A former 10 Downing Street adviser says stamp duty on house sales should be scrapped or at least slashed in order to reinvigorate the market and encourage improved housing mobility.
Alex Morton - now head of policy at the right-wing Centre for Policy Studies and formerly an adviser to David Cameron as Prime Minister - says stamp duty currently raises £5.1 billion in England, but eliminating it on 90 per cent of properties valued below £500,000 and cutting it sharply above that would cost just £1.6 billion a year due on balance.
He claims that stamp duty is one of the most unpopular taxes in the country, second only to inheritance tax, and that in 22 years it has risen from a maximum of just one per cent to up to 12 per cent for the most expensive homes.
Morton says this is “hugely damaging, acting as a handbrake on the housing market and raising decreasing amounts of revenue in the process.”
He says a one per cent cut in stamp duty rates increases housing transactions by around 20% per cent, and would indirectly lead to more house building as developers respond to market incentives and the fact that more people are in the market to buy new homes.
Morton’s paper for the CPS advocates a system in which rates are broadly returned to the level in 2005 – with the stamp duty threshold raised to £500,000, then a four per cent levy on the value above that up to £1m and a five per cent levy on anything higher.
This would only be payable on amounts above these thresholds - so a £600,000 home would only pay four per cent on the £100,000 above £500,000, for example.
The impacts of such major stamp duty cuts would mean that a £3.7 billion cost a year would be just £1.6 billion a year once these direct impacts were taken into account.
If transactions were returned to their historic level through other reforms, the boost from stamp duty on top of this would be even higher, to the point where raising the stamp duty threshold could be nearly cost-neutral if accompanied by a three per cent surcharge on properties purchased by non-resident overseas buyers – that is, as investments rather than homes to live in.
The report warns, however, against raising stamp duty rates on buy to let or commercial property, which are already close to the point where they become counterproductive and risk boosting one part of the market at the cost of shutting down others.
However, it argues any cuts should focus only on primary residences given the current state of the public finances.
Morton believes that his reform package would exclude 90 per cent of homes from stamp duty completely, and provide a saving of at least £15,000 to every other homebuyer – galvanising a housing market in which, he claims, over- and under-occupation of homes has become a huge problem in large part due to the friction imposed by stamp duty.
“While the Treasury are right to be fiscally focused, they need to take into account the fact that stamp duty on homes has an impact on transactions, which means cutting this tax is cheaper than expected.
“We propose mean a far more appropriate rate for the most valuable homes – and taking nine out of 10 people who just want to buy a decent home for themselves and their family out of the tax altogether.”