Chancellor Rishi Sunak has been urged not to end the stamp duty holiday which is due to finish next month.
A new report by the right-leaning Centre for Policy Studies (CPS) said the tax break had increased house sales to their highest level since before the 2007 financial crisis.
Data shows that after an initial decline in sales between April and June 2020, the number of transactions increased from 132,090 in the second quarter to 225,870 in the third quarter and 316,300 by the end of quarter four – the highest level since 2007.
The think tank’s research shows that stamp duty revenues actually rose by 27% in Q3 compared to Q2, from £1.1bn to £1.35bn, and suggests they will rise again in Q4 given the continued increase in transactions.
The think tank is calling on the Government to either permanently increase the threshold on primary residences to £500,000 – at a cost of £3 billion – or abolish it altogether.
Jethro Elsden, CPS data analyst and the report’s author, said scrapping the holiday would be a “sledgehammer blow to the housing market”.
He added: “Stamp duty may well be the worst tax on the UK’s statute books. It places a significant burden on prospective buyers and creates huge distortions in the UK housing market.
“It damages the economy, and leaves people stuck in the wrong homes and reduces the number of new builds brought to market each year, which makes the housing crisis harder to solve.
“The introduction of the stamp duty holiday last July did not just rescue the housing market and construction sector, but proved conclusively that high stamp duty rates have become a damaging drag on the economy, the housing market and people’s aspirations.
“With the holiday due to finish at the end of March, we urge the Government to either make the £500,000 threshold permanent for primary residences, or better yet, abolish it entirely.
“At the very least the Chancellor must look to extend the current stamp duty holiday, or he risks delivering a sledgehammer blow to the housing market, and the wider economy, just when we need to be pushing for the strongest recovery possible.”