‘Tories must cut stamp duty to win election’

AN INCREASE in stamp duty was a mistake and must be reversed so the Tories can demonstrate that they are the party of home ownership and win the next election, an architect of the policy says today. Alex Morton, who served as a housing and planning adviser in No10 from 2013 to 2016, said cuts to stamp duty would send the “right signal” to both young and older voters.

In an article for The Daily Telegraph, he highlights the fact that the Conservatives have never won a majority in an election without a significant offer on home ownership.

He calls on Philip Hammond, the Chancellor, to cut stamp duty by 2 per cent across the board, a move which means that the average first-time buyer would not have to pay any stamp duty. His proposals would abolish the tax on homes worth up to £250,000, while bills on a £600,000 property would fall from £20,000 to £10,500 and the levy for a home worth £925,000 would drop from £36,250 to £20,250.

“There is a moral and political case for lower stamp duty. David Cameron believed, rightly, a society without mass home ownership was both unfair and prone to extremist Left-wing politics,” Mr Morton writes.

Home ownership was a strong goal towards the end of the Cameron government. You can debate whether the policies were bold enough, but given 86 per cent of people want to own, it was a sound ambition.

To help achieve this, from 2014-16 David Cameron’s administration reformed property taxes, including how stamp duty was calculated and the rates payable, creating a surcharge on buy-to-let purchases, and reforming how interest on buy-to-let was taxed. The goal was to limit rising house prices to stop falling home ownership.

And prices are now more stable. But there was one mistake. Stamp duty was cut moderately for some and increased for others. It should have been cut more comprehensively for people purchasing their home and not increased for what were already very high rates at the top.

Rates have soared – at the start of 1997 the top rate of stamp duty was just 1 per cent – while now many ordinary homes fall in a 5 per cent bracket. For the housing market to work effectively, there must be chains that people can move up and down – current taxes risk gumming these chains up. Government should aim to take most first-time buyers and some downsizers purchasing smaller properties out of the tax entirely, reduce the burden on family homes, and fix anomalies like those around the popular shared-ownership sector.

The evidence is clear that stamp duty, like all transaction taxes, reduces business. For example, ahead of the buy-to-let surcharge in March 2016, mortgages soared by 71 per cent and then collapsed 60 per cent the month after.

This was not just a short-term effect. Six months later, in December 2016, buy-to-let mortgage lending was down by nearly 40 per cent on the year before, while other mortgage lending was up. Introducing the buy-to-let surcharge cut transaction levels. The best way to boost them back again is abolishing stamp duty for home owners.

There is a moral and political case for lower stamp duty. Cameron believed, rightly, a society without mass home ownership was unfair and prone to extremist Left-wing politics.

The fairest way to reform the system would be to cut the stamp duty by

2 per cent off the current rate at each and every level of the existing scheme for residential buyers. Doing this would, for example, abolish the 2 per cent rate on homes up to £250,000, and apply a 3 per cent rate instead of 5 per cent on each £1 from £250,000 to £925,000.

The average £207,000 first-time home would be taken out of the net entirely. A £600,000 property – a family home in much of the South and other high-pressure areas – would see bills fall from £20,000 to £10,500. The bill on a £925,000 home, (which sounds high but is often the top of a chain in the South), would fall from £36,250 to a more bearable £20,250.

Thus in a proportionate and fair way it would reduce the rate on high end properties but keep them more heavily taxed than those at the bottom, yet getting that part of the market moving and generating wider chains of movement, increasing tax take through greater activity.

At the same time, an increasingly popular way to help people buy part of a property, shared ownership, needs stamp duty reform – currently, the providers of these affordable homeownership properties and their customers often pay tax twice.

There is also an opportunity to make a greater exemption for those downsizing into properties that suit their needs, potentially with a time limited exemption for those buying a retirement home.

Theresa May needs measures the vast majority of Conservatives can rally around. A stamp duty cut that partly pays for itself by boosting transactions, exempts most first-time buyers, and reduces the burden on family homes and downsizers should be backed by Tories across the party.