Aug
5
Since Alistair “Move Over” Darling allowed himself to be drawn on Stamp Duty on Radio 4 the media has been full of debate.
In response to a rant on CityWire I posted my four penneth worth. The drift of which was:
1. Stamp Duty is an unfair and unjust tax. It was a post-War tax designed to deprive landowners of some of their wealth. It is a long time since that was the purpose it served. Ideally it should be abolished. Saving that it is overdue a very serious overhaul. The current environment provides a justifiable opportunity to do just that.
2. Any change should be permanent and not temporary. Deferring payment does nothing. Temporary, on the other hand, encourages people to delay purchasing before it starts and stop once things revert, causing more problems as a result. Any change also needs to be big. Piddling around with minor little band-aids will more likely make Darling et al look even more impotent. To put it bluntly, any change has got to be the BSD of changes.
3. The Treasury has got to stop thinking that overhauling Stamp Duty is costing them money.
Firstly, the party is over. The years of £6bn+ from Stamp Duty are gone. The house price bubble and orgy of transactions that allowed tens of billions to be stolen through Stamp Duty during the Noughties may have helped hide some of the maladministration of the public finances but that was then. The cash cow is dead and it is starting to stink. If things keep going the way they are then they’ll be lucky to raise six quid, let alone six billion.
Secondly, it isn’t their money. It certainly isn’t the public’s money. It is the hard saved money of certain members of the public with the aspiration of being homeowners. Letting house buyers off the pernicious tax is not throwing it away, as some whingers have claimed. Taking it from those purchasers and giving it to Incapability Brown and Co., that is throwing it away.
4. This is not precedent territory, Stamp Duty was futzed with during the previous house price correction. But those measures came in well into the correction, though prices still bobbed along going nowhere for a few years afterwards whilst the mild credit revulsion remained in place. Which means that as prices still have some way to fall, there is an argument for not shooting one’s bolt just yet, since it will be most productive when a floor in prices is likely to be forming.
However, the media focus means doing nothing may no longer be an option. Inaction could be an additional negative removing even more buyers from the market. After all, no one will want to purchase if they think there is a chance that Stamp Duty will be lifted. Result, housing market seizes up.
5. Liquidity. Without the availability of finance any changes to Stamp Duty will have, at best, negligible impact. Yes LIBOR rates seem to have stabilised, though the end of the year may be interesting, and yes we are close to a peak in CPI and RPI, with a subsequent bottom 2009Q4-2010Q2 before the next move up, Japan-scenario excluded, but if buyers can’t get mortgages properties can’t be bought.
6. Psychology. Fear is stronger than greed and fear is in charge at the moment. In the good times, there were no reasons not to buy. In the bad times, you don’t need another reason not be buy. As it stands, Stamp Duty is another reason not to buy. Whilst it makes sense as an investor to hold off, home movers who are trading one enmortgaged property for another don’t need to be mugged. The threat of a financial coshing only helps the housing market to seize up just that little bit more.
7. Home Information Packs. Since we are talking property sales … HIPs are a joke. They are ignored by prospective purchasers. Let’s face it, they are effectively a tax on selling. Scrap them.
Abolishing Stamp Duty completely is not going to happen. Therefore, any change should be to switch it to a marginal system, a la Income Tax. 0% on the first £250K minimum. Say 1% on the next £750K and then 2% on everything over the million. That should still be sufficient to appeal to the “tax-those-with-more-money-than-me” crowd.
Totally overhauling Stamp Duty by itself will do nothing. It needs to be one of several measures. Liquidity will take time to return, though the delusional lending practices are gone forever.
House prices still have some way to fall. If, as I suspect, we have moved into a multi-decade secular bear for house prices, as data will subsequently prove one way or the other, then persistent price inflation will be what keep nominal prices supported in the long run.
Stability and continuity are key at the moment. Property prices need to form a base and transactions drag themselves off life support. Jettisoning the current punitive Stamp Duty rates and replacing them with something fair(er), easily understandable and permanent would be a good start.
What the housing market doesn’t need is to be left twisting in the wind while the Dithering Duo um and ah. Or, even worse, be subjected to another ham-fisted exercise in ill-considered complexity which is then repeatedly improved-to-death.
Comments
Leave a Reply