Scrap stamp duty to boost economy, experts urge
Damage done by the tax is ‘almost as bad as setting fire to the money’ claims Adam Smith Institute
PHILIP HAMMOND should scrap stamp duty because it would give the British economy a £10billion boost and address the “gumming up” of the housing market, a report has recommended.
The Adam Smith Institute warned the tax is putting people off moving to new jobs and keeps homebuyers living in houses that are too big for their needs.
The institute claimed such is the damage done by stamp duty that it is “almost as bad as setting fire to the money instead of raising it in tax” and that it should be “consigned to the dustbin of history”.
The Daily Telegraph is campaigning to remove stamp duty amid fears it is stifling the housing market and the Adam Smith Institute joins ministers and peers in calling on the Chancellor to take action on the issue when he delivers his Budget on Nov 22.
The think tank’s demand came as the Institute for Fiscal Studies (IFS) claimed Mr Hammond was trapped “between a rock and a hard place” as he wrestles with balancing the books and political pressure to boost spending on public services.
Meanwhile, the Government was urged by the UK 2020 think tank to scrap all interest on student loans to avoid a future debt crisis.
The Treasury has faced calls to cut stamp duty “as a matter of urgency” amid concerns that it is impacting the economy and creating social problems by preventing families from moving.
The Adam Smith Institute’s report argues that abolishing the levy, dubbed a “tax on moving” by critics, should be at the top of Mr Hammond’s Budget list.
Sam Bowman, the institute’s executive director, said: “Stamp duty is the worst tax we’ve got, almost as bad as setting fire to the money instead of raising it in tax.
“The reason is that Britain’s productivity problem is in large part a mobility problem. People cannot move to where the best jobs for them are because the houses aren’t being built, and that’s made even worse by stamp duty keeping older people in family homes that are too large for them.
“Stamp duty is gumming up the housing market and keeping people trapped in the jobs that aren’t best for them, and scrapping it should be a nobrainer for a government looking for a bold, affordable way to take back control of the agenda in British politics.”
Ben Southwood, the head of research at the institute and author of the report, said that scrapping stamp duty would be both “eye-catching and good economic sense”.
The report claims that a stamp dutystyle tax in Australia cost the country 75p in lost economic growth and productivity for every £1 raised.
That means the tax may be damaging the UK economy to the tune of as much as £10 billion because British people fork out an estimated £12 billion on stamp duty every year, according to the think tank.
The report suggests that the cost of abolishing stamp duty could be covered by increasing the council tax bills levied on the most expensive properties in the country.
It came as analysis carried out by the IFS suggested the Chancellor has little room for manoeuvre with the Budget now less than a month away.
It suggests Mr Hammond will likely have to choose between keeping to his commitment to balance the public finances by the middle of the next decade and acting on demands to make more money available for public services.
Carl Emmerson, deputy director at the IFS, said: “Public sector workers, the NHS, the prison service, schools and working-age benefit recipients, among others, would like more money.
“Even if Mr Hammond does find some, unless it did represent a very big change of direction, it won’t mean ‘the end of austerity’.
“Tight spending settlements, net tax rises and cuts to working-age benefits are all putting significant downward pressure on borrowing over the next two years in particular.
“Given all the current pressures and uncertainties it is perhaps time to admit that a firm commitment to running a budget surplus from the mid 2020s onwards is no longer sensible.”
Meanwhile, UK 2020 argued in a new report that the Government should remove all past and future student loan interest and abandon the 30-year debt write-off guarantee so that graduates would have to keep paying their loans until they reach retirement age.
The report argues the move would leave graduates better off because many do not earn enough to cover the interest on their loans which typically stands at about six per cent a year and would boost the amount paid back.