Stamp duty on property sales is gumming up the housing market, stopping people from moving to the jobs they need, and keeping people in houses that are too large for their needs, according to a free-market think tank.

A new report released by the Adam Smith Institute suggests that stamp duty is the most damaging tax Britain has, and scrapping it should be top of the Chancellor’s agenda in the run-up to the Budget on November 22.

The paper argues that stamp duty is deeply damaging to the UK housing market.

Economists in Australia found that a similar tax there was costing 75p for every £1 raised: the institute claims that with stamp duty costing British people £12 billion a year, this means the tax may cause as much as £10 billion worth of what it calls “deadweight losses.”

This happens because it says stamp duty gums up the housing market  by penalising people from moving house. While the lack of supply of new houses is still the biggest cause of the housing crisis, it is exacerbated by the duty stopping the existing housing stock from being used efficiently.

“By penalising older people for downsizing after their children have left home, for example, stamp duty stops larger homes from being sold to new families, making the effective supply of family-sized homes even tighter” says a statement from the institute.

“Since stamp duty creates a built-in cost to moving it also creates a roadblock to people moving from one part of the country to another to find work, trapping people in low pay and preventing them from advancing” it adds.

The institute’s analysis says that the UK is home to around £7.5 trillion worth of property, with homeowners taxed regressively against values last updated in 1991, and charged stamp duty at rapidly escalating rates. The report proposes instead to abolish stamp duty altogether, covering the cost by raising council tax bills on the most expensive properties in the country.

“This policy is probably the most effective tax cut the Chancellor could go for, boosting growth and improving the fundamentals of the housing market at a stroke” says the organisation.

Although the increased economic activity would likely offset some of the losses in the long-run, the paper suggests revaluing council tax and creating a new band for the most expensive homes as a way of making the move revenue neutral if necessary.

“Stamp duty is the worst tax we’ve got, almost as bad as setting fire to the money instead of raising it in tax. The reason is that Britain’s productivity problem is in large part a mobility problem. People cannot move to where the best jobs for them are because the houses aren’t being built, and that’s made even worse by stamp duty keeping older people in family homes that are too large for them.” says Sam Bowman, executive director of the Adam Smith Institute.