The excitement over the chancellor’s modest surprise – the abolition of stamp duty for first-time buyers purchasing properties worth up to £300,000 – lasted about five minutes. The Office for Budget Responsibility quickly pointed out that this supposed giveaway will increase house prices. The winners will be people who already own a house, not those trying to enter the market.
Philip Hammond might counter that first-time buyers, by saving up to £5,000 in stamp duty, will be able to save more money for a deposit. Yes, but the numbers won’t impress outside London.
Anthony Codling, analyst at City firm Jefferies, calculates that the average buyer spends £165,000 on a first home. The removal of stamp duty on a such a property will be worth £800 – small beer if you’re aiming for a 5% deposit, representing £8,250 in this example. “If the goal of the budget was to help increase home ownership, the wrong lever has been pulled,” was Codling’s common sense conclusion.
Still, it might be said, the chancellor’s entire package of housing measures was worth £44bn, which sounds like serious money. Sort of. Only about £15bn represents new support and the various forms of funding, loans and guarantees will arrive over five years. Given the size of the housing problem, you cannot call it radical intervention.
What about the threat to clobber big housebuilders who hoard land? That line put a minor dent in share prices, but let’s see what Oliver Letwin’s review turns up.
The companies swear they’re not running quasi investment funds. They say they go to work as soon as planning permissions arrive in “implementable” form – in other words, after relevant conditions, covering road access or whatever, have been met. That final stage can take a year or more, they say, which sounds plausible.
The real problem may be more subtle. It’s about the speed of building once it starts. The firms plead it’s not possible to build out major sites – those on which a couple of thousand new homes are being constructed – any faster. They say they fear flooding local markets. Really? The argument sounds self-serving. The real worry may be that cutting selling prices would hurt profits.
Given that many big housebuilders are generating fat margins of 25%, many would conclude that what’s really needed is a big prod to hurry up. A leisurely pace suits the builders too well. Selling prices flutter higher and the flow of dividends to shareholders, which has been spectacular in the past half-decade, is not threatened.
But it’s hard to see how Letwin’s “use it or lose it” review could crack this more complex problem. Pure landmarking is relatively simple to spot. It is trickier to define, and then punish, slow build-out.
On the plus side, Hammond has grasped the need to encourage small housebuilders. There will be £630m to “unstick” the delivery of 40,000 homes on small sites, meaning those that the big firms ignore. This effort to identify a fresh supply of brownfield urban sites is essential. It’s where the chancellor’s predecessor should have started, instead of stimulating demand with help to buy.
Guarantees to support new rental properties are also welcome. That part of the market is often over-looked in the obsession over home ownership. Hammond could have gone further: a wall of pension fund money wants to invest in the rental sector.
Yet there’s a further threat to the chancellor’s ambition to get 300,000 additional homes a year built by the mid-2020s: the shortage of labour, a problem that Brexit may intensify. An extra £34m “to develop construction skills across the country” will barely move the dial. Believe in the 300,000 target only when it has been met.
VAT fraud needs joint liability laws
The best announcement in the budget was the vow to crack down on online VAT fraud – meaning the practice of firms, often Chinese, illegally selling goods tax-free to UK consumers on sites such as Amazon and eBay. The chancellor’s proposal will make online marketplaces jointly liable for VAT. Good move.
Past investigations by the Guardian have demonstrated how rife the fraud is. We found sellers trading without displaying VAT numbers. Others showed made-up numbers or numbers cloned from unsuspecting legitimate businesses.
Relying on Amazon and eBay to warn sellers of their obligations, or to delist offenders, has achieved little. Hammond put the cost to the taxpayer of VAT fraud at £1.2bn per year. If such a sum was being leaked via traditional retailers, there would be outrage.
The online giants usually grumble that they shouldn’t be responsible for the VAT compliance of independent sellers. That is disingenuous nonsense. They have helped to create the problem – joint liability may make them solve it.