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£600m? Stamp duty move will not cost anything like that, say tax experts
Hugo Duncan, City Correspondent03.09.08
The Government's £600 million stamp duty holiday looks set to be hundreds of millions of pounds less generous than Downing Street claims.
Gordon Brown and Alistair Darling yesterday announced a year-long tax break for buyers of homes worth between £125,000 and £175,000 - claiming it will save the taxpayer £600 million.
But experts today said there would have to be a remarkable recovery in the housing market and a huge jump in property sales for the concession to be worth anywhere near £600 million.
Robert Chote, director of the Institute for Fiscal Studies, said: "How plausible that figures is is a matter for debate. It would be interesting to see why the Treasury thinks it is going to be as expensive as this."
With transaction numbers tumbling because of the freeze in mortgage lending, the figure is likely to be nearer £200 million.
Shadow housing minister Grant Shapps said the stamp duty holiday was "completely over-spun".
"Within 24 hours the Government's much heralded housing rescue plan is already falling apart because their sums do not add up," he said.
There were also doubts over how the reprieve will be paid for, given the parlous state of the public finances, no matter what figure it comes to.
The Government yesterday temporarily increased the stamp duty threshold by £50,000 to £175,000 in a bid to kickstart the housing market and help first-time buyers.
It means the one per cent levy usually charged for homes worth over £125,000 will not be taken until the £175,000 mark is exceeded. The move saves the buyer of a £150,000 home, for example, £1,500.
For Mr Brown and Mr Darling to give taxpayers the relief of the £600 million they promised, 400,000 homes worth £150,000 would have to be sold in the next 12 months.
However, the Treasury admitted that only 250,000 homes of any price were sold in the first three months of this year, the equivalent of one million for the year. Given the £125,000 to £175,000 price bracket represents 17 per cent of the market, that would be around 42,500 buyers relieved of stamp duty for the quarter, or just 170,000 in the year.
When the housing market is raging, around 1.4 million homes change hands each year - or 240,000 in the £125,000 to £175,000 bracket.
Mr Chote said: "It looks as though they must be assuming 400,000 transactions which I think would be rather larger than most people would expect.
"If the Government had announced this without a costing and asked people to guess how much, most people would have said rather less than £600 million."
Mr Shapps said: "They were keen to suggest the stamp duty concession would help half of all housing transactions but it now transpires only 17 per cent of buyers will actually benefit.
"This measure turns out to be far less significant than Brown would have us believe. It has become clear that far from being a rescue plan for the housing market, this is a desperate attempt to rescue the Brown Government."
The Treasury refused to say how it came to the £600 million figure.
A spokesman said: "The costing of £600 million is based on a number of factors, including projections of transactions, prices and behavioural effects.
"The Treasury doesn't publish forecasts of house prices and transactions."
Reader views (5)
Charlie of Soho - 600million is not the same as 6 billion!
- Ces, Israel
Sorry Md but if the saving on each transaction is £1750 343000 transactions would be needed to arrive @ £600M. But given that the measure will range from £125000 -£175000 this requires an average figure say £160000, or 375000 sales. In a favourable market this would be struggle, but as all the other factors are weighted against a strong surge the Treasury figures are just pipe dreams.
- Jeremiah, London
The Govt are acting like desperate drug pushers trying to get their junkies to have one last hit.
The best thing the Govt can do for the first time buyer is stop meddling & trying to keep prices artificially high...the first time buyer will return again when price levels fall to a level that they can raise a mortgage against
All the Govt are doing in effect now, is asking the young to continue to prop up the finances of the older generation by making them overpay for an asset that isn't being allowed to find it's natural level.
Shame on them.
- Robert Smith, London
Notice how this site chooses to say "£600 million" as opposed to "£6 billion" - to make it sound stingier than it is. I think we can all work out why...
- Charlie, Soho, London
Surely, as we are only talking about an extra £500 per tax exempt transaction, 1.2million homes would need to be sold to hit £600million?
- Md, London, UK
