Chancellor Philip Hammond has that tomorrow's Autumn Statement will target helping so-called JAMs - hard working families who are “just about making it”. This has been identified as the group likely to feel the pinch the hardest when inflation next year pushes ahead of wages. Given Hammond is faced with a post-Brexit £100bn hole in the national finances, whatever help he can offer is likely to be spread extremely thin.
We can only hope that he has the good sense to ignore some of the chutney currently being served up by an influential group of London-centric MPs, property lobby bodies and estate agents. They are becoming increasingly vocal in their demand for the Chancellor to cut stamp duty for second home buyers and investors looking to purchase homes worth more than £1m in order to boost the lagging housing market. Branding stamp duty a punitive tax that is holding back the housing market, this campaign amounts to a call for a measure that will stimulate further house price inflation.
According to campaigners transactions have fallen off a cliff, confidence has ebbed, and the prices of luxury prime central London homes have dipped. The curtain has come down on the Buy to Let bonanza and the overseas investment has tailed off.
Furthermore a loss of confidence in high-end property has been passed down the chain and is starting to ripple outside of the capital. As a result, stamp duty is hurting JAM families by causing job losses, harming social mobility, and forcing landlords to consider rent hikes. To avoid economic malaise, and woo overseas investment, Hammond should cut stamp duty to give the ailing housing market a shot in the arm and boost the economy. This, a Telegraph leader concluded earlier this week, would be “just what is needed to confront the post-Brexit economic challenges.”
Now, they are right in pointing out that stamp duty is not a good tax, and that reforms introduced last April have dampened the housing market - especially in London where prices are craziest. It is also likely that cutting stamp duty would increase transactions, and trigger renewed house price growth. But let’s be clear: renewed house price inflation is not the answer to Britain’s post-Brexit woes.
House prices in London are now 10.3 times earnings. This madness is no longer sustainable. Research by the charity Shelter has found that almost a third of working privately renting households are not be able to afford any of the government’s three main ownership products based on their income. Making this crisis more acute will only worsen the inflationary squeeze on JAM families.
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The claim that cutting stamp duty will mitigate rent hikes for this group holds little weight. Existing landlords may well increase rents - but this will be primarily a response to a different tax change: cuts to mortgage interest tax relief which will hit profits hard. Only the rents set by prospective new landlords would be impacted by stamp duty, and if Hammond is concerned about a lack of new entrants in the market, then he should consider offering stamp duty tax breaks to institutionally-backed build-to-rent developers instead. And if he wants to help support the lower end of the market, then there is an argument for cutting stamp duty for first time buyers.
But the complaint that stamp duty is dampening the housing market should fall on deaf ears - because this was what it was designed to do. George Osborne’s reforms were, in part, a response to Bank of England (BoE) concerns about a Buy to Let bubble. BoE concerns about highly leveraged landlords have not dissipated - indeed, new lending restrictions are being introduced to curb the risk of problems when interest rates eventually creep back up.
The other design of the reforms to stamp duty was to fill the Treasury coffers. So far this has broadly worked. HMRC estimates that £670m of revenue can be attributed to the additional 3 per cent stamp duty surcharge on second home buyers.
Campaigners have pointed out that Osborne hadn’t anticipated the full impact the reforms would have on the market. Given he didn’t see Brexit coming, this is probably true. But that doesn’t mean the market should be thrown a freebie. High end property prices have fallen - but so has the value of the pound. With political uncertainty quickly becoming a global phenomena, overseas investors will eventually return to snap up London property - and when they do, the economy will benefit.
These campaigners may garner some sympathies within government - after all, 128 Tory MPs are landlords. But if Hammond wants to mitigate the impact of rising inflation on JAM families then he should seek to protect them from further house price inflation.Reuse content