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Stamp duty to go? - 7 August 2008

A combination of falling house prices, government unpopularity and stagnant trading conditions could push the government into reducing, suspending, or even abolishing stamp duty on property purchases. The move is rumoured to be under serious consideration by Gordon Brown, and could spearhead a raft of new legislation by the government on Parliament’s return from its summer recess.

At the same time, the Prime Minister and the Chancellor have been accused of causing even more unrest in the housing market by allowing rumours to persist without making an official statement on the matter, according to the opposition and a leading house building association.

There is little doubt the government needs to do something both to lift the property market, which should kickstart more activity in the banking and finance sectors, and to improve its own dismal approval among the general public. Following the loss of local elections, the London mayoral race and the Crewe & Nantwich and Glasgow East by-elections, the tide of opinion has been resolutely against the government for most of this year.

Insiders suggest that Gordon Brown sees the suspension or abolition of stamp duty as a major pillar of the new policies he is likely to introduce upon his return from holiday, in an attempt to arrest the government’s slide towards defeat in the next general election.

While it is impossible to know whether the abolition of stamp duty will make the government anywhere near as popular as during the heyday of the Blair years, it would be a boon for property buyers. In particular, first-time buyers are likely to be able to look far more realistically into buying, with prices lower than they have been for some years and developers offering deals across the board.

Cutting stamp duty will also help those further up the housing ladder; stripping away some of the added costs that are keeping buyers and sellers wary of the market; but this isn’t a magic bullet to cure all of the ills of our property industry. In fact, should the government go ahead with this as a policy, it could provide a distorted view of the health of the market. If everyone rushes to buy and sell in the immediate aftermath of the abolition of stamp duty, there could be a bounce upwards in prices for which the market is not prepared.

Furthermore, both the shadow Chief Secretary to the Treasury and the Home Builders Federation have written to Chancellor Alistair Darling to express their concern that the government is playing ‘damaging short-term games’ with the economy. They warn that the rumours over stamp duty could provoke a further trough in the market, as buyers intentionally hold on until the decision is made, not wanting to pay a tax that may soon be irrelevant

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