In September 2008, with the financial crisis poised to begin its most exciting and terrifying phase, the Chancellor of the Exchequer cut stamp duty. This stamp duty holiday was extended in 2009; further cuts were announced in 2010, 2014 and 2015. (In 2012, in a clear attempt to ruin my intro, George Osborne actually increased it on pricier properties.) In 2020, with the economy tottering once again thanks to Covid, Rishi Sunak came up with a novel idea to support it: why not cut stamp duty?
None of these reforms, best one can tell, have led to a sudden explosion of GDP growth. At some point surely we have to accept that either this button isn’t connected to anything, or else it’s not really meant to do what they keep saying it’s meant to.
Stamp duty, to be fair, is as stupid a tax as you’ll find in the UK tax code. It gums up the housing market and helps to keep people trapped in the wrong homes by making it vastly more expensive to move than it should be. It also falls, bizarrely, on the people paying vast sums of money rather than those receiving it, even if the former have scraped together every penny they can to buy a home while the latter are just flogging part of their buy-to-let portfolio.
And yet, Liz Truss’s “radical plans to cut stamp duty”, remain about the stupidest thing a new government could do right now. The Prime Minister, the report says, “believes that cutting stamp duty will encourage economic growth by allowing more people to move and enabling first-time buyers to get on the property ladder”. But it won’t enable more people to get on the property ladder, because prices are set by the amount people can afford to spend. Cut stamp duty and much of that saving will feed through into price increases, leaving us back where we started.
That also surely undermines the claim that it’ll allow more people to move. Sure, it might help at the margin, by removing a source of price distortion, but the biggest thing that’s stopping people moving isn’t stamp duty, it’s the fact that house prices are too damn high. Cutting stamp duty won’t help with that.
There’s another factor stopping people moving at the moment. With interest rates rising and household budgets facing an unprecedented squeeze, house prices seem likely, finally, to wobble. Fewer people sell their homes in wobbling markets than in booming ones, and if the market really starts to slide then buyers are likely to wait too. (Why buy now, if it’s probably going to be cheaper in a year?)
Even if this policy won’t do any of the things it’s ostensibly meant to do, it might do something else – the thing all stamp duty cuts have really been intended to do – and prop up the housing market as it starts to run out of steam. The fact a significant and growing chunk of the population are shut out of the boom doesn’t seem to have occurred to anyone. Neither does the fact the Bank of England is on a mission to drive down energy-price led inflation by cutting economic growth off at the knees: even if this worked (it won’t), the Monetary Policy Committee would then bring it screeching to a halt.
Most damningly of all, though, this is the model we’ve been using for 15 years, and it manifestly hasn’t unleashed growth. How sick does the patient have to get before you change the treatment?