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Kemi Badenoch is proposing to abolish one of the UK’s most unpopular taxes — the stamp duty people pay when buying their main home.
The Conservative party leader claims that the move, which would chiefly benefit wealthy homeowners and is estimated by the Tories to cost about £9bn, has the support of economists. This is because stamp duty distorts the property market, discouraging people from downsizing or moving to take a new job.
But experts say Badenoch’s proposal would need more credible measures to fund it and highlights the need for wider reform of property taxation.
Tim Leunig, a former government adviser, said scrapping stamp duty — while it would boost growth and productivity — would be “a very, very big tax cut for rich people”. He argues that one effect would be to boost house prices, making the main beneficiaries the existing owners of expensive properties in the south-east of England.
What is the proposal?
The Conservatives said that if they win the next general election they would abolish stamp duty for the purchase of primary residences in England and Northern Ireland. The tax is currently charged at different rates on different portions of a property price on residential properties costing more than £125,000, unless you are a first-time buyer.
Scotland and Wales have different systems and the Conservatives said it would be for the devolved administrations to decide whether to follow suit.
Badenoch said stamp duty was a “bad tax, an un-Conservative tax”, and that abolishing it would “unlock a fairer and more aspirational society” while boosting economic activity as more people moved homes.
Tory officials said the policy would be implemented early in a Conservative government to avoid “forestalling” in the property market while people waited for the tax to be axed.
How much money does stamp duty raise?
The Office for Budget Responsibility expects stamp duty on residential property to bring in revenues of £10.1bn in 2024-25. This is due to rise to £19.3bn by 2029-2030, partly because the threshold at which the duty becomes payable will not rise with inflation, and partly because the OBR expects the government’s planning reforms to lead to more house sales.
About half of this represents tax paid by people buying their primary residence, rather than a second home, the Conservatives say.
The opposition party claims the Labour government’s current plans for stamp duty represent a “stealth tax”, because the £125,000 threshold at which 2 per cent stamp duty is payable was set in 2014.
More than half of all homebuyers paid the 5 per cent rate on part of their purchase in 2023-24, the Conservatives noted, compared with just one in four in 2013-14.
Should stamp duty be reformed?
Economists have long argued for the tax to be abolished because it deters people from moving house — preventing them downsizing to smaller properties as they get older, making it harder for workers to move to better jobs, and adding to the UK’s acute problems with housing affordability.
“From an economist’s perspective, stamp duty is certainly among the most damaging mainstream taxes and overdue for reform,” said Thomas Pugh, chief economist at the audit firm RSM UK, adding that it drags down productivity and means “spare bedrooms sit unused while families squeeze into homes that are too small”.
“It isn’t a well-designed tax. Getting rid of it is a good idea,” said Arun Advani, economics professor at Warwick university and a research fellow for the Institute for Fiscal Studies, adding that abolition should eventually lead to productivity gains through better job mobility.
Leunig, who has backed broader reform of stamp duty and council tax in a paper for the centre-right think-tank Onward, also believes scrapping stamp duty would boost economic activity in the short term as more people sped money on renovations and new furniture as part of moving house.
Is scrapping stamp duty affordable?
The main argument against the Conservatives’ proposal is its estimated £9bn price tag.
Funding it would require “spending cuts that are well defined and that you can deliver, or an alternative tax from which one can raise the money”, Advani said.
But few economists believe the Conservatives can deliver its promise of £23bn of savings from welfare, or succeed in squeezing £8bn from cutting the UK civil service back down to its pre-Brexit size.
A separate concern is that scrapping stamp duty would be likely to fuel house prices — to the benefit of rich homeowners — as it did during a temporary stamp duty holiday instigated by then chancellor Rishi Sunak in the immediate aftermath of Covid-19 lockdowns.
Advani and others argue that broader reform, also overhauling the current system of council tax, could address both these concerns, as stamp duty revenues could be replaced by higher taxes on the owners of high-priced properties.
One reason successive governments had failed to tackle the outdated system of council tax, Advani said, was because of the potential to create large numbers of losers who would see the value of their house fall. Tackling both reforms in tandem could avoid “giant crazy gyrations” in property prices and would “feel more manageable”.
Marc von Grundherr, director of estate agent Benham and Reeves, said Badenoch’s pledge was “nothing but political hot air designed to win votes”.
“There’s absolutely no chance the Conservatives would give up such a considerable tax haul, especially in these uncertain economic times.”
