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.

Grant Shapps on the campaign trail. Photo: Getty
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Grant Shapps resigns over Tory youth wing bullying scandal

The minister, formerly party chairman, has resigned over allegations of bullying and blackmail made against a Tory activist. 

Grant Shapps, who was a key figure in the Tory general election campaign, has resigned following allegations about a bullying scandal among Conservative activists.

Shapps was formerly party chairman, but was demoted to international development minister after May. His formal statement is expected shortly.

The resignation follows lurid claims about bullying and blackmail among Tory activists. One, Mark Clarke, has been accused of putting pressure on a fellow activist who complained about his behaviour to withdraw the allegation. The complainant, Elliot Johnson, later killed himself.

The junior Treasury minister Robert Halfon also revealed that he had an affair with a young activist after being warned that Clarke planned to blackmail him over the relationship. Former Tory chair Sayeedi Warsi says that she was targeted by Clarke on Twitter, where he tried to portray her as an anti-semite. 

Shapps appointed Mark Clarke to run RoadTrip 2015, where young Tory activists toured key marginals on a bus before the general election. 

Today, the Guardian published an emotional interview with the parents of 21-year-old Elliot Johnson, the activist who killed himself, in which they called for Shapps to consider his position. Ray Johnson also spoke to BBC's Newsnight:


The Johnson family claimed that Shapps and co-chair Andrew Feldman had failed to act on complaints made against Clarke. Feldman says he did not hear of the bullying claims until August. 

Asked about the case at a conference in Malta, David Cameron pointedly refused to offer Shapps his full backing, saying a statement would be released. “I think it is important that on the tragic case that took place that the coroner’s inquiry is allowed to proceed properly," he added. “I feel deeply for his parents, It is an appalling loss to suffer and that is why it is so important there is a proper coroner’s inquiry. In terms of what the Conservative party should do, there should be and there is a proper inquiry that asks all the questions as people come forward. That will take place. It is a tragic loss of a talented young life and it is not something any parent should go through and I feel for them deeply.” 

Mark Clarke denies any wrongdoing.

Helen Lewis is deputy editor of the New Statesman. She has presented BBC Radio 4’s Week in Westminster and is a regular panellist on BBC1’s Sunday Politics.