Usually, political policy announcements are trailed well in advance, there are few surprises. So, the announcement this week that a Conservative government would abolish Stamp Duty was an exception, and a most welcome surprise.
Stamp Duty Land Tax is paid when you purchase a property or land. First-time-buyers pay a zero rate on a home purchase up to £300,000. Everyone else would pay 2% up t £125,000, 5% between £125,000 and £925,000, 10% between £925,000 and £1.5 million and 12% on anything over £1.5 Million . Non-UK residents would pay 2% more. Given the way that house prises have risen, the tax can amount to very substantial sums on relatively modest properties. Even at £250,000, if you weren’t a first-time-buyer, the purchase would set you back £2,500 in tax, adding to all your other costs of moving home.
Home ownership provides a stake in a stable society, but in the UK it has been in decline. The average first-time home buyer is now 34 years-old, which is an increase of 10 years over generation.
Almost all economists agree that stamp duty is a distorts the housing market and prevents it working effectively. The institute for Fiscal Studies has dubbed it ‘the most damaging tax’.
Young people are often trapped in rental accommodation because the tax at the higher end of the market deters sales, discouraging older homeowners from downsizing from family homes that no longer suit them, whilst younger families can’t find larger properties that suit their growing needs. This inefficient market reduces labour mobility because the shortages are a deterrent to moving in pursuit of better employment prospects.
The abolition of the tax on a main residence will therefore improve productivity by addressing one of the principal impediments to an efficient and mobile labour market.
The abolition, however, will deny the Treasury some £9 billion annually if it were to be implemented at the beginning of the next Parliament. This sum will have to be had from elsewhere: there is no such thing as a free housing market, anymore than there is such a thing as a free lunch.
The Conservative Party has identified £47 billion from savings, almost half of which will be had from the benefits budget. Inevitably, there will be much scrutiny over the coming months about how deliverable these savings are. Nevertheless, they are essential – not just to fund the reform of Stamp Duty; they are vital for our economic survival in an increasingly competitive world. We just can’t go on spending and borrowing as we have been.
Hopefully, the announcement may also put some political pressure on the Chancellor regarding whatever shocks she may have been planning for Stamp Duty in next month’s budget.
Sir Desmond Swayne TD
