Angela Rayner must resign as Housing Minister and Deputy Prime Minister, obviously. How could she sit on the front bench through a tax-raising budget without everyone’s eyes gravitating towards her, as the minister who thinks tax rises are for everyone else, not her? But the fate of Rayner obscures the bigger scandal here, which is stamp duty itself. No one should be facing a £70,000 bill for buying a two-bedroom flat – nor, for that matter, a £30,000 one, which is the what the bill would be for someone who is genuinely buying a main home for £800,000. The latter sum is not far short of the annual average salary.
The rise in stamp duty over the past couple of decades is a symptom of Treasury greed which is killing off the housing market
The rise in stamp duty over the past couple of decades is a symptom of Treasury greed which is killing off the housing market, thwarting labour mobility and making for inefficient use of the housing stock by dissuading people from down-sizing. Moreover, higher rates have failed to generate much more revenue because they are contributing to lower sales volumes. In the year to the first quarter of 2025 stamp duty raised £18.4 billion, which in real terms is only four fifths of the £14.1 billion raised in 2007-08 – this in spite of the sharp rise in property prices and a hike in the top rate of stamp duty from 4 to 12 per cent (plus an extra 5 per cent for second homes and investment properties).
If ever there was a demonstration of the Laffer Curve in action it is with stamp duty. Thirty years ago it was levied at a flat rate on 1 per cent on property purchases above £60,000. The Gordon Brown hit upon it as a way of generating extra revenue without breaking his promise not to raise income tax. In 1997 he introduced a 1.5 per cent rate on sales above £250,000 and a 2 per cent rate on sales above £500,000. He ratcheted this up in stages until, by the eve of the property crash, it reached 4 per cent on sales above £500,000. So far, from the Exchequer’s point of view, so good. It didn’t seem to be dissuading people from moving house, and revenue soared.
After the property crash, to which the then Labour government responded by temporarily raising stamp duty thresholds, George Osborne decided to repeat the act, raising stamp duty in stages in the hope of filling what was by then a very large hole in government finances. In 2011 came a new 5 per cent rate on sales above £1 million. The following year there was yet another hike to 7 per cent on property sales above £2 million. In 2014, the profile of stamp duty was changed – rather than a slab charged on the whole value of a property it became more like income tax, with progressively higher rates charged on the first £250,000 of value, the next £250,000 and so on. For prime properties the result was punitive: the rate charged on property value in excess of £1.5 million was a hefty 12 per cent.
If Osborne hoped for extra revenue he was sorely disappointed: stamp duty receipts began to stagnate. They did not revive after an extra 3 per cent levy was placed on second homes and investment properties in 2016 (raised to 5 per cent by Reeves last year). In fact, in real terms revenues began to slide, reviving only in 2020-21 when the government introduced a stamp duty holiday to keep the market alive during Covid.
There is a very clear message from this real-life Laffer experiment: homebuyers will tolerate stamp duty of up to around 4 per cent. Increase it beyond that level and you won’t bring in extra revenue, you will just damage the housing market. Either people will not move or, like Rayner, they will find ways of avoiding the tax.
I would love to think that Reeves will have been watching these past ten days and that it will have sunk in how damaging current rates of stamp duty are. Does that mean she will cut them in her forthcoming budget? Sadly, my hopes are not high.
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