Rishi Sunak is preparing to extend the stamp duty holiday by three months until the end of June in an attempt to keep the property market firing as Britain emerges from lockdown.
In July last year the government exempted most buyers from the levy if they completed their purchase before March 31, 2021. The holiday enables people to save up to £15,000 in tax. The chancellor has faced pressure to extend the deadline amid concerns that it would create a “cliff-edge”, jeopardising hundreds of thousands of sales.
It is understood that Sunak will use his budget on March 3 to move it to the end of June, bringing it into line with the easing of lockdown restrictions. The extension to the policy, which covers sales of properties worth up to £500,000, could cost about £1 billion.
The chancellor is also expected to extend the furlough scheme, which is due to conclude on April 30, over the same period. This measure alone could cost about £4 billion a month.
The business rates holiday for the retail, hospitality and leisure sectors will also be extended at a cost of just under £1 billion a month, along with the VAT cut for hospitality and tourism at an estimated cost of £200 million a month.
The cost of the extensions comes on top of the £300 billion the government has spent on coronavirus measures.
Amid concern in the Treasury, Sunak will announce plans to raise corporation tax over the course of this parliament. It had been thought he was looking to put up the tax to 23 per cent. However, The Times has been told that Treasury officials are considering 25 per cent. Janet Yellen, the US treasury secretary, said recently that corporation tax in the US could rise from 21 per cent to 28 per cent.
Even with the projected rises, Britain could still claim to have the lowest level of corporation tax in the G7 group of nations. The first increase in the tax is likely to be in the autumn, with further rises over the next four years.
The housing market has been boosted by the chancellor’s decision to raise the threshold for paying stamp duty from £125,000 to £500,000.
The Office for Budget Responsibility, the fiscal watchdog, has forecast that there will be a significant slowing of the housing market if the holiday comes to an end on March 31. It said that house prices could drop by more than 8 per cent this year.
Paul Johnson, the head of the Institute for Fiscal Studies, warned that by extending the stamp duty holiday the government was increasing the likelihood of it becoming permanent.
He said: “Supporting house moves is a good way of supporting the economy. There’s clearly a risk in extending — people will expect it to be extended again. Whenever it’s withdrawn you risk a period of stagnation and overblown house prices as you get towards the end. Extensions can become permanent.”
The property data analysts TwentyCi said that the three-month extension would benefit 193,198 house sales that would otherwise not have completed in time for the March 31 cut-off.
An analysis from the Centre for Policy Studies think tank suggested that the stamp duty holiday boosted the number of house sales by close to 140 per cent, to their highest level since 2007. Its report said that transactions rose from 132,090 between April and June, to 316,300 in the final quarter of last year.
Increasing corporation tax would end Britain’s 47-year downward trend in the main rate of the tax. Each percentage point rise would bring in about £3 billion.
Sunak wants to put up the tax because it is considered one of the few “genuine revenue raisers” left. Any such move will be strongly resisted by cabinet colleagues and some Tory backbenchers, who argue it would deter business as Britain is striving to emerge from the pandemic.
Johnson is expected to side with Sunak in a cabinet split over universal credit by extending the £20-a-week rise for six months rather than a year.
The chancellor has been locked in a battle with Thérèse Coffey, the work and pensions secretary, over when to remove the extra payment, which was introduced at the start of the pandemic. Sunak is concerned that extending it for a year, at a cost of £6 billion, would lead to it becoming permanent.
Johnson is understood to share Sunak’s concerns and has accepted the six-month extension. Sunak had originally proposed a £500 one-off payment for claimants, which was rejected by Downing Street.
