The Conservative Party’s leader, Kemi Badenoch, has surprised many with a closing speech at the Tory Conference, which was well received. Badenoch did something few politicians ever manage to do: she used it to announce a policy that cut through – one that people will actually care about.
Were the Tories ever to be in power again, Badenoch said, they would abolish one of the UK’s most unpopular taxes: stamp duty.
Even more unusual still is the fact that Badenoch’s big idea has been welcomed by experts on both the right and the left. Among economists, there is now a consensus that stamp duty is a regressive tax which stops older homeowners downsizing – and penalises younger people for moving up in the housing market to larger homes.
As house prices have exploded and risen far above wages, adding more costs to moving via stamp duty is regularly cited as one of the reasons that Britain’s housing market has stalled. And, more importantly, why so many young adults – particularly in cities and the south-east – report feeling stuck in starter homes and flats that aren’t big enough to have a family in. The more expensive the home you need to buy, the greater the stamp duty bill.
Consider my own situation: I bought a one-bedroom flat in east London in 2017 for £495,000 (a figure that still makes me feel unwell) using a government Help to Buy loan. I’d like to move to a three or four-bedroom house and, maybe, one day, have a family (if the stars and my fertility align under a full moon, etc.).
I paid £15,000 in stamp duty when I bought my flat. But, to move to the sort of home I need, I’ll be looking at paying around £700,000 (if I’m lucky) – even if I move to the outskirts of London. I’ll need at least a £70,000 deposit (which I can just about cobble together), but then, under the current rules, I’d need to find an additional £25,000 to pay my stamp duty bill, which I don’t have – because my mortgage went up by nearly £500 a month after 2022.
Spare me your tiny violins (I’ll figure something out), but don’t ignore what’s happening in the Capital. London is where house prices are the highest (though they’re currently stalled), but it is also Britain’s economic centre and the epicentre of our housing crisis. In other areas, prices may be lower, but in relation to wages, they’re still unaffordable for many people – so relatively lower stamp duty bills still pack a punch.
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I have not moved, because I can’t really afford to – and I’m not sure I want to relocate, spend all my money and get stuck somewhere I don’t want to be. As a result, my starter flat is not on the market for someone who might want to buy it. I am not the only young-ish person in this situation.
Similarly, an older person living in a family-sized home with four bedrooms that are no longer home to children might look at buying a flat like mine – and decide they’d rather not burn £15,000 in stamp duty payments in case they become unwell and need it for other reasons.
For that reason, you’ll find unlikely bedfellows agreeing that stamp duty has got to go. There have been calls from left-leaning think-tanks such as the Institute for Public Policy Research (IPPR) and right-leaning ones such as the Institute of Economic Affairs (IEA) to ditch stamp duty, a tax which raised £13.8bn for the Treasury in the 2024-24 tax year alone.
Now, let’s ignore that it is increasingly unlikely that Badenoch will be the Tories’ leader by the time the next general election rolls around in 2029, and address this policy on its merits.
Stamp duty – a tax due if you buy a property or land over a certain price in England and Northern Ireland – is unpopular for good reason. It might bring in billions for the Treasury, but it has become increasingly punitive for young people who need (or want) to upsize as house prices have risen. First-time buyers already get discounts and exemptions on stamp duty, but it’s the next move where young adults are penalised. It also penalises people who need (or want) to move to a new part of the country for work – and therefore limits economic mobility. That, in turn, impedes economic growth.
Economists agree that stamp duty needs reform to get Britain’s housing market going again. It’s rumoured that Labour’s Chancellor Rachel Reeves has been looking at making changes – for that exact reason. And, by getting ahead of whatever Reeves is or is not planning to announce in November’s Budget, the Tories have boxed in Reeves’s decision-making on an issue that has risen up the political agenda, gained growing traction with voters and got support from both the left and the right.
Nonetheless, it is Reeves who must make the decision. And she must do so very carefully. Abolishing stamp duty entirely could mean that house prices suddenly spike, because buyers feel like they have more cash to play with. In the short term, this could cause house prices to rise and create a bubble like the one we saw after Rishi Sunak’s stamp duty holiday in 2020. For that reason, many economists favour replacing stamp duty with an annual property tax based on the value of someone’s home, so wealthier people pay more. This would also mitigate the risk that a blanket stamp duty cut could benefit the wealthiest people – with cash to buy multiple homes – most.
Added to that risk is the fact that in places where the supply of new and affordable homes is tight, prices could stay higher for longer. So, if Reeves does do anything to stamp duty, she’ll need to make sure her Government builds significant numbers of (affordable, ideally) homes where they are needed most.
Whatever she does, Reeves must not allow the perfect to be the enemy of the good. Stamp duty was first introduced over 300 years ago – and it hasn’t changed much since, but Britain’s housing market has. Experts agree it’s time for Reeves’s reform, but not in a way that makes this housing mess worse.
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