The stamp duty holiday has generated 140,000 “extra” transactions in the UK mortgage market but contributed a meagre 0.1 per cent of GDP, according to a report.
In its report, ‘Lessons From The Stamp Duty Holiday’, the London School of Economics said thousands of homebuyers had been helped by the tax break but when it came to consumption the effect was not as great.
LSE distinguished policy fellow Kath Scanlon told FTAdviser in an online briefing: “I dare say there were other tax changes one could have made which would have stimulated more consumption.”
The holiday enabled first-time buyers to avoid stamp duty land tax on up to £500,000 of a house purchase between July 2020 and June 2021. On average, it saved individual buyers £15,000, according to the report.
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The government introduced the tax holiday to stimulate the housing market and to increase expenditure on goods and services relating to housing transactions.
But LSE found the “extra” 140,000 transactions, which it defined as “transactions which would not have taken place without the holiday”, sparked expenses of an average of £16,000 per transaction.
This totalled around £2.2bn, though LSE clarified in its report that this figure could sit anywhere between £1.8 to £2.7bn, “given the very large uncertainties around these figures”.
With the UK gross domestic product totalling £1.96trn in 2020, this means the stamp duty holiday expenditure contributed just a fraction, 0.1 per cent, to countrywide spending.
The biggest values in the stamp duty holiday expenditure total came from bathroom and kitchen renovations. Followed by gas rewiring, and then furniture.
LSE’s report added these values to the pre-sale improvements sellers made prior to putting their property on the market to attract buyers to calculate final expenditure.
For the economy as a whole, Scanlon said the stamp duty tax holiday probably wasn’t “so much” worthwhile due to the spike in house prices, compared to how worthwhile it was for the industry and its employers.
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“But this [the stamp duty tax holiday] was chartered at the housing market specifically and it seems to have been successful.”
When the holiday came into force, house prices began to climb, enjoying eight months of uninterrupted growth.
According to the Office of National Statistics’ (ONS) latest house price index, UK average house prices have increased by 10 per cent over the year to May 2021.
Scanlon said it would be interesting to compare the stamp duty holiday with the government’s Eat Out to Help Out scheme.
Whilst the LSE report did not explore this, Barclaycard figures showed the latter scheme prompted a 34 per cent jump in spending on dining out. The Treasury estimated the average claim was about £5 during the scheme’s tenure, totalling to an estimated 80m claims which cost it £400m.
Other contributing factors LSE cited in its report for the rise in house prices, alongside stamp duty tax, included the pandemic induced shift to rural areas with more space.
“The tax holiday was not wholly responsible for house price rise,” said Scanlon. “Consumer behaviours [due to the pandemic] really reshaped the housing market. Though we still don’t know if this is temporary, or here to stay.”
By Ruby Hinchliffe
Source: FT Adviser
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