ednesday’s autumn statement will be the first test of new chancellor Philip Hammond. Will he, as Theresa May promised in her speech on becoming prime minister, “make Britain a country that works for everyone”. Or will he listen instead to a vociferous campaign on the front pages of the Daily Telegraph, demanding tax cuts for people who can afford to buy £1m houses?
The nub of the Telegraph campaign is that stamp duty charges for homebuyers are too high. They label it a “punitive tax” which has resulted in a fall in house sales and a painful cut in income for removal firms and home renovators, indirectly resulting in the loss of 14,000 jobs. What’s more, it contends that the Exchequer has received £370m less in stamp duty than it expected when George Osborne upped the rates.
As for the impact on the amount of tax brought into HMRC’s coffers, figures from September show that outside London, the new rates reduced the amount collected on home sales. HMRC said the number of transactions increased across all regions, but in parts of the country stamp duty receipts fell by up to 21%.
So what explains the burning anger over the issue? There’s one place where stamp duty really has soared: London. In particular, those parts of London with fancy property prices and where £1m-plus sales are not uncommon. Maybe the sorts of places where newspaper bosses live.
The new stamp duty regime rises steeply on higher-priced properties. A buyer of a £400,000 home must pay £10,000 in tax, an effective rate of 2.5%. On an £800,000 property it is £30,000, or 3.8%. Once we get to £1m the stamp duty is £43,750, or 4.4%.
There were 1,950 fewer sales in the £1m-plus bracket after the higher rates were introduced. But the idea that home renovators have lost out is fatuous. It is obvious to anyone living in London that stamp duty has driven an explosion in loft extensions. Rather than hand £50,000 to HMRC, families are opting to build in the loft instead.
When Osborne raised stamp duty, his prime objective was increasing revenue – and all of the increase has come from the capital. London buyers paid £3.4bn of the total £7.2bn collected in England (Scotland operates a different regime). But even in London the average house price is a long way short of £1m. It is £488,000 (ONS), which means the average stamp duty charge is £14,400, or 3%. That’s a lot, but French and Spanish homebuyers would regard it as a bargain.
Osborne’s secondary reason for increasing stamp duty was to dampen the housing market. When he made the announcement, the market was at its frothiest in the capital. Today the richest parts of London are enjoying a flat, if not falling, market. On that measure, the stamp duty hike has worked.
Hammond has a choice: he can do a deal for the homebuyers of Mayfair, or he can do something for middle England instead.