Merryn's Blog

The core aim of UK economic policy – to stop house prices from falling

It's irrational and wrong, but Britain's economic policy is almost entirely aimed at stopping house prices from falling.

Wondering where your government's priorities lie? Then consider the interim report out from the Office of Tax Simplification on how they might go about changing the hundreds of tax reliefs on offer at the moment.

Some are listed as "potentially retain", others as "potentially simplify" and more as "potentially abolish". Look under the first category, and the two that jump out are a) income tax relief for players in the UEFA Champions League Final 2011 and b) capital gains tax relief on disposal of private residence.

Subscribe to MoneyWeek

Become a smarter, better informed investor with MoneyWeek.

The first of these is beyond me I can't understand why footballers should be exempt from taxes that other sports people have to pay. But the second is equally baffling, to me at least.

I've written here before about how I think primary homes should be taxed. If we take as a base view that it would be a good thing for house prices to remain relatively stable in real terms (to make sure that speculative money flowed into more productive investment) it surely makes sense to tax gains on houses rather than, as we do now, the transaction costs of buying and selling them.

Advertisement
Advertisement - Article continues below

The latter hurts mobility by making it impossible for most people to move house unless house prices are rising fast (which isn't good) while the former would dampen house prices without hurting anyone. You'd only pay tax on any gains you made above inflation, which in a rational market, would mean you wouldn't pay any.

However, as much as most of us would like to see flat house prices, the authorities would not. The OTS notes that were the capital gains tax relief on houses to be removed, prices would flatten. But in a hint as to how the authorities feel about that, they don't use the word flatten. They say "stagnate" instead.

Today's economic policy is almost entirely aimed at stopping house prices from falling if it wasn't, having the RPI at nearly 5% would have prompted a rate rise by now. So the fact that there isn't going to be a change to the way in which houses are taxed isn't a surprise. However that doesn't mean it isn't a mistake.

Advertisement

Recommended

Visit/519858/how-long-can-the-good-times-roll
Economy

How long can the good times roll?

Despite all the doom and gloom that has dominated our headlines for most of 2019, Britain and most of the rest of the developing world is currently en…
19 Dec 2019
Visit/516758/beyond-the-brexit-talk-the-british-economy-isnt-doing-too-badly
Economy

Beyond the Brexit talk, the British economy isn’t doing too badly

The political Brexit pantomime aside, Britain is in pretty good shape. With near-record employment, strong wage growth and modest inflation, there is …
17 Oct 2019
Visit/investments/property/buy-to-let/600849/come-back-buy-to-letters-all-is-forgiven
Buy to let

Come back buy-to-letters, all is forgiven

The government is winning its war against small private buy-to-let landlords. But who benefits?
23 Feb 2020
Visit/economy/people/600864/rishi-sunak-the-maharaja-of-the-yorkshire-dales
People

Rishi Sunak: the maharaja of the Yorkshire Dales

Rishi Sunak is taking the reins of the world’s fifth-largest economy at a crucial juncture. The unflashy but likeable youngster may be just the man fo…
20 Feb 2020

Most Popular

Visit/investments/stockmarkets/600909/will-coronavirus-kill-off-the-bull-market
Stockmarkets

Will coronavirus kill off the bull market?

It seems clear now the coronavirus will at some point go global. And when it does, will it bring down the stockmarket’s bull market? John Stepek looks…
27 Feb 2020
Visit/investments/stockmarkets/600910/what-to-look-out-for-as-panic-over-coronavirus-spreads
Stockmarkets

What to look out for as panic over coronavirus spreads

Markets have started to get properly worried about the coronavirus outbreak. And it’s not just stocks, says John Stepek. Here’s what you should be kee…
28 Feb 2020
Visit/investments/investment-strategy/600772/just-five-assets-matter-for-investors-portfolio-asset-allocation
Investment strategy

Just five assets matter for investors. Here's what they are

Every investor’s needs are different – but most can be met by the right combination of five investments
11 Feb 2020
Visit/517625/tr-european-growth-trust-why-investors-shouldnt-overlook-europe
Sponsored

Why investors shouldn’t overlook Europe

SPONSORED CONTENT - Ollie Beckett, manager of the TR European Growth Trust, tackles investor questions around Europe’s economic outlook and the conseq…
6 Nov 2019