Raising the roof: cuts in stamp duty should be permanent

by Joe Ventre, digital campaign manager at the TaxPayers’ Alliance


This crisis has confirmed many home truths. Always wash your hands. You can always trust the government to waste money. When the chips are down, don’t expect nanny state quangocrats to know what they’re doing. There’s no such thing as a free lunch. It’s also cemented the fact that nothing gets the market moving again like a tax cut. 


As the nation weathered the crisis, many sectors took a battering. One of those was the housing market, as HMRC stats reveal. Once lockdown had begun, residential property transactions were 39 per cent lower than  the start of the year, and 45 per cent lower than in April-May-June last year. Total stamp duty receipts were down 41 per cent, or 43 per cent lower than in Q2 2019, all mainly due to the impacts of coronavirus. 


With the housing market so integral to the economy, ministers knew they had to act. So while they turned to superfluous statist solutions for everything from jobs (the Kickstart Scheme) to the hospitality industry (Eat Out to Help Out), housing got the traditional tax-cutting treatment. The chancellor announced in July that he would raise the stamp duty (SDLT) threshold temporarily to £500,000. 


And what an effect it’s had. Prices quickly jumped, with Halifax reporting an increase of 5.2 per cent in the year to August, to an average of £245,747. Data from property portal Rightmove found that demand for housing was sharply up across the UK, by 61 per cent compared with last year. The rise in demand was highest in the East and South-east of England, where property tends to be more expensive. The cut undoubtedly got the market moving again. 


For the TPA, this was welcome validation indeed. We have long campaigned to cut SDLT, with our 2013 campaign to Stamp Out Stamp Duty grabbing national attention. At the time, we pointed out that the tax was almost universally unpopular with economists, bunging up the market and preventing hundreds of thousands of people from moving home. All of which, of course, is true today. In November last year, we calculated that shifting the threshold to £1 million, to ensure only the wealthiest paid, would see a one-off unlock of an estimated 220,000 homes, equivalent to a 31 per cent increase. That’s the equivalent to the housing stock of Manchester, Liverpool or Bristol, by the way. The chancellor’s £500,000 boost was less impactful - only unlocking moves equivalent to the housing stock of Wiltshire or Bradford - but you don’t always get what you want. 


The question now is what happens next? As many commentators have pointed out, this mini-boom won’t last forever. Rishi has used his nitro boost, but eventually the car will have to slow down. Experts anticipate prices falling next year, as the recession (and unemployment) catch up with housing demand. The market may drive straight into the wall of one of the worst recessions we have ever experienced. 


That’s why the government needs to be bold. The SDLT cut got housing transactions going gangbusters - but why do ministers seem convinced the same can’t happen for other sectors of the economy? 


The truth is that tax cuts work wonders. That’s why we proposed a unified series of measures to get the economy moving again. To tackle unemployment, what about abolishing employers’ National Insurance to cut the average firm’s wage bill by alost 40 per cent and encourage them to retain staff? To get investment moving, what about raising the annual investment and abolishing capital gains tax, which could grow the economy by up to 3 per cent? And if we’re worried about the housing market slowing down, why not raise the threshold further and make it permanent? That would raise transactions permanently by around 19 per cent, or 135,000 each year


The stamp duty boost is not a reason to stay away from tax cuts - quite the opposite. Despite some positive signs, the economy is teetering on the brink. When the Jobs Retention Scheme, and other measures, rightly come to an end, we’ll all be rudely awakened to the damage this crisis has wrought on our livelihoods and finances. In the upcoming Budget, we’ll need bold tax cuts more than ever. If Rishi Sunak understands that, it’ll be his chance to stamp his name on history. 

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