I was reading in the Guardian in early January about the amount of Stamp Duty revenue that the Government will loose in the down turn and noticed that, as with a similar article in the Telegraph a couple of weeks later, the duty from shares and inheritance tax as well as stocks and shares all seems to be lumped together and the loss is ‘anticipated’ rather than factual.
So, snowed in for the past week, I put the old Amstrad to work taking each sale recorded by the Land Registry and calculating the Stamp Duty that would have been payable. I did this for both the calendar years 2007 and 2008.
Not surprisingly, considering the 53% fall in transaction numbers, the total Stamp Duty take from house sales for Alistair Darling fell but the figures aren’t as bad as the £15bn that had been mentioned.
The actual loss in 2008 for just house purchases was just an eye-watering £2.77bn!
I broke the numbers down by Stamp Duty Band (see above) to illustrate that sales at both the top and bottom of the market seem to have been equally effected although the number of sales at the bottom of the housing ladder seem to have held up better than those that are more expensive although this may just be creative accounting.
But just what does £2.77 bn equate to? When billions are being given to banks it’s easy to loose hold of what a billion pounds actually looks like. here’s what I found;-
It’s about the total amount of the T.v. license fee
or if size matters, it about the cost of the new aircraft carrier HMS Queen Elizabeth
and perhaps rather topically just now, it just a couple of million more than the Government bail out for car makers
and in case you still can’t get your mind around exactly how big two and a bit billion really is, it is rumored to be the size of Bernie Eccleston’s divorce
A billion here…
Senator Everett Dirksen is famously quoted as saying “A billion here, a billion there and pretty soon you’re talking about real money”. Government spending is rocketing while billions of pounds of tax take has been evaporating and there is little prospect of the situation improving in 2009.
As an initiative, raising the stamp duty threshold last autumn has proved as impotent as we had warned. However, the wholesale scrapping of Stamp Duty could still make a considerable difference to home buyers who now have to find an extra 10-15% just for a deposit. As lenders have forced up the amount that buyers have to save, those wanting to buy a home for £300,000 have to save an extra £9,000 to pay the Stamp Duty and those spending £500,000 are having to find £20,000 – all out of taxed income. That’s an extra 4% they have to save before they can buy.
Time to scrap stamp duty?
You may recall the Chancellor and Prime Minister scrapping about who would announce the raising of the Stamp Duty threshold last August? At the time, the increase from £125k to £175k was expected to cost the Treasury about £600 million. Well, having done the numbers, in the first quarter (3rd September – 31st December) actually the idea has ‘cost’ just £46m so far! This is a 12 month gesture which I expect will end up costing closer to £280m by the time it ends or is renewed on 2nd September this year and it’s hard to suggest that it has had any impact as prices and transactions have both dived. The exercise has added around 30,000 to the number of homes sold in 2008 that escaped Stamp Duty which would have otherwise brought the fall in numbers for this band up from 38% to 47% and the 1% Duty numbers would have fallen back to around 55%.
Many in the housing industry are beginning to openly question whether the current housing minister, the eighth since Labour came to power and her colleagues in Government really do understand what is really going on in the housing market. I suspect that some will be asking whether it is time for the current administration to step aside and let someone else have a go at fixing the problems that are costing both the Treasury as well as home owners billions of pounds and which I expect will be reflected in close to 100,000 home repossessions this year.