However, the reality is that myriad tax rises and benefit cuts are due to take effect from early April, and public spending cuts will also begin to bite in earnest this year.
With household finances already under pressure as a result of consumer price inflation persistently above target (largely reflecting higher global food and fuel costs and January’s increase in VAT to 20%), anaemic earnings growth and job losses, 2011 is set to be a challenging year for households and the housing market.
New rate of duty
One change that is likely to attract few press headlines is the already announced introduction of a new and permanent higher rate of stamp duty on residential property purchases of more than £1 million.
Seasoned Budget watchers may recall that the outgoing Labour government heralded this change last March, when it announced a two-year suspension of stamp duty for first-time buyers on residential property purchases up to £250,000.
The introduction of the 5% stamp duty band will probably not evoke a great deal of public sympathy or interest.
Given the weak state of public finances, wider economic uncertainties and lingering dis-satisfaction about how the burden of economic re-balancing is being shared across society, most people will dismiss it as a fairly innocuous tax on the rich.
But it is by no means trivial from an overall fiscal perspective. Although the introduction of the new 5% stamp duty rate will initially affect just over 1% of residential property transactions, our back-of-the-envelope calculation is that it will generate an extra £250 million yield in a full year.
An arbitrary tax?
Unfortunately, perhaps the greater significance of the move is that it exposes both the increasingly arbitrary nature of residential property taxation and the increasing reliance of the government on the yield coming from higher-value property transactions.
Proportion of yield from residential stamp duty, by duty band
By 2009-10, the latest financial year for which figures are available, 86% of residential stamp duty came from tax paid at higher rates (on property sales of more than £250,000). We accept that the previous stamp duty holiday – on transactions of up to £175,000 (which ended in December 2009) – exaggerates this effect, but not by much.
And, with first-time buyers for the time being exempt from paying stamp duty on sales of up to £250,000 and the new higher rate of 5% only days away, the clear trend over recent years will intensify.
In the decade prior to the credit crunch, the Treasury enjoyed substantially higher yield from residential stamp duty, as a result of strongly rising house prices, fiscal drag and the "slab" structure of the duty (under which duty is charged at the highest appropriate rate on the whole purchase price, including the parts below lower thresholds).
More recently, as the CML forewarned, stamp duty yield has collapsed. It has averaged a little more than £3 billion over the last two tax years, less than half the peak level of £6.7 billion seen in 2007-8. A similar outturn can be expected for 2010-11. This sharp fall reflects the substantial drop in property sales over the period.
Weak housing demand
While the slowdown in housing market activity stems principally from the limited availability of mortgage funds and from weaker consumer demand against a backdrop of economic uncertainty, high transactions costs as a result of stamp duty have almost certainly suppressed demand further.
Whereas in a strongly rising housing market, buyers were able and willing to absorb high transaction costs (and in many cases simply add them to the mortgage), the current situation is markedly different.
In many parts of the UK, where house prices are static or weakening moderately, the high level of stamp duty is certainly more "visible" to buyers. And it can also look daunting, especially if the restricted availability of mortgages means that stamp duty has to be financed from their own savings.
Notwithstanding the temporary boost reported by some up-market estate agents, as individuals try to buy ahead of the new 5% band, stamp duty more generally may well be exerting considerable friction in the middle and upper reaches of the housing market. This probably helps to explain why house purchase activity has fallen to a similar degree for both first-time buyers and movers.
A negligible impact
A year on from the introduction of the stamp duty concession for first-time buyers, it is reasonable to ask what impact it has had in stimulating first-time buyer numbers.
While we have yet to see any impact analysis from HM Revenue & Customs, prior estimates suggested that nine out of 10 first-time buyers would pay no stamp duty at all. In more normal times, we would expect a give-away of up to £2,500 to represent an appreciable stimulus to activity.
But, as far as our figures show (see Chart Two), the impact appears to have been negligible so far. According to our regulated mortgage survey, both the number and value of loans to first-time buyers continue to stagnate at barely half the levels prevailing before the credit crunch.
Admittedly, CML figures for first-time buyers capture households that are also returning to home-ownership after a period abroad or in a different tenure (who would not be exempt from stamp duty), but the underlying picture is similar for those aged under 30 (where the distorting effects of "returners" are pretty negligible).
Our view is that the failure to ignite first-time buyer demand reflects the deep-seated nature of problems in the housing and mortgage markets, and not least the signif
