Putting our stamp on the Budget

It was our duty and our pleasure to release a report on the damaging effects of Britain's Stamp Duty Land Tax. Ahead of the budget on the 22nd November Ben Southwood, Head of Research at the Adam Smith Institute, called on the Chancellor to drop the 'worst tax we've got'.

This cry for tax sanity was picked up by media organisations across the UK with coverage in the Sun (where it also featured in their budget recommendations), the Daily Mail, the Telegraph, the Daily Express, the Times, the i Newspaper and Independent, the Mirror, City AM (which also carried an opinion piece by Ben) and Metro. It was covered on Business Insider, PoliticsHome, ConservativeHome, Yahoo UK, and Ben wrote comment pieces on CapX and the New Statesman's City Metric. It also featured in Industry titles Property 118, Property Industry Eye, Property Wire, Estate Agent Today and in the morning briefing of Inside Housing. 

Go on, read Beyond the Call of Duty today!

To arrange further comment or an opinion piece from a member of the Adam Smith Institute please contact Matt Kilcoyne via email (matt@adamsmith.org) or phone (07584778207). 

Scrap stamp duty to get Britain moving and generate £10bn of economic growth

New report sets out why the UK should abolish Stamp Duty Land Tax

• Taxing transactions of Britain’s £7.5tn stock of property is keeping people in homes of incorrect sizes and too far from jobs
• Stamp Duty Land Tax is four times more harmful to economic efficiency than income tax, eight times more harmful than VAT
• SDLT could be costing the UK economy £10bn on top of the £12bn hit to house sellers
• Britain should abolish SDLT to boost economic productivity, growth and employment

Stamp duty on property sales is gumming up the housing market, stopping people from moving to the jobs they need, and keeping people in houses that are too large for their needs, a new report released by the Adam Smith Institute this morning says. The report suggests that stamp duty is the most damaging tax Britain has, and scrapping it should be top of the Chancellor’s agenda in the run-up to the Budget this month.

The paper argues that SDLT is deeply damaging to the UK housing market. Economists in Australia found that a similar tax to SDLT there was costing 75p for every £1 raised, making SDLT around four times more damaging than income tax and nearly eight times more harmful than VAT per pound raised. With SDLT costing British people £12bn a year, this means the tax may cause as much as £10bn worth of deadweight losses.

This happens because SDLT gums up the housing market  by penalising people from moving house. While the lack of supply of new houses is still the biggest cause of the housing crisis, it is exacerbated by SDLT stopping the existing housing stock from being used efficiently. By penalising older people for downsizing after their children have left home, for example, stamp duty stops larger homes from being sold to new families, making the effective supply of family-sized homes even tighter. Since stamp duty creates a built-in cost to moving it also creates a roadblock to people moving from one part of the country to another to find work, trapping people in low pay and preventing them from advancing. 

The UK is home to around £7.5tn of property, with homeowners taxed regressively against values last updated in 1991, and charged SDLT at rapidly escalating rates. The report proposes instead to abolish SDLT altogether, covering the cost by raising council tax bills on the most expensive properties in the country.  

Three weeks ahead of the Budget this policy is probably the most effective tax cut the Chancellor could go for, boosting growth and improving the fundamentals of the housing market at a stroke. Although the increased economic activity would likely offset some of the losses in the long-run, the paper suggests revaluing council tax and creating a new band for the most expensive homes as a way of making the move revenue neutral if necessary. The paper argues Britain can boost housing and labour mobility, as well as economic growth and productivity, by focusing on the smaller taxes that cause the most damage to the economy. That all starts with abolishing SDLT.

Ben Southwood, Head of Research at the Adam Smith Institute and author of the report, said:
 
“One of the best things about Philip Hammond as chancellor is a resistance to eye-catching schemes that sound good but don’t make good economic sense. But stamp duty is so bad that scrapping it would be both eye-catching and good economic sense.

"Almost any way of clawing back the money will do less damage than stamp duty does: it’s worse than council tax, income tax, VAT, and even corporation tax. Caution is a virtue—but complacency is not—stamp duty has had its day and should be consigned to the dustbin of history!”
 
Sam Bowman, Executive Director of the Adam Smith Institute, said:

“Stamp duty is the worst tax we’ve got, almost as bad as setting fire to the money instead of raising it in tax. The reason is that Britain’s productivity problem is in large part a mobility problem. People cannot move to where the best jobs for them are because the houses aren’t being built, and that’s made even worse by stamp duty keeping older people in family homes that are too large for them. Stamp duty is gumming up the housing market and keeping people trapped in the jobs that aren’t best for them, and scrapping it should be a no-brainer for a government looking for a bold, affordable way to take back control of the agenda in British politics.” 

Notes to editors:

For further comments or to arrange an interview, contact Matt Kilcoyne, Head of Communications, matt@adamsmith.org | 07584 778207.

The report ‘Beyond the Call of Duty’ is available here.

The Adam Smith Institute is a free market, neoliberal think tank based in London. It advocates classically liberal public policies to create a richer, freer world.

Subsidies and regulations on childcare are costing us all

This morning the TUC released a report showing that childcare costs are rising faster than wages and called for further public subsidy of childcare by the government. Matthew Kilcoyne, Head of Communications at the Adam Smith Institute, agrees that the cost of childcare is a pressing issue but is one that is best fixed by a free market approach, he says:

"The way to bring British childcare costs down isn't, as suggested by the TUC, to spend ever larger amount on subsidising nurseries but to remove the regulatory barriers that make childcare unaffordable. 

"By far and away the largest costs for childcare providers is the cost of labour. Currently in the UK one adult carer is required for every three babies, four toddlers, or eight children over the age of three. By contrast, in Norway the maximum ratio of carers to children is much higher for the very youngest, at nine children to one carer. Evidence from the USA suggests that adding one child per carer more cuts costs by between 9% and 20%. If we relaxed our rules on childcare to Norwegian or French levels we could end up halving childcare costs.

"High staff to child ratios aren't just expensive, they can harm the quality of care too. Studies show that looser mandated child to carer ratios encourage higher qualified staff to enter the industry at higher wages. 

"The Conservative government should embrace the free-market option, increase the quality of care and come on side with young parents who want the freedom to work and start a family."

For further comment or to arrange an interview please contact Matt Kilcoyne via email (matt@adamsmith.org) or phone (07584778207). 

We'll pay an absolutely extortionate bill for energy caps

With the government pressing ahead with a Bill to create an absolute cap on energy prices, the Adam Smith Institute laments the decision by the government to intervene in the energy market. Sam Dumitriu, research economist at the Adam Smith Institute, decried the move saying: 

“The Government’s proposed price cap risks fatally undermining competition in the energy market. The evidence is clear: when price caps are imposed customers stop switching, the best discounts are withdrawn and prices bunch around the cap. Customers may become complacent, leading to fewer billpayers accessing deep discounts by switching suppliers.

Imposing an absolute rather than a relative price cap is especially worrying. If wholesale prices change significantly, as they have in the past decade, then the cap swiftly become out of date. High prices send a signal to suppliers to invest in new infrastructure to meet demand. If the cap is set too low, firms may be deterred from investing risking blackouts. As a result Whitehall may be forced to take even an even greater role in picking and funding new investments in power generation. Theresa May will inadvertently make Corbyn’s case for nationalisation for him.”

For further comment or to arrange an interview please contact Matt Kilcoyne via email (matt@adamsmith.org) or phone (07584778207).

May burying head in sand with energy and housing policies

Today at Conservative Party Conference in Manchester the Prime Minister said she wanted to defend and explain the benefits of the free market. Sadly her words are not backed up by her actions as she announced an energy price cap and government housebuilding. Sam Dumitriu, research economist at the Adam Smith Institute, criticized the move to cap energy bills saying:

"Theresa May began her speech today saying she had a duty to defend and explain the free market. But her actions fail to match her rhetoric. Capping Standard Variable Tariffs will stifle competition and likely raise prices.

“The best way to make energy bills work for ordinary people is to boost competition, but May’s price cap will destroy the incentive for many customers to switch to a new provider, squeezing out new suppliers and will cause suppliers to raise prices on their cheapest tariffs. This is why the Competition and Markets’ Authority opposed price caps when they investigated the energy market in 2015.

“Huge price gaps between otherwise identical tariffs may seem bonkers, but it’s standard behaviour in any competitive market with high fixed costs. It costs Starbucks just a penny more to make a large rather than a small cup of coffee. But, politicians rightly don’t call for a price cap on Venti Chai Lattes.

“Excessive intervention by OfGem has reduced consumer choice, caused switching rates to half, banned the best deals on the market and led to E On’s Stay Warm tariff, which was praised for helping old aged pensioners, to be pulled from the market.

“Capping energy prices may be good politics, but it’s bad economics.”

On housing, where the Prime Minister committed the government to intervening in the market a rash move by the government could miss a golden opportunity to liberalise housebuilding and to win over younger voters. Sam Bowman, Executive Director of the Adam Smith Institute, says:

"It's tempting to laugh at today's speech but really it was quite sad. The Tories seem to have no idea what to do about housing, because they're so afraid of alienating their base that they won't do any substantive policy that could properly boost the supply of new homes. Again and again this week people asked how to connect with younger voters - the simple answer is to give them somewhere to live.

"Social housing isn't what people want to live in. Almost everyone would like to own their own home. We can do that, but only if we're prepared to change the rules of the game so that new developments benefit existing residents, and so that constraints on densification are eliminated. Take away the rules stopping streets of semi detached houses from being upgraded to terrace flats, and to build densely around railway stations and tube stations. Planning is the huge bottleneck here that is stopping millions of new houses from being built privately and affordably, and if the Conservatives are going to bury their heads in the sand about that then eventually voters will punish them for it."

For further comment or to arrange an interview please contact Matt Kilcoyne on 07584778207 or email matt@adamsmith.org

Help to Buy won't build the young any houses

This morning the government announced an extra £10bn would be used to revive the Help to Buy scheme. This will do nothing to increase the supply of housing, an issue we've looked at in detail recently, but could increase demand and so exacerbate the housing crisis it's targeting. 

Sam Bowman, Executive Director of the Adam Smith Institute, decried the move saying:

"Reviving Help to Buy is like throwing petrol onto a bonfire. The property market is totally dysfunctional because supply is so tightly constrained by planning rules, and adding more demand without improving the supply of houses is just going to raise house prices and make homes more unaffordable for people who don't qualify for the Help to Buy subsidy. 

"London has the second highest property prices per square metre in the world, only behind Monaco. New build houses are even smaller in the UK than in the Netherlands, despite being the most densely populated country in Europe. Only 2% of England is built on, but we're fenced in by NIMBYs and planning laws that block development nearly anywhere.

"To improve the housing market you need to change the rules of the game, so that damaged parts of the green belt can be built on, so we can have more dense and efficient development of existing urban areas,  and so that locals benefit from new developments near them. Reviving Help to Buy is an astonishingly ill-judged move that may prove economically and politically disastrous for the government."

For further comment or to arrange an interview please contact Matt Kilcoyne on 07584778207 or email matt@adamsmith.org.