The government has dismissed warnings from the House of Lords that a stamp duty shake up is needed to revamp the housing market and increase intergenerational fairness in the UK.
In its response to the Lords select committee’s recommendations, published yesterday (July 23), it stated it had already introduced stamp duty reforms in both 2014 and 2017 and kept “all taxes under review” so would “carefully consider further changes ahead of future fiscal events”.
The government claimed its 2014 reform — which meant the tax was only payable on the portion of the property value which falls within each rate band rather than tax being due at one rate on the entire property value — had cut the cost for 98 per cent buyers.
It added it had also helped first-time buyers get on the housing ladder with reforms announced in the 2017 Autumn budget.
These changes meant first-time buyers were exempt from stamp duty on properties worth up to £300,000 while those purchasing properties between £300,000 and £500,000 would save £5,000.
But the report from the House of Lords select committee on intergenerational fairness and provision, out earlier this year (April 25), told the government that stamp duty still “seriously distorted the housing market”.
In its conclusion, the committee said politicians should “consider how stamp duty could be reformed to improve the housing choices and availability for young families”.
During the committee’s time analysing the effect of stamp duty, it reported its witnesses were almost unanimous in support of reforming the tax due to its negative impact on the liquidity of the property market.
For example, Lord Forsyth, chair of the House of Lords economic affairs committee, told the committee that stamp duty had brought some sections of the housing market to a complete stop in London and that decreasing stamp duty was vital to reduce the burden for those downsizing.
Other witnesses, such as Paul Johnson, director of the Institute for Fiscal Studies, told the committee that governments liked stamp duty because it was easier to collect [than council tax], despite the problems it caused.
Mr Johnson said the result of taxing transactions (which stamp duty does) was a decrease in transactions and that housing was misallocated between people and generations.
Both Christian Hilber, professor of economic geography at LSE, and Rory Meakin, research fellow at the TaxPayers’ Alliance, thought stamp duty hindered some from downsizing and meant larger family homes were generally unavailable in the market.
But John Glen MP, economic secretary to the Treasury and City minister, told the committee stamp duty was “not an important lever on all purchase decisions” and “did not have much effect on people’s decision to downsize”.
The Lords concluded that while there were many factors that affected an individual’s decision to downsize or upsize their property, it didn’t make sense to have a tax on transactions that introduced large amounts of friction into the housing market during a perceived housing crisis.