Reeves considering ‘staggered stamp duty payments’ to boost housing market
A proposal to spread stamp duty payments across several years, in an effort to drive growth and boost the housing market, is among changes to property tax being considered by the Treasury ahead of Budget discussions with the Office for Budget Responsibility (OBR).
Suggested reforms to stamp duty would allow house buyers to pay the tax across a number of years through regular installments rather than via a lump sum at the point of purchase.
City PM understands the policy proposal is under discussion, with technical details on how revenue could be protected likely to be fleshed out in negotiations with OBR analysts, which begin in two weeks.
The latest potential tax reform to enter the pre-Budget debate comes as Chancellor Rachel Reeves faces having to find at least £25bn in taxes or savings in order to restore her headroom if she sticks by her fiscal rules, according to Deutsche Bank.
Reeves was reportedly told by the OBR that productivity forecasts would likely be downgraded at the Budget. A change to its growth projections compared to the Spring Statement could account for three quarters of the fiscal hole faced by Reeves, a source told the Financial Times.
Analysts have said a 0.1 percentage point cut to growth forecasts is likely to lead to £9bn wiped off forecasts.
Tax reforms put forward by the Treasury will have to be carefully judged by the OBR for impacts on growth and total revenue.
Reform could unlock housing market
Proponents of the idea to stagger stamp duty suggest that making the tax payable over a longer term would make the labour market more flexible as it would allow people to move more easily. Advocates also suggest it could add some much needed lubrication to the housing market, with stamp duty a major impediment to many would-be house buyers.
A report by the Tony Blair Institute for Global Change last year suggested that stamp duty reform could be done through a government loan that allows the payment to be made gradually over a number of years.
Researchers suggested the change would not affect the deficit as lost revenue would not be accounted for in public sector net financial liabilities, the measure of government debt used by Reeves in her fiscal rules.
The loan would be written off if a person moved homes within the period, which the TBIGC set at 20 years in its report given the average time spent by people in a house was 26 years.
Analysts believe the incentive to move house would be strengthened while the change would make stamp duty closer to an annual property tax.
City PM was told that the idea “pops up” frequently at meetings in the Treasury.
A Treasury spokesperson said: “The Chancellor makes tax policy decisions at fiscal events. We do not comment on speculation around future changes to tax policy.”
Wider property reforms under discussion
Rightmove and Zoopla have been some of the industry groups to back a campaign to allow home buyers to spread the cost of stamp duty over five years.
Changes could be included in wider reforms reportedly being considered by Reeves to overhaul the tax system for house buyers.
An Onward report written by a former government economics adviser, Tim Leunig, is being drawn on by the Treasury as it considers reforms to property taxes.
In the report, Leunig made the case for a more “proportional” tax system on property that would result in owners paying varying rates of tax dependent on the value of a home.
Reeves is considering the introduction of a national property tax and a local property levy that could replace council taxes in the medium term.
Simon Gerrard, chair of Martyn Gerrard Estate Agents, has previously warned that the government was “motivated by a desire to raise revenues” and plans to reform the council tax system could lead to “punishingly high” taxes.