Stamp Duty Land Tax (SDLT) is an outdated and uneconomic levy that wreaks havoc on Britain’s already troubled housing market. It deters property sales, depresses house-building, and hurts the wider economy. Getting rid of it is the single best reform that any government could make to Britain’s tax system. The crucial thing to understand is that SDLT is a tax on transactions – specifically, on moving house. And whenever you tax something, you get less of it. Mutually-beneficial trades that would otherwise have taken place no longer do.
Fewer property sales is not just bad news for estate agents. It means that over time, scarce housing is systematically misallocated. Empty-nesters choose not to downsize; growing families cannot find suitable space. More broadly, it gets harder for people to move where the best jobs and opportunities are, creating a significant drag on our productivity and prosperity.
Moreover, by stopping sales, SDLT likely reduces the rate of new-build property construction, compounding the negative effects already noted.
Overall, research suggests the wider economic and social cost of SDLT is equivalent to about three-quarters of the revenue raised. This is on top of the loss to the people actually paying the tax. SDLT is therefore many times more economically damaging per pound of revenue raised than broad-based levies like income tax or VAT.
We should not worry too much about the fiscal impact of eliminating SDLT. While some offsetting spending cuts may be necessary, the overall revenue loss will be much smaller than headline figures suggest, precisely because of the positive economic impact of abolition.
Scrapping SDLT is not a panacea; it will be most effective alongside wider planning reform to ensure more new homes are built where demand is highest. Nevertheless, the Conservative commitment to scrap SDLT is extremely welcome. Indeed, it is such a good idea that the current government should steal it and beat the opposition to the punch.
Tom Clougherty is Executive Director & Ralph Harris Fellow at the Institute of Economic Affairs