The excitement over the chancellor’s modest surprise – the abolition of stamp duty for first-time buyers purchasing properties worth up to £300,000 – lasted about five minutes. The Office for Budget Responsibility quickly pointed out that this supposed giveaway will increase house prices. The winners will be people who already own a house, not those trying to enter the market.
Philip Hammond might counter that first-time buyers, by saving up to £5,000 in stamp duty, will be able to save more money for a deposit. Yes, but the numbers won’t impress outside London.
The Office for Budget Responsibility is the government’s independent forecaster, which gives its verdict on the outlook for growth and the public finances twice a year.
The forecasts are published to coincide with the chancellor’s two big set pieces of the year – the autumn budget and the spring statement – and takes into account the impact of any tax and spending measures announced in those statements.
The OBR also uses its public finances forecasts to judge the Treasury’s performance against the chancellor’s fiscal targets, stating whether or not it has a greater than 50% chance of hitting the targets under current policy.
It was established in 2010 by the then chancellor George Osborne with the aim of improving the credibility of the government’s official forecasts for growth. The forecasts were previously produced by the Treasury itself and often criticised for being unrealistic.
The OBR is led by three members of the budget responsibility committee, including chairman Robert Chote, a former director of the Institute for Fiscal Studies, with support from the OBR’s permanent staff of 27 civil servants.
Anthony Codling, analyst at City firm Jefferies, calculates that the average buyer spends £165,000 on a first home. The removal of stamp duty on a such a property will be worth £800 – small beer if you’re aiming for a 5% deposit, representing £8,250 in this example. “If the goal of the budget was to help increase home ownership, the wrong lever has been pulled,” was Codling’s common sense conclusion.
Still, it might be said, the chancellor’s entire package of housing measures was worth £44bn, which sounds like serious money. Sort of. Only about £15bn represents new support and the various forms of funding, loans and guarantees will arrive over five years. Given the size of the housing problem, you cannot call it radical intervention.
What about the threat to clobber big housebuilders who hoard land? That line put a minor dent in share prices, but let’s see what Oliver Letwin’s review turns up.
The companies swear they’re not running quasi investment funds. They say they go to work as soon as planning permissions arrive in “implementable” form – in other words, after relevant conditions, covering road access or whatever, have been met. That final stage can take a year or more, they say, which sounds plausible.
The real problem may be more subtle. It’s about the speed of building once it starts. The firms plead it’s not possible to build out major sites – those on which a couple of thousand new homes are being constructed – any faster. They say they fear flooding local markets. Really? The argument sounds self-serving. The real worry may be that cutting selling prices would hurt profits.
Given that many big housebuilders are generating fat margins of 25%, many would conclude that what’s really needed is a big prod to hurry up. A leisurely pace suits the builders too well. Selling prices flutter higher and the flow of dividends to shareholders, which has been spectacular in the past half-decade, is not threatened.
But it’s hard to see how Letwin’s “use it or lose it” review could crack this more complex problem. Pure landmarking is relatively simple to spot. It is trickier to define, and then punish, slow build-out.
On the plus side, Hammond has grasped the need to encourage small housebuilders. There will be £630m to “unstick” the delivery of 40,000 homes on small sites, meaning those that the big firms ignore. This effort to identify a fresh supply of brownfield urban sites is essential. It’s where the chancellor’s predecessor should have started, instead of stimulating demand with help to buy.
Stamp duty is a tax charged by the government when you buy a property for more than £125,000. The amount you pay depends on the cost of your new home.
The tax was first introduced in 1694 as a way to raise money for a war against France, and was eventually introduced on a wide range of purchases, including newspapers and perfume.
In 2003, the then chancellor Gordon Brown introduced stamp duty land tax (SDLT) to replace the old duty and homebuyers became legally responsible for declaring their purchase and paying the tax.
In recent years successive chancellors have used the tax as a lever to alter the course of the housing market. In 2008 and 2010 Alistair Darling launched stamp duty holidays aimed at encouraging sales; in 2012 George Osborne introduced higher rates for £2m-plus properties bought by overseas companies; and in 2016 he added a surcharge on second homes in a bid to calm the buy-to-let market.
The biggest change came in December 2014 when Osborne overhauled the way stamp duty was calculated. Prior to that, the whole value of a purchase was taxed at the same rate, leading to property prices bunching underneath each threshold. Since then, it has been charged like income tax – you pay a higher rate only on the part of your purchase that falls over each threshold. Anyone buying a property costing up to £937,000 pays less than under the old rules.
Guarantees to support new rental properties are also welcome. That part of the market is often over-looked in the obsession over home ownership. Hammond could have gone further: a wall of pension fund money wants to invest in the rental sector.
Yet there’s a further threat to the chancellor’s ambition to get 300,000 additional homes a year built by the mid-2020s: the shortage of labour, a problem that Brexit may intensify. An extra £34m “to develop construction skills across the country” will barely move the dial. Believe in the 300,000 target only when it has been met.
VAT fraud needs joint liability laws
The best announcement in the budget was the vow to crack down on online VAT fraud – meaning the practice of firms, often Chinese, illegally selling goods tax-free to UK consumers on sites such as Amazon and eBay. The chancellor’s proposal will make online marketplaces jointly liable for VAT. Good move.
Past investigations by the Guardian have demonstrated how rife the fraud is. We found sellers trading without displaying VAT numbers. Others showed made-up numbers or numbers cloned from unsuspecting legitimate businesses.
Relying on Amazon and eBay to warn sellers of their obligations, or to delist offenders, has achieved little. Hammond put the cost to the taxpayer of VAT fraud at £1.2bn per year. If such a sum was being leaked via traditional retailers, there would be outrage.
The online giants usually grumble that they shouldn’t be responsible for the VAT compliance of independent sellers. That is disingenuous nonsense. They have helped to create the problem – joint liability may make them solve it.