Scotland fixes stamp duty, the most broken tax in the nation

Now when will the rest of Britain follow suit?

Good news if you're Scottish: your government is fixing one of the most ridiculously broken parts of the British tax system! (If you aren't Scottish, you're going to have to hold on a bit longer).

Stamp duty, the fee paid upon purchase of a house worth more than £125,000, is set to be devolved to the Scottish government. It will be the first time that Holyrood has exercised the powers given to it in the Scotland Act 2012 to amend the duty on land and property.

Under the existing regime, stamp duty is one of the last taxes left in the world which features a tiered rate structure based on the entire value of the thing being taxed. That is: on a property worth £125,000, you pay 0 per cent stamp duty, but on a property worth £125,001 – exactly on the threshold – you pay a tax of 1 per cent on the entire value of the house. That's over £1000, just for a £1 increase in the sale price.

It gets even worse at higher levels. At £250,000, the duty raises from 1 per cent to 3 per cent, meaning a £1 change in house price costs an extra £5000 in tax. At £500,000, the cost of the £1 change is another £5000; at £1m, it costs £10,000; and at £2m, it costs a whopping £40,000. (Admittedly, few will weep hot tears for the people selling £2m houses).

That imposes a massive distortion onto the housing market. Take a look at this chart, from estate agent Savills, of the distribution of sale prices in London. Do you see the massive anomaly for houses priced between £250,000 and £260,000? That's entirely due to the stamp duty threshold:

If your house is surveyed at £255,000, you will actually take home less money selling it at that price than if you knocked £5,000 off the sale price (this isn't strictly true; the tax is techincally paid by the buyer, not the seller. But it's the easiest way to explain why it's stupid). And that imposes a distortion all the way up the market: if your house is surveyed at £260,000, you're having to compete with people who are selling theirs at over £5,000 below the asking price to avoid a tax. So you have to drop your price a bit as well.

Compare that to income tax, which is what's called a marginal tax: if you earn £155,000, you only pay the 45p rate on the last £5000 you earn, meaning there's no motivation to keep your earnings to £149,999.99.

The reason for Stamp duty being so unbelievably poorly designed is because it actually pre-dates our understanding of why it's a bad idea: the so-called marginalist revolution of the mid-to-late 19th century. That was when economists first started to realise that people make their decisions on the margin: that, for instance, when you are about to buy your tenth pair of shoes, you don't think "how much do I need ten pairs of shoes?"; you think "how much do I need this pair of shoes?"

Stamp duty was introduced in 1694 (and was literally a fee payable to the crown for placing its stamp on legal documents), and was first graduated according to value in 1808. Over time, we've come to realise how stupid that is, but no-one's actually had the guts to do anything about it. Although a decade ago the name was changed to SDLT, so that's something.

So congratulations to Scotland. The proposed tax will now be charged only on the value of the home above £180,000, and will be set at 7.5 per cent up to £1.5m, and 10 per cent above that. That leaves people selling houses worth less than £300,000 better off; but more importantly, it also fixes the broken structure of the old system entirely.

Hopefully the rest of Britain will follow suit – and soon.

A man walks a saltire past Holyrood. Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

Daily Mail
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Who "speaks for England" - and for that matter, what is "England"?

The Hollywood producer Sam Gold­wyn once demanded, “Let’s have some new clichés.” The Daily Mail, however, is always happiest with the old ones.

The Hollywood producer Sam Gold­wyn once demanded, “Let’s have some new clichés.” The Daily Mail, however, is always happiest with the old ones. It trotted out Leo Amery’s House of Commons call from September 1939, “Speak for England”, for the headline on a deranged leader that filled a picture-free front page on David Cameron’s “deal” to keep Britain in the EU.

Demands that somebody or other speak for England have followed thick and fast ever since Amery addressed his call to Labour’s Arthur Greenwood when Neville Chamberlain was still dithering over war with Hitler. Tory MPs shouted, “Speak for England!” when Michael Foot, the then Labour leader, rose in the Commons in 1982 after Argentina’s invasion of the Falklands. The Mail columnist Andrew Alexander called on Clare Short to “speak for England” over the Iraq War in 2003. “Can [Ed] Miliband speak for England?” Anthony Barnett asked in this very magazine in 2013. (Judging by the 2015 election result, one would say not.) “I speak for England,” claimed John Redwood last year. “Labour must speak for England,” countered Frank Field soon afterwards.

The Mail’s invocation of Amery was misconceived for two reasons. First, Amery wanted us to wage war in Europe in support of Hitler’s victims in Poland and elsewhere and in alliance with France, not to isolate ourselves from the continent. Second, “speak for England” in recent years has been used in support of “English votes for English laws”, following proposals for further devolution to Scotland. As the Mail was among the most adamant in demanding that Scots keep their noses out of English affairs, it’s a bit rich of it now to state “of course, by ‘England’. . . we mean the whole of the United Kingdom”.

 

EU immemorial

The Mail is also wrong in arguing that “we are at a crossroads in our island history”. The suggestion that the choice is between “submitting to a statist, unelected bureaucracy in Brussels” and reclaiming our ancient island liberties is pure nonsense. In the long run, withdrawing from the EU will make little difference. Levels of immigration will be determined, as they always have been, mainly by employers’ demands for labour and the difficulties of policing the borders of a country that has become a leading international transport hub. The terms on which we continue to trade with EU members will be determined largely by unelected bureaucrats in Brussels after discussions with unelected bureaucrats in London.

The British are bored by the EU and the interminable Westminster arguments. If voters support Brexit, it will probably be because they then expect to hear no more on the subject. They will be sadly mistaken. The withdrawal negotiations will take years, with the Farages and Duncan Smiths still foaming at the mouth, Cameron still claiming phoney victories and Angela Merkel, François Hollande and the dreaded Jean-Claude Juncker playing a bigger part in our lives than ever.

 

An empty cabinet

Meanwhile, one wonders what has become of Jeremy Corbyn or, indeed, the rest of the shadow cabinet. The Mail’s “speak for England” leader excoriated him for not mentioning “the Number One subject of the hour” at PM’s Questions but instead asking about a shortage of therapeutic radiographers in the NHS. In fact, the NHS’s problems – almost wholly caused by Tory “reforms” and spending cuts – would concern more people than does our future in the EU. But radiographers are hardly headline news, and Corbyn and his team seem unable to get anything into the nation’s “any other business”, never mind to the top of its agenda.

Public services deteriorate by the day, George Osborne’s fiscal plans look increasingly awry, and attempts to wring tax receipts out of big corporations appear hopelessly inadequate. Yet since Christmas I have hardly seen a shadow minister featured in the papers or spotted one on TV, except to say something about Trident, another subject that most voters don’t care about.

 

Incurable prose

According to the Guardian’s admirable but (let’s be honest) rather tedious series celeb­rating the NHS, a US health-care firm has advised investors that “privatisation of the UK marketplace . . . should create organic and de novo opportunities”. I have no idea what this means, though it sounds ominous. But I am quite certain I don’t want my local hospital or GP practice run by people who write prose like that.

 

Fashionable Foxes

My home-town football team, Leicester City, are normally so unfashionable that they’re not even fashionable in Leicester, where the smart set mostly watch the rugby union team Leicester Tigers. Even when they installed themselves near the top of the Premier League before Christmas, newspapers scarcely noticed them.

Now, with the Foxes five points clear at the top and 7-4 favourites for their first title, that mistake is corrected and the sports pages are running out of superlatives, a comparison with Barcelona being the most improbable. Even I, not a football enthusiast, have watched a few matches. If more football were played as Leicester play it – moving at speed towards their opponents’ goal rather than aimlessly weaving pretty patterns in midfield – I would watch the game more.

Nevertheless, I recall 1963, when Leicester headed the old First Division with five games to play. They picked up only one more point and finished fourth, nine points adrift of the league winners, Everton.

 

Gum unstuck

No, I don’t chew toothpaste to stop me smoking, as the last week’s column strangely suggested. I chew Nicorette gum, a reference written at some stage but somehow lost (probably by me) before it reached print.

Editor: The chief sub apologises for this mistake, which was hers

Peter Wilby was editor of the Independent on Sunday from 1995 to 1996 and of the New Statesman from 1998 to 2005. He writes the weekly First Thoughts column for the NS.

This article first appeared in the 11 February 2016 issue of the New Statesman, The legacy of Europe's worst battle