Re­form stamp duty to get the coun­try mov­ing

The Bud­get was a missed op­por­tu­nity to lift the tax con­straints and so­cial costs re­duc­ing home own­er­ship

The Sunday Telegraph - - Letters to the editor - GREG HANDS Greg Hands is MP for Chelsea & Ful­ham and a for­mer chief sec­re­tary to the Trea­sury.

The Sun­day Tele­graph’s “Cam­paign for Cap­i­tal­ism” is break­ing new ground on mak­ing the case for the free mar­ket and free trade. One part of that is to in­crease own­er­ship of as­sets, which in­cludes home own­er­ship. This week’s Bud­get was a missed op­por­tu­nity to ad­vance new re­forms in stamp duty. Back in 2014, Ge­orge Os­borne did make some im­por­tant changes. Un­der the old “slab” sys­tem, the buyer of a prop­erty worth £250,001 paid three times as much as a prop­erty worth a pound less. It was re­placed with a more pro­gres­sive “slice” sys­tem, which was sim­pler and more eq­ui­table, and had the po­lit­i­cal at­trac­tion of mak­ing 90per cent of prop­er­ties cheaper.

Later re­forms de­signed to help first-time buy­ers have also been in­tro­duced, and this Bud­get cut stamp duty on shared own­er­ship prop­er­ties, all of which is wel­come. Nev­er­the­less, puni­tive rates on prop­er­ties above

£937,500 have led to a sharp de­cline in the num­ber of trans­ac­tions. Few politi­cians want to ad­vo­cate lower tax on £1mil­lion homes, but, as this coun­try learnt in the Seven­ties, when Labour in­tro­duced in­come tax rates of 98per cent, puni­tive rates mean lower rev­enue, which means less money for pub­lic ser­vices. As one es­tate agent in my con­stituency told me: “Stamp duty is easy to avoid: just stay put.”

Ac­cord­ing to the Of­fice for Bud­get Re­spon­si­bil­ity’s Septem­ber com­men­tary on pub­lic fi­nances, re­ceipts for stamp duty were down 10per cent year-to-date. In their fore­cast ac­com­pa­ny­ing the Bud­get, lower prop­erty trans­ac­tions were cited as cost­ing the Trea­sury £300mil­lion a year. This was in part due to a weaker Lon­don mar­ket – where the ma­jor­ity of prop­er­ties be­ing taxed at the up­per end are lo­cated.

Stamp Duty Land Tax has so­cial costs too. Here are just five. First, it acts as a dis­in­cen­tive to down­siz­ers. Fewer homes are put on the mar­ket, mean­ing fewer homes avail­able for ex­pand­ing fam­i­lies. Half-empty homes have be­come com­mon­place. Sec­ond, it en­cour­ages an over-con­ser­va­tive ap­proach to buy­ing a home. Faced with the prospect of pay­ing years’ worth of rent on stamp duty alone, many would-be buy­ers sim­ply con­tinue to rent. It has ush­ered in a high level of cau­tion when buy­ing: if there’s a chance you might move again for a job, to start a fam­ily, or for any other rea­son – you’re bet­ter off rent­ing. Third, it is a tax on so­cial and re­gional mo­bil­ity. It may also dis­cour­age moves into more pro­duc­tive or bet­ter-paid jobs if it in­volves re­lo­ca­tion. Sim­ply put, it is a tax on so­cial mo­bil­ity. It places a premium on mov­ing up in the world.

Fourth, de­spite the sys­tem be­ing de­signed to help first-time over sec­ond-home buy­ers, it fre­quently works out cheaper to buy a sec­ond home in a less ex­pen­sive part of the coun­try than to pay stamp duty on a larger pri­mary res­i­dence in a more ex­pen­sive one. Imag­ine a fam­ily in my con­stituency in a three-bed­room house, ex­pect­ing a third child, and de­bat­ing the mer­its of mov­ing. A four-bed­room house would likely cost them more than £150,000 in stamp duty. That is more than the pur­chase price of the two-bed­room cot­tage I lived in as a child in Cornwall (which would at­tract only £3,600 in stamp duty, even with the new penal­ties on sec­ond-home own­er­ship). It is thus cheaper to buy more space with a sec­ond home than to get a larger main res­i­dence. Is this so­cially de­sir­able? I doubt it.

Fifth, when it’s of­ten more than 10 times cheaper to ren­o­vate than move, puni­tive rates of stamp duty en­cour­age home ex­ten­sions. These can be anti-so­cial, like base­ment ex­ca­va­tions. A source of con­tention among neigh­bours, the overde­vel­op­ment of homes also risks turn­ing many parts of the coun­try into build­ing sites. Re­turn­ing to my ex­am­ple above, build­ing a base­ment un­der a three-bed­room house in my con­stituency will likely cost less than the stamp duty on a move into a four-bed­room house. And the ex­ten­sion adds real value, not money to the tax­man. Again, we are tax in­cen­tivis­ing the wrong choices.

Fall­ing rev­enue alone now makes it in­evitable that the Trea­sury will have to take an­other look at stamp duty. Over­all home own­er­ship rates in this coun­try are fall­ing, and are now among the low­est in Europe. Stamp Duty Land Tax is a ma­jor part of this. It is time to con­sider the anti-so­cial im­pacts of this tax too and to boost again rates of home own­er­ship. Now is the time for ac­tion.

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