Stamp Duty Land Tax

Dominic Raab Excerpts

Thursday 4th December 2014 Commons Chamber

[Mr Dominic Raab (Esher and Walton) (Con)]

It is a pleasure, as always, to follow my hon. Friend the Member for Nuneaton (Mr Jones), who made a range of important points in typically common-sense language.

I, like others, welcome the Chancellor’s autumn statement. Like business rates reform, which is another aspect I wholeheartedly welcome, a major overhaul of stamp duty is long overdue. I pay tribute to my hon. Friend the Member for St Albans (Mrs Main), who has conducted a tenacious campaign for major substantive reform of stamp duty. If the experience of our hon. Friend the Member for Harlow (Robert Halfon) is anything to go by, she will shortly be elevated to a senior rank. I am sure she will be thrilled by that.

I am delighted that the Chancellor is taking action against what was one of Labour’s most arbitrary stealth taxes. The way it operated was a pretty vindictive assault on aspirational low and middle-income savers. The point has been made that, economically, a well functioning housing market should enable people to engage in mutually beneficial transactions, and make efficient use of housing stock. That is extremely important. A family in a small house should be able to move to a larger one, if they need to do so because of a growing family or if someone is earning more following a promotion. Older couples should be free to downsize when they want, not least to free up cash for other needs. Stamp duty has been a poorly designed tax that has undercut social mobility upwards and downwards.

In my constituency, we have felt that burden disproportionately. Of course, there are many families living in Elmbridge who are on very high incomes, but that does not mean that across the board it is some kind of land of milk and honey. For many of the residents whom I come across, their home is a nest egg built up after many years of saving. They may be asset-rich but income-poor. They may want to downsize to release cash for income or even the costs of care. Stamp duty has had a totally arbitrary impact on them. We also have a problem with key workers, who are vital for the delivery of local public services. They find it unaffordable to live locally and stamp duty has exacerbated that problem.

Above all, we have a wide range and large number of middle-income families, working hard, saving and facing very high cost of living pressures, and affordable housing is a major factor. As of the second quarter of last year, the median house price in Elmbridge was £445,000. That price has almost certainly risen substantially since then, but it does not buy a mansion. I can say that as someone who lives in my constituency. Typically that price would buy a two-bedroom home, which under the old regime would land the buyer with a massive stamp duty bill of over £13,000. According to the most recent market data, a family in a small home looking to buy a larger one would be left facing a bill of £13,000 or more for the average two-bedroom property, and £23,000 or more for the average three-bedroom home.

The cumulative bill is staggering. In 2012-13 my constituents paid £56 million to the Exchequer in stamp duty on residential property, which is more than the total paid in the whole of the north-east of England and a third of the figure for the whole of Scotland. Of course, Esher and Walton is just one area, and there are obviously geographic differences in incomes as well as house prices, but they do not necessarily match up, and they certainly do not tally neatly or consistently in my constituency. Elmbridge is just one example of stamp duty’s geographical unevenness. London accounted for 41% of residential stamp duty in 2012-13, and the south-east of England accounted for a further 22%. England as a whole accounted for 94% of UK stamp duty. It therefore has a very particular geographical burden, and it is not filtered according to income.

Stamp duty is not an economically efficient tax, as we have heard time and again. Stamp duty on residential property distorts the whole structure of the housing market. In particular, the slab structure, under which the relevant rates apply to the full sale price, not just the part above the relevant threshold, has created huge cliff edges, as we have heard this afternoon. It is worth dwelling on the impact of the slab structure. I think that the Chancellor made the point exceptionally well yesterday. A £1 increase in the price of a home, from £249,999 to £250,000, triggers an extra £5,000 tax liability. That cliff edge has been shown to be harmful to home owners and would-be buyers. It is worth remembering that stamp duty is a tax on transactions, so it impacts on the purchaser and the seller.

Property experts London Central Portfolio, together with the Cass business school, have put together an analysis that estimates that close to 14,000 home owners a year are forced to reduce the asking price for their home in order to get under a stamp duty threshold. Other would-be sellers are either unable or unwilling to reduce their prices to below the nearest threshold. That causes bottlenecks in the market and a drought of available properties in certain price ranges in certain areas, which is very harmful to the market and has important social as well as economic impacts.

It is little wonder that the Institute for Fiscal Studies has described stamp duty as

“a strong contender for the UK’s worst-designed tax”,

with a “perverse” and “absurd” structure. The director of the IFS argued earlier this year that in the modern era of broadly based taxation, the case for maintaining stamp duty at all is “very weak indeed”.

[Mrs Main]

I pay tribute to my hon. Friend, who along with me secured the stamp duty debate in September and who has raised these matters on numerous occasions in the media. Does he share my concern that that debate was very poorly attended by the other parties? Indeed, it was very much Members on the Government side who were concerned about the matter.

[Mr Raab]

My hon. Friend, as usual, makes her point powerfully. As is so often the case, the real democratic debate and scrutiny is taking place on this side of the House, but at least the Labour party accepts these changes. I hope that in due course it will reflect and put paid to some of its ridiculous notions about a mansions tax, which is really about the politics of envy, rather than sensible economics or social fairness.

I want to move on to the impact of stamp duty, because it has also proved socially unfair. When the additional 3% and 4% rates were introduced in 2000, they were designed for the wealthy. Had the threshold risen in line with house price inflation, only properties worth £1.3 million would attract 3% stamp duty today. The Chancellor’s reforms will make a vital difference and I fully support the direction of travel. The move from the slab structure to marginal rates is far more economically efficient. It will unblock bottlenecks in the market, which also have a negative effect on housing supply and stock. I wholeheartedly welcome this move.

Likewise, I recognise that the vast majority of home buyers, and as a result sellers, will benefit. The tipping point at which buyers will pay more as a result of the reform kicks in at just under £940,000. I have two points to make about that. First—this relates to my earlier point about house prices varying dramatically across the country—there are plenty of three-bedroom homes in my constituency, as I am sure there are in London and in other constituencies, that will already be caught by the new system and will end up paying significantly more. They are not mansions owned by the super-rich; many are owned by people who have saved and so are asset-rich but income-poor. Again, London and the south-east will feel the burden. I do not think that we can always assume that it will hit only those with the broadest shoulders; it will also hit those who have saved and planned their finances over the long term, and it will have a significant impact.

Secondly—this is the missing piece of the jigsaw—given the forecasts for house price inflation, buyers of average-priced homes in many parts of London and the south-east will in a relatively short time find themselves paying substantially more. Over time, the higher rates will, by stealth, hit more and more middle-class buyers and sellers. In London and the south-east, median home buyers could be caught by the new 10% rate within 10 years, depending on how the forecasts for house prices turn out. To be clear, that means that within a decade—more or less—average home buyers could be hit by the 10% rate. Recent experience with the 3% and 4% rates of stamp duty under Labour shows that what starts as a tax aimed at the rich, within a relatively short period of time if we are not very careful ends up clobbering the middle classes. I hope that in the immediate or not too distant future Ministers will address that point square on by indexing the thresholds for all rates to house price inflation. That way, we can learn the lessons and avoid the mistakes of previous Labour Governments.

If we do not address fiscal drag now, and instead kick it into the long grass, we risk ending up over time robbing middle-class Peter to pay working-class Paul, and I do not think that we should be engaged in that, as a matter of sound economics, social fairness, or indeed long-term sustainable politics. Instead, we should be ensuring, as part of our long-term economic plan, that over the long term all low and middle-income aspirational savers and home buyers benefit from these important and welcome reforms.