Former housing minister Mark Prisk talks about stamp duty and the Chancellor’s challenges
Government should tackle the issue of stamp duty for ‘last-time movers’, he tells Knight Frank
7 minutes to read
Mark Prisk is a former surveyor and was Housing Minister between 2012 and 2013. He was instrumental in the launch of the government’s Help to Buy scheme. “The property industry and politics often speak different languages,” he says. “Luckily I’m bilingual.”
The housing market has become politicised in recent years, how did that happen?
Housing has always been a political football. The Conservatives want to talk about home ownership and the Labour Party focus on social housing. During the Blair and Major years it was actually quite a long way down the agenda and I remember saying to people who wanted to move it further up the agenda – be careful what you wish for.
It became more political because you had falling home ownership rates and prices were rising to the point that more people in their 20s and 30s were living at home with their parents. When the global financial crisis came along we realised that we needed to get a grip of the problem and that was one of the reasons I introduced Help to Buy in 2013, to tackle the barrier of the deposit for people locked out of the market.
There were also a lot of new property taxes, weren’t there?
True, but if you look at buy-to-let owners, the government felt the market needed to be skewed in favour of owner occupiers. That’s not to say that a number of my Tory colleagues wouldn’t stop me in the corridors of Westminster and give me an earful to tell me we should be the party of home ownership and to stop making life difficult for landlords. There were ideological splits inside the Tory Party.
Stamp duty became a real sticking point. Did the government recognise that?
I certainly recognise that stamp duty has distorted the market, particularly at the upper end. There is a legitimate argument to reduce it in order to increase transaction numbers, but the key challenge for the government is to unpick all of that without a substantial loss in revenue.
The first thing to say about stamp duty is never underestimate the fact it generates a lot of money for the government. If the government has a substantial and steady form of revenue coming through the door they will be reluctant to change the status quo.
Do you think the government will now reform stamp duty?
Setting tax policy is like nailing jelly to the ceiling. When you try to do something you change people’s behaviour, the lengths people will go to not pay tax are remarkable. The government always has to be careful not to create a whole series of loopholes.
It’s very easy when you are outside government to say “if you did x then y would happen” but if it was that simple then it would have probably already happened. Politics is always the choice between the awful and the really awful. If it was easy versus hard then politicians would never fail to get re-elected.
That sounds like a ‘no’…
For the next ten years, the Chancellor will be under immense pressure to focus on tax revenues. I think there is an argument in the short-term for a stamp duty holiday but the moment you grant a holiday you distort behaviour at either end of it. But of course the government will look again at stamp duty if it’s not working.
However, I believe where there may be a desire for change is for so-called last-time movers, the downsizers. The question for the government will again be ‘how do you police it and stop people abusing it’ but I can see them making an exception here.
Why the exception?
It plays into the wider need to sort out social care, a topic that will dominate this Parliament. The rate of growth of the over-65 population is three times that of those under 65. If that end of the market is not moving then chains get stuck.
The desire to move over the next 12 months may be suppressed for some older people due to Covid-19, so the government will have to take that into account and make sure that doesn’t prevent the property market from functioning properly.
Will the issue of social care have wider implications for the property market?
The social care crisis is the big issue through which the government should tackle the discussion on issues like council tax, inheritance tax and capital gains tax.
The Conservative Party got it half right in its 2017 election manifesto but we should have capped how much of your property’s worth would be used to fund social care costs. We went halfway down that track and pulled back. In the NHS and Social Care you have two systems that don’t talk to each other and we’ve seen that illustrated tragically in recent weeks.
We all want to get to a situation where people do not have to sell their homes to pay for care fees. The longer you can keep people living independently the better. My instinct is that there will be a commission on social care and if you went about it properly you could also look at things like re-banding council tax and reforming national insurance. The Chancellor will want a reasonably soft landing for the economy but he will be thinking carefully about longer term reform of taxes.
Do you think that will include the 2% surcharge for overseas buyers? Doesn’t a post-Brexit UK want to show it is open for business?
There is of course a tension around the 2% surcharge and the UK needing to look enterprising and engaged but my instinct is that is not something the government will change. For the next 12 months, the Chancellor will be thinking ‘is there anything I can do to make the economy grow faster?’ Don’t underestimate the queue of people outside the door of the Treasury with ideas about how to do that. My suspicion is that 2% surcharge for overseas buyers will not be at the front of his mind.
What will be at the front of his mind?
The government has two things it now needs to do. First, it needs to breathe life back into the economy before Christmas. Second, it must give confidence to international markets that they should continue to lend to the UK. The issue for the Chancellor is that there is an inherent contradiction between those two things.
In terms of the property market, the key question the Chancellor will ask himself is ‘what can the government usefully do to make transactions as easy as possible?’ In that respect, I expect things like electronic transactions and conveyancing will continue.
What about more radical tax raising measures such as charging people capital gains tax on the sale of their main home?
Like inheritance tax, that is a very totemic issue for the Conservative Party. People will feel that they have bought a house out of their taxed income and then if they are being taxed twice, that may prove a political challenge for the government. So, I think the removal of that CGT exemption for main homes is unlikely.
The government has an 80-seat majority and Covid-19 will inevitably affect their popularity. It has some time in the locker before the next election but not a huge amount. By then, they will want people to feel like they’ve turned a corner and will need social care sorted before then. For that reason I also can’t see them putting up consumer taxes like VAT.
The overall point to make is that the tax system is now hideously complicated and expensive and time-consuming to administer and there comes a point at which the government needs to simplify things. I think it’s time to move property taxes away from transactions to underlying assets and the current reliance on stamp duty needs to be made less significant, but that does of course open up the whole debate around wealth taxes.
How will the profile of housing change inside government after Covid-19?
It’s clear is that housing delivery will be very important. But in Robert Jenrick you have someone who is very passionate about the housing market and the manner in which he cleared the way for the market to re-open shows how pragmatic and practical he is.
Housing will remain an important issue and it would be nice if it became a less partisan issue. But when you have people like Edward Lister in Number 10 and the Chancellor himself, you know you have people at the heart of decision-making who understand why the market matters. If the housing market is working well there is a whole lot of consumer expenditure that is also going on to generate revenue too and the government gets that completely.