal Democrats’ view, we also need to look at a sunset clause on those permissions; otherwise, there will be a perverse incentive for all of us to seek planning permission for that use class change in order to get a market advantage or an inflated price within the market. There should be a sunset clause, relating to the end of that usage, ownership or change within the Land Registry.

In conclusion, I will simply say that this is a very important issue in areas such as Cornwall and the Isles of Scilly, and—as we can see from today’s debate—in many other parts of the country. A suite of policies and changes need to be addressed by the Government, and many of us across all parties would be keen to work with them to ensure that the balance is absolutely right, and that local housing need is given the highest priority of all.

It is a pleasure to serve under your chairship, Sir Christopher, and it is a pleasure to respond to such an excellent speech by the hon. Member for St Ives (Andrew George). This is our first opportunity to work together because I was elected after his sabbatical commenced, and I am very much looking forward to working with him in the spirit with which he ended his speech. I know that there is a lot of interest in this area; I have spoken to my hon. Friends the Members for Camborne and Redruth (Perran Moon) and for Truro and Falmouth (Jayne Kirkham) a lot over the years about this, and I know that there is cross-party interest. I always think working in the spirit of Chris Mullin is a very wise idea, and I think we will work in that spirit. The hon. Member for St Ives certainly will not see any complacency from me and my colleagues. I thank other Members who have contributed to the debate, and I will try to cover the points raised as I go.

From what the hon. Member for St Ives said, as well as the previous debate raised by my hon. Friend the Member for Cities of London and Westminster (Rachel Blake), it is clear that having a high concentration of second homes and/or short-term lets brings significant challenges to those communities—indeed, they may be the biggest challenge, as my hon. Friend the Member for Camborne and Redruth said. Therefore, they are passionately advocating for effective regulation. I hope this is seen as a virtue, not least because we are a new Government, but those who follow the debates on this issue will know that we are actively considering the best course of action to help local authorities. I will talk about some of the things we are doing now, in the spirit of wanting to ensure that we go further.

I have not read the debate from 24 years ago. I confess to colleagues that as well as watching TV on a Saturday night, I will read old debates; I love the old transcripts. It is amazing to see how some debates evolve, and there is also always excellent content that perhaps one could pass off as their own, certainly if they went back far enough to not be detected—not that I would ever do that, of course, Sir Christopher.

This issue bumps up against a housing crisis with years of low house building, and rising interest rates that have made home ownership unattainable for many people. It is a core mission of this Government to address that challenge. The issue is more acute in places such as Cornwall and the Isles of Scilly and other coastal, rural and urban communities, where it is exacerbated by the proliferation of second homes and short-term lets. Cornwall and the Isles of Scilly are undoubtedly some of the most beautiful areas not just in the country but in the world, and are therefore popular choices for tourists. However, that has real consequences for local residents—whether it is high prices relative to earnings, people being pushed out of the choice of home ownership or having to leave their community, a stretched private rented sector with significant pressure on local economies, families and communities, or steadily growing housing waiting lists.

The hon. Member for Chelmsford (Marie Goldman) talked about the self-defeating cycle. During the passage of the Levelling-up and Regeneration Act 2023, her colleague, the hon. Member for Westmorland and Lonsdale (Tim Farron), spoke thoughtfully and passionately about the challenge of people going to a beautiful community for a week or weekend, and then going to the pub and not being able to get food because the chef has nowhere to live. These things will eventually impact the quality of the offering and therefore perhaps its attractiveness.

This issue is a problem in many places, but even within places like North Norfolk, there is not even distribution. We have an overall figure of one in 10 homes being second homes, but some villages suffer up to 50%, which has an impact on temporary accommodation for the homeless. Does the Minister accept not just the circumstances but the urgency of the need for these measures?

Yes, that is right, not least because once we get to that tipping point, the consequences can be profound and rapid. Of course we need action today, and I will speak about that.

One of the many important things that the hon. Member for St Ives said was that this is not about envy; he made a good point about balance. What his community and colleagues’ communities are asking for is a recognition of balance. They want to have a thriving tourist sector, but they need to be a place where people can live and where the consequences of those who make significant profits are shared fairly. It is about finding that balance and we have not got there yet, which relates to his point.

I want to talk about some of the issues and housing demand itself.

I just want to re-emphasise that many people who own second homes in Cornwall make a significant contribution to the local community, and indeed a financial contribution, because they recognise the impact of their privilege. As I say, this is not about envy, and a lot of those who own second and holiday homes are conscious of the impact.

That is an excellently made point. I always wonder which of these debates attract people watching online; I suspect this might be one of them, and I hope that people have heard that message. We are talking about finding that fair balance, but I am sure we all agree that we have not found it yet.

Although we can all agree that the politics of envy need not play into this discussion, and that we need a proper licensing regime for holiday lets as the furnished holiday lets tax regime ends, does the Minister also agree that we ought to ensure that the homes coming out of that regime do not end up flying under the radar, and in some cases operating unsafely? We need also to look at mitigation or transitional arrangements for that industry to ensure that bona fide holiday businesses in the sector can continue to operate and we do not produce the opposite effect from what is intended with these reforms.

That is a thoughtful, well-made point. We must make sure that we have thought things through so that there are not unintended consequences, which could cause significant harm.

I will come to the furnished holiday lettings regime, but I want first to talk about the register, because the hon. Member for St Ives made his kind offer of help from Cornwall. I will certainly raise that with colleagues. The lack of data and the limitations on what the data can tell us can create challenges. We need that registration scheme. The Department for Culture, Media and Sport is leading on that, but we are working with it on the process. The Department is working at pace to operationalise the scheme as soon as possible, but it is important first to ensure that it works. To update colleagues, it is currently in the initial phase of digital development, and that is enabling us to test and refine possible options for design and delivery. We know there is eagerness and we will update the House again as soon as possible, but that kind offer has been heard by me and officials.

It is sad to make a debate about beautiful parts of the world about tax, but I am afraid that tax is an important part of this. We have committed to end the furnished holiday lettings tax regime from April next year, which I think will be welcomed. Doing so will take away certain advantages that incentivise short-term, rather than long-term, letting; that is the right thing to do. As the hon. Member for St Ives said, the premium of up to 100% on second homes will come in from next April. It is a discretionary power, but I think local authorities will be keen to use it. The hon. Gentleman talked about going further; he might have to let us have a go with the scheme as it is first before we do that, but we are mindful that the premium is up to 300% in Wales, so we will consider the impact of that. That money can be spent on local services, to address the hon. Gentleman’s point.

We are conscious that colleagues in this place and beyond still think we could go further, and we are looking at the tax treatment and keeping it under review. We will consider the additional powers that local authorities may need, but given that we have novel powers in this space, it is handy to for them to be used.

Will the Minister give way?

Briefly, because we are running out of time.

Does the Minister agree that the issue of second homes and holiday homes in Cornwall and the Isles of Scilly is not uniformly faced across the entire south-west, and that the role of the local authority in dealing with this issue, if they have the powers to do so, is absolutely key?

Yes, that is very much my world view. Colleagues will see from my time in the Department that my emphasis is on getting the right powers and resources to communities to use in the way in which they know will work best, because colleagues in this room are experts on Cornwall in a way that I am not. I see my responsibility as giving them the tools.

On the concern regarding attempts to game the heightened council tax payment, the system includes criteria on the number of days that the property has been let out for holidays, and we will monitor, and are mindful of, the functioning of those criteria.

The hon. Member for St Ives also asked about small business rate relief. He would not, in the spirit of our new working relationship, want the Chancellor to smite me just seven days before a fiscal event, so I am afraid he will have to wait. He also mentioned people being removed from their homes so that the property can be let out. That is why I am sure we will get significant cross-party support for the Renters’ Rights Bill, particularly for ending section 21, or no-fault, evictions. Finding that balance and giving renters that protection is important everywhere and clearly in his community.

We must also increase supply. The Government have made significant commitments by which we will be measured: on the building of new homes, on unblocking stalled housing, and on building new towns in the fullness of time. We want this country to be a place where people can own their home if they wish and where they do not have to leave their community to do so. I appeal for colleagues to work with their local authority, as I am sure they will, on their local plans to ensure that those plans are thoughtful, sensitive and written with an understanding of the community.

This is an exceptionally important issue, which is changing the character of, and creating challenges in, some of the most beautiful parts of our country and indeed the world. The Government want to work with those communities to find the right balance—that has been the theme of this debate. I have mentioned some of the things we are doing already, and we are committed to working with the hon. Member for St Ives and colleagues across this House.