Stamp-duty concession won’t make a blind bit of difference to home sales and it won’t help Brown either.
The kids might be dragging their feet back to school, but we are all starting a new holiday - hooray. Sadly though, Gordon Brown's much heralded stamp duty holiday is more like a wet weekend in a leaky tent than a bit of much needed sunshine – oh.
The stamp duty holiday launched yesterday is part of a £1bn government package designed to prop up the housing market. Essentially the duty holiday raises the threshold at which stamp duty is levied at 1% of the purchase price from £125,000 to £175,000 – for one year. The other thresholds (3% at £250,000, 4% at £500,000) remain unchanged.
It is a populist move aimed at Mr and Mrs Average and first time buyers – the average house price in the UK now stands at £164,654. Of course, we shouldn't be surprised to see populist policies from a Prime Minister who is fighting for his political life, but it's pretty clear that the this policy will make little or no difference to anyone seeking to buy, or sell, a house.
For starters, the holiday means that anyone buying a house for £175,000 would save £1,750. But, with prices predicted to fall by anything from 5% to 10% over the next year, buyers could save a rather more enticing £17,500 simply by sitting and waiting. There is a historical precedent. The last time a government suspended stamp duty, the effect on the market was minimal, other than to create a 'bulge' of sales towards the end of the 'holiday period'.
At the same time, just how populist the measure is depends on where you live. In London, just 13% of properties fall under the £175,000 threshold, though the picture is rather better in the north of England, where up to 76% of sales would be exempt at current prices. Having said that, whilst 475,000 homes sold the last 12 month would have fallen under the new threshold, more than half fell under the previous £125,000 threshold anyway.
It is interesting to note as well that the projected cost of the holiday, at £600m, is probably vastly inflated. A quick bit of maths tells us that £600m equates to around 350,000 £175,000 homes being sold over the next year. The latest projections suggest there might only be 50,000 sales, putting the cost at more like £170m. Still, £600m sounds a lot better doesn’t it?
The problem for Brown of course is, populist or not, this package is unlikely to help his prospects. Only a few days ago his Chancellor scored a spectacular own goal, claiming that we are facing the worst economic prospects for 60 years – or since the end of the Second World War.
By any measure you care to apply, that is patently not true and was clearly a ham-fisted attempt to position the Government as fighting the good fight for Joe Public. Unfortunately for him, whilst most of us simply sighed a powerless sigh, the money markets were listening and promptly sent Sterling tumbling to a 12 year low, and a record low against the Euro. Hardly in keeping with Brown’s self proclaimed record for fiscal prudence and another blow to his troubled leadership.
As if that wasn’t bad enough, no sooner had Brown used his £1bn economic package as the basis for a political relaunch, the Organisation for Economic Co-operation and Development (OECD) promptly put a rather large spanner in the works. The OECD gloomily predicted that the UK will slip into recession this year, which is bad enough for Brown. However, it also said that the UK will be the only G7 nation to do so, with all the others suffering either economic slowdown or standstill.
You have to feel for Brown a bit. The global economic slowdown is hardly his fault, but there is no doubt that he will feel all out pain if, as predicted, recession starts to bite. His little holiday is rapidly turning into a bit of a damp squib.
In the meantime though, we should all be tightening our belts and strapping in for a bumpy ride to come. With a bit of luck, once the housing market bottoms out, the economy will start to recover. Fingers crossed.
