We are all aware of the issues surrounding property in the UK. According to the Resolution Foundation, as many as one third of millennials will be renting from cradle to grave. This is a serious problem that no party has ever really got to grips with.
When Labour were in Government, house building was one of the fewer policy areas that didn’t get much attention. All of the attention was on reforming public services, especially post-2001, rather than on housing.
Under the Conservative’s we have seen the introduction of initiatives aimed at helping people get onto the housing ladder. These include Help To Buy and the Lifetime ISA. However, we need to go further to improve the housing market.
The Government announced that Stamp Duty would be eliminated for first-time buyers in the 2017 Autumn Budget. I would urge the Government to go further and scrap Stamp Duty for all buyers of owner-occupied property.
From this Institute for Fiscal Studies report, we know that four per cent of owner-occupiers aged 50 or above moved over a two-year period. If we take out institutional moves, this figure drops significantly.
What Stamp Duty is doing is clogging up the housing market and leading to inefficiencies. New families are struggling to move out of their starter home to a family home, which makes it harder for first-time buyers to find a starter home that is affordable.
This inefficiency occurs all the way up the housing ladder and age ranges, and it can be solved in part by scrapping Stamp Duty for owner-occupiers. Whilst the supply of housing is still the biggest issue, Stamp Duty is stopping the existing housing stock being used efficiently.
According to Knight Frank, Stamp Duty brings in around £9 billion for the Treasury, which is not a small amount when the Government is looking at raising £20 billion in taxes for the NHS. However, Stamp Duty is an incredibly damaging transaction tax, so even though it raises £9 billion, it also slows economic growth.
The reason it slows economic growth is because people are not able to move as freely as they would like. This means that businesses may not be able to access the labour that they need, and those in the labour market may not be able to access the best employment opportunities.
We should urge the Government to go further than just scrapping Stamp Duty for first-time buyers. We need to allow businesses and workers to get the best deal possible by reducing barriers. This will provide a much needed boost to an economy that grew by a pitiful 0.2 per cent in Q1 2018.
* Collingwood is a Liberal Democrat member in London who is known to the editorial team.
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14 Comments
Any reduction in stamp duty will just be eaten up by a rise in house prices, I actually favour a small sales tax in addition to stamp duty just to bring some fairness into the housing market whilst not complicating things by using Land Value Tax.
It is now possible to market a property via the online estate agencies for as little as £249, a huge saving in commission. Competition is forcing down lawyer’s fees though a huge chunk of that is payments for searches etc. Probably the biggest hurdle is that deals can fall through right up to the moment of exchanging contracts, unless you like in Scotland.
Stamp Duty is an apalling tax and should be completely abolished. (I’d include all property; if you want to tax landlords do it through other means than a transaction tax).
We should replace it with some form of consumption tax, taxing the use of property rather than the purchase of it. One form this could take would be a Land Value Tax. I set out another approach in section III of https://centreforum.org/live/wp-content/uploads/2015/11/moving-beyond-mansion-tax.pdf. (The two are not mutually exclusive, tbf).
One other thought:
“one third of millennials will be renting from cradle to grave”
Worth remembering that prior to 1980 it was the policy of both the Conservatives and Labour Parties that one third of all households would rent, from councils.
As a Millennial myself (though I don’t like the term especially, it is often used pejoratively) I think there are serious questions on housing that are skipped over because they are difficult to deal with.
Britain is a comparatively small country with high immigration and high population growth. This is even more pronounced in London and the south east, where I’m from. Massive housebuilding is out of the question due to efforts to conserve green spaces. There are only so many brownfield sites available. One answer is to build upwards, but i can’t realistically see a huge stock of new housing becoming available in the next twenty years. People are going to have to get used to renting and sharing apartments with increasingly poor value-for-money. That is the world I and my friends live in.
The Mirrlees review in 2011 is widely regarded as the most authoritative source on the UK tax system. On stamp duty land tax the review concluded:
“in the modern era of broadly based taxation, the case for maintaining stamp duty is very weak indeed…transactions taxes are particularly inefficient: by discouraging mutually beneficial transactions, stamp duty ensures that properties are not held by the people who value them most. It creates a disincentive for people to move house, thereby leading to potential inflexibilities in the labour market and encouraging people to live (and businesses to operate) in properties of a size and in a location that they may well not otherwise have chosen.
There is no sound case for maintaining stamp duty and we believe that it should be abolished. Simply removing it would create windfall gains for existing owners, as it will largely have been capitalized into property values; so a reasonable quid pro quo for its abolition is that a similar level of revenue should be raised from other, more sensible, property taxes. If stamp duty were phased out while our proposed new land value tax and housing services tax were being brought in, then those losing most through the latter change would be among those gaining most as a result of the former. Revenue
neutrality would at least ensure no windfall gains or losses on average.
New build accounts for less than 1% of the housing stock. 99% of conveyances will involve the purchase of an existing property, greatly inhibited by SDLT.
The case for a land value tax to replace these kinds of disincentives to trading down and mobility in overwhelming and acknowledged by economists time and time again.
I don’t know about Stamp Duty, but there are two huge factors limiting people’s ability to move.
1. is the gap in price between first-time buy properties and the ‘second step’ on the ladder.
Eg. average price for a flat in Bristol is £243k. Want to move up to a semi and you’ll need £339k.
2. is regional differences. Average price for a semi in this corner of Wales is £150k. Wouldn’t buy much more than a garden shed in Bristol.
We also need to sort out the legal processes of moving. They’re ludicrously complex and stressful…
Surely the Liberal thing to do is to increase personal freedom by removing fixed costs of renting or owning a property so that people are freed up from the modern slavery of working for a living, so out goes standing charges from the energy companies and council tax, both would be immensely popular with the voters rather that ending up with a garbled tabloid message of taxing people’s gardens.
A load of gibberish about exchanging stamp duty revenue for Land Value revenue – people won’t be saved from paying stamp duty unless they actually move… someone will pop up and say they won’t have to pay Land Value tax if they can’t afford it, will be rolled over so then you end up with millions of people being means-tested to see if they qualify. Shades of Corbyn’s well paid million new jobs for people who won’t be doing anything remotely useful.
Something that noone’s ever properly explained to me is why it’s such a problem that people may end up renting from cradle to grave.
That’s not to say it isn’t – but a clearer articulation of the actual issues might give greater clarity on the policy responses. Eg
– End up without an asset to their name/pensions are inadequate to continue cover cost of renting (maybe the solution is pension/saving reform)
– Poor conditions of rented properties (different solution may be regulation/licensing of landlords and/or incentives for them to provide different types of tenure and properties aimed at people in different stages of life)
– lack of security (solutions may be as above)
I’m not saying those are the only issues or solutions – but that without that sort of clear articulation of the problem we might miss something achievable that might make a difference, rather than swimming against the tide of change.
(PS- I’m very much in favour of increasing the liquidity of the housing market and making it easier to move as described above, as I think it would help with lots of problems such as the changing, flexible nature of work and life patterns, open up owning as an option to more people etc. And it might help with the renting problem too – though it might just encourage buy to let even more if it causes prices to fall….)
I don’t understand the obsession of British people to own property. What is wrong with renting? Particularly young people, with the freedom of taking up jobs and opportunities wherever the find them. Wouldn’t be better to concentrate on making sure renting properties are of high standard, and give some form of security to tenants?
If it became less financially advantageous to own property, then it would free investment for more useful purposes, make renting a more equal choice for more people and improve the mobility of our population with many benefits.
@Rebecca Hanson “We also need to sort out the legal processes of moving. They’re ludicrously complex and stressful…”
I found the legal process of moving straightforward, however the practical side of packing up a house, moving a young family, settling in, sorting all the monthly bills and change of address notifications…
We need to sort out the building of high cost homes. They seem to be not in great need, as quite a few in Bath, are ending up in the rented homes sector. Obviously, beyond affordable for many as with the buying of homes.
In other countries renting is the norm. So with the likelihood of many not being able to afford to buy, or rent these homes, how is the building of homes planned? I think a good question. It’s more viewed, build here, high cost homes, not are they required and is it the best option? Nice are, good views.
Interestingly (to me anyway) what we are calling here “stamp duty” (Stamp Duty Land Tax – SDLT) is devolved to the Scottish Parliament in Scotland where it is called Land and Buildings Transaction tax (LBTT). LBTT is broadly similar to SDLT but with some differences and different tax bands.
Could there be scope for trying something in Scotland? while there are regional variations within Scotland (Edinburgh and pre-oil crash Aberdeen being the most expensive places) they are not so pronounced as those between London and the rest of England.
As with all devolved matters, any policy decision would be one for the Scottish Party.
In general, taxes should be shifted more on the non competitive, unproductive areas of the economy, so on property, land, inheritance and what used to be called unearned income. Then the money can be generated to incentivise the productive and competitive areas. On science, R&D, re-shoring work from Asia, encouraging exports, whole of life training, boosting infrastructure, productivity, green technology and the regions.