A stamp duty denial and the Budget(s)

Originally published on August 20 on my blog for Inside Housing.

A stamp duty plan that apparently never was offers a tantalising preview of a Budget and spending review that will take place in neverland.

Saturday’s Times reported that sellers rather than buyers would pay stamp duty under plans for a tax shake-up by chancellor Sajid Javid.

The plan seemed either fraught with problems (sales would dry up as buyers waited for the change to take effect) or pretty meaningless (sellers would simply add the extra cost to their asking price).

And the story seemed built on flimsy foundations and journalistic hype – in the interview itself Javid was asked if he was considering the change and did not deny it but that escalated into a definite change in the headline – but presumably there was off-the-record corroboration too.

By Sunday the man himself was taking to Twitter to deny that he was planning anything of the sort:

Clearly this government is not quite the messaging machine with iron discipline that we’ve been led to believe and is just as prone to getting its wires crossed as any of its predecessors.

But what does this episode tell us about what’s to come for housing in the Budget – there is no confirmation yet whether that will be before or after the ‘do or die’ Brexit date on October 31 and there could even be one before and one after  – and the spending review to follow next year?

First, there probably will be more tinkering with stamp duty. Boris Johnson promised as much in his leadership campaign but the buyer-seller switch was cover for his real aim of cutting it.

As reported at the time, he wanted to cut stamp duty on homes above £1.5m from 12% to 7%, halve it on homes worth more than £500,000 and scrap it completely on homes below £500,000. There has also been speculation about cuts aimed at downsizers.

On the assumption that Javid will not consider the better option of replacing it with a land tax, that would satisfy the sort of people that Tory ministers meet at dinner parties but leave him with a big hole in his Budget (stamp duty on residential property currently raises £9bn a year in England).

But it does at least put its finger on a key problem with a dysfunctional housing market. Property transactions are still 25% down on levels seen before 2008 despite the billions poured into Help to Buy loans.

Second, we can probably expect some of those ‘bold measures on housing’ that Javid says he knows are needed from his days as housing secretary but what lessons did he draw.

It could bring back on the table the £100bn rent to buy scheme that he let it be known he was lobbying for ahead of the 2017 Autumn Budget only for it to be killed by the Treasury he now leads.

And that in turn would fit with the shift in emphasis back to home ownership signalled in the early days of the Johnson government.

It begs the obvious question of where the money would come from if not from existing affordable housing budgets – but sadly The Times did not ask him about it in the interview.

What he did say – and this is the third thing to look out for – is that he is considering a big change to the government’s fiscal rules to allow significant investment in infrastructure outside of the pledge to eliminate the deficit by the mid-2020s.

‘I’m weighing up the options,’ he said. ‘But when we have the budget, I will be thinking about whether we need to make any changes to the fiscal rules. It is obvious to me that when you’ve got some of the lowest rates on government debt this country has ever seen I wouldn’t be doing my job if I wasn’t thinking seriously about how do we use [that opportunity].’

All of which should make the question of whether housing should count as infrastructure when it comes to investment an even more urgent one to answer.

The arguments may seem sound to us –housing generates a return via rents unlike things like roads and investment in it helps to eliminate the deficit by reducing housing benefit spending over the long term – but accepting them would involve a shift in the long-held Treasury mindset that subsidising bricks and mortar rather than people is inherently wasteful.

Whatever the outcome of that debate, the Budget will also mean decisions about what follows the freeze in working age benefits including local housing allowance.

But they will be competing for cash with the tax cuts promised in Johnson’s leadership campaign and for attention with the supply side reforms like cuts in red tape that are said to be favoured by Javid as part of a post-No Deal boost to the economy.

All of which raises my fourth and final point – what happens if the supposed ‘million to one’ shot actually happens on October 31?

Operation Yellowhammer may be more focussed on shortages of food and medicine and queues at the Channel ports than the housing impacts of the neverland of No Deal but there are already plenty of warning signs flashing over the housing market.

Earlier this month leading housing organisations called for government help after leading London housing associations scaled back their development plans in response to the costs of cladding replacement and a slowdown in market sales.

Action on that, plus more investment in affordable housing in general, could be part of a counter-cyclical response to a No Deal downturn, but will there be room for it after tax cuts and help for home ownership?

The big housebuilders would also be under severe pressure after years of booming profits – so expect intense lobbying for Help to Buy to continue in its current form rather than be scaled back if that happens.

If the stamp duty non-story is a product of the silly season, things are about to get deadly serious and nobody knows the answers.

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