The Chancellor has once again demonstrated that the British residential property market is an irresistible target for a government thirsty for cash, which regards private property rather as a school prefect regards chewing gum: an unfortunate habit to be discouraged, preferably by confiscation.
Yesterday’s Budget offers the familiar cocktail of fiscal ingenuity, political theatre and the touching conviction that the housing market can be bullied into prosperity. Some hope!
The government insists it is supporting growth and helping people onto the housing ladder, while simultaneously making property income more expensive to earn. At the Treasury, apparently, these two contradictory propositions are perfectly compatible. Go figure.
First, the landlords
First into the firing line are the landlords. From April 2027, tax rates on property income rise to 24% for basic-rate taxpayers, 44% for higher-rate taxpayers and, believe it or not, an eye-watering 49% for additional-rate taxpayers across the UK, apart from Scotland.
The Treasury calls this fair and proportionate. Private landlords may perhaps have a rather fruitier,Shakespearean retort to describe the indigestion caused by yet another reduction in the return on capital.
The predictable consequence is that more private buy-to-let landlords will sell their investments, reducing the supply of rental properties even further and putting upward pressure on rents. The casualties, as ever, will include the very people the government claims to protect.
How much punishment must landlords endure for the temerity of owning private property and renting it out? After all, this sector accounts for 19% of homes, or 4.7 million properties, significantly more than socially rented housing, which represents 16%, or 4.1 million homes.
Council tax surcharge
There will be a 100% Council Tax premium on homes left empty and unoccupied for at least twelve months. For owners of expensive property, possession may be nine-tenths of the law, but it is increasingly a tasty morsel for the Revenue.
The devil, as ever, is in the detail. We still do not know precisely what exemptions will apply when a property remains vacant for perfectly legitimate reasons beyond its owner’s control. Apparently, even an empty house must now have a sufficiently convincing alibi.
Stamp duty
This tax, which stubbornly locks up capital that might otherwise circulate through the economy, has been left unchanged. Buyers must continue paying through the nose for the privilege of changing address.
What a golden opportunity missed to get the housing market moving again. Instead, the Treasury has left the handbrake firmly on and wonders why there is no progress.
A new ladder for first-time buyers
The Chancellor has allocated £4.7bn to a new First Home scheme, promising 20% equity loans intended to help around 70,000 households. Deposits start at 2.5%, subject to income limits and regional price caps, while developers are expected to contribute towards the cost.
This looks suspiciously like Help-to-Buy wearing a new hat. Any initiative that helps first-time buyers deserves a welcome, but previous schemes suggest that such interventions are often too limited in scope to make a discernible difference. Meanwhile, housebuilders may be tempted to use government-backed finance to shift unsold stock onto inexperienced purchasers.
One can almost hear the wolves in sheep’s clothing sharpening their teeth, and the gnashing of the teeth when the buyers discover what they have bought.
Affordable housing receives another £1.5bn
Mr. Healey would have us believe that he intends to deliver around 10,000 social and affordable homes, with social rent a priority. Technically, this is welcome news. In the grand scheme of the housing crisis, however, it barely amounts to a ‘hill of beans’ (Bernard Shaw): approximately 2.4% of the existing socially rented housing stock.
And what of the solemn pledge to build 1.5 million new homes during the electoral term? On present form, the target looks increasingly detached from reality, potentially falling at least 500,000 homes short.
Labour’s housing policy resembles the national diet: repeated promises to start again on Monday, despite the scales suggesting otherwise. And, as we all know, they never lie.
The wider picture
Britain needs investment, development, mobility and a greater supply of new homes. Yet every additional tax on ownership or rental income risks making investment less attractive, while transaction taxes continue to obstruct movement.
I do not suggest that these measures will automatically trigger an avalanche of rent increases or falling house prices. Market sentiment is more complicated than that, but the direction of travel is unmistakable.
The government wants more homes, more transactions and more affordable rents, while simultaneously increasing the tax take from property. It is rather like pressing the accelerator to the floor while keeping the other foot firmly on the brake. The destination remains obscure, but the smell of burning rubber is unmistakable.
A Budget in camouflage?
As I suspected, the Chancellor appears to have been advised by the parochial crowd-pleaser Andy Burnham to keep a low profile on this Budget, while making vague references to a further spending review in 2027. What, then, is the point of an annual Budget if another version is lurking around the corner? Is this merely an exercise in kicking the can down the road, in the hope that developments in Ukraine or Iran might ease inflationary pressures and the cost of borrowing?
Perhaps the Budget’s low profile is designed to offend the fewest possible voters ahead of a potential snap election in December. The Prime Minister might hope to exploit whatever remains of his honeymoon in the polls, escape the constraints of the 2024 manifesto and secure greater freedom to borrow and spend.
He will also be banking on a divided Right, Reform and the Conservatives failing to form an electoral pact or coalition, leaving Labour with a reduced majority but greater freedom to indulge its instincts: bigger government, higher taxes and more control.
Whether this is strategic genius, or political wishful thinking remains to be seen but the housing market, at least, has been given another going-over.
As Winston Churchill is often quoted as saying: “However beautiful the strategy, you should occasionally look at the results.”
Trevor Abrahmsohn is head of Glentree International in north London.
