John Charcol’s senior technical director has suggested this type of temporary tax relief generates extra economic activity, which increases VAT receipts as well as extra income tax and national insurance.
He said: “The net cost to the exchequer is likely to be small, perhaps even nil. In fact that argument could equally well be used for a permanent increase in the nil rate band.
“A temporary measure like this provides an ideal opportunity to test the theory that the extra economic activity generated more than compensates for the reduction in stamp duty land tax from these purchases.”
As well as boosting first-time buyers, Boulger said Labour’s promise would allow more housing transactions to take place higher up the scale.
He added: “If just one extra chain can be put together for, say, every three or four first-time buyers who buy as a result of this tax break, net tax receipts will probably increase.
“It would be ironic if a Labour scheme proved something Labour refuses to accept applies to income tax: that tax receipts can increase when the tax rate is reduced.”
Labour leader Ed Miliband said yesterday that his party proposed to abolish stamp duty land in England and Wales for first-time buyers on properties up to £300,000 for three years.
It is not the first time Labour has given first-time buyers a stamp duty tax break. Between 2010 and 2012 first-time buyers were given exemption from paying stamp duty on purchases up to £250,000.
That was preceded by all buyers being given a stamp duty holiday on purchases up to £175,000 for 15 months.
More recently in December 2014, Conservative chancellor of the exchequer George Osborne brought in stamp duty reform that saw the slab structure scrapped, consequently bringing down the cost for anyone paying up to £937,500 for their home.
At the time Matthew Pointon, housing economist at Capital Economics, predicted this would boost prices by between 3% and 5%.
He said: “Assuming buyers use the same level of deposit to buy a home as before the change, we estimate that with a loan to value of 85%, most buyers’ deposits will now allow then to bid for homes that are between 3%-12% more expensive than was previously the case. Sellers will respond to that increase in demand by raising their prices.”
Boulger added that based on the experience of previous similar schemes the biggest boost to activity is likely to be towards the end of the three years, meaning the market many not see any benefit until 2018.
