Ian King, Business Presenter

Congratulations to Philip Hammond in rescuing millions of first time homebuyers from the hated impost of stamp duty.

True, as the Office for Budget Responsibility quickly noted, the Chancellor's decision to abolish the tax for first-time buyers purchasing a home for £300,000 or less will lead to higher prices and benefit existing homeowners more.

However, it will certainly encourage more housing transactions, which is why shares of estate agents like Countrywide and Foxtons rose on the news.

Sadly, the Chancellor's reform will only go so far. First-time buyers are at the bottom of housing chains and, for them to get on the housing ladder, existing homeowners must be able to move up it.


Unfortunately, millions more homeowners are dissuaded from doing so, thanks to the developed world's highest property taxes.

Image: The Chancellor's stamp duty move will encourage more housing transactions

The blame lies with Mr Hammond's predecessor. In December 2014 in his own changes to stamp duty, George Osborne cut the tax at the lower end of the market but, in order that the measure was 'fiscally neutral' - in other words that it did not cost the Treasury money - stamp duty was jacked up at the top end of the market. Anyone buying a home for at least £937,000 ended up paying more, in some cases, lots more.

Contrary to expectations, Mr Osborne's measure did not result in a collapse in stamp duty revenues, as it did little to stop wealthy foreign investors from continuing to pile into London and the Home Counties. A buyer from Singapore, Russia, China, the US or the Gulf States set on paying £5m or more for a UK home, will not be deterred by a few hundred thousand extra pounds on their stamp duty bill.

Crucially, though, the number of transactions in homes of £1m or more is falling because, as Lord Macpherson, the former permanent secretary to the Treasury, wrote in the Financial Times yesterday, the stamp duty rate "is prohibitively high" thanks to Mr Osborne.

That is hitting the wider housing market as the owners of such homes stay put, preventing other homeowners, further down the housing ladder, from trading up.

That in turn hits the construction of new homes which, as a rule of thumb, tends to track housing activity at the rate of one new home for every 10 housing transactions.

All of which is why Mr Hammond should have gone further and abolished the tax altogether.

Stamp duty is rotten and inefficient. It prevents labour mobility and forces people to commute long distances to their place of work because they cannot afford to move home.

A land tax would reduce speculative buying and hoarding of land - something Philip Hammond suspects stops more homes being built.

It suffocates housing activity which, in turn, hits wider economic activity. And this, by extension, hits tax revenues in other areas - think how much VAT the Treasury rakes in every time a homeowner moves to a new residence and, in the process, pays for removal services and buys new carpets, furniture and curtains.

And it also encourages developers to build one or two bedroom flats, instead of two to three bedroom homes, because the latter attract higher rates of stamp duty than the former.

So, ideally, stamp duty land tax should go. The problem is that the Treasury has come to rely on it. It is forecast to generate £13.2bn this year and next. That is the equivalent of 2.5p on the basic rate of income tax and more than the Treasury will rake in during the same periods from duties on tobacco, beer and cider combined.

Accordingly, it would need to be replaced by something.

The logical replacement is an annual land value tax. Such a tax would reduce speculative buying and hoarding of land - something Mr Hammond suspects stops more homes being built.

It would provide a genuine incentive for people living in homes too big for them to downsize, freeing up housing capacity and letting others move up the housing ladder. It would stop house values being exaggerated. It would have the advantage of being hard to avoid, as land cannot be smuggled out of the country, hidden in a foreign bank account or disguised as another asset.

Properly implemented, it could also take the place of other inefficient and unpopular taxes, like council tax and business rates. It would also be progressive - the more valuable your land, the more you pay. And, being levied on land rather than the property itself, it would not - unlike Council Tax - penalise people who do up their homes.

Introducing such a tax would provoke howls of protest from some. When Jeremy Corbyn proposed a land value tax at the last general election, to replace council tax and business rates, there were horrified claims he planned a "garden tax".

Image: Sir Winston Churchill said last century that landowners often got richer thanks to work on infrastructure by others

However, one of the most famous supporters of a land value tax was not some wild-eyed Marxist, but Sir Winston Churchill. As long ago as 1909, he pointed out that landowners often enjoyed a rise in their wealth thanks to investment in and work on local infrastructure by others: "To not one of those improvements does the [landowner] contribute and yet by every one of them the value of his land is enhanced… he contributes nothing to the process from which his own enrichment is derived."

That increase in land values Churchill described still happens today, as shown by the surge in land values along the route of Crossrail, the new rail link between Essex in the east and Berkshire in the west due to open next year.

Other supporters of land value taxes have included Adam Smith, the godfather of free market economics; Milton Friedman, one of the greatest influences on Margaret Thatcher's economic philosophy; and Henry George, the US economist whose writings inspired the board game Monopoly.

It is an idea that has been around for more than a century - but whose time has come.

Sky Views is a series of comment pieces by Sky News editors and correspondents, published every morning.

Previously on Sky Views: Adam Parsons - Budget cash for maths doesn't add up