The Tories would be right to stamp out stamp duty

Stamp duty is one of, if not, the worst tax in Britain – and it should be cut or scrapped altogether. That is why it was reassuring to hear shadow chief secretary to the treasury Richard Fuller tell Sky News yesterday that: “There are other taxes that aren’t particularly efficient in terms of getting economic growth, such as stamp duty land tax.”

Although putting it somewhat cautiously, he is right. Stamp duty exacerbates the housing crisis by trapping people in the wrong houses; we stop moving so often because we are punished for doing so.

It sees young people struggle to move to where the jobs are, with a knock-on effect for productivity, as young families struggle to trade up – it makes it hard to save up deposits as they have to come up with the cash for stamp duty, too.

Large family houses sit half-empty as older people, whose children have long flown the nest, remain stuck in homes they may prefer to leave as it costs so much to move – acting as a barrier to downsizing and preventing them from unlocking the wealth tied up in their houses. 

For someone in their 60s or 70s looking to downsize in London or the South East, it’s not unusual for the tax bill alone to exceed £25,000. People do what they can to avoid taxes, so with stamp duty it is easy – they just stay put.

The market being blocked at the top then has a knock-on effect the entire way through the housing system, with the number of properties available for rent limited, raising prices faced by renters.

All in all it ends up clogging both the existing housing stock and productivity in the labour market. 

A number of the new, younger intake of Tory MPs are especially keen on tackling it with a selection telling me the policy is “a really stupid tax”, “our most terrible tax” or, quite simply, “crap”.

During the last leadership contest James Cleverly, too, advocated abolishing the “bad tax” for residential properties. Robert Jenrick has previously pushed for cutting stamp duty or “scrapping it altogether if headroom allows”.

The MPs I spoke to for this piece often cited personal examples of where they see the policy not working. One references a four-bed house on their road that has been sat half-empty for the past twenty years. Another has a sibling wanting to upscale and parents wanting to downsize, with both groups finding it difficult to do so.

If neighbours wanted to swap houses – a larger house owned by an older couple, with a smaller house owned by a family – stamp duty discourages them from buying each other’s homes, leaving both households worse off.

Transactions taxes should be avoided as a rule; why should we be imposing a heavier tax charge on properties that change hands more often? Assets should be held by those who value them most, but because of stamp duty, it doesn’t happen with housing. 

It is effectively a wealth tax, too, and one that should eventually be abolished when it comes to residential property transactions, which would likely cost £6-9bn – around half of that sum would get rid of it for owners’ primary residences only.

I understand the shadow treasury team have had conversations more generally about the policy, although any formal policy announcement isn’t currently in the offing.

But one member of the team tells me that they are reviewing stamp duty as part of the renewal process looking at the tax system, with another adding “everything is potentially in the mix one way or another”.

When it comes to covering the bill of cutting or scrapping stamp duty, some MPs advocate for increasing council tax on more expensive properties – which bears increasingly little relationship to the actual value of the house – by upping the top rate or adding on extra bands, while others say the impact could be shifted so that the seller (who has the cash to hand) pays for it and move to indexed capital gains tax (CGT) on sale.

A former treasury minister says there is a need to “look at what policies most accelerate growth and prioritise them” – and that these options are “the sort of pragmatic realistic honest policy solutions we need”, but to move on council tax the changes would need to be incremental.

CGT if done well, they add, could be in line with Nigel Lawson who when Chancellor cut stamp duty, and revenue from the tax increased.

There’s a world in which, one MP suggests, you pair that CGT option with another proposal to encourage downsizing: a kind of ‘freedom pass’ for homeowners over retirement age to get a one-time stamp duty exemption, providing they are selling their primary residence and buying a smaller home. 

“If it got the market moving again, it could work,” one MP says, “but there would have to be a firm sunset clause to time limit it because why should they get a cut when a family with a young child wouldn’t”.

Almost four million older households, defined as aged 65 or more, under-occupy their homes, according to the English Housing Survey, with 40 per cent having three spare bedrooms. It could free up thousands of those four-bed homes that the MP mentioned earlier for families to move up the ladder, and in-turn create space for a first-time buyer to get on it.

Another option suggested by one MP is not to replace it with anything as the amount of taxable spending that goes on around people moving houses would mean that a boost to market movement would see revenue anyway. Whichever solution you’d plump for, it is clear something needs to give – and it is a way for the Tories to show economic integrity and rebuild credibility as a party.

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