Yesterday Chancellor George Osborne stayed true to Autumn Statement tradition by pulling a rabbit out of his Red Box. A much-needed overhaul of the antiquated stamp duty system has been implemented in double-quick time, banishing in a sweep the duty’s perverse slab element that saw properties taxed at set rates on their entire value once they crossed various thresholds.
For 98% of home buyers, it is anticipated this will translate into a reduced stamp duty bill. The welcome overhaul is also designed to end the strange distortions that the tax introduced into the property market, with properties clustered at prices just below the thresholds. The cost to the Exchequer of these changes will in part be offset by a hike in stamp duty rates for properties worth over £937,500.
Those buying a £2 million home will now have to find £153,750 in cold hard cash to hand over to the Treasury, up from £100,000. Meanwhile, those purchasing a property valued at £5 million will have to pay £513,750 in duty, coincidentally precisely the same amount as the cost of the average London property. These amounts need to be paid upfront to the Exchequer, direct from income that has already been taxed. These are colossal sums. I do not anticipate many tears being shed across the country for this group of house purchasers. But anyone with experience of the central London property market will tell you that £2 million does not a mansion purchase. In my constituency, it is likelier to get you a two-bedroom flat.
I am sympathetic to the politics of the move, particularly this close to an election. The Chancellor has well and truly shot Labour’s fox and I would have hoped as a result that this change might put a few additional nails in the coffin of the Opposition’s poorly thought-out ‘mansion tax’ plans. Depressingly, spokesmen for the Labour and Liberal Democrat parties insist that this policy remains in play even after the stamp duty hike. Nevertheless, since my constituency contains the second largest number of properties valued at over £937,500, I am predictably less than delirious about this element of the stamp duty changes and the rhetoric that has been used to justify it. It is unfortunate that a Conservative government has hailed these changes on the basis that 98% of homebuyers nationally (91% in the Capital) should be better off, while soaking the remaining ‘rich’ 2%.
Indeed this Autumn Statement has helped entrench the notion that it is legitimate to single-out for ‘public enemy’ status groups in UK society who can be subject to arbitrary super-tax treatment. This torrid list includes banks and bankers, the nebulously defined ‘rich’, multi-national corporations, non-domiciled individuals, sin companies such as tobacco firms and increasingly those who deign to live in London. By focusing our fire on these minorities once again, we risk unintentionally legitimising Labour’s unrealistic assertion that all its spending commitments can be funded by ever-more draconian taxes on a small number.
It is revealing that the Office of Budget Responsibility crunched the numbers on stamp duty and conclude that the Autumn Statement’s changes will likely cost the Treasury £800 million annually in foregone receipts. In other words, even the vast additional tax levied on relatively expensive properties will be nothing like enough to offset changes to the other end of the scale. Put simply this is because there are not enough ‘rich people’ property transactions to tax – and it is worth remembering that the likely result of this policy will be the suppression of the number of transactions.
This merely reiterates the point I have made time and again – Labour is highly unlikely to find sufficient numbers of ‘the rich’ to fund its ever growing spending promises. If anything, yesterday’s deficit figures should have drummed home that what we really need is a much broader tax base. Instead the movement of travel is to place an ever-larger burden on an ever-smaller group. Opinion polls may tell politicians that the public hates bankers, aspirational and wealthy Brits, non-doms and big global corporates. But the Treasury will not half miss them when they leave these shores.