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Economist says Stamp Duty Should be Reduced or Abolished for all but New Homes

Orginally published - 23 March 2000

Professor Andrew Oswald, Professor of Economics at the University of Warwick, has published a short paper today arguing that the Government should reduce or abolish stamp duty for most if not all house purchases for the following reasons:
  • Economies run more smoothly if people can move around. We need workers to be able to match their skills to those being looked for by employers in different areas. Taxing mobility does not make sense.
  • The argument that a 1% stamp-duty tax is low misses an important point. House prices double every ten years. Before we know it, most of Britain will be in the higher tiered bands of tax, far above the 1%, and politicians will forget to adjust the thresholds down.
  • It is common to hear the argument that a 1% tax is small so it does not matter. This is wrong. Most movers in Britain own only a quarter of the house they are buying. The rest is owed to the mortgage company. Then the effective tax is 4% of my worldly assets. One would have to pay 1000 pounds of ones entire life's savings of £25,000 to buy a house valued at 100,000 pounds.
  • The country with the highest labour mobility in the world is the US. Its people are approximately three times as mobile across regions as the British. Unlike the UK the US charges no 'stamp duty' tax on home buying.
  • In small congested countries, stamp-duty taxes encourage workers to stay put when changing jobs. That means workers end up commuting further and further to work.
  • If the aim of stamp duty is to encourage people to be renters, it will not work. To do that, the huge capital-gains tax breaks on Britons' housing would have to be reduced, and the life of landlords would have to be made easier.
  • If the purpose of stamp duty is to improve fairness in society -- to act like a wealth tax, in other words there are better ways to do that without taxing mobility itself. We could tax a house only once (when new), for example.
  • If the aim is to reduce the size of house-price booms and busts, stamp duty will not work. It has a once and for all effect on the level of house prices, and probably no major influence on underlying volatility.

Link to full paper in PDF format

For further information please contact:

Professor Andrew Oswald, Professor of Economics
University of Warwick Tel: 024 76 523510 (Office),
01367 860005 (Home)
email Andrew.Oswald@warwick.ac.uk (office)
a.j.oswald@oswald.co.uk (home)
Web http://www.oswald.co.uk