Saturday, February 26, 2005

Stamp duty hits poor

According to the Halifax Bank, almost every first-time buyer now pays stamp duty. This is because the threshold at which the 1 per cent levy becomes payable has been left at £60,000 since 1993. If it had been raised in line with house price inflation it would now be £156,900.

This is classic fiscal drag, and it's one reason why this duty now raises £4 billion annually. Another nice little earner for Gordo, but it means that poor home buyers have been pulled into the tax net making it harder for them to get onto the property ladder.

Of course, G has increased the tax take from richer home buyers even more by sharp rises in the higher rates- up to 4 per cent for homes over £500,000. So at least the rich get super-squeezed, making us more equal. Right?

Well, wrong actually. The numbers are tricky to unravel, but in their recent Green Budget the IFS estimates that that G's increased duty rates hit the poor just as hard as the rich. They say that the hikes alone reduce average post-tax incomes for the poorest 10 per cent by the same percentage as for the richest 10 percent- by about half of one percent in both cases.

So the overall structure of stamp duty- even with the higher top rates- is still regressive. The latest ONS analysis shows that in 2002-03 this tax cost the poorest 10 per cent an average 1.1 per cent of their net incomes, against only 0.7 per cent for the richest.

It's another case of G's desperate need for stealth tax revenue producing inequity. He's crushing the very people he says he's trying to help.

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