Why property taxation is in urgent need of reform – CML

According to Jamei, Stamp Duty, in reality, has had the opposite effect of filling the tax coffers, as a sufficient number of prospective buyers have been put off moving home by the high upfront cost involved.

Instead, many opted for alternatives, such as building an extension to the house they already owned, he said.

In a blog post on the CML website on 8 December he wrote: “Successive Budgets and Autumn Statements have revised down forecasts for Stamp Duty receipts because property transactions have been subdued.

“Now, that’s not to say that Stamp Duty is the only factor affecting activity levels. Economic conditions, the availability of mortgage credit, house-building and house price inflation all affect transactions, too.

“But, to give an idea of the scale of these downward revisions, Stamp Duty was predicted in December 2014 to bring in £19.5bn a year in revenue by 2019-20, more than double the revenue at the time the forecast was made.”

In its latest set of forecasts, published in November 2016, the Office for Budget Responsibility (OBR) said it expected £14.3bn in annual revenue form the tax in 2019-20. This amounts to a total shortfall of about £19bn over the period, Jamei said.

This was despite the 3% surcharge on second homes introduced in April 2016, which helped boost receipts by 75% compared to what was originally expected, he said.

Social consequences

For Jamei the time for fundamental reform of property taxation has come. Not least because a subdued property market has social as well as economic consequences, he said.

“Young people find it harder to buy their first home; those in the middle struggle to trade up; and elderly people find it harder to move to homes more suited to their needs, or to unlock their housing wealth,” he said.

And there is the impact on the wider economy. Low rates of mobility among the workforce, where workers can’t move to where the jobs are, can have a negative effect on economic growth. Overall, the negative effect of low transactions “should not be underestimated,” Jamei said.

Failed reform

There has already been an attempt by the government at reforming Stamp Duty in late 2014, when flat-rates were replaced by marginal ones.

But although the then Chancellor George Osborne predicted 98% of homeowners in England and Wales would pay less after the changes than they did under the old system, in reality the reform had little impact on the housing market, Jamei argued.

“It effectively smoothed out pinch points in the old system but provided buyers with only a small saving,” he said.

Jamei concluded: “While there have been numerous policies on the supply of housing, there have been no major discussions of the taxation of housing in my lifetime, apart from the Mirrlees review. So, it begs the question: are we approaching a time when more fundamental reform of property taxation is needed?”