Friday, October 22, 2010

Stamp Duty

There are a lot of people who change jobs, and end up with a long commute by car. Stamp Duty on house purchase is a massive expense for anyone moving home, so a lot of people may delay or avoid moving to live nearer their employment so they don't have to pay this tax. In other words, stamp duty acts as a perverse incentive to commute further.

It would be 'greener' to abolish or at least reduce stamp duty and raise motoring taxes in order to incentivise people to be more 'mobile'. This is an example of 'alternatives to travel' that the Government should be exploring, which would also include videoconferencing, teleworking, and so on. Stamp duty is a volatile revenue-raiser, as it is dependent on house prices and transaction volumes. In 2002-03, it received £3.59bn; in 2007-8 it raised £6.5bn. Compare that with about £30bn from fuel duties and VED ('road tax') combined. So to raise £6.5bn from existing road taxes would mean an average rise of about 20%. The amount required is likely lower in 2010 due to the quiet housing market.

Clearly, the structure and timing of tax changes needs to be managed carefully so it's fair: the objective should be to reduce long commutes rather than penalise drivers in general. However, the current system is clearly in nobody's interest. Many people don't want a long commute, but the stamp duty on even a relatively modest house in London being £20,000+ is a powerful incentive not to move.

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