Alistair Darling’s refusal to rule out a change to the stamp duty rules yesterday wasn’t quite an open confession, but it’s the next best thing. The Chancellor said he was considering a range of options to boost the ailing economy, rumoured to include a suspension of stamp duty for buyers in the lowest band. But since this brings in £1.4bn a year in tax revenue, that’s going to be an expensive business – and lots of people appear to think it’s a bad idea anyway...
The smart money appears to be on the Government allowing those in the lowest stamp duty band – properties valued between £125,000 and £250,000, which account for the majority of sales – to defer their 1% payment for a fixed period of time (probably a year). We have absolutely no idea how this would work in practice, given that the duty is normally levied as the sale goes through (and we’re betting Darling doesn’t either), but the theory is that this will encourage more people to buy houses and get the market moving again.
Darling does have a precedent for this – in the last recession of the early 1990s, the Conservative Government brought in a nine-month stamp duty ‘holiday’ to try and get people buying again. On the other hand, the Tory move didn’t have much effect on house prices – and we’re not convinced this will either. For a start, the problems in the housing market are as much to do with financing as confidence – if borrowers can’t get a mortgage at a decent rate, stamp duty is neither here nor there.
Besides, the payment would only be deferred, not cancelled – so it doesn’t really change the long-term affordability of houses. Surely the logic is flawed: wouldn’t it be more sensible in the long run to allow prices to fall to more sensible levels (in relation to income), making it easier for people to get on the ladder – rather than attempt to re-inflate a housing bubble that arguably should have been punctured a lot sooner?
Then there’s the effect on government finances. Whatever you might think about stamp duty in principle (and many feel that charging 4% for any house worth over £500,000, for no discernable benefit, is nothing short of outrageous), it’s raked in over £30bn for the government over the last ten years. At a time when the public coffers are running desperately low, is this really a good time to kill a cash cow like that?
And surely the most likely short-term consequence of yesterday’s speculation will be that anyone with half a brain will steer clear of buying a house until Darling comes clean on his plans – so the immediate effect will probably be that the housing market grinds to a halt completely. As gestures go, this doesn’t seem very sensible, Darling...
In today's bulletin:
More drama at ITV as profits slide
Can we really afford to cut stamp duty?
Company pension schemes lurch into the red
The true cost of the minimum wage
Pushy salespeople: a dying breed?