In just under a month, there is a real risk of a detrimental change to the Edinburgh housing market as the new Land and Buildings Transaction Tax (the replacement for Stamp Duty) comes into force.
There was broad support for the tax being devolved and the idea of removing the previous slab structure is a sound one. However, key aspects of the tax are seriously ill-judged.
The biggest error is the Scottish Government’s plan for an eye-watering ten per cent tax on buying a family home. Anyone buying a property worth over £325,000 will be hit by the ten per cent rate. In Edinburgh this will impact on a significant number of homes. The original plans were even worse – the SNP wanted the ten per cent rate to start at £250,000 but thanks to efforts from the industry and the Scottish Conservatives the threshold was raised to £325,000.
While this partial U-turn was better than nothing, this compares to a threshold elsewhere in the UK of £925,000 before the ten per cent rate kicks in. The Scottish Government said the different threshold could be justified because the London market is different from the Scottish market. This is true. However, is the Scottish market really so different from Manchester or Birmingham or Liverpool? There is no sound reason why you should have to pay ten per cent tax over £325,000 in Edinburgh when the same family home in Manchester only attracts ten per cent tax after £925,000. This makes Scotland less attractive at a time when we should be doing all we can to attract entrepreneurs and job-creators.
This is a particular concern for Edinburgh. Industry experts have pointed out in recent weeks that this city will be responsible for raising 30 per cent of the new tax for the whole of Scotland. That puts an incredible strain on a city which houses less than ten per cent of the population. Only Aberdeen and East Renfrewshire will come close to generating the kind of money Edinburgh is expected to contribute.
The Scottish Conservatives believe the SNP proposals are wrong in principle and wrong in practice. They are wrong in principle because it is a punitive tax on families who aspire to own a family home. For some, this increased up-front tax could be the hurdle too far.
They are wrong in practice because the risk of substantially reduced activity in one part of the housing market can have a negative impact across the market. This, in turn, leads to a reduction in tax take for spending on vital public services like schools, roads and hospitals. Experts talk about a “housing ladder” and for the system to function effectively you need movement on all the rungs of that ladder.
The SNP Government should have taken a more measured approach with shallower tax increases. This would have been fairer to all, would have helped the market and would probably have led to more sustainable revenues. They were warned many times over a period of months by numerous experts about the risks of trying to punish one section of homebuyers.
We will watch very closely to see the impact on the ground in the coming months. If the market is hit badly in Edinburgh, as many stakeholders have suggested, then the Scottish Government needs to act swiftly and reduce the tax rates. It will not be acceptable for them to sit on their hands – this will be a problem of their own making.
Gavin Brown is Conservative MSP for Lothian