In March, stamp duty was hiked to 7 per cent for people buying property over £2m in their name, and to 15 per cent for companies. There was no prior consultation or detailed analysis, and the measures failed to take into account that added complexity could increase tax avoidance.
New data – published for the third quarter of 2012 by the Land Registry – reveals that there has been a staggering 53 per cent decrease in Greater London property sales between £2m and £5m compared with this time last year. This indicates an instant loss of £25m to the Exchequer. In the boroughs of Westminster and Kensington and Chelsea, sales slumped by 9 per cent.
But property investment does not just generate profits for property owners. In central London, half of the properties in the private sector are bought for rental investment rather than owner occupation. Known as the “private rented sector”, this not only stimulates significant tax revenues, it actively fuels economic growth. It has been estimated that, for every central London property bought for rental, a further 20 per cent of its value is spent on other services. This brings employment to lawyers, accountants, architects, builders, and so on.
In July, the Treasury was warned to expect a 10 per cent drop in demand for central London private rented property as a result of the stamp duty hikes. The prediction seems to be coming true. It is also estimated that, if the legislation remains unchanged, by 2015 there could be a loss of over £500m to the economy. And all from a measure designed to bring in revenue to Treasury coffers.
The increased costs for landlords will result in higher rents, making London less attractive to multinationals. Corporate headquarters have global choices – many can, and will, relocate. Corporate tenants, and privately-educated foreign students in central London, contribute a large amount to the £10bn spent on shopping, education, the night time economy and tourism in the heart of the capital. International investment also makes many developments viable. It can support cash flow, and underpin the provision of public amenities and affordable housing.
Taxing the “rich” may tick the populist box, but Cable’s glib comment that it is easier to tax property because it cannot be transported to Liechtenstein completely misses the point. The government should avoid the soft target, and put its energy into effective measures that have a greater capacity to contribute to our tax revenues.
The Treasury should also realise that it would be more lucrative to capitalise on London’s unique global appeal to encourage inward investment, rather than pursuing a policy that reduces the UK’s attractiveness and global competitiveness.
Mark Field is Conservative MP for the Cities of London and Westminster.