Any plan to suspend stamp duty will be welcomed by prospective homebuyers but it is unlikely to be enough to turn around the battered housing market.

House prices are falling at an annual rate of 8 per cent, according to Nationwide. The number of homes sold in June was down 80 per cent on a year ago, falling from 105,000 to 17,681, according to the Land Registry.

Suspending the tax would save someone buying a £200,000 home £2,000 while someone buying a £1 million home would save £40,000. This would be enough to encourage some buyers back into the market, particularly if the changes were only temporary. The decision would also help first-time buyers to put more of their money down as a deposit. However, the two fundamental reasons why the market is suffering are the lack of mortgage funding and the lack of buyer confidence, not the level of stamp duty.

Total mortgage lending has fallen by two thirds in the space of 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 activity.

If a first-time buyer cannot get a mortgage, the prospect of saving a couple of thousand pounds in stamp duty will not make a scrap of difference to his or her ability to buy.

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.

The average bill for stamp duty has more than doubled from £680 to £1,900 since Labour came to power. In London, the average bill is more than £8,000.

Between 1997 and 2007, annual revenue from the tax has increased almost tenfold, from £675 million to more than £6.4 billion. But with the number of home sales falling so greatly, the additional cost of suspending the tax would be much less. Nonetheless, removing it would still leave a large hole in the public finances, which would need to be funded by more borrowing or higher taxes elsewhere.

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