Stamp duty versus mansion tax

Although superficially similar, high stamp duty is not a mansion tax

It seems increasingly likely that one of the measures to be announced in the budget in a couple of hours will be an increase in stamp duty to 7 per cent for properties worth over £2m. The argument seems to be that because the Conservatives will be compromising on the 50p tax – cutting it to 45p rather than scrapping it altogether – the Liberal Democrats will compromise on the mansion tax, allowing Osborne to introduce it as a new rate on an existing tax rather than new tax altogether.

Unfortunately, while the mansion tax isn't a great tax – it was sold as a proxy wealth tax, when household value isn't that great a proxy for wealth – it is still better than stamp duty. This is because it is at heart a consumption tax (you pay it for "consuming" a year's worth of £2m+ housing), whereas stamp duty is a transaction tax.

As the Mirrlees review on taxation explained (volume II, page 151):

Any tax on transactions will reduce expected welfare by discouraging mutually beneficial trades. Welfare is maximized when assets are owned by the people who place the highest value on them. Taxing transactions will affect who owns an asset, and so can disrupt the efficient pattern of ownership.

The value of a good or service is determined by the flow of benefits that are derived from owning it. So a consumption tax can be levied either on the purchase price of the good or service when it is first sold or on the flow of benefits over time. A transactions tax does not do this and it always seems preferable to tax the benefits directly...

Stamp duty on house transactions, for example, taxes according to the number of times a house changes hands over its lifetime. Houses vary considerably in the number of times they are traded, but there is no good economic argument for taxing more-frequently-traded housing more. Worse still, a tax on transactions reduces the incentive to trade in housing and leads to less efficient usage of the housing stock. A tax on the consumption value of housing would make sense... but a stamp duty on transactions does not.

It is a basic tenet of capitalism that, in a free market, transactions are good. By definition, if they are entered into, they make both parties better off – and stamp duty, by imposing a cost on it, means that otherwise beneficial exchanges may not occur.

This is, incidentally, the basis of the argument against a financial transactions tax; the comeback is that financial transactions occur in a broken market, and so cannot be expected to be mutually beneficial – and certainly not socially beneficial.

The Mirrlees report ended up recommending that stamp duty be abolished in its entirity, but instead the chancellor will be putting an even greater proportion of the UK's fiscal burden on it. Given it is being used as a proxy version of a proxy version of an efficient tax, it is not surprising that it has problems.

Mansion: The house allegedly bought by Saif Gaddafi in Hampstead, London (Getty)

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

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An alternative Trainspotting script for John Humphrys’ Radio 4 “Choose Life” tribute

Born chippy.

Your mole often has Radio 4’s Today programme babbling away comfortingly in the background while emerging blinking from the burrow. So imagine its horror this morning, when the BBC decided to sully this listening experience with John Humphrys doing the “Choose Life” monologue from Trainspotting.

“I chose not to choose life: I chose something else. And the reasons? There are no reasons. Who needs reasons when you’ve got Radio 4?” he concluded, as a nation cringed.

Introduced as someone who has “taken issue with modernity”, Humphrys launched into the film character Renton’s iconic rant against the banality of modern life.

But Humphrys’ role as in-studio curmudgeon is neither endearing nor amusing to this mole. Often tasked with stories about modern technology and digital culture by supposedly mischievous editors, Humphrys sounds increasingly cranky and ill-informed. It doesn’t exactly make for enlightening interviews. So your mole has tampered with the script. Here’s what he should have said:

“Choose life. Choose a job and then never retire, ever. Choose a career defined by growling and scoffing. Choose crashing the pips three mornings out of five. Choose a fucking long contract. Choose interrupting your co-hosts, politicians, religious leaders and children. Choose sitting across the desk from Justin Webb at 7.20 wondering what you’re doing with your life. Choose confusion about why Thought for the Day is still a thing. Choose hogging political interviews. Choose anxiety about whether Jim Naughtie’s departure means there’s dwindling demand for grouchy old men on flagship political radio shows. Choose a staunch commitment to misunderstanding stories about video games and emoji. Choose doing those stories anyway. Choose turning on the radio and wondering why the fuck you aren’t on on a Sunday morning as well. Choose sitting on that black leather chair hosting mind-numbing spirit-crushing game shows (Mastermind). Choose going over time at the end of it all, pishing your last few seconds on needlessly combative questions, nothing more than an obstacle to that day’s editors being credited. Choose your future. Choose life . . .”

I'm a mole, innit.