Playing with Stamp Duty rates has been the pastime of many former Chancellors over the past 8 years, ever since the hapless Osborne decided to convert the system from a ‘slab-sided’ to a ‘sliced’ version in 2014. The rates at the higher end, particularly for people with more than one house and then more recently, of foreign origin, are now 17% and for a long while these changes resulted in a lower tax-take for the Treasury, quite apart from the distorting effect that it had on the number of sales which took place.
‘Swimming through Sago Pudding’
Values of expensive properties dropped considerably by 30-40% in some cases, and estate agents complained at the time that selling a more valuable property was akin to ‘swimming through sago pudding.’
As a direct result, this spawned the birth of the uber-tenant’ where international former purchasers decided to rent the properties that otherwise they would have bought. Instead of paying the government the equivalent of 20% (with estate agents and solicitors fees) stamp duty for 5 years, they could rent the same property care of the government, which is the unintended consequence of this tax regime. The temporary change of the Stamp Duty-free holiday – up to £ 500,000 – did boost the market during the covid period, which was a welcome relief for the first-time buyer, particularly in the capital.
I presume that any changes that the new Chancellor, Kwasi Kwarteng, will introduce on Friday this week, will be at the lower end and this could induce some frenzied buying, whilst it is being offered.
Although it may not be very popular amongst the class war warriors, reducing the Stamp Duty rates at the higher end may not necessarily cost the Exchequer a farthing. The increase in activity could provide enough revenue, in order to self-fund this tax giveaway.
Helpful stimulus to the building industry
Any of these changes will certainly have a galvanising effect on the white and brown goods industry, as well as providing a helpful stimulus to the building industry, which has become far quieter of late as consumer demand slows which is a direct consequence of higher interest and mortgage rates, not assisted by fears of the looming recession.
Stamp Duty is an easy and quick accelerator for demand, at a judicious time for the UK economy.
Disenfranchise the vulnerable
I do hope that attention will be focused on the lack of supply of new homes at the same time, which of late has been woefully short of the optimal target of 300,000 per year, since otherwise, stoking demand with a finite supply only sends prices northwards, which would further disenfranchise the vulnerable at the lower end of the market, who are already being asphyxiated by higher mortgage costs.
Lest we forget, during Thatcher’s era in the 80s, there were 300,000 new homes built per annum, for a much smaller population, and we need to get back to these halcyon days.
Gorge themselves on the trough of avarice
Expanding Help-to-Buy may not be a bad thing, provided you can exclude the opportunistic speculators who have ‘gorged themselves on this trough of avarice.’
I am sure that most wealthy houseowners would agree to raising Council Tax levels, but I can understand the reticence of the government to do this, since hitherto, the receipts go to the Councils who may well squander their new largesse and wouldn’t provide any extra service or benefit for residents of each borough.
‘Sacred Cows’ of taxation
There is no question that Prime Minister Truss is refreshingly radical and is not frightened to tread on sacred ground and deal effectively with the ‘Sacred Cows’ of taxation.
Although former Chancellor Sunak wanted to show fiscal responsibility by increasing corporation tax from 19% to 25%, two years ago, there is no question that it is the antithesis of what today is required to encourage and attract investment in this country, particularly in the post-Brexit era. Moving closer to the draconian EU corporation tax rate of 35% and away from the very attractive Irish rate of 12%, is exactly the wrong direction of travel.
‘Poisoned chalice’
Although the PM has been handed a ‘poisoned chalice’, she is not burdened with baggage from the past and she could just be the ‘new broom which sweeps clean’, as the government tries to tackle the energy crisis, hyper-inflation and avoidance tactics for the looming recession.
Clearly, she does not have the legacy issues that Boris immersed himself with in terms of the environment and his connections with the Richmond constituency, to Uxbridge and South Ruislip.
Busiest airport in the world
As part of the investment in the future, how can the busiest airport on earth, serving the greatest capital in the world, be effectively operating at 97% capacity? Since it takes 10-15 years to effect this measure, and the sooner that she gets on with it, the better.
Queen Boudicea
We all hope and pray that she will succeed and be our Queen Boadicea in difficult economic times.