When George Osborne spoke out in his last autumn statement back in 2015, many applauded his policy and the seemingly flawless plan to raise the stamp duty on more expensive housing across the UK. His plan appeared progressive; a way to move forward from the widely hated and distorted ‘slab system’. Instead, introducing a ‘slice’ system that mimicked what we know works: income tax.
The majority of homeowners and first-time buyers escaping a heavier burden of stamp duty were not going to resist his policy. He forecasted that 98 percent of purchases would have a reduced tax rate. The majority seemed to agree the remaining two percent ‘could afford’ to suffer the punishing incline, and of course, the Treasury could rest assured that their revenue would increase to £700 million. A confident ‘win-win’ situation.
The crippling 12 percent stamp duty on homes over 1.5 million, and a further 3 percent (totalling 15 percent) on second homes / buy to let properties, is having a significant effect on the high-value property market. According to leading accountancy firm, PWC, sales fell by nearly 40% in 8 months in 2015. Thus the tax take fell by about £330 million. A recent analysis has calculated The Treasury is losing out on an estimated £500 million a year.
Apart from the steep decline in sales and counting the Treasury’s growing losses, what is the roll on effect of this stagnant market? Who else is really suffering due to Osborne’s reform?
The parties involved when moving house or building a new property affects the entire social spectrum; from Lawyers and high-end Interior Designers to handymen, and builders. According to the analysis led by Oxford Economics, the drop in sales has led, indirectly to the loss of 14,000 jobs. In an attempt to list only the most obvious parties affected, one struggles to keep it short: Surveyors, Valuers, Estate Agents, Relocation Agents, Decorators, Designers, Furniture Suppliers, Builders are but a few who are under pressure in this current upper-end housing market.
Builders and other workmen alike often rely on the money that comes from larger projects. If we were to look at the construction industry, annual growth figures provide clear evidence that the rise in Stamp duty is impacting our economy. According to The Office for National Statistics, economists have recorded that the annual growth in the construction industry slowed from 3.8% in 2015 to 3.6% in 2016. This decline is sure indicator that changes need to be made.
In order to understand why the decorators, the stonemasons, the photographers, the gardeners and many others are suffering in the current high-end property climate, one needs to understand why the rich are not purchasing property. Of course, Brexit is a large factor for indecisiveness but the sales slowed after Osborne’s reforms, long before the United Kingdom decided to leave the the EU, not after.
It is easy to assume that those who can afford to spend £1.5 Million on a property would also have the money for the 12 per cent stamp duty. However, the taxing stamp duty is preventing those who wish to upgrade. This is because there is far too big of a gap in the property ladder, denying those the chance to up-size, move and sell. Pete Redfern, who is The Chief Executive of Taylor Wimpy (a well-established and widely recognised Residential Development Company) has described the stamp duty reforms as “a charge on moving house”.
Experts at Oxford Economics estimate that the stalemate in sales and reduction of jobs such as in the removals industry has cost the economy nearly £1billion. To underestimate the ripple effect of this current climate would be neglectful. Furthermore not to vocalise, and give the deserved attention to those being indirectly affected, would be a bad reflection on today’s politics. This is no tax on the wealthy, but rather the destruction of the industry’s backbone of workers, by choking their biggest source of income.
George Osborne’s stamp duty is undeniably affecting the country on an economic and social level. The heavy burden on the upper end of the market is throwing it off balance and causing detrimental consequences.