I’ve often thought that if stamp duty land tax didn’t exist, those within industry/economic/regulatory/political circles would have to make it up, simply because of the all-encompassing debate it generates. To my mind, there has never been a time when stamp duty wasn’t up for discussion, even more so over the last decade or so when successive Chancellors and governments have been increasingly willing to either tinker with it, or subject it to some considerable changes.
Parking the issue of whether it’s a help or hindrance to the housing market – I think most would agree on the latter – and not wishing to discuss some of the fundamental reforms that have been pitched, namely moving it on to the seller, just what is it about stamp duty that gets so many people’s goat, and means it is constantly on the agenda come Budgets/Autumn Statements and the like?
The first point to make is that from a Treasury coffers perspective, stamp duty remains a ‘nice little earner’ as Arthur Daley might have put it. The most recent figures for 2017 show the Treasury raked in over £1bn per month in stamp duty revenue, with a record yearly haul of £13bn being collected. That’s 13% more than 2016, and a huge 95% increase on 2012. It’s perhaps no wonder that in an austerity-focused world, the government has only wanted to cut it slightly in certain areas, while increasing it considerably in others, namely the 3% extra charge for purchasing ‘additional properties’.
For all the focus on reforming stamp duty, it’s obvious that the government is very much reliant on this taxation in order to boost its overall budget. It also appears to show that last year’s cutting of stamp duty for first-time buyers for properties under £300k was little more than a sop to the market. Indeed, in the great scheme of things, and I appreciate it is still early days, most of the early data suggests it will have little (or indeed no) impact on getting more first-timers onto the housing ladder.
How can that really be the case? Well, it’s quite simple. Stamp duty does not have a material impact on people’s ability to purchase a first home – instead it’s all about saving for the deposit, finding an affordable home, securing a mortgage, and the finding of a thousand or so pounds for stamp duty does not really make a difference. In essence, the stamp duty cut is a ‘nice to have’ but it’s in no way essential and pales into insignificant when you assess the far bigger challenges facing those wanting to buy for the first time today.
And yet, on the flip side of all this, current stamp duty thresholds do require reform because, as we’re seeing in higher-price brackets, the charges here do have a material impact on people buying, and thus there is a knock-on effect in terms of the number of housing transactions, which will eventually filter down into a negative impact on the stamp duty take the government pulls in. If it’s going to cost you £10k/£20k/£30k on top of all other moving costs, then you’re going to think long and hard about taking the plunge.
I’m not so sure if the full consequences of the current stamp duty thresholds have truly been appreciated, and let’s be fair, while the take continues at record levels there’s little motivation for government to change it further. However, as time does tick by, and transaction levels do fall – we’ve already seen a major drop-off in buy-to-let purchasing – then this is going to need a fuller, wider, and perhaps more radical appraisal.
My own feeling is that politicians won’t actually commit to this at all – in fact they’ll probably up the charges in order to compensate for fewer transactions, not actually realising that this will lead to fewer transactions still, and the whole downward spiral will continue. And yet, somewhere in all of this there is a solution that would suit both sides of the argument – that is, there is a stamp duty system that could both incentivise those seeking to purchase/move up the ladder, whilst at the same delivering the kind of revenue the government so desperately needs.
The problem is that this type of solution cannot be stand-alone; instead it is inextricably tied up with the supply of homes, the accessibility of mortgage finance, wage inflation, job security, the post-Brexit economy, and all other manner of issues, but one would hope that drawing a line through all of that would get us to a suitable compromise. Unfortunately, while it brings in the type of revenue we’re seeing I suspect the only changes the government will want to bring in, are of the ‘tinkering at the margins’ variety. This could well be storing up significant issues for the future but by then it might be someone else’s problem to deal with.
Richard Adams is managing director of Stonebridge Group