Scrapping the stamp duty cut would be a signal that the Conservatives are now a social democratic party
What will the Tories stand for after Covid? Will they relearn to love lowish taxes and freeish markets? Or will the virus turn them into European-style social democrats, supporters of every public spending and social engineering scheme going? Will a year of wartime economics browbeat them into acquiescing to permanently higher taxes, or will they have the courage to return to their core principles to reboot the country after the worst pandemic since the Spanish flu of 1918-19?
With excess deaths at horrifying levels, and mortality surging when adjusted for age, the only immediate priority must be the race to vaccinate. If anything, the Government should be throwing even more money at the problem: officialdom’s apparent lack of urgency has been disgraceful.
Boris Johnson and Rishi Sunak were right to temporarily jettison macroeconomic orthodoxies last year. Emergencies require the suspension of ordinary rules: for now, the size of the budget deficit remains irrelevant. Yet at some point, hopefully sooner rather than later, we will have vaccinated enough older and vulnerable people, the Government will reopen our society, and it will become time to start talking about fiscal discipline again.
What then? Will the Tories, scenting a window of opportunity, jack up taxes on property, capital, petrol, inheritance and just about everything else, as some influential voices have repeatedly threatened? Down that road would lie madness and oblivion: every Tory once knew that high-tax economies grow more slowly than lower tax ones, and most still realise how stupid it would be to hammer the private sector as it exits the worst depression in centuries.
We will get the first inkling of the Government’s post-Covid ideological direction at Sunak’s Budget on March 3. It will, in the main, be a non-event: with the schools still shut and the economy trashed, propped up by furlough and massive subsidies, the Treasury rightly acknowledges that this won’t be the time for fiscal consolidation or long-term thinking. It will keep the spending taps wide open.
Yet there will be one ominous and bizarre exception: the temporary cut to stamp duty is set not to be extended. Yes, you read that right: while every one of the myriad Covid spending schemes – from furlough to subsidies for all of the industries crippled by lockdown – will remain, the one consumer tax cut introduced during this crisis will be reversed, even though it worked and repealing it would cause chaos.
It is apparently fine for the deficit to be bolstered by higher spending, but unacceptable for it to be increased by a tax cut. Is that really what passes for Tory thinking on the economy these days? If so, it would be time to panic; so let’s assume, instead, that this is simply a case of Treasury officials having been allowed to run riot, pasty tax-style, making use of the fog of war to pursue their longstanding obsession to tax property ever more heavily.
I hope that the Chancellor will step in, for the looming battle over stamp duty is a microcosm of the wider battle for a new Tory philosophy post-Covid. We need an economic policy reset: we will not pay for our way in the world simply by moving civil servants to the North, spending more on grands projets and banning carbon-emitting industries. Every low-growth country has already tried that: if high taxes, high-speed trains, fake decentralisation and urban metros were the answer, France would be the most successful economy in the world.
The Government can only succeed if it dramatically re-energises the private sector. We need (non-Covid) spending restraint, deregulation, planning reform, far more encouragement to entrepreneurship, an extension and radicalisation of the free ports idea and, yes, judicious tax cuts designed to spur growth, investment, mobility, risk-taking, work and business creation.
The Government has said that the larger Covid national debt won’t derail its manifesto commitments to spend more on infrastructure; in the same way, the virus’s fiscal legacy cannot become an excuse for massive tax hikes or a reason to prevent pro-growth tax cuts and a proper supply-side agenda. If that means a higher budget deficit for a period, so be it.
Stamp duty itself is one of the most destructive and irrational taxes in Britain. For decades, it was levied at trivially low levels, until Gordon Brown and then George Osborne weaponised it. It is one reason why the property market is so illiquid, why people move so much less than they did in the Eighties and a major psychological barrier to downsizing. Stamp duty’s burden is split between sellers, who suffer from a fall in the value of their home, and buyers, who cannot borrow to pay for the tax and are therefore forced to delay purchases for years. It symbolises a political system rigged against those who aspire to own their own home. Axing or cutting this ridiculous tax wouldn’t by itself cure the housing crisis, but it would begin to ameliorate it.
Property is already taxed more heavily in the UK than in any other OECD country, with stamp duty, council tax, business rates and the rest yielding twice the average at 4.1 per cent of GDP. But part of the reason for the reluctance to axe stamp duty is that it is seen by some in government as largely a London problem, and the capital has now shifted to the Left to such a degree that it is almost a Labour rotten borough. I have come across Tory MPs and advisers who ask, shamefully, why they should bother using up political capital to help young Lefties in Islington or Putney.
Yet the difficulty of buying their own home is one reason why so many younger professionals have embraced socialism, and this applies equally to Tory Southern England. During the general election, focus groups revealed that 30 and 40-something female voters in particular were being driven into Jeremy Corbyn’s hands by this problem. There is also a moral case for home ownership as the foundation of a conservative society.
It would be a political and economic calamity for the Conservatives to give up on free market economics after Covid, as Rishi Sunak understands full well. He should make his stamp duty holiday permanent, and in doing so remind his Tory colleagues that, pandemics notwithstanding, they are either the low-tax party or they are nothing.
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