Stamp duty plans not without risk

By Hugh Pym
Economics Editor, BBC News

It could be a political kite flying above the Treasury.

But there was no attempt to shoot it down today.

Stamp duty seems to be on the Chancellor's agenda as a part of a package of measures aimed at helping the most hard pressed homebuyers.

Policies rarely come without a price tag and any move by the Chancellor on stamp duty would have revenue implications - and at a time when he can ill afford it because of rising government borrowing.

Stamp duty on residential property raised nearly £6.5bn in the financial year ending in April 2007.

Of that just under £1.4 billion came from the lowest 15 stamp duty band - covering homes valued between £125 and £250 thousand.

This band covers the majority of buyers and is likely to be the focus of any new announcement, if there is one.

Allowing purchasers to defer stamp duty would mean deferred rather than lost revenue - but it would be hard to administer.

Stamp duty is levied with the transaction. How would homebuyers be pursued for the duty some months after the sale had gone through?

Lifting stamp duty for a period, of say a year, would provide more of a boost to the market but would cost a lot more.

Precedent

There is a precedent - a stamp duty holiday of nine months during the last housing recession of the early 1990s.

But that didn't stop a steep house price slide.

What ministers have to weigh up is can they afford it, and would it have much impact anyway.

There is a danger that a stamp duty holiday would boost transactions in the short term but this might be followed by a sharp fall after the deadline.

Equally, the Chancellor could inadvertently depress the market simply by flying the stamp duty kite.

Buyers thinking about a purchase now might sit back and wait to see whether the policy materialises.