Residential Market Outlook: Week Beginning 13 July
The pandemic has provided the opportunity to view stamp duty through the prism of economics not politics, says Tom Bill
3 minutes to read
The Chancellor announced a nine-month stamp duty holiday last week, which will provide welcome financial relief for millions of people.
The temporary lifting of the tax-free rate to £500,000 also raises several interesting questions.
First, is there a paradox at the heart of Rishi Sunak’s decision?
If a stamp duty holiday is designed to help kick-start the economy, is that not a tacit acceptance of its flaws as a tax?
We recently analysed the benefit to the wider economy of moving house and the VAT collected from spending in shops and on renovation work runs into billions of pounds every year.
One of the reasons behind the slowdown in transactions over the last five years is the ever-changing tax landscape, alongside affordability pressures and political volatility.
But hasn’t the biggest impact been in high-value markets and London? While this is true, it raises a second fascinating question.
Was the Chancellor looking at the property market through the prism of economics rather than politics last week? It appeared so, which would be a welcome change.
As the government treads a new and delicate economic path, are we moving further away from taxes that attempt to atone for the global financial crisis?
With such an intense focus on the nation’s finances, are the stakes now too high for economically self-defeating measures?
Wealth taxes have been suggested as one way to help pay for the government’s response to the pandemic and the same question arises. Most people would accept that the wealthy should pay a fair share of tax. They probably also accept that taxes should not be set at a level that drives wealth away.
Stamp duty was a lever that became too easy for UK politicians to pull. You can’t remove politics from tax policy but you can recognise when you are distorting the property market and having an impact on people’s biggest financial asset.
You also need to know when to stop. Covid-19 may prove to be a timely reminder that if you tax an activity enough you get less of it, an economic concept bluntly illustrated by the Laffer curve.
We are now in a position where the two central London boroughs of Westminster and Kensington & Chelsea provide as much stamp duty revenue as the counties of Buckinghamshire, Hampshire, Kent and Hertfordshire combined, none of which are known for low house prices. That doesn’t feel like a particularly sophisticated approach.
Regular changes to stamp duty also distort the property market. What will happen at the end of the holiday? You know how inactive you feel after two weeks on the beach, and the property market could prove equally lethargic in Q2 next year, particularly with a stamp duty hike for overseas buyers scheduled for April.
One solution frequently cited is to reform council tax, where a regular flow of revenue replaces an erratic one.
It is a tough undertaking and raises questions about local and central tax collection, but now feels like the right moment to tackle it.