Not according to The Resolution Foundation’s recent report. They conclude that the current activity in the housing market is more influenced by other factors than the property transaction tax ‘holidays’ that were introduced by all the different UK governments last summer.
Who is The Resolution Foundation?
It’s very important to know whose opinion you’re reading. According to its About Us page, The Resolution Foundation “is an independent think-tank focused on improving the living standards of those on low-to-middle incomes. We work across a wide range of economic and social policy, combining our core purpose with a commitment to analytical rigour. These twin pillars of rigour and purpose underpin everything we do and make us the leading UK authority on securing widely-shared economic growth.”
As an organisation, they investigate and present findings to the government on a range of issues within this broad sphere. Their more recent work involved creating the calculation now used to define the (voluntary) National Living Wage.
This particular report was written by Lindsay Judge, Felicia Odamtten and Krishan Shah and is called ‘Housing Outlook Q3 2021: The effect of transaction tax holidays on house prices’.
What was the intention of the land transaction tax ‘holidays’?
In England and Northern Ireland it’s called the Stamp Duty Land Tax. In Scotland it’s the Land and Buildings Transaction Tax. And in Wales you pay the Land Transaction Tax. Central government and the devolved governments of Scotland and Wales all raised the thresholds of these taxes in order to support the housing market during July 2020.
The government intended to save jobs in the housing industry by helping buyers avoid this big additional cost of buying a property. An amazing saving of up to £15,000 per property.
What does this report conclude about the outcome of this economic policy?
The Resolution Foundation report contradicts those who’re claiming that raising the threshold for property transaction taxes has stimulated the economy, saying this is “somewhat wide of the mark.”
The report continues: “Instead, there appear to have been stronger forces at play within the housing market over the past year such as enforced savings during lockdowns, changing housing preferences and super-low interest rates. We conclude that the transaction tax holidays have been problematic less because they were inflationary, and more because they have been wasteful (the Government has forgone an estimated £4.7 billion of tax revenues in England and Northern Ireland as a result).”
Not only has it not been responsible for the housing boom, it’s actually cost the country money at a time it can least afford it.
The report presents a series of graphs to show how they’ve come to these conclusions, based on actual figures. One particularly interesting set of information shows that, “Prices have grown by more in those local authority areas where the average buyer experienced negligible, if any, savings as a result of a transaction tax holiday, compared with areas where far higher savings were achieved…”
They also note that the UK’s housing market has behaved in the same way as other similar countries. None of which employed any kind of tax cut to boost sales.
And HMRC’s response?
An HMRC spokesperson told the BBC: “The temporary stamp duty cut is helping to protect hundreds of thousands of jobs which rely on the property market by stimulating house moves. It’s time-limited nature is what has encouraged people to take advantage of the scheme.”