Britain should ditch ‘distorting' stamp duty, says Reagan's economic tsar
The economist behind the Laffer curve said property transaction taxes are such a big problem in the national tax system that the UK would be better off with an American-style annual property wealth tax.
Mr Laffer, who has served as adviser to both former president Ronald Reagan and president Donald Trump, told The Telegraph that the UK would be better off if homeowners paid annual property taxes as they do in the US instead of stamp duty.
He said: 'The [annual] property taxes in Britain are low, but the transaction tax is very high. The US is the reverse. We have property taxes everywhere, which is a wealth tax, and we don't have transaction taxes on houses.
'All property taxes do in Britain is lock people into their homes that they can't get out. It just distorts the whole tax system in Britain, it's just awful.
'It is one of the very biggest problems in Britain's tax system.'
Mr Laffer is most famous for conceiving the Laffer Curve, an illustration of the concept that increasing tax rates can eventually lead to lower revenue because the higher taxes trigger so much behavioural change.
Stamp duty is widely hated by economists and consumers alike because it makes it increasingly difficult to move home and makes the housing market inefficient – which in turn takes a toll on productivity.
In America, by contrast, homeowners do not pay large taxes when they purchase their homes but instead pay an annual tax based on a percentage of their property's value.
Mr Laffer said: 'Income tax is a problem in Britain, but these transaction taxes are big stuff too.'
Stamp duty is taxed in bands that are not adjusted to account for house price growth, meaning homeowners get dragged into higher tax brackets as house prices rise.
Since the tax bands were last adjusted in 2014, the average London house price has climbed by 30pc. Over the same time period, the stamp duty bill on the average home in the capital has surged by 54pc.
The Office for Budget Responsibility (OBR) forecast in March that the Treasury's tax take from property transactions will nearly double from £15bn in 2024-25 to £26.5bn in 2029-30.
Mr Laffer was an adviser to Donald Trump's 2016 campaign and says he has met with the US president several times since he took office earlier this year.
He said he has told the Mr Trump that he should scrap US corporation tax on profits and replace it with a value added tax on sales.
Although Mr Laffer is in favour of Mr Trump's tax bill, he said the president should go further with measures to boost the economy. The biggest measure in the bill will be an extension to the tax cuts that Mr Trump introduced in 2017 and are due to expire this year.
Mr Laffer said: 'I know they talk about it as being a tax cut. It's not. It's just making Trump's tax cuts permanent.
'If it were not passed, there would be a huge increase in taxes across the board, which would be very detrimental. The bill going through the Senate right now does not create something wonderful but it saves us from a disaster.'
Mr Laffer said that America should establish a free trade agreement with the UK, and that Ireland should leave the EU to become part of the trading bloc too.
He said: 'One thing I really hope Trump does with Britain is really bring into a free trade relationship with the US.
'You're gonna hate me for this, but I think it should be with Ireland too. I think they should get out of the EU and should become part of the sort of the US/ UK/Ireland group. I think that would be a terrific free trade group.'
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