We first called for stamp duty to be abolished as far back as 2012. Five years down the line, it seems that Britain is ready to have a conversation about the future of stamp duty land tax – one of the most inefficient, pernicious and unfair taxes on the books.
We already knew that stamp duty raises less than 2 per cent of total revenue. We already knew that it falls disproportionately on London and the South East, which provide over 60 per cent of the government’s annual stamp duty haul. We already knew that it punishes young families looking to get on the housing ladder with an extortionate raid on their hard-earned savings. And we already knew that it was unpopular – a YouGov poll from two years ago found that just 21 per cent of respondents thought that the tax was ‘fair’.
And now researchers from the London School of Economics and the VATT Institute for Economic Research have shown that stamp duty also has a deeply damaging effect on the efficiency of asset allocation in the housing market, which causes welfare losses elsewhere in the economy.
It was discovered that the tax reduces household mobility by almost a third. This means pensioners are less able to move out of their larger homes (particularly in the areas most affected by the tax). This pushes up the prices of such homes for young people looking to start or grow families. This means many young families raising children in accommodation that is too small, and older people unable to downsize, freeing up large properties for subsequent generations.
But the harm is not confined to the housing market. The study has also found that stamp duty may prevent job seekers moving to better-paid, more-productive jobs, causing an overall efficiency loss. With Britain struggling with chronic low productivity, it is more important than ever the government does all it can to encourage economic growth.
It is true that George Osborne’s reforms in 2014 were a welcome step in the right direction. The so-called ‘slab’ rate – where you pay the rate you qualify for on the entire amount paid and not, like with income tax, on the amount between thresholds – was even more onerous than the current ‘slice’ system.
But as this latest research shows, it is simply not enough. The housing crisis is a key challenge for the government and will require bold measures and definite steps towards encouraging downsizing. We’ve tried tinkering and it did not work – the Stamp Duty Land Tax must be abolished.