When Conservative leader Kemi Badenoch pledged on Wednesday to abolish stamp duty on primary home sales, the proposal received widespread support. Stamp duty is the third-most hated tax in the UK, and has been opposed by tax experts and libertarian think tanks. Nearly two-thirds (61%) of residential stamp duty receipts come from London and the South East, while over two-fifths (44%) of stamp duty receipts are paid by residential properties worth over £1 million. The Conservative Party has “cautiously” estimated that this policy will cost £9 billion.

Housing is an issue because of supply and affordability. Stamp duty abolition will make little to no difference on the question of affordability, as sellers will simply increase the price to include what people would have previously paid in stamp duty. The Covid-19 stamp duty holiday saw prices increased by 12% in little over a year, the fastest growth since the housing boom in 2004.

Research by the London School of Economics found that while the holiday boosted transactions by 113,000 compared to the previous year, only 12% of people said the stamp duty change was “decisive” in their decision to move. Meanwhile, the holiday cost £1.5 billion in foregone receipts — an amount which could have been used to fund, say, 30,000 extra social and affordable homes.

Whether stamp duty abolition will increase supply is harder to say. Advocates certainly think so. The pre-tax profit per house sold of the nine largest UK housebuilders is estimated to have increased tenfold between 2009 and 2017. But this is not the same thing as saying that they are rich because, like most of Britain’s economy, they are heavily leveraged and indebted. It is therefore money in and swiftly money out to pay bond holders and overseas investors.

A stamp duty cut, if it increases house prices, will make housebuilding even more profitable. That does not really seem like the problem: more pressing are the UK’s falling production of key materials such as cement and the shortage of construction workers.

One sector that will benefit from more transactions is real estate, but is that really an economic priority? The sector has grown by £67 billion since 2010 and there are an extra 238,000 people now employed in buying, selling, developing or managing property. Out of every five pounds Britons invest, one pound goes into building houses. Some argue that this boosts productivity by enabling people to locate more productive jobs. Yet the value of housing depends on the jobs they are doing, whether it is generally bringing new employment, and whether they are generating much-needed exports. Economically, stamp duty is not even in the top 50 problems that we need to fix in Britain.

If it isn’t economically useful, what about politically? Abolishing stamp duty is clearly a shift towards a defensive “South Eastern strategy” by the Conservatives, away from the winning 2019 electoral coalition. The Tory Party is already perceived as being for older, richer homeowners in the South, and the voters who have turned away in recent years will see this policy as more of the same. When the Conservatives are at 17% in the polls, tied with the Liberal Democrats, bringing voters back should be a priority. After all, while the party lost 61 seats in London and the South East at last year’s election, it dropped 107 in the Midlands and North.

One of the biggest weaknesses for the Conservatives is that they are increasingly seen as not being competitive at a national level. A South Eastern strategy may make sense on paper, but only if those voters see the value in voting for the Tories to form a government. To form a government, you need to show that you can win across the country. Benjamin Disraeli famously said that the Tory Party is a national party or it is nothing. It’s hard to see this stamp duty policy as following his advice.

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Andrew O’Brien is the former Director of Policy at the think tank Demos and currently Head of Secretariat of the Independent Commission on Neighbourhoods. He writes in a personal capacity.

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