Hammond defends stamp duty cut for first-time buyers

Philip Hammond has defended his decision to cut stamp duty for first-time buyers after the government’s fiscal watchdog said the main beneficiaries would be existing homeowners.

Hammond has scrapped stamp duty for first-time buyers of homes costing up to £300,000 and allowed buyers of homes up to £500,000 to escape the tax on the first £300,000 of their purchase.

In his Budget speech the chancellor said scrapping duty for almost all first-time buyers would help “revive the home-owning dream in Britain”.

But the Office for Budget Responsibility calculated the move would push up house prices by 0.3% with most of the effect in 2018. The independent reviewer of the public finances said the main gainers from the policy will be people who already own property, not first-time buyers.

Hammond said the OBR’s assessment did not take into account other measures in the Budget.

“They looked at what would happen if you cut stamp duty for first-time buyers and did nothing else. The answer was you would get a very small 0.3% increase in house prices but that isn’t what is happening,” Hammond told the BBC. “We have announced a big package on the housing market to create growth, to deliver more housing.”

He said the government’s plan to fund and encourage more housebuilding through planning changes and compulsory purchases of hoarded land would increase the supply of properties.

Hammond said he expected about 1m first-time buyers to save an average £1,700 over the next five years as a result of the change, which covers 95% of first-time property purchases.

The stamp duty cut was the centerpiece of a budget that sought to drum up positive news as the OBR slashed its forecasts for economic growth over the next five years.

In its response to the Budget the Resolution Foundation said the OBR’s figures put Britain on course for the longest fall in living standards since records began in the 1950s. Disposable incomes will fall for 19 quarters from the end of 2015 until 2020, the think tank said.

Asked about the prediction, Hammond said he had announced measures to improve productivity, whose persistently disappointing performance is at the root of Britain’s economic weakness.

“The way to deliver higher real pay growth is to improve our productivity. There is no other solution.” He said investment in high-growth technology businesses was the key to raising output per hour in the economy.

Hammond cast off his hawkish reputation on fiscal policy by accepting the government would have to borrow more to fund his plans. He expects to borrow an extra £2.7bn in 2018-19 and £9.2bn more the following year.

Hammond has been under pressure from his own MPs to depart from austerity measures of the past seven years after the government’s majority was wiped out at the election in June.

Victoria Clarke, an economist at Investec, said the Budget was the loosest exercise in fiscal policy since Alistair Darling cut VAT at the height of the 2008 financial crisis under the last Labour government.

She said: “The net giveaway nature of today’s Budget tells us a lot about the pressure he has been facing. The chancellor’s answer was to deliver some fiscal generosity, allowing him to deal with key political pressure points without earning too many enemies. Our guess is that [the] Budget may well help to settle tensions in the Tory party, especially if the Budget achieves a bit of a bounce in the polls.”