Britain’s Tax System is Blocking Builders

This index reveals the UK’s comparatively poor competitiveness as an international tax regime. To make the UK more economically competitive we propose the following policy changes.

1. Abolish Stamp Duty Land Tax.

● SDLT is a tax on transactions of property that disincentivises people to sell their houses, thus reducing the supply of properties in the housing market.

● Abolishing SDLT would remove this disincentive and encourage more people to downsize or buythe homes they want, making the housing market more dynamic.

2. Improve the generosity of investment allowances for new buildings.

● Full expensing allows companies to obtain corporation tax relief for the full cost of capital expenditure on machinery in the year it was invested in.

● However, this does not apply to the construction of property, which is highly capital-intensive. Only 39% of the (present value) cost of industrial buildings can be written off tax bills; 0% can be written off for residential buildings. In the context of the UK’s already high cost of capital, unfavourable tax treatment is a key barrier to physical investment.

● Extending full expensing to the construction of properties would decrease this barrier and unlock more capital to be invested in the construction of new buildings.

3. Rebalance council tax and business rates so the burden falls more on the unimproved value of land.

● Business rates and council tax are effectively taxes on the value of buildings as well as the unimproved value of land. A split-rate or land-value-only approach to property taxation would reduce or remove this distortion.

● This would encourage landowners to make the best possible use of their property and increase overall investment.

4. Removing all Value Added Tax (VAT) exemptions, and reducing the VAT rate.

● VAT exemptions are costly to administer, distort consumers’ spending decisions, and substantially reduce revenue. Furthermore, most of the nominal benefits go to the wealthy, who spend the most money.

● Abolishing exemptions would make the tax fairer and more efficient while raising sufficient revenue to fund a lower rate (either of VAT or of other taxes), giving people more choice in how they spend their money.