David G40/ShutterstockFor years, academic economists have argued that council tax and stamp duty are deeply flawed. Politicians from all corners, as well as various thinktanks, also seem to agree. Back in 1976, the UK even had a royal commission recommending radical reform, but it was never implemented.But now the UK government is said to be considering a change to stamp duty so that it is only paid on houses selling for more than £500,000. This could be big news, especially since it would be paid by sellers rather than buyers as at present. Due to higher house prices, it would hit people in London and the south-east the hardest.Stamp duty is one of the UK’s oldest taxes, introduced in 1694, but its rules and rates have changed over time. Particularly since 2010, rates have increased and a range of complex exemptions (for first-time buyers, for example), “holidays” and higher rates for second homes have come and gone. Scotland and Wales now have their own systems.Phasing these changes in and out has increased cyclical fluctuations in housing markets. For example, when a reduced stamp duty rate (introduced in 2022) was phased out three years later, house prices slumped.But the main problem with stamp duty is that it is a tax on buying and selling houses – so on moving. It is a barrier to both downsizing for the old, and upsizing for the growing family. As such, it penalises moves to use the UK’s scarce housing stock more efficiently. It may also act as a barrier to labour market adjustment (and so damage productivity growth) by impeding people’s ability to move for better jobs. A 2017 study concluded that a two percentage point stamp duty increase reduced mobility by 37%. This mobility reduction, however, seems mainly confined to short-distance moves. Having to pay stamp duty makes it more difficult for people to find houses better suited to their tastes. The lower impact on long-distance moves (typically associated with labour market adjustment), however, does not provide much comfort. The same 2017 study found that for every £100 in revenue the Treasury gained from a stamp duty increase, given the extra costs and problems encountered in finding a suitable house, households would need £84 to keep them at the same level of wellbeing.Stamp duty is a progressive tax – the richer you are, the more you are likely to pay because it is related to the price of the house. But the relationship is complicated, with total exemption if the house price is under £125,000. This rises to 12% for all of the price above £1.5 million.To this is added a further discount for first-time buyers and a premium for second home buyers. In fact, since the regional variation in house prices is much greater than the regional variation in incomes, stamp duty is super-progressive and penalises those living in London and the south-east. Properties in Newcastle and the north-east of England sell for a fraction of the price of those in London and the surrounding areas. jan kranendonk/Shutterstock In September 2024, the median house price in London was, at £525,000, 3.3 times that in the cheapest region, the north-east. But Londoners’ median earnings were only 1.4 times those in the north-east.Why does stamp duty still exist?For governments, the attractive aspect of stamp duty is that it is cheap and easy to collect. And, like any property tax, it is difficult to avoid. It may also be the case that it is a politically easier tax to impose than, say, council tax. This is because it is seen to be avoidable or voluntary. If you do not want to pay it, you can just not buy a house. After all, it is the buyer who is responsible for paying it. But of course, it may not really be as simple as that. The tax burden will in fact be split between buyers and sellers – and everyone has to to live somewhere, so rents will still reflect an element of stamp duty paid by landlords. Reforming stamp duty surely should be high on the agenda of a good government with a long-term view. But the apparent focus on stamp duty seems to be more the result of the government’s revenue shortfall crisis and the Labour party’s commitment not to increase taxes on “working people”. Crucially, there is an overwhelming case for a fully thought-through reform of stamp duty and council tax in combination. A strategic vision would add our system of local government finance to that agenda. Many think council tax is a far worse tax than stamp duty. It is the product of another crisis: the need to put something – anything – in place in a hurry after the collapse of the Thatcher government’s poll tax in the early 1990s. It would be a tragedy if the UK were to get a rushed, short-term change to stamp duty in a bid to raise revenue in an emergency, rather than address the serious, long-term problems of how we tax property and fund local government. If stamp duty is changed, it must not endanger such a real, long-term and valuable reform.Paul Cheshire is affiliated with the London School of Economics; Centre for Economic Performance; Labour Party member.