ALEX BRUMMER: Stamp duty hike on Britain’s most expensive homes has been an un-mitigated disaster
By pushing up stamp duty on the most expensive homes, the Tory effort to calm the surge in house prices and raise money for the Exchequer has failed spectacularly.
Instead of providing a new stream of income, as former Chancellor George Osborne hoped when he introduced the measure in 2014, it has led to a slump in transactions and deprived the Government of much needed resources.
And significantly it has created a huge blockage in the housing market, particularly in London and the South-East, preventing the strivers – highlighted by Philip Hammond in his feel-good budget – from climbing the housing ladder.
Figures from the Office for Budget Responsibility, released with Monday’s Budget, show how raising the tax on house sales is a huge drag on the public finances and economy. In the current financial year, the stamp duty income is forecast to fall from £13.6bn in 2017 to £12.8bn as home sales have collapsed.
Indeed, with stamp duty on the most expensive homes so prohibitively costly, the Treasury’s revenue on home deals is predicted to decline in each of the next five years. Another £1bn of receipts is set to go missing in 2019-20 alone.
Former Chancellor George Osborne hoped when he introduced stamp duty hike in 2014 it would increase income streams but instead it led to a slump in transactions
Yet in spite of the appalling impact of higher stamp duty on the sale of homes for more than £937,000 – which starts at an eye-watering ten per cent of the sale – it has become a tax which the Government is scared to lower or abolish.
Downing Street fears that meddling with the iniquitous charges imposed on higher price homes will open a new line of attack from Labour, which is seeking to paint the Conservatives as supporters only of the rich and privileged.
The Osborne stamp duty change flies in the face of a basic economic truth embraced by Mrs Thatcher’s great reforming Chancellors, the late Geoffrey Howe and Nigel Lawson.
Both were avid believers in a well-proven economic theory which says that when marginal tax rates are too high, revenues will subside.
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To be fair to Osborne, he recognised this when he scythed Labour’s top rate of income tax from 50 per cent to 45 per cent – a policy which the current Labour leadership is perversely threatening to reverse.
A study by the Treasury found that far from cutting revenues, the reduction in the top rate of income tax actually encouraged tax-avoiders back into the system and proved to be an incentive for highly skilled individuals to stay in the UK rather than seek work in low-tax countries.
This effect has been seen even more dramatically as a result of the cut in corporation tax, which is the main levy paid by companies on their profits.
Corporation tax stood at a hefty 28 per cent when the Coalition came to office and has since been cut to 19 per cent, with an intention to lower it to 17 per cent in future years.
The cut in the tax rate has led to an enormous £18.5billion jump in revenues as a result of investment in Britain by overseas firms and the fact that British-based companies no longer engage to the same extent in tax-avoiding strategies.
Strivers, who were highlighted by Philip Hammond in his feel-good budget, have been prevented from climbing the housing ladder, especially in London and the South East
The higher stamp duties, which have seen the cost of buying a £1.5m home jump from £18,750 to £93,750 and to £153,750 on a £2million home, have proved pernicious.
Taxes at this level have brought the upper-end of the housing market to a shuddering halt. That might be seen as a good thing in a market where some regard prices as over-inflated.
What it means, however, is families aspiring to a bigger home have found it cheaper to extend where they live.
As a result, people in starter homes or apartments below this level cannot move up the scale and an iniquitous deadlock has been created because of a perverse interference in a free market. The result is a moribund housing market and a gaping great hole in tax revenues.
There is also an impact on the nation’s output. House purchases are the biggest outlay for most of Middle Britain. When people buy new homes they also seek new kitchen equipment, soft furnishings, sofas, beds and much else – driving consumption, the service economy and manufacturing.
The high rate of stamp duty on more expensive homes has been an unmitigated disaster. Philip Hammond should stand up to the Left-wing bullies – and abolish it before it does even more damage to the nation’s prosperity.
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