Hammond’s Sauce Works Band

Recently, our dear duckspeaker Philip Hammond MP had his local talking points cache refreshed. He’s now constantly saying that the Government is causing “uncertainty” in the housing market because they haven’t decided whether or not to cut stamp duty, and that this is a problem. Both statements are of course completely vacuous at best, and actively misleading at worst. For a start, the housing market is tanking. We’re in the worst property crash since 1983, says the Halifax; that’s another way of saying that the Halifax started computing an index of real estate prices in 1983. It’s not impossible that it’s the worst since the Great Depression. The price of property is dropping with the almost supernatural swiftness of an economic imbalance that finally clears; at the moment, anyone who wants to buy a house would be literally insane to do so, as it is as certain as anything in economics ever is that it will be much cheaper in a year’s time.

Of course, this only matters if you can raise the money. At the moment, the banks have practically stopped lending, so whatever happens to stamp duty is risibly irrelevant. Further, all these statements go double the smaller the deal; nobody who owns a house is ever likely to struggle to raise mortgage money if they want to buy another, but without new entrants, who can they sell to? What mortgage lending is going on is actually very good business for the banks, because it’s practically all to people with lots of existing equity, and at higher interest rates too.

Supposedly, according to Hammond and the real-estate lobby, reducing stamp duty would help people raise a deposit in order to pass the new and more astringent lending criteria. But this is obviously drivel. The large majority of new entrants are either zero-rated or in the first, 1% band, so their stamp duty bill will be at the very most a couple of grand. If they have to raise a 20% deposit, well. It’s not going to work. If you’ve got £18,000 to plunk down as a deposit, and the stamp duty at 1% is a dealbreaker, shouldn’t you either be waiting a few months, looking for somewhere cheaper, or getting a better mortgage broker?

Further, there’s the marginal issue. The Tories seem to be collectively blind to the existence of marginal effects, as if their love of classical economics had carried them back past Hayek and von Mises and Bohm Bawerk all the way to the 19th century. For example, they want to “encourage marriage” by offering a tax break to the married; but the only extra marriages this will result in are the ones where the spouses wouldn’t stay together but for the tax break. And those aren’t likely to be gems, are they? Similarly, the only additional house sales a cut in stamp duty will cause are ones where that sum of money is enough to make the difference; not very many, as we’ve just seen. But we’re having an epic financial crisis precisely because the banks lent so much money to people who couldn’t pay it back. Do we really want more crappy loans?

So; it’s completely ridiculous to suggest that cutting stamp duty will do any good, it’s frankly irresponsible, and it’s even sillier to imagine that buyers are holding off wondering if they’ll have to pay 1 per cent more or less, when they can be certain they will pay 10 per cent less in a few months’ time and perhaps 30 per cent less in a year or two. So why is Hammond so obsessed? (And he is. Check out the 14,400 Google results, including a veritable barrage of official Tory press statements.)

The first point is pure clientelism. What stupid Tory giveaways have in common is that although their marginal effects usually defeat the stated point of the exercise, they usually succeed in showering one or other campaign demographic with cash. A tax break for married couples won’t actually do any good, but it will provide a payoff for several key voter groups who don’t even have to do anything; the money just comes. Similarly, the people who are dealing in houses at the moment by definition have lots of equity and cash; who else can get a mortgage? They would get the tax break as much as anyone else. Kerching! Another group who would benefit either way would be the real estate lobby itself; and the sheer number of property millionaires who have quartered themselves on London since Boris Johnson’s election should explain this reasonably well.

The second is Philip Hammond’s own personal financial interest. Here’s something he added to the register of interests in June, his shareholding in Castlemead Ltd, a company whose main interest is….property development, of houses through its stake in Castlemead Homes Ltd and of NHS primary care centres through Castlemead Developments Ltd. (I reckon the Tory position on PCTs wants watching, no?)

This must be no small holding, either; he managed to forget to declare a £3m dividend from the firm. That’s enough to make him the the second richest man in the Shadow Cabinet with net wealth (I refuse to describe it as “worth”) of £9m. No wonder he spends so much time howling for the propertied interest. He is talking his own book. But surely even he can’t be worrying about the stamp duty on his £1.5m pad in Belgravia? Even at the 4% higher rate?