Budget Resolutions and Economic Situation

Part of Amendment of the Law – in the House of Commons at 7:25 pm on 26 March 2007.

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Photo of Greg Hands Greg Hands Conservative, Hammersmith and Fulham 7:25, 26 March 2007

I am coming to that.

The yield from all stamp duties is projected to rise from £10.9 billion last year to £14.3 billion in 2007-08, all because the higher thresholds remain at £250,000 and £500,000, and there is no sign of the Chancellor upgrading them in line with inflation—past, present or future. It is a London stealth tax. Because the average London home price is more than £300,000, and far higher in constituencies such as mine, and because the percentage rate rises from 1 per cent. to 3 per cent. at the £250,000 threshold, the majority of London home buyers need to find at least £7,500 in cash just to buy a property, and that is on top of the deposit, survey fees, legal fees and so on.

The effects of stamp duty banding are serious. It is a mobility tax and combined with the inflexible policies pursued by many councils, such as preventing otherwise reasonable loft extensions, the huge rises in stamp duty land tax are making previously uneconomic home improvements worth while; for example, light wells and basement conversions, which have sprouted up all over Fulham and south Hammersmith, especially since the punitive stamp duty regimes came in. Light wells tend to flood, and there is a real fear that their increasing prevalence may lead to long-term structural damage to neighbouring properties. Ironically, my constituency is reckoned to be one of the first in Britain that would disappear if some of the more dire predictions of global warming were to come true. The flooding may get much worse.

The impact of stamp duty on mobility in London is severe and leads to a number of effects that other Members frequently remark on in their constituencies. Before the big increases in stamp duty, families used to move within Hammersmith and Fulham when they wanted more space because of, for example, an expanding family, or even just a better-paid job. Now, the move from a two-bedroom house, perhaps costing £450,000, to a £600,000 three-bedroom house will cost £24,000 in stamp duty alone, plus the extra £150,000 difference between the two sale prices.

If we compare the £24,000 stamp duty bill with a loft conversion costing on average £35,000, a side conversion costing £45,000 or a light well at around £60,000, we start to see why such home improvements are all the rage. An argument might be made that those buying and selling simultaneously should pay stamp duty on the difference between the prices of the two homes, as long as they are below a certain level and there is a minimum fee. In my view, that idea should be explored. It would be rather like capital gains tax, which is paid only on an increase in asset price. It might be said to discriminate against first-time buyers—I shall come back to them—who, by definition, have no property to sell, but I believe that the proposal would have an impact on the supply of homes to the market, in London in particular, which would have a huge knock-on benefit for first-time buyers. It would also encourage people, mainly retired, who wanted to trade down the size of their home, because they would end up paying no stamp duty and would thereby free up a family-sized home for another buyer. We could also look at schemes such as those in Australia where first-time buyers can be exempt from stamp duty.