Are the Stamp Duty hikes doing more harm to the UK Economy than just strangling the Residential Property Market?

We all know the reasons why the former Chancellor imposed those draconian hikes on Stamp Duty charges in the autumn Budget of 2014 and we can now see the full devastating and distorting effect it is having on the Residential Property Market, particularly in London.

Prices are down by 25% and activity is down by 70% and since transaction expenses are now playing such an important part in the mind-set of prospective buyers, in certain price ranges, there is absolute gridlock in sales, where sellers outnumber buyers by 10-1.

The uncertainty surrounding Brexit is not really a factor other than, paradoxically, doing some good for the higher price ranges with the drop in the rate of Sterling against other currencies, which is seducing a number of foreign buyers to the UK, particularly of late.

I agree, nobody is going to cry, nor should they, for the Russian oligarch who can’t sell his mansion in Belgravia for the price he wanted, but when you look at the wider effects on the UK Economy, then the systemic damage that is being wrought, is much more evident and costly.

Intrinsic Links

Let me explain – the intrinsic link between the Residential Property Market, retail spending and the growth of the Economy are indivisible.

When consumers feel that their properties are appreciating, they tend to go out and spend more and this is one of the main drivers of our economic growth.

It is therefore, unsurprising, that retail sales are substantially down, as is evident from the recent trading statements of some of our major PLC retailers and in the projected figures from the OBR (Office for Budget Responsibility) which have been marked down in the Budget from over 2% last year, to 1.7% this year. Predictably, the government is blaming this on the uncertainty of Brexit, when it may not be the case.

Analysts and even the Chancellor have been carefully watching the tax receipts from SDLT, to make sure that there is not a perceptible gap in revenue as a result of the higher charges. However, as I have always argued, even if the Treasury receipts are a similar scale, before as afterwards, the devastating and distorting effect of these charges, is having a greater effect, when you take the holistic view of the economy.

‘Since time immemorial’, the link between the Property Market and UK growth is all too evident, which is not the case for other European countries such as France or Germany.

Residential Property an alternative ‘asset class’

Lest we forget, residential property is an alternative ‘asset class’ and a rich source of wealth to the many sociodemographic groups and where there is inflation in values, debt shrinks in relation to this, which means that ‘asset owners’ are better off.

The usual adage of ‘the rich get richer and the poor get poorer’ is not necessarily true, since ‘asset owners’ are getting richer in all sectors and ‘non-asset owners’ i.e. tenants, are getting poorer.

Although Ed Miliband tried to contradict ‘Archimedes Principle of Displacement’ in the run up to the General Election in 2015, believe it or not, he could not be more wrong since ‘when the tide comes in, it lifts boats of all sizes’ if you will forgive the metaphor.

Brexit not accounted for

The previous Tory administration under Cameron, clearly did not account for Brexit, as the UK Economy needs all the stimulants it can get, now that Quantitative Easing has been reined back and the interest rate trend is moving north, to act as a brake against inflation.

With the shrinking UK economy, various tax receipts will inevitably drop and it will be even more difficult to continue the present Chancellor’s budget deficit reducing aspirations, which has been fundamental to the Tory tax discipline.

Tourniquet fastens around ‘golden goose’s neck’

Very regrettably, the tourniquet has been fastened and then tightened mercilessly around ‘the golden goose’s neck’ and why should we then be surprised, that there are less ‘golden eggs’ for us to harvest… duuuuh!