The TaxPayers’ Alliance’s (TPA) dynamic tax model shows that
stamp duty land tax (SDLT) depresses growth, chokes off
investment and even holds down wages.
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Were stamp duty abolished, by 2029 GDP would be £27 billion
higher, investment up by £7 billion and average weekly
earnings £6 greater
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Cutting stamp duty must feature in a pro-growth mini-Budget
Reports this
morning suggest that the government is
considering cutting stamp duty at Friday’s ‘mini-Budget’. Rapid
analysis by the TPA - using its dynamic tax model - shows that
stamp duty in its current form depresses economic growth,
investment and even wages.
The campaign group recommends raising the stamp duty threshold to
£1 million, with a view to abolition in the long
term. Recent research by the
TPA found that 245,000 additional housing
transactions could be unlocked if the threshold had been raised
to £1 million in 2019-20.
CLICK HERE TO READ THE BRIEFING
NOTE
Key findings from the TPA’s dynamic tax model:
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If stamp duty - and Scottish equivalents - were not in place,
by 2029 GDP would be £27 billion
higher, investment up by £7 billion and average
weekly earnings £6 greater.
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Compared to the baseline scenario, investment
spending would be 2.29 per cent higher were
stamp duty not in place and GDP would be 0.85 per cent higher
by 2029.
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Baseline scenario means what the economy is expected to look
like if tax changes were not implemented.
CLICK HERE TO READ THE
BRIEFING NOTE
John O’Connell, chief executive of the TaxPayers'
Alliance, said:
"Stamp duty is a highly destructive tax, harming economic
growth by impacting decisions like downsizing or moving for a new
job.
“Cutting stamp duty must be part of a menu of
measures at Friday’s mini-Budget to help get the economy moving
and ease the pressure on taxpayers struggling with the cost of
living.
“Increasing stamp duty so that only millionaires
need pay would mean plenty of people living in houses that are
too big or too small can move, and workers can relocate to new
jobs more easily.”
Why does stamp duty depress growth and
investment?
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SDLT functions like many other transaction taxes in that it
impedes the effective allocation of capital, which in turn
affects investment decisions. Stamp duty is paid on both
residential and commercial properties.
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For residential transactions, SDLT significantly adds to the
already expensive cost of moving home. The costs therefore
may outweigh the benefits to potential homebuyers, meaning
they stay put.
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That leads to an inefficient allocation of resources. For
instance, older homeowners may be put off from downsizing,
meaning that they occupy much more space than needed.
Consequently, growing families may be in properties that are
too small.
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SDLT can also impact employment opportunities. High costs may
put off prospective employees from applying, and moving, for
a job that matches their skill set.
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Former chancellor Rt Hon MP lifted the SDLT
threshold to £500,000 in the summer of 2020 – the height of
the covid-19 pandemic. The nil rate band of £125,000 for
residential properties was then re-introduced in October
2021.
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TPA analysis found that lifting the threshold to £1 million
in the previous year would have unlocked up to 245,000
additional housing transactions.[2]
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For commercial transactions, high rates of SDLT are likely to
impact the decision of a business to move to a new property,
with knock-on impacts such as investing in new machinery.
