Gordon Brown’s Budget swansong was big on headline-grabbing stunts but short on substance.
But before we even get onto the substance – or lack of it – there are some things that should be addressed. First of these is how Brown can possibly justify his statement that his Budget was one of continuing low inflation, and low interest and mortgage rates. It may have escaped the Chancellor’s notice, but in 1997 he granted the Bank of England’s Monetary Policy Committee the power to set interest rates. He might as well take credit for the strength of the FTSE 100.
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Secondly, continuingly low interest rates? As anyone in this industry will be able to tell you, since last Summer interest rates have risen three times. If current interest rates are ‘continuingly low’, then I’m Alan Greenspan.
But the devil as they say, is in the detail, and we should examine the sections most relevant to the housing industry before we write-off Brown’s Budget speech in its entirety. Sadly, that won’t take long.
‘Green’ view
He started out by stating that homes account for one quarter of carbon emissions. Well, that strikes me as a very high number and not one that stands up to scrutiny. He also said that his objective for Britain was low carbon homes – benefiting the climate through lower emissions, and benefiting consumers through lower bills. He made the headline-grabbing announcement that new zero-carbon homes up to £500,000 were to be exempt from Stamp Duty.
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Some of the measures Brown has announced previously have made a lot of sense when it comes to housing and the environment – measures to speed up home insulation for instance, or processes to design out energy wasting products. But this? How many zero-carbon homes are there in the country? Six.
It’s disappointing that the Chancellor is failing first-time buyers so miserably. He should be increasing the threshold on Stamp Duty. Frankly, he could have abolished Stamp Duty all round – carbon neutral or not.
Stamp Duty
The house price boom has been key to Britons’ growing wealth in the past decade. The average UK property has nearly trebled in value to more than £192,000. Many home owners, particularly in the South East, are sitting on equity of thousands of pounds. These profits have remained tax-free on first homes, though obviously they are taxable on buy-to-let investments.
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But the Chancellor has extracted his own housing windfall in the form of a sixfold increase – to £4.6 billion for 2005/06 – in the sums raised from residential property Stamp Duty in the past decade. Stamp Duty costs have ballooned for home buyers thanks to higher rates and house price inflation. New £250,000 and £500,000 bands were announced in Brown’s first Budget in July 1997, with the percentages payable increasing to 3 per cent and 4 per cent respectively in 2000.
On the average home costing £67,000 when Labour came to power in 1997, Stamp Duty bills were just over £600. Now with that average property costing £200,000, the tax would amount to £2,000. But for the increasing numbers of properties costing more than £250,000, costs have soared to at least £7,500. Meanwhile, home buyers in the £500,000-plus bracket have been hit with eye-watering bills of £20,000.
As for these mortgages for immediate capital investment in energy efficiency to cut consumption and bills – those products are never going to pay for themselves. Propertyfinder.com has analysed the cost of these measures – double glazing saves £40 a year on the average £750 energy bill. It costs thousands of pounds to install.
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Then there is Brown’s boast that he has asked Ofgem to examine how green homes can benefit more from the prices paid when they become not just sources of clean energy for themselves, but sell it back to the grid. What sort of a policy is that? Asking someone else to look into something for you. He’s not exactly putting his money where his mouth is.
Not all bad news
It wasn’t all bad news and flim-flam though. I was pleased to hear about Brown’s concerns for affordable homes. He’s right to say that for many families, especially young couples, the major concern is affordable homes. I was also pleased with the announcement that the Secretary for Communities is launching the first stage of a new shared equity competition to bring homes within the reach of first-time buyers.
Most important though, was the increase in the threshold for inheritance tax to £350,000 by 2010. But with property prices continuing to soar, this increase should have come into effect immediately.
