Chancellor says criticism that his flagship policy will merely raise house prices overlooks his plan to build more homes

Philip Hammond has defended his flagship housing policy against criticism it will raise house prices and said that abolishing stamp duty for first-time buyers would create an incentive to save a deposit.

The chancellor said the policy, which abolished the stamp duty on homes under £300,000 for first-time buyers, would help a million people get on the housing ladder.

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But after Hammond delivered the budget on Wednesday, the Office for Budget Responsibility (OBR) said it would push up prices by around 0.3%, meaning many first-time buyers would have to pay more and people who already owned a property would gain more. It also suggested only around 3,500 additional homes would be sold as a result of the incentive.

Hammond rejected the criticism that saving enough for a deposit was the key barrier to home ownership, rather than stamp duty. First-time buyers need an average deposit of £33,000, which in London typically rises to £106,577, according to Halifax.

“Hopefully, by abolishing stamp duty, which will save the average first-time buyer about £1,700, that will be a help and an incentive to focus on getting the deposit together, getting the money together to get on the housing ladder, and we hope that many more young people will be able to get on the housing ladder,” Hammond told BBC Breakfast.

Q&A What is stamp duty? Show Hide Stamp duty land tax, its proper name, is a tax paid by someone who purchases a property or piece of land in England or Northern Ireland – Scotland and Wales have their own systems. The tax is paid when the sale is completed and is based on the sum paid. Prior to Rishi Sunak's July 2020 financial statement, there were two different points at which stamp duty was payable, depending on whether you were a first-time buyer or a mover. For movers, stamp duty had to be paid on any property costing more than £125,000. For first-time buyers there was no stamp duty to pay unless a property cost more than £300,000. If your first home cost more than £500,000 you paid the same as a mover but if it cost less than that, you only paid tax on the part of the price that fell between £300,000 and £500,000. The starting threshold will now be increased to £500,000 on all sales taking place before 31 March 2021. The starting rate above £500,000 will be 5% and will apply to the part of the sale up to £925,000. The change will apply to second homes and additional properties. They attract a 3% surcharge, and this will still be in place, but buying property will now be cheaper for landlords. Hilary Osborne Photograph: Matt Cardy/Getty Images Europe

He said the OBR had “looked at a particular narrow question” about abolishing stamp duty and taking no further action.

“We have not done ‘nothing else’, we have introduced a very big package, £15bn of extra money going in on top of the billions we are already spending on housing to increase the number of houses that we build in this country. So that’s not the situation we will have. We will have many more homes available.

“The important thing is that over the next five years, over the life of this parliament, a million first-time buyers will make an average saving of just under £1,700 when they buy their first home. I think that’s a good news story.”

The shadow chancellor, John McDonnell, said the government was not building enough new homes to justify the cut in stamp duty.

He told Sky News: “The whole point about it [cutting stamp duty] is you only do that when you are increasing housing supply and if you don’t increase housing supply, exactly as the OBR is saying, prices will go up.”



The chancellor was also challenged over the OBR’s downgraded growth forecasts due to poor productivity performance, but said the forecasts over the last eight years had been “over-optimistic”.

“The challenge for us now as a nation is to prove them wrong,” he said. “The challenge for us is to deliver that higher productivity that will feed through into higher economic growth.”

Hammond said the forecasts would be affected by the progress of the Brexit negotiations with Brussels. “We always understood that as we went through this process of negotiation with the EU there would be uncertainty about the outcome. When you are in a negotiation you never know what the outcome is going to be,” he said.

“As we move forward into 2018 I hope we will get increasing clarity about how these negotiations are going to move forward, an increasing sense that we are getting on and doing Brexit, and as we get that sense of clarity and sense of movement I think confidence will return.”

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Hammond said that the £3bn allocated for Brexit preparations in his budget would be spent largely on “departmental preparations” such as new IT systems to manage movements of animal and foodstuffs between the UK and the EU to comply with international regulations.

“We need to prepare for it, we need to be ready for it and we need to do this in a context where at the moment we don’t actually know what the relationship with the EU will be,” he told BBC Radio 4’s Today programme. “As we prepare for it we will narrow down that range of outcomes.

“The country needs to be prepared, we need to be ready. We can’t have a situation where on the day we leave the EU, lorries are backed up at Dover because we haven’t put in place the necessary arrangements.”

Hammond declined to say if he was a “Brexit convert” but said he was “focused on getting this done”.

“I’ve never been gloomy, I’m a pragmatist, I see the world as it is. We are leaving the EU and that has certain consequences and we need to prepare for those consequences. We need to make sure that we make a success of this, that is the government’s number one priority.”