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.

Getty
Show Hide image

Richmond is a victory for hope - now let's bring change across the country

The regressives are building their armies. 

Last night a regressive alliance was toppled. Despite being backed by both Ukip and the Conservative Party, Zac Goldsmith was rejected by the voters of Richmond Park.

Make no mistake, this result will rock the Conservative party – and in particularly dent their plans for a hard and painful Brexit. They may shrug off this vote in public, but their majority is thin and their management of the post-referendum process is becoming more chaotic by the day. This is a real moment, and those of us opposing their post-truth plans must seize it.

I’m really proud of the role that the Green party played in this election. Our local parties decided to show leadership by not standing this time and urging supporters to vote instead for the candidate that stood the best chance of winning for those of us that oppose Brexit. Greens’ votes could very well be "what made the difference" in this election (we received just over 3,500 votes in 2015 and Sarah Olney’s majority is 1,872) - though we’ll never know exactly where they went. Just as importantly though, I believe that the brave decision by the local Green party fundamentally changed the tone of the election.

When I went to Richmond last weekend, I met scores of people motivated to campaign for a "progressive alliance" because they recognised that something bigger than just one by election is at stake. We made a decision to demonstrate you can do politics differently, and I think we can fairly say that was vindicated. 

There are some already attacking me for helping get one more Liberal Democrat into Parliament. Let me be very clear: the Lib Dems' role in the Coalition was appalling – propping up a Conservative government hell bent on attacking our public services and overseeing a hike in child poverty. But Labour’s record of their last time in office isn't immune from criticism either – not just because of the illegal war in Iraq but also their introduction of tuition fees, privatisation of our health service and slavish worship of the City of London. They, like the Liberal Democrats, stood at the last election on an austerity manifesto. There is a reason that we remain different parties, but that doesn’t mean we shouldn't also seize opportunities like this to unite behind what we have in common. Olney is no perfect candidate but she has pledged to fight a hard Brexit, campaign against airport expansion and push for a fair voting system – surely progressives can agree that her win takes us forward rather than backwards?

Ultimately, last night was not just defeat of a regressive alliance but a victory for hope - a victory that's sorely needed on the back of of the division, loss and insecurity that seems to have marked much of the rest of this year. The truth is that getting to this point hasn’t been an easy process – and some people, including local Green party members have had criticisms which, as a democrat, I certainly take seriously. The old politics dies hard, and a new politics is not easy to forge in the short time we have. But standing still is not an option, nor is repeating the same mistakes of the past. The regressives are building their armies and we either make our alternative work or risk the left being out of power for a generation. 

With our NHS under sustained attack, our climate change laws threatened and the increasing risk of us becoming a tax haven floating on the edge of the Atlantic, the urgent need to think differently about how we win has never been greater. 

An anti-establishment wave is washing over Britain. History teaches us that can go one of two ways. For the many people who are utterly sick of politics as usual, perhaps the idea of politicians occasionally putting aside their differences for the good of the country is likely to appeal, and might help us rebuild trust among those who feel abandoned. So it's vital that we use this moment not just to talk among ourselves about how to work together but also as another spark to start doing things differently, in every community in Britain. That means listening to people, especially those who voted for Britain to leave the EU, hearing what they’re saying and working with them to affect change. Giving people real power, not just the illusion of it.

It means looking at ways to redistribute power and money in this country like never before, and knowing that a by-election in a leafy London suburb changes nothing for the vast majority of our country.

Today let us celebrate that the government's majority is smaller, and that people have voted for a candidate who used her victory speech to say that she would "stand up for an open, tolerant, united Britain".  But tomorrow let’s get started on something far bigger - because the new politics is not just about moments it's about movements, and it will only work if nobody is left behind.

 

Caroline Lucas is the MP for Brighton Pavilion.