The Budget was a missed opportunity to engage in some serious reform of housing taxation, the Institute for Fiscal Studies said today.
In its traditional post-Budget briefing, the respected think-tank criticised Chancellor George Osborne’s decision to add a new 7% top rate of stamp duty.
IFS director Paul Johnson said the duty, which is paid on property purchases, was a ‘poorly designed and distorting tax’ and the likely effect would be to lock people into their existing housing.
He suggested that the Liberal Democrat proposal for a ‘mansion tax’ might have been a better option and could have raised ‘considerably more revenue’.
Johnson said: ‘Even better would have been a serious attempt to reform the taxation of housing more generally. We must one day surely move away from basing council tax in England and Scotland on 1991 values and charging it in a way that is dramatically regressive.
‘There is a strong case for charging more tax on expensive properties. Stamp duty is the wrong way to go about it.’
Yesterday’s Budget has attracted some critical headlines this morning, particularly over Osborne’s decision to erode the higher personal tax allowance for pensioners.
But Johnson noted that pensioners had been fairly well insulated from the austerity measures introduced over the past two years and their incomes had risen faster than those of the working-age population over the past decade.
‘Despite this morning’s headlines, this looks like a relatively modest tax increase on a group hitherto well sheltered from tax and benefit changes,’ Johnson said.
‘From this Budget we calculate that pensioners will lose on average about one quarter of one per cent of their income in 2014.’
On the chancellor’s decision to reduce the top rate of tax from 50p to 45p, the IFS said it was difficult to assess the effect.
Osborne justified his decision by citing a Revenue & Customs analysis that found it did not yield the sums initially envisaged and has prompted a massive increase in legal tax avoidance.
But the IFS highlighted the fact that R&C itself admitted its estimates of the impact of the 50p rate were very uncertain.
‘The truth is we still do not know the true effect of the 50p rate on revenues,’ Johnson said.
‘The worry for the chancellor is that the estimate that cutting the top rate to 45% will only cost £100m is particularly uncertain. It assumes a “no behaviour change” cost of £3bn offset by a behavioural change of £2.9bn.’