31 October 2023
The occupants of Downing Street find themselves in a bind ahead of the Autumn Statement on 22 November 2023. The recent Conservative conference appears to have had limited impact on the polls and the recent by-election results will no doubt have some in the party demanding a platter of tax cuts.
With the Truss mini-budget still fresh in the memory, Mr Hunt will have no desire to tarnish his record with unfunded tax cuts, particularly since he may not have long left in the role, but there may be a small surplus to allow some spending. How then might he get the most bang for his tax cut buck?
It is rumoured that potential cuts to inheritance tax and stamp duty land tax (SDLT) are under consideration. Both are unpopular taxes and would allow the chancellor to deliver a tax cut which is not potentially inflationary in nature, such as a cut to income tax, which could jeopardise one of the prime minister’s key priorities.
Whilst SDLT can be a source of frustration for homebuyers, it has become an increasingly important source of funds for the Exchequer. In 1 April 2023 to 30 September 2023, SDLT and other property tax receipts have amounted to £7.7bn. That is £3bn lower than the amount for same period last year but it is still higher than the total annual SDLT revenues of £6.9bn a decade ago.
That shows just how quickly the revenues have grown and in some ways SDLT is the perfect tax for the Treasury. Nearly everyone pays it, it’s largely straightforward to operate and difficult to avoid. Can the government really afford to scrap it in the circumstances?
It will certainly struggle to scrap it entirely at the moment and the chancellor may therefore be looking at options to raise the thresholds at which SDLT is paid. There is however one option which could prove more affordable and provide political capital in parts of the country.
SDLT revenues on residential property in the financial year to 31 March 2022 were £10.2bn and there are huge disparities in the amounts paid around England. For illustrative purposes, let’s define the South of England as London, the South East, the South West and the East of England. The SDLT paid on residential transactions in the South in the year to 31 March 2022 totalled £8.25bn, around 82% of total residential SDLT receipts in England. In contrast, SDLT paid on transactions in the rest of England that year totalled £1.86bn.
With limited funds to play with, the chancellor could look at scrapping SDLT on a regional basis outside of the South of England. That may not play well politically with the traditional Conservative base in the South. However, it might help improve the party’s levelling up credentials in the North after the criticism arising following the decision to curtail HS2 and represent a relatively inexpensive measure at the moment.
The consequences of such a move could help motivate retirees to downsize but also to encourage a shift to other areas in the country, freeing up housing stock in the South and potentially boosting the economy and the demand for house building elsewhere. There are undoubtedly potential adverse implications, as seen with previous SDLT measures taken which arguably artificially increased property prices.
Any steps should be carefully considered but with the general election fuse burning quickly and a need for eye-catching policies, perhaps scrapping SDLT based on postcodes rather than prices isn’t as far-fetched as it might initially sound.