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Viewpoint Brown must act to change backward tax

AGENDA - The Government needs to reform stamp duty, writes David Stubbs

GORDON Brown is not shy of messing around with Stamp Duty. Since he became chancellor, he has changed the thresholds and rates of the tax in six of his 10 budgets.

While producing a 561 per cent increase in revenue since 1998, these changes have ignored the fundamental f laws in the Stamp Duty Land Tax.

The RICS has collected evidence that the tax creates distortions in the housing market by encouraging the bunching of house prices just below the thresholds of the different 'steps' of the tax.

Our research shows that this effect is present in the pricing of around 13 per cent of proper ties on surveyors' books at any one time. In fact, 95 per cent of surveyors polled think the tax is in need of major reform.

In place of the current system, the RICS has suggested a marginal model, along the lines of income, inheritance and capital gains taxes.

House buyers would only pay tax on the value of a property that was in excess of a certain threshold, rather than being taxed on the entire value of a property. This would remove the big jumps in tax liability that create the incentive to price properties just under the tax tier.

In addition, the changes that have been made under this government have not done enough to ensure that those who are buying less expensive properties, be they first time buyers or not, pay no tax.

Despite a doubling in the 0 per cent threshold just before the last election and increasing it by a derisory £5,000 in the March budget, the RICS believes the chancellor should raise it further to £150,000.

This minimum threshold should then be indexed to the rate of growth of average house prices in the country, to ensure that the same percentage of the housing stock remains below the threshold.

The second option could be done, say, by changing the threshold every five years when the housing stock is revalued for council tax purposes ? another RICS policy suggestion.

This would improve the transparency and effectiveness of public policy in this area by removing the chancellor's power to set the threshold, just as removing his ability to set interest rates has improved the effectiveness and transparency of monetary policy.

One could expect the chancellor to have qualms about fundamental reform if it would deprive him of much-needed revenue at a time of budget deficits and ever-greater demands upon the public purse. But the RICS calculates that if a universal 5.5 per cent marginal rate of tax was set above our recommended £150,000 threshold, then the change would be revenue neutral.

This one marginal band would bring in the same revenue generated by the three different tiers of the current tax system. In addition, at this rate, purchasers of properties up to £190,000 would pay less tax than under the present system So there are no excuses. A marginal tax system, with an increased 0 per cent threshold of £150,000, would improve the functioning of the housing market and shift the burden of stamp duty away from cheaper properties while not costing the Treasury a penny.

It is high time Gordon Brown ceased with the tireless micromanaging that has unfortunately become a hallmark of his time as chancellor and engaged in fundamental reform of Stamp Duty.