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Gordon Brown might try to please his crowd

When Gordon Brown stands up this week it will be his 11th and most likely final Budget. Unless there is a big political upset, Brown will be walking through the door of 10 Downing Street as Prime Minister in a matter of months.

So this Budget is likely to be as much about Brown’s vision for his premiership as stewardship of the economy.

Education and youth provision are tipped to feature strongly, as is international development.

And even though Brown has robustly ruled out taxation as the stick with which climate change will be tackled, he is likely to outline other measures.

Calls for Stamp Duty threshold to be changed are also growing louder – witness Mortgage Strategy’s own campaign – and there is a strong case for reform. Stamp Duty is an often overlooked cost of home buying, but it is one which increasingly features in the amounts purchasers have to borrow from their mortgage lenders.

When Labour came to power in 1997 the average price of a house was 68,000. Stamp Duty was originally designed to tax the purchase of the most expensive properties. It was never intended as a tax to catch nearly every home owner.

Yet now, as the Council of Mortgage Lenders points out, only 41% of first-time mortgages are lent on properties below the 125,000 threshold. Last year, the Treasury netted a staggering 4.6bn in Stamp Duty.

The problem is that Stamp Duty has failed to keep up with inflation. The chancellor has made small concessions at the bottom end of the bands but the higher bands of 250,000 and 500,000 have not been revised since July 1997.

According to Halifax, the average house price has risen by 162% in the past 10 years. So this tax can often make the difference between someone affording to get a foot on the property ladder or not. In the South-East the higher bands are breached by flats.

But will this be enough to prompt reform? The economy is doing well and business investment is rising at the fastest rate in nearly a decade.

The next spending round is likely to be one of the tightest for years. Recent announcements on public sector pay awards were greeted with derision by unions. Brown accepted recommendations that awards should be within the government’s 2% inflation target. Nurses will get a 1.9% rise.

It is against this background that Budget spending decisions will be made. It is difficult to argue that home owners should get bigger tax breaks while nurses get such a low pay rise.

Yet, some pundits think there could be a radical shake-up of Stamp Duty, with new higher bands perhaps at 750,000 and 1m. That would go down well on the Labour back benches.


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