Any plan to suspend stamp duty will be warmly welcomed by prospective homebuyers, sellers and estate agents, who are going out of business at a rate of more than 100 a week because of the slump in sales. Whether it will be enough to turn round the battered housing market is a different matter.

House prices are falling at an annual rate of 8 per cent, according to Nationwide. However, this is nothing compared to the reduction in buying activity, which has fallen off a cliff in recent months. In June last year there were 105,000 homes sold in England and Wales. In June this year, just 17,681 sales were registered, a fall of 83 per cent. In more than a third of postcodes, there were no sales at all.

A suspension of stamp duty would save someone buying a £200,000 home £2,000 while someone buying a £1 million home would save £40,000. This is likely to encourage some prospective purchasers back into the market, particularly if the changes are only temporary. The decision will also help first-time buyers put more of their money towards saving for an all-important deposit. However, the fundamental factors undermining housing market activity are the availability of mortgages and buyer confidence — not the level of stamp duty.

Total mortgage lending has fallen by two thirds in a year as the market in mortgage-backed securities, which most banks used to finance a significant proportion of their home loans, has effectively closed. With buyers also expecting prices to fall, there is an incentive to delay making a purchase, which further undermines demand.

Prospective first-time buyers may be encouraged by the prospect of saving a couple of thousand pounds in stamp duty but, if they are still unable to get a mortgage, it will not make a scrap of difference to their ability to buy. Perversely, any suspension to stamp duty is likely to be of greater benefit to the higher end of the housing market because the levels of the tax are proportionately much bigger.

Also the historical precedent is not encouraging. When the Tories suspended stamp duty for nine months during the last property recession in the early 1990s it had no discernible impact. It still took another six years for prices to recover.

Accountants at the Treasury will probably not be happy about the idea. The public finances are already in a perilous state and the Government has become increasingly reliant on stamp duty over the last 10 years. Between 1997 and 2007, revenue from the tax increased by 582 per cent from £675 million to £4.6 billion. Any move to suspend stamp duty would leave a large black hole in the public finances, which would need to be funded by more borrowing or higher taxes elsewhere.

If the Government does plan to suspend stamp duty, it must also act quickly. If the few prospective buyers currently looking for homes believe that Stamp Duty will be abolished in the Autumn, they are likely to delay purchasing until then, meaning the market could effectively come to a complete standstill until the decision is made.

While many will welcome the suspension of stamp duty, it is not without risk and is unlikely to solve the problems of the property market overnight.

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