Azara Blog: LibDems propose stamp duty change

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Date published: 2005/02/27

The BBC says:

The Liberal Democrats are promising to raise the stamp duty threshold if they win the general election, in a bid to court first-time house buyers.

Vince Cable, the party's Treasury spokesman, said raising the threshold to £150,000 would prevent over 400,000 home-buyers from paying the tax.

He said first-time buyers were being "squeezed out" of the housing market.

Under the proposals, the average saving for a new buyer would be more than £1,000, according to Mr Cable.

This is rubbish. If demand for housing is bigger than supply (as it has been for around the past ten years) then the average saving for a buyer will not be £1000, it will be around zero. The problem is that the housing market supply is rigidly controlled by the government, and reducing the tax does not increase the supply. As such, since all buyers for these houses will no longer have to pay stamp duty, they all have extra money to spend on a house, and so the price will increase correspondingly. (People spend as much money as they have, if not more, on buying a house.) So increasing the threshold does nothing except remove money from the Treasury and give it to house sellers.

The main problem with stamp duty is not the £60000 starting threshold. It is that at all the thresholds, including at the higher ones of £250000 and £500000, the change in the tax is absolute, not marginal. (So, for example, stamp duty stupidly increases from £2500 to £7500 at the £250000 threshold.)

The main problem with the housing market is not stamp duty (at its current level, even with the stupid way it is implemented), the main problem is supply. Sort that out and the rest will follow.

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