However, when a specific tax acts as a brake on the development of a vital industry sector, then the value it represents as a revenue source for the Treasury must be called into question.
Over the years, Dudley Building Society has been a consistent voice urging reform of stamp duty on house purchases. Now we only have to look at the jolt given to the housing market where, leaving aside the pent up demand to seek more space after the claustrophobia of lockdowns, the Chancellor’s decision to offer a stamp duty holiday acted as a considerable incentive for the market surge.
It put beyond doubt the deep loathing for a tax which, even with its allowances for first-time buyers, is and will continue to be a disincentive to purchase or move, affecting every social and economic group.
A tax on movement
In our opinion and in many others, it has become a tax on mobility, which has ramifications for everyone with ambitions to own or move for career purposes. Equally, older property owners are put off moving to smaller residences which would free up ‘frozen’ capital into the economy and release housing stock back into the system.
SDLT is now the biggest brake on social mobility at both ends of the spectrum.
Of course, the desire to own property or move up the ladder will continue even after the stamp duty land tax (SDLT) holiday is over, with senior officials at the Bank of England confident that while the market will slow down, the property market will carry on as before.
However, is the tax revenue significant enough to maintain the current status quo? Figures show that SDLT receipts in the United Kingdom amounted to approximately £8.66bn in 2020/21, compared with £11.60bn in the previous year.
Substitute taxes to make up the shortfall, such as an annual tax on property with none of the current social welfare impact of SDLT, have been talked about. Equally some form of annual local tax such as a property or land value tax would provide fiscal incentives to local authorities to release more land for residential development. However, that would be seen as an extra ‘Council Tax’, just with a different name.
The VAT gamble
Surely it is time to think laterally. With all of this activity in the market, it is worth remembering that a healthy housing market improves consumer confidence and leads to higher spending.
I have no doubt the Treasury can predict the numbers more precisely, but isn’t it more equitable to collect VAT receipts from goods people want to buy, than to collect a tax that house buyers always resent? It is already noticeable that one of the few success stories to come out of lockdown, apart from home food delivery, is the increase in spending on DIY and home improvement because of the temporary halt on stamp duty.
It will take a leap of faith to abolish SDLT and then wait to see whether VAT receipts can make up the shortfall. However, blindly following the same taxation route with SDLT will only lead to further loss of mobility and exacerbate the long term disincentives which were already growing before the SDLT holiday.