how will tax cuts and stamp duty affect young adults?

UK chancellor Kwasi Kwarteng has announced a series of measures^[1] aimed at boosting the economy as the UK faces a recession and continued cost of living crisis. The budget is a political and economic gamble based on the logic that boosting consumption will bring investment and longer-term growth.

The new measures (mainly £45 billion in tax cuts, on top of an estimated £100 billion in energy subsidies^[2]) mean a gargantuan increase in government expenditure, funded by extra borrowing. This will result in a great deal more government debt passed on to future generations, but some of the policies will have a more urgent impact on young adults.

Sadly that’s not likely to include the bringing forward of a 1p cut to income tax, and reversing a planned 1.25p increase in national insurance contributions. The combined effect of these cuts will be most felt by the wealthiest people. The tax savings^[3] on an income of £20,000 will only be as much as £218, while someone on £200,000 will be rewarded with a whopping £4,333 in tax cuts. In this example, ten times more income brings 20 times more in savings.

What could have more impact is the announcement of a discount on stamp duty^[4] (the tax paid when you buy a house), which could potentially help some first time buyers with small deposits to buy a property. For most aspiring homeowners however, this is not necessarily good news. The effect of the discount will be to keep house prices high, at least at first – not what you want when you’re trying to buy.

Rising mortgage interest rates, combined with less disposable income due to the cost of living crisis, would normally force house prices to fall. That’s especially true after a period of steep jumps^[5] in real estate prices. But the government doesn’t want that, and hopes the stamp duty cut will make it more appealing for people to buy houses.

Supporting real estate may also have the knock-on effect of fuelling demand for goods and services such as solicitors, estate agents, furniture, white goods and tradespeople. There is also the “wealth effect”: economists have long associated consumers’ perceived property wealth with their spending behaviour^[6]. If you believe your house is worth a lot, you feel financially secure, allowing yourself to save less and spend more.

This article is part of Quarter Life^[7], a series about issues affecting those of us in our twenties and thirties. From the challenges of beginning a career and taking care of our mental health, to the excitement of starting a family, adopting a pet or just making friends as an adult. The articles in this series explore the questions and bring answers as we navigate this turbulent period of life. You may be interested in: Quiet quitting is a new name for an old method of industrial action^[8] Hope from despair: how young people are taking action to make things better^[9] How to spend time wisely – what young people can learn from retirees^[10] It’s possible that despite the stamp duty cut, house prices will ultimately fall anyway^[11]. Knocking off £3,000 on the cost of buying a house will not offset the combined impact of higher energy prices, food costs and of course, interest rates. There will always be more buyers than sellers for quality UK properties, but now each buyer will be armed with smaller mortgages. This could be an opportunity for a first-time buyer. But it could also hurt renters, as landlords pass on the additional costs of higher interest rates and remortgaging to their tenants. Past Conservative governments^[12] also increased some of the taxes that landlords pay on rental income. These factors have already contributed to steep increases in rents^[13], up to 20% in some areas. Read more: Cost of living crisis: what are your rights if your landlord wants to increase your rent?^[14] Preparing for recession Liz Truss’s government is following an economic doctrine which argues that richer people are more likely to invest, set up businesses, hire people and grow the economy. But when this theory has been tested in the past, it hasn’t ended well^[15]. Still, tax cuts are tax cuts, and the government’s gamble may pay off. They’ve also announced a freeze in alcohol duty – cheaper drinks over which to commiserate with friends.

References

1. ^{^} series of measures (theconversation.com)
2. ^{^} energy subsidies (www.itv.com)
3. ^{^} The tax savings (www.ft.com)
4. ^{^} stamp duty (www.bbc.co.uk)
5. ^{^} steep jumps (www.theguardian.com)
6. ^{^} spending behaviour (www.ecb.europa.eu)
7. ^{^} This article is part of Quarter Life (theconversation.com)
8. ^{^} Quiet quitting is a new name for an old method of industrial action (theconversation.com)
9. ^{^} Hope from despair: how young people are taking action to make things better (theconversation.com)
10. ^{^} How to spend time wisely – what young people can learn from retirees (theconversation.com)
11. ^{^} ultimately fall anyway (www.telegraph.co.uk)
12. ^{^} Past Conservative governments (www.estateagenttoday.co.uk)
13. ^{^} increases in rents (www.theguardian.com)
14. ^{^} Cost of living crisis: what are your rights if your landlord wants to increase your rent? (theconversation.com)
15. ^{^} ended well (www.theguardian.com)
16. ^{^} Ink Drop / Shutterstock (www.shutterstock.com)
17. ^{^} stands at 3.6% (www.ons.gov.uk)
18. ^{^} fastest rate (ise.org.uk)
19. ^{^} improve the quality (money.com)
20. ^{^} in droves (www.healthcaredive.com)
21. ^{^} 4.4 million (www.tuc.org.uk)
22. ^{^} young (www.forbes.com)
23. ^{^} pay (www.tuc.org.uk)