IMF urges Chancellor to scrap stamp duty
Britain cannot compete with US firepower but the country must break out of its low-growth trap
THE International Monetary Fund (IMF) has urged Jeremy Hunt to scrap stamp duty as it warned that the tax was clogging up the housing market and stopping people from switching jobs.
The IMF said the Chancellor should consider a move away from “transaction taxes which constrain housing and labour mobility”. Instead of a property sales tax, it suggested adopting a new levy based on the value of a property.
It came as the organisation admitted it was wrong to predict a recession in the UK this year, upgrading its growth forecasts for the second time in as many months.
The British economy is now expected to grow 0.4pc this year, the IMF said. This is in contrast to a 0.3pc contraction projected just last month, which itself was an upgrade from an even more dour forecast made in the wake of October’s mini-budget.
Rishi Sunak accused the IMF of being too gloomy. “UK growth has been systematically underestimated for many years,” the Prime Minister said. “What is the record since 2010? The record is that we’ve grown just the same as Germany, faster than France, Italy and Japan, and only behind the US and Canada.”
The upgrade means Britain is no longer predicted to be the worstperforming major economy this year.
The IMF’S call to abolish stamp duty comes amid signs that the tax is holding back the economy by making it too expensive for people to move and take new jobs elsewhere in the country.
Back in 1988, a typical homeowner moved house every nine years, according to Zoopla. In the first six months of last year, the gap was 21 years.
‘Stabilising things after the naive fiscal radicalism of Liz Truss was the easy part’
Jeremy Hunt, the Chancellor, may be something of a bête noire on the Tory Right these days, but he seems to have won plenty of fans among the world’s international policy elite.
According to the International Monetary Fund (IMF), his performance in stabilising the ship, and embarking on economically desirable but politically not particularly popular structural reform, has been exemplary.
If he had written the script himself, the plaudits from the IMF’S affably mannered managing director, Kristalina Georgieva – when delivering the fund’s “Article IV” assessment of the British economy this week – could not have been more fulsome.
After the way in which the IMF contributed to the knifing of Hunt’s predecessor, Kwasi Kwarteng – his tax-cutting mini-budget was condemned by the fund as fiscally ill-advised and likely to increase inequality – there was much bridge rebuilding with the UK to be done. Georgieva did not disappoint.
The Government had taken “decisive and positive” steps to reverse the damage inflicted by last autumn’s mini-budget, she gushed, and she strongly endorsed a number of Hunt’s reforms, particularly those concerning child care and full expensing of capital investment.
For the second time in just six months, the IMF has revised up its growth forecast for the UK, whose trajectory now looks rather better than that of Germany. So much for being bottom of the G7 class. The dunce’s hat now belongs to someone else.
In any case, Hunt was heartily congratulated on rising above “the political fray”, and on his determination to put the interests of the economy above the “politically easy” path of tax cuts.
So full marks to the Treasury for pulling the wool over the IMF’S eyes. Such high praise is rare; many months must have been spent convincing the fund that Britain is not the doomed catastrophe of imagination repeatedly trotted out in The New York Times.
Unfortunately, none of this is of any consolation to the large number of Tory MPS expected, barring miracles, to lose their seats in next year’s general election. The Sunak strategy is that management competence will eventually bring him votes. The IMF’S blessing is an important milestone in establishing such a reputation.
But it’s a slender hope, and actually remarkably reminiscent of the dying years of the John Major government, when the Tory party, amid a sea of sleaze and damning ministerial irregularity, was tearing itself apart over Europe even as the economy and the public finances were being quietly put back together again, just in time for Tony Blair’s New Labour to move in and take all the credit – only later to squander it anew. As someone remarked at the time, the economic lawn had been left perfectly manicured for an incoming Opposition. That’s all too likely to be Sunak and Hunt’s fate too. Voters expect competent government, but winning an election requires something more.
As it is, the IMF has assumed a trend rate of growth for Britain going forward of just 1.5pc. If this seems paltry, it is in fact a relatively generous view. Many economists think it is likely to be even worse.
Ever since the financial crisis 15 years ago, Britain has struggled to show meaningful growth, with living standards scarcely rising at all. It’s hard to see what might change this dispiriting disposition.
By coincidence, the IMF is set to deliver its assessment of another G7 economy later this week – the United States. The difference is chalk and cheese. While the UK has floundered, the US has stormed ahead.
Some of the reasons for America’s success are obvious enough. The US is a vast and hugely dynamic internal market in its own right; it doesn’t need the rest of the world, still less Europe, to be successful. There’s no shortage of ambition, or of seed-corn and scale-up capital to feed its prodigious entrepreneurial output, and there is a long, bipartisan tradition of generally pro-business policy.
High wages, meanwhile, act as a powerful magnet for international talent, such that the brightest and the best almost invariably seem to end up in the American orbit. This in turn allows the US to remain at the forefront of technological innovation, with major corporations of increasingly global reach.
More recently, the fracking revolution has delivered energy self-sufficiency. This has left the US somewhat behind on green investment, but now it’s playing catch-up as only the US can, with more than a trillion dollars of subsidies and tax breaks, which are progressively vacuuming up much of the available pool of global investment. An industrial renaissance is promised.
The politics can admittedly make even our own look relatively well anchored by comparison. Witness the potentially deadly game of chicken over raising the debt ceiling being played out on Capitol Hill. But in the end, the rumbustious nature of it all somehow seems to work like no other.
Britain cannot hope to compete with this sort of firepower. It is simply not big enough. But it can and must break out of its low-growth trap.
I doubt the IMF’S somewhat worthy and overly cautious list of apple pie and motherhood policy suggestions is capable of doing this. Stabilising things after the naive fiscal radicalism of Liz Truss was the easy part. Getting the economy back onto a decent growth trajectory is something else entirely.
The last time we saw such growth, and a significant closing of the productivity gap with other major advanced economies, was ironically under New Labour. Yet that success was also something of a mirage, which owed much to the explosive growth of the City and the candyfloss sugar rush of credit-fuelled consumption.
When asked why UK growth repeatedly outpaced that of the eurozone, Jean-claude Trichet, then president of the European Central Bank, would dismissively say that growth was easy if entirely based on unsustainable consumption. To be durable, you also needed investment, and in this department the UK was somewhat lacking. He was right.
Britain’s abiding investment deficit remains far and away its biggest economic challenge. We simply don’t invest enough to deliver the rising productivity that policy-makers aspire to. Until we do, we’ll be forever stuck in the slow lane, with no way out.
Hunt is beginning to do some of the right things, but it is a huge and intractable problem for which there are no short-term fixes. Throw off the shackles of unnecessary regulation and all the other barriers to wealth creation and risk-taking that imprison the business community by all means, but it is going to take a long time to deliver. Unfortunately for Sunak, time is a luxury he doesn’t have.