When John Swinney introduced the Scottish Government’s land and buildings transaction tax (LBTT) more than two years ago, it was widely predicted to result in a slowdown in the country’s property market.
Today those warnings no longer apply. The effects are clear and have been happening for some time.
And new finance secretary Derek Mackay must act.
The latest report – from estate agent Savills – has found that “punitive” rates of tax are curtailing the market for homes over £1 million in Scotland.
Only 56 transactions have taken place in the first half of 2017, compared to 79 during the same six-month period last year.
A separate study found that one in five potential homebuyers across the market has cited the tax as a reason for their decision not to move in the past two years, with two thirds branding it “unfair”.
It might be tempting for some to say homeowners in the £1m market can afford to pay more tax, but this misses the point. This tax that is failing taxpayers and cash-starved public services; and reducing mobility in the labour market.
The entire housing chain is in slowdown, and we can’t just blame Brexit.
The retired who want to downsize are finding it more difficult to sell, because those with growing families cannot afford – or are unwilling to pay – the high tax rate to move up the ladder.
This in turn means there are even fewer starter homes on the market for first-time buyers.
The numbers confirm this. In its first year, LBTT came in below its forecast revenue, delivering a residential shortfall of £33m. The tax shortfall after year two is now more than £80m.
Labour market mobility is even more important issue. Businesses need skilled employees to move to where the jobs are. And this isn’t always around the corner.
But many families are put off moving again because of the higher tax. Imagine having to move three times in the space of five years for work – that’s a lot of tax. Reduced mobility means reduced productivity and again lower tax take. A re-think is required. Mr Mackay has, significantly, said he is not an “ideologue on this issue”.
The evidence for change is piling up in Bute House. Mr Swinney didn’t heed the warnings. We need action from our current finance secretary.