Here’s why Philip Hammond should abolish stamp duty

Looks like he’s thinking about it. Image: Getty.

When it comes to causes of the housing crisis, stamp duty land tax is far from the most important. And since it claws nearly £12bn out of primarily well-off peoples’ hands, many of those who care about housing will be content to let sleeping dogs lie, unpopularity notwithstanding.

But stamp duty does a lot more damage than it might seem – and when the housing market is so broken, it’s especially important to support any politically-achievable change that might make things a bit better.

Back in 1997 less than half of housing transactions faced stamp duty at all, and when they did, it was at a proportional 1% rate all the way up the schedule – that is, for houses worth both £50,000 and £2m (although there were next to no houses in the country worth £2m back then). Ever since then, politicians of both parties have been unable to resist ratcheting the rate up: the top rate is now 12 per cent.

It is progressive. But taxes on bicycles, using the train, and eating free range chicken would be progressive: progressivity isn’t the be-all and end-all of a particular tax, even if we want the system to be very progressive overall. There are many ways to soak the rich and if we want to do it then we should do it in a way that causes the least collateral damage to the economy at large – that is, to the rest of us.

Stamp duty is uniquely bad by this measure. The key problem is that stamp duty stops people from moving.

Housing ownership needn’t be the tenure that most people aspire to, but in practice it is. That means that, for people to live in a place they love, close to their family or friends, in range of a job they want – or indeed near that job so they don’t have to endure a hellish commute – they often need to own a house there. To own a house there, there needs to be a house there, and that’s why the most important solution to the housing crisis is building more houses. But even of the stock we have, we can use them more efficiently.

However, we do most of our property taxation specifically by taxing these moves. We barely (and regressively) tax people for occupying expensive property – or valuable land – through our ageing, ailing and increasingly preposterous council tax system. But we tax them heavily and progressively when they move.

Economists have tried to measure the effect many times, and find that even in the middle of the distribution, where tax rates are relatively modest, the impact can be large. The best research papers typically find that a 1 per centage point increase in tax rate cut property transactions in the affected range by something like 10 per cent – sometimes larger in the short run, when including re-timing to take advantage of a lower rate.

My suggestion is that the chancellor abolish it in the budget this year. Taxes don’t typically get abolished, but stamp duty isn’t a typical tax.

And there is an obvious place to get the revenue back: council tax. Council tax is regressive by design, and has become more regressive over time as property prices in certain parts of the country have soared, and yet have faced no extra tax due to already being in the top band.

This banding itself is ridiculous. New build homes are put in bands based on what they would have been worth in 1991, assuming nothing had changed. So Brixton, for example, is still assumed to be cheap and relatively run-down, and new flats in swish Oval Quarter worth hundreds of thousands of pounds are in band C, paying peanuts.

Reforming council tax so it taxed properties at around 10-15 per cent of their rental value up the scale, like if VAT was on housing services, would easily cover the cost of scrapping SDLT. It would be similarly progressive, fairer, and have none of the damaging economic disincentives to moving.

No, it wouldn’t solve the housing crisis – but none of the real solutions to the housing crisis are on the table. This move is exactly the sort of thing a Tory chancellor could and would do. And at times like these the housing market can do with all the help it can get.

Ben Southwood is head of research at the Adam Smith Institute.

 
 
 
 

There isn’t a single national housing market – so we need multiple models of local regeneration, too

Rochdale. Image: Getty.

This week’s budget comes ten years after the 2007 financial crisis. The trigger for that crisis was a loss in confidence in mortgages for homes, with banks suddenly recognising the vulnerability of loans on their books.

In the last ten years, the UK’s cities and regions have followed very different paths. This week’s focus on housing affordability is welcome, but it will be a challenge for any chancellor in the coming decade to use national policy to help towns up and down the country. Local housing markets differ drastically. The new crop of city-region mayors are recognising this, as rents in parts of south Greater Manchester are on average double the rents in parts of the north of the city-region.

When it comes to buying a home, politicians are increasingly articulate about the consequences of inequity in our housing system. But we must recognise that, for 9m citizens who live in social rented homes, the prospects of improvements to properties, common areas and grounds are usually tied to wider projects to create new housing within existing estates – sometimes involving complete demolition and rebuilding.

While the Conservative governments of the 1980s shrank the scale of direct investment in building homes for social rent, the Labour governments from the late 1990s used a sustained period of growth in property prices to champion a new model: affordable housing was to be paid for by policies which required contributions to go to housing associations. Effectively, the funding for new affordable housing and refurbished social homes was part of the profit from market housing built next door, on the same turf; a large programme of government investment also brought millions of social rented homes up to a decent standard.

This cross-subsidy model was always flawed. Most fundamentally, it relies on rising property prices – which it is neither desirable nor realistic to expect. Building more social homes became dependent on ratcheting up prices and securing more private profit. In London, we are starting to see that model come apart at the seams.

The inevitable result has been that with long social housing waiting lists and rocketing market prices, new developments have too often ended up as segregated local communities, home to both the richest and the poorest. They may live side by side, but as the RSA concluded earlier this year, investment in the social infrastructure and community development to help neighbours integrate has too often been lacking. Several regeneration schemes that soldiered on through the downturn did so by building more private homes and fewer social rented homes than existed before, or by taking advantage of more generous legal definitions of what counts as ‘affordable housing’ – or both.

A rough guide to how house prices have changed since 2007: each hexagon is a constituency. You can explore the full version at ODI Leeds.

In most of England’s cities, the story does not appear to be heading for the dramatic crescendo high court showdowns that now haunt both developers and communities in the capital. In fact, for most social housing estates in most places outside London, national government should recognise that the whole story looks very different. As austerity measures have tightened budgets for providers of social housing, budgets to refurbish ageing homes are under pressure to do more with less. With an uncertain outlook for property prices, as well as ample brownfield and greenfield housing sites, estates in many northern towns are not a priority for private investors in property development.

In many towns and cities – across the North and the Midlands – the challenges of a poor quality built environment, a poor choice of homes in the local are, and entrenched deprivation remain serious. The recent reclassification of housing associations into the private sector doesn’t make investing in repairs and renewal more profitable. The bespoke ‘housing deals’ announced show that the government is willing to invest directly – but there is anxiety that devolution to combined authorities simply creates another organisation that needs to prioritise building new homes over the renewal of existing neighbourhoods.


In Rochdale, the RSA is working with local mutual housing society RBH to plan for physical, social and economic regeneration at the same time. Importantly, we are making the case – with input from the community of residents themselves – that significant investment in improving employment for residents might itself save the public purse enough money to pay for itself in the long-run.

Lots of services are already effective at helping people find work and start a job. But for those for whom job searching feels out of reach, we are learning from Rochdale Borough Council’s pioneering work that the journey to work can only come from trusting, personal relationships. We hear time and again about the demoralising effect of benefits sanctions and penalties. We are considering an alternative provision of welfare payments, as are other authorities in the UK. Importantly, residents are identifying clearly the particular new challenges created by new forms of modern employment and the type of work available locally: this is a town where JD Sports is hiring 1000 additional workers to fulfil Black Friday orders at its warehouse.

In neighbourhoods like Rochdale’s town centre, both national government and the new devolved city-region administration are considering an approach to neighbourhood change that works for both people and place together. Redevelopment of the built environment is recognised as just one aspect of improving people’s quality of life. Residents themselves will tell you quality jobs and community facilities are their priority. But without a wider range of housing choices and neighbourhood investment locally, success in supporting residents to achieve rising incomes will mean many residents are likely to leave places like Rochdale town centre altogether.

Meaningful change happen won’t happen without patience and trust: between agencies in the public sector, between tenants and landlords, and between citizens and the leaders of cities. This applies as much to our planning system as it does to our complex skills and employment system.

Trust builds slowly and erodes quickly. As with our other projects at the RSA, we are convinced that listening and engaging citizens will improve policy-making. Most of those involved in regeneration know this better than anyone. But at the national level we need to recognise that, just as the labour market and the housing market vary dramatically from place to place, there isn’t a single national story which represents how communities feel about local regeneration.

Jonathan Schifferes is interim Director, Public Services and Communities, at the Royal Society for the encouragement of Arts, Manufactures and Commerce (RSA).