There was something artificial about the furore over the non-payment of Stamp Duty by extremely rich people buying extremely expensive houses. I might be the suspicious type, but George Osborne attacking a practice indulged in by the rich set bells ringing. Some of the debate afterwards gave the impression that the 50% tax rate, the mansion tax, the tycoon tax and ending the Stamp Duty dodge were just alternative ways of getting the rich to pay more: any one would do the trick.
Making predictions immediately before a budget may not be wise, but if my suspicion is correct, the 50% tax rate will be reduced, there will be no mansion tax and no tycoon tax, but there will be a big fuss about removing the Stamp Duty tax loophole. And that will be a disgrace.
It is often said by Government Ministers that Britain needs to have a ‘competitive’ tax system otherwise entrepreneurs and wealthy people who ‘create wealth’ will up sticks and move elsewhere. This is more often said than done but the threat is taken so seriously that Governments across the world have fallen over themselves to reduce upper end taxation. You can understand the huge pressure on them to do so because the amounts involved can so vast that they can destabilise a country. Over the past few years cosmic amounts of Russian money, Chinese money, and now Greek money and Italian money have flowed around the world to escape domestic uncertainty and to find international security. Billions of it has ended up in London housing.
Nick Pierce of IPPR has argued that London’s housing market has become the new global reserve currency for the mega-rich, estimating the amount of foreign capital flowing into London last year to be more than £5 billion, in the region of a quarter of the turnover of the inner London property market.
One estate agency had this to say about Britain:
it is the regulatory and tax environment that makes it irresistible. A safe haven for investment is always top of the search agenda for rich people who want to get richer. The UK provides exemption from certain property taxes for foreign investors, and the possibility of side-stepping or dodging others. Hardly heart-warming news for the vast majority, struggling in economic turmoil, but a trough of rich pickings to which any money-led snout is bound to be drawn. Call it temptation, call it unscrupulous, call it astute investment, it all amounts to the same thing: London is currently the place for foreign investors to amass property.
At the other end of the scale, tenants on low incomes are being pushed around London by large cuts to housing benefit; even people on good salaries are finding more and more areas out of their financial reach. Former mixed and thriving communities are becoming preserves of the rich as the Government peddles the line that poor people shouldn’t live where they can’t afford to live and should move.
Most people won’t see the connection between on the one hand a mega-rich Greek taking their money out of their home country – in the most unpatriotic way imaginable – to buy up a multi-million pound property in Kensington and Chelsea and on the other hand the plight of London’s ordinary people who can’t afford a decent home. But they operate in a single housing market and the international flight of money is so vast that it is having a huge impact across London.
In a brilliant blog yesterday, Jules Birch summed up the process that then follows:
Billionaires price out millionaires, millionaires price out the merely rich and the process feeds all the way down the income scale to priced-out first-time buyers, ripped-off private renters and forced-out housing benefit claimants.
In this context the avoidance of Stamp Duty is not much more than an extremely annoying sideshow: a loophole well worth closing, extra money well worth having, but even £150,000 tax* is ultimately unlikely to prevent a £3 million house sale, so the market will carry on. We should also have council tax bands stretching much higher up the valuation scale to bring in more tax every year. There should be a proper national debate about a Land Value Tax. But ultimately it is global action that is needed. The IMF should be working in reverse: instead of imposing cuts and privatisation on weak economies it should be setting an international tax regime which makes sure that the richest pay their share whichever country they are in. Every country would benefit and no-one would lose competitiveness as a result.
So, when George Osborne stands up to deliver his Budget, he should be doing far more than just closing the Stamp Duty loophole. If we are ‘all in this together’, the 50% tax rate, the mansion tax and the tycoon tax should just be the start.
*revised figure – thanks to TD for pointing out the error in the original piece and my failure to check the rates of Stamp Duty Land Tax.