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Pressure grows to ease Stamp Duty burden on first-time buyers

With recent provisional figures by the Inland Revenue showing proceeds from its Stamp Duty regime have risen threefold over the past seven years the debate over its impact on the housing market has once again moved it into the Westminster spotlight. Analysts have interpreted Tony Blair&#39s early September vow to help those struggling to buy a home as the clearest signal yet that Stamp Duty may be cut. The question is – can the government afford to lose such a money-spinner?

Stamp Duty is an often overlooked cost of homebuying but is one that increasingly influences the amount purchasers have to borrow and the amount of revenue raised from the housing market by the government.

Stamp Duty is calculated as a percentage of the value of a property. A transaction valued at under £60,000 is exempt. Above this threshold the rate is 1% on purchases up to £250,000 and 3% for transactions up to £500,000. There is a ceiling of 4% for all purchases worth more than this.

A number of commentators have spoken about the burdens of Stamp Duty on first-time buyers struggling to find the funds needed for it and on homeowners being trapped by the amount of the duty they would have to pay to move to a more expensive home. This supports the feeling that while it remains a nice earner for the government, Stamp Duty is an increasing expense for buyers.

Chancellor Gordon Brown&#39s reluctance to reform Stamp Duty is surely linked to the large amount of money it brings him. The IR figures show that total revenue in 2004 stands at £7.5bn. It is feared that any increase in the Stamp Duty starter threshold would be compensated for by increased rates for those in the higher bands.

The Conservatives are making political capital out of the Stamp Duty increases in the Shires. In Henley-on-Thames, for example, they point out that the average increase has been £12,443 since 1997. And the Liberal Democrats had their London mayoral candidate Simon Hughes revealing in April that Stamp Duty in London has rocketed almost 500% in the past six years to £965m. The question is – will Brown bow to pressure and amend the level of duty?

With the average house price now at around £140,000 the pressure is on the government to raise Stamp Duty thresholds in line with inflation and to radically increase the threshold of the zero band. A zero band of below £150,000 is considered by many to be a reasonable starting point.

But the chancellor&#39s record so far is one of increasing Stamp Duty. He has made four increases to the bands in the past seven years. However, the £60,000 threshold, or zero band, has not changed since 1993. Of course, house prices have increased since 1993 and in many areas it is impossible to buy a house at or below the £60,000 threshold.

Over the same period governments have been under pressure to make property ownership more accessible to young people, yet Nationwide says the number of first-time buyers has slumped to its lowest level in 20 years. Some commentators think this is linked to the increasing burden of Stamp Duty. A duty originally designed to tax the purchase of the most expensive properties has become an imposition faced by most homebuyers, even in the purchase of their first home.

The issue is fraught with political consequences. However, there now appears to be an opportunity to use Stamp Duty as a means of promoting house purchase by first-timers. The social, economic and political benefits of raising the zero band threshold suggest that although this is long overdue, it may be advantageous to act sooner rather than later.

Cabinet minister Tessa Jowell said recently that Labour&#39s election manifesto would include “more help for people to get on the housing ladder” and that the party was reviewing the Stamp Duty system and even considering a blanket exemption for first-time buyers. There is no doubt that the cost of Stamp Duty will be a increasingly valuable tool in the race for Downing Street. This will be a subject we will hear more of as we head toward the 2006 General Election.

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