A report published this week from the Housing, Communities and Local Government committee, made up of cross-party MPs, has been withering in its assessment of stamp duty – the tax everyone has to pay when they buy a home. The report argues that it stifles aspiration, jams up the housing market and slows down social, generational and geographical mobility. There is no choice but to get rid of it.
Many in Britain will agree with the committee’s assessment. Someone, though, who is guaranteed not to is Rachel Reeves: just last year, the Chancellor lowered the stamp duty thresholds. Now, with even her own MPs turning on her, that tax raid is spectacularly backfiring.
Stamp duty has turned into a microcosm of everything that has gone wrong with the British tax system. Rewind 40 years, and it was a relatively minor 1 per cent charge levied on all house sales. It was a rounding error, along with the legal fees and the moving van, and no one thought about it very much. In an attempt to raise more revenue and to social engineer the housing market, successive Chancellors have turned it into a bewildering mess.
Stamp duty is a microcosm of everything that has gone wrong with the British tax system
There are now five rates depending on the value of the property, going as high as 12 per cent, with surcharges on top of that if it happens to be a second home or if the buyer is a foreigner. There is also a discount for first-time buyers, meaning there are effectively eight rates of the tax. In central London, stamp duty bills can top £100,000.
As the MPs’ report argued, it is now making the housing market – which was hardly operating perfectly to start with – completely dysfunctional. Older owners are trapped in houses that are too big for them. First time buyers can’t afford to buy their first home. Foreign investors are deterred from investing in Britain. And people can’t afford to move around the country for their work.
And yet, instead of reforming stamp duty, Reeves doubled down on it. In her last Budget, the Chancellor lowered the threshold at which it kicks in from £250,000 to £125,000, and from £425,000 to £300,000 for first-time buyers. She assumed, as she always does when she puts up taxes, that more money would roll into the Treasury. It hasn’t worked out like that.
In the first four months of this year, the tax raised only £4.3 billion, down 6 per cent on the same period last year, even though rates are now higher. With the housing market stagnating, this amount is likely to fall even further.
If Reeves were a genuinely bold, decisive Chancellor, she would recognise that the system was collapsing under its own complexity. She would sweep away all the different rates of stamp duty and go back to the old 1 per cent rate. It would be far simpler for everyone, and if it revived the housing market, it might even raise almost as much revenue. Whether Reeves listens to the recommendation of her MPs, though, is another matter entirely.
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