Everyone agrees stamp duty is a terrible tax. So why are we stuck with it?

How are you coping? I'm absolutely fine, which is why I've dedicated my afternoon and the next 440 words to stamp duty land tax.

Stamp duty was introduced in England in 1694 as a temporary measure to finance war with France. It proved so successful as a revenue raiser that it has been around ever since. The only problem is, to use a technical term, it is a simply *terrible* tax. Don't just take my word for it. The Institute for Fiscal Studies' Paul Johnson despises it too.

That is because stamp duty generates some perverse incentives. It rewards people for staying in their homes, even if they not right for their needs, because they are punished for moving. Consequently, children of young families have to share bedrooms while older people cannot downsize and access the equity in their homes. In other words, it creates a whole lot of friction.

Stamp duty is not just bad for buyers, but tenants too. As Johnson notes, "the more harshly that landlords are taxed, the higher rents will be. One of the reasons that private rents have risen so much is that government policy has substantially increased tax payable by private landlords."

Speaking of which, the Labour government just raised stamp duty at the Budget, so now buy-to-let landlords and second home buyers will see the additional tax rise from 3 per cent to 5 per cent.

Given that no one likes paying it and it clogs up the market, why has no government abolished stamp duty?At this point, we need to talk about the Treasury. From the Exchequer's perspective, stamp duty is a simply marvellous innovation. It is easy to collect and hard to avoid, given that it is a levy on the transfer of a large, fixed object. That it is a tax on mutually beneficial transactions is not at the top of its concerns.

Of course, abolishing stamp duty would mean losing £14bn in revenue. Clearly, the government would need to replace that, and the most obvious way of doing so is through council tax – rates of which are still based on property values in April 1991. For context, Chesney Hawkes's "The One and Only" was number one in the UK charts and the first Soviet troops were leaving Poland.

As a result, abolishing stamp duty is unlikely to happen. Indeed, Rachel Reeves raised taxes by £40bn last month, but there was little thoughtful reform of the tax system as a whole. Instead, the chancellor lunged at random pots of money (capital gains tax, inheritance tax, employer national insurance) to pay for more generous public sector pay deals and the NHS. Which is fine, but if you're not going to pursue politically difficult but economically rational reforms in your first fiscal event, when will you?

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