I thank my hon. Friend for that intervention. He proposed earlier that stamp duty should be based on the area of the property; I have some reservations about that for economic efficiency reasons. One of the considerations of taxation should be the ability to pay. If someone is buying a house for £400,000, clearly they will be able to pay a bit more tax than if they were buying a house for £200,000. But if the Government follow my proposal to get rid of stamp duty on residential properties altogether as an objective, his constituents will not have to pay any stamp duty whatsoever. They will pay the same stamp duty as the people buying houses in Louth.
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As I said before my hon. Friend’s intervention, for people buying residential houses and flats as second properties or investments, there is no reason for a graduated stamp duty. We should have a flat-rate stamp duty whatever the value of what they are buying, just as if they are buying a luxury yacht, a watch or a car. They pay a flat rate whatever the value.
There is an economic justification for treating the taxation of houses differently depending on their use that does not apply to other products: constrained supply. The greater the demand for cars, the more are produced—you just carry on building them. But although we are trying to build 300,000 a year, house supply is constrained. That forces us to think, what is the ultimate purpose of housing? It is homes for people to live in. Other purposes are secondary. That should be at the forefront of Government policy. If we could build as many houses as anyone would want to buy, all those arguments would fall away, but that is not the case.
The Government could do other things on second properties. The Centre for Policy Studies recently suggested—and the Treasury Committee accepted after consultation with colleagues—having a 1% annual tax on non-residential property owners who do not live in the UK. If they can buy properties here, they pay an annual tax for owning them. It is difficult to see the economic rationale for encouraging international investment in the UK property market. That is a whole other debate, but the arguments do not really stack up. We have an incredibly generous taxation regime for international investors in UK properties when compared with almost any other country, including the United States and most European countries. We could afford to be less generous.
Ultimately, the Chief Secretary to the Treasury and the Chancellor will wonder where all this money will come from. At the moment, out of the £10 billion of residential stamp duty a year, about half comes from the additional property tax—the 3% paid on second properties. They could increase that and decrease the amount of tax paid by people buying properties for homes. The Centre for Policy Studies and the think-tank Onward both made proposals on stamp duty reforms that were fiscally neutral. By ramping up the tax on second and investment properties and cutting away the tax on people buying homes to live in, we can basically scrap stamp duty for homebuyers in a fiscally neutral way for the Government. I urge the Treasury to look at those proposals.
The next point is on the Government’s methodology for assessing revenues from stamp duty. Again, there is a long debate to be had about how the Treasury assesses the revenues it gets from tax changes. On stamp duty, it looks at the impact on the number of transactions: as transactional tax increases, the number of transactions goes down. It takes that into account for stamp duty but does not consider the impact of those reduced transactions on other tax revenues for the Treasury, such as VAT.
People pay VAT on the estate agent fees, all the sofas, the building work and everything else that goes into home moving, which my hon. Friend the Member for Christchurch mentioned. That is a precisely known and calculable amount that could easily be fed into the calculations. I reckon that when someone buys a home, on average about half the tax paid is through stamp duty and half through VAT on all of the additional work that goes into home moving. If the Treasury and the Office for Budget Responsibility included that calculation, they would come to a very different decision about the optimal rate of stamp duty and make it far lower.
There are other order effects, such as the impact on the labour market. The Treasury hates to think about other order effects. I will not go into the detail, but it is far easier to calculate them with more certainty and reliability for stamp duty than it is for other taxes. It is a direct consequence of stamp duty as opposed to a generic economic growth effect.
The Treasury should do a review of stamp duty policy overall and how it calculates the revenues from stamp duty, because I do not think the current methodology stacks up. We would end up with a very different stamp duty policy overall that was more tailored to the Government’s objective of promoting economic growth while promoting home ownership.
On the amendments about reviews, I do not think it is the purpose of legislation generally to tell the Government to do reviews, which is what the Opposition spend an awful lot of time doing. If the Opposition want to get the Government to do things like reviews, they should win an election.