Responding to a new report from the Fairer Share campaign group and WPI economics, Lord Willetts said the cost of housing was holding back the younger generation, and reforming taxes could free up housing stock.
He said: “The cost of housing is holding back the younger generation. We need to get more housing onto the market for them. A Proportional Property Tax is key to this.
"It would replace council tax which has become increasingly regressive and is particularly hard on young people.”
The report proposed to replace stamp duty and council tax with a new annual charge on all homes, levied at a flat rate of 0.48 per cent.
The campaign group, which has been campaigning on the matter for some time, believes the removal of stamp duty on a permanent basis would lead to more than 600,000 extra homes over the next five years.
Some of these would come from more people being willing to downsize from their existing property which, they said, would free up more properties for first time buyers.
Lord Willets, who is the current president of the Resolution Foundation think tank, said he endorses the findings of the report.
As David Willetts he served as minister for universities from 2010 to 2014. He was the MP for Havant from 1992 to 2015. He also served as a minister in the Conservative governments of the mid 1990s.
According to the report, the revenue of the Proportional Property Tax would be split between the national and local governments, with 0.32 per cent going to the latter. Local authorities will be able to increase their portion of the charge.
But Ray Boulger, senior mortgage technical manager at brokerage John Charcol, said he doesn’t believe stamp duty is a significant impediment for people looking to downsize, as the cost of stamp duty is likely to be a small part of the total consideration.
He added a reduction in stamp duty overall may pay for itself by generating more economic activity.
Time for change?
According to analysis of HMRC receipts by Coventry Building Society the Treasury has received £12.3bn in stamp duty revenue from the beginning of the stamp duty holiday in July 2020 to August 2021.
Stamp duty was temporarily cut from July 2020 to support the housing market during the coronavirus pandemic.
The break meant stamp duty was not payable on the first £500,000 of a house purchase. But from June 30 the nil rate band has been tapered back to £250,000 and will return to the standard amount of £125,000 on October 1, 2021.
Stamp Duty receipts for August were £910m, taking the total receipts for the first eight months of the year to £7.6bn. By comparison, stamp duty receipts for 2020 were £8.6bn (£5.2bn Jan-Aug 2020) and for 2019 they were £11.7bn (£7.4bn Jan-Aug 2019).
Jonathan Stinton, head of intermediary relationships at Coventry Building Society, said: “Stamp duty has continued to be a very lucrative source of income for the taxman, even with a large proportion of property purchases being exempt from it for over a year.
"Clearly, there’s still a very healthy market for higher value homes, second homes and rental properties.
“The size of those bills and the number of people paying them will only increase once the holiday ends in full on 30 September.
He added: “With the Budget just a few weeks after the holiday ends, it could be the right time to look at a higher stamp duty threshold to ease the burden from average home owners, which wouldn’t make much of a dent in revenue for HMRC.”
The Budget is scheduled for October 27.
david.thorpe@ft.com
