Ahead of the Budget on Wednesday 22nd November we give our view on the changes the Chancellor should make to cement Britain's economic recovery, and end Britain's productivity and housing crises.
Sam Bowman, Executive Director, on how we should tackle the housing crisis:
"Housing is unaffordable because too few houses are being built in the places people want to live. Too few houses are being built because getting planning permission is extremely difficult and unpredictable – the fact that land given permission rises in price by over one hundred times, in some cases, is strong evidence that planning is the important bottleneck. This leads to phenomena like ‘land banking’, which occurs because developers need to ensure a supply of land they can build on in the future to make sure their workers and machinery will be in use throughout the next few years.
"Cracking down on ‘land banking’ will threaten the existence of smaller housebuilders that will not be able to absorb the costs of unpredictable land supply, and make the market less competitive. What the Chancellor should really do is announce a major revision of planning regulations. One, revise green belt rules so that land within a short walk of an existing railway station is made available for development – 3.7% of London’s green belt made available in this way would give us land for one million new homes. Two, liberalise height and infill restrictions within existing residential areas so that streets of detached and semi-detached houses can densify into mansion flats. The only way to get cheaper housing is to build more of it – remove the regulatory barriers to supply and a housing boom will follow."
Ben Southwood, Head of Research, calls on the Chancellor to scrap Stamp Duty:
"Popular giveaways are usually to be avoided, but this year Philip Hammond has the opportunity to please both the public and hard-nosed economists.
"Stamp Duty Land Tax is the most damaging major levy on the books, slicing 75p off the economy for every pound it raises—many multiples more than council tax, income tax, or VAT. It gums up the housing market by lumping people with huge bills for moving, stopping people from moving to get new jobs, and discouraging downsizing or upsizing.
"It’s also hated by those who pay it, coming in one giant bill and usually the largest single payment a household will ever make to the exchequer.
"Whether he funds it by raising other major levies, fixing the regressiveness in our current property taxes, or finding some more spending cuts, Hammond should avoid tinkering and scrap the whole thing. Voters and the UK economy will thank him."
Sam Dumitriu, Research Economist, says the Chancellor needs to reform corporation tax to boost capital investment in the economy:
"The UK has one of the lowest levels of capital investment in the EU. Only Portugal and Greece invest less as a share of GDP. At the moment, businesses can only deduct the cost of long-term investments in plants or machinery gradually over the life of the investment creating a bias in the tax system against the long-term productivity boosting investments we desperately need. Recent budgets have compounded the problem – capital lives have been lengthened and the Annual Investment Allowance has been cut from £500,000 to £200,000.
"In Wednesday’s Budget, the Chancellor should reform corporation tax to allow businesses to immediately expense investments in new plants and machinery to boost investment and raise productivity. Recent research suggests that this simple change could raise investment by around 17.5% leading to substantial job creation and a 2.5% wage increase."