I was delighted by the Party’s renewed commitment to lower taxes, as outlined by George Osborne at Conference. A great deal of attention has been given to his extremely welcome announcements on lifting the burden of inheritance tax (IHT). It impact was confirmed by Labour’s botched attempt to hurriedly copy it the next week.
Less attention was given to the other important tax announcement by George Osborne – the ending of Stamp Duty Land Tax (SDLT) on house purchases of up to £250,000 by first-time buyers. The two announcements balanced each other – the one on IHT for those families who have worked hard for decades and want to hand more of it over to the next generation, and the one on SDLT for aspirational wealth-creaters of the future.
George Osborne was smart in recognising that all taxes are unpopular, but taxes on behaviour that most of us want to actually encourage are the least popular of all. Savings and the passing on of private property are something the tax system should encourage, not tax. Home ownership is something we all used to give tax relief for, in the form of MIRAS, and needs to be encouraged again by the Conservatives, at a time when Labour’s only solution in housing is to build more social housing for rent.
More needs to be done, however, on Stamp Duty Land Tax. In much of London and the South East, where the house price crunch hits hardest, there are relatively few properties valued at under £250,000. We also need to be careful on a definition of a “first-time buyer,” which I do not believe is currently defined in any tax code or legislation. We would need to be careful that we do not encourage wealthier couples to set up separately to each try to profit from the exemption.
Reform is needed to SDLT further up the scale too. This is something I spoke about in my Budget speech earlier this year. http://www.publications.parliament.uk/pa/cm200607/cmhansrd/cm070326/debtext/70326-0014.htm#07032631000380
The stamp duty yield from residential property throughout the UK has gone up sevenfold under Labour, from £675 million in 1996-97, to £4.6 billion in the last financial year. Five times as much of that tax is raised from London as from Scotland, and 16 times as much in London as from the whole of the north-east.
The yield from all stamp duties is projected to rise from £10.9 billion last year to £14.3 billion in 2007-08. The impact of stamp duty on mobility in London is severe and leads to a number of effects that other MPs frequently remark on in their constituencies – namely it is cheaper for a growing family to buy a second home in a low-priced area of the country with zero SDLT than it is to upgrade in ones own local area and pay 4% on the full consideration of the sale price of the new home.
Before the big increases in SDLT under Gordon Brown, families used to move within my constituency when they wanted more space because of, for example, an expanding family, or even just a better-paid job. Now, the move from a two-bedroom house, perhaps costing £450,000, to a £600,000 three-bedroom house will cost £24,000 in SDLT alone, plus the extra £150,000 difference between the two sale prices.
An argument might be made that those buying and selling simultaneously should pay stamp duty on the difference between the prices of the two homes, as long as they are below a certain level and there is a minimum fee. In my view, that idea should be explored. It would be rather like capital gains tax, which is paid only on an increase in asset price. It might be said to discriminate against first-time buyers who, by definition, have no property to sell, and we do need to take further measures to help first-time buyers, but I believe that the proposal would have an impact on the supply of homes to the market, in London and Southern England in particular, which would have a huge knock-on benefit for first-time buyers. It would also encourage people, mainly retired, who wanted to trade down the size of their home, because they would end up paying no stamp duty and would thereby free up a family-sized home for another buyer.
It is great to see the Conservatives setting the agenda on tax. More needs to be done, but George Osborne’s proposals outline how we can start to both reduce taxes and encourage more saving and more home ownership.