The stamp duty holiday is working — actually really, really well.
So, of course, the government plans to reverse it shortly.
Governments tax things either to raise money to spend, or to discourage you from doing them.
Income tax and national insurance raise more than 40 per cent of all the annual £825bn tax revenue. VAT is next at 16 per cent. These taxes are hard to avoid, unless you choose to be unemployed or don’t spend money. They are there to raise money.
The tax on plastic bags, in contrast, raises about £70m a year. That’s about 0.008 per cent of the tax total, and it’s given to charity anyway. But the tax isn’t intended as a cash generator, it’s about changing behaviour. It has succeeded in reducing the use of new plastic bags by about 90 per cent. Even though we are only talking about 10p, people make a conscious effort to avoid the tax.
Stamp duty on residential property transactions raised £8.4bn in the last tax year. That’s about one per cent of all the tax take. Like the tax on plastic bags, it’s really easy to avoid: just don’t move. Unlike the tax on plastic bags, it involves writing out a really significant cheque to HMRC: up to 12 per cent of the value of the property.
People have, of course, chosen to avoid the tax by moving a lot less.
Strangely, this seemed to come as a surprise to Her Majesty’s Treasury. After the last big hikes in stamp duty in 2016, Treasury analysts forecast that the revenue raised would rise substantially. It hasn’t.
In fact, new OECD research shows that the UK has the highest burden of property taxes in the world. It is doubtful that Boris Johnson will be shouting about this piece of world-beating information.
But that was pre-pandemic. As part of its efforts to kickstart the economy over the summer, the government introduced a stamp duty holiday up to £500,000 to help get the housing market going. It has worked really well. Indeed, the government itself announced in autumn that “the stamp duty holiday continues to help hundreds of thousands of jobs after a further 21.3 per cent boost in September”.
In the footnotes to this announcement was an amazing statistic: “In 2019, expenditure on home-move related items was around five per cent of total consumption (ONS National Accounts data).”
That’s huge — and it means that the 21.3 per cent increase in residential property transitions from the summer adds a whole one per cent to total UK economic consumption.
When people move, it generates other economic activity. Moving house involves estate agents, solicitors, surveyors, local authority searches, removals, new carpets, painters and decorators, new furniture, plants — the list goes on. That equates to jobs for people, and tax for the government.
In short, it is beneficial for the whole economy if people are encouraged to move more often, rather than staying put to avoid stamp duty.
Sadly, the stamp duty holiday is due to end on 31 March. The government should change course and keep going with it. This could be the first part of what might finally look like an integrated housing policy, something that this country has been crying out for, for decades.
Because there is also a social cost to a tax that discourages property transactions. People need to feel free to move, not be taxed to move. Move for more space when they start a family; move to be nearer work and reduce their commute; downsize rather than under-use the old family home — these moves are beneficial for society.
Of course, we need to build more homes too — and they need to be the right sort of homes in the right places. Given the tax on moving, often the temptation for households is to add more rooms to an existing property. But generally, houses are built to the limit designed for. When you can add on two extra storeys, is the existing structure really able to take it? Or are we just building the next big problem for ourselves? Far better, surely, to enable people who have outgrown their home to move to one better suited to them.
Up until now, stamp duty has been gumming up the housing market. The consequences are so much broader than just looking at the tax take of stamp duty itself: it’s about jobs and social mobility too, and the overall economic benefit.
So here is my plea to the Treasury: stick with what you’ve done and keep the stamp duty holiday. It’s a rare ray of sunshine to come out of the pandemic.
Main image credit: Getty