Will Leyland, 14 February 2020
Writing this was made that much harder by the unexpected resignation of The Chancellor Sajid Javid on Thursday, but makes the proposals all the more intriguing.
The alleged source of the huge fall out was the Prime Minister’s most senior advisor, Dominic Cummins, who asked Javid to sack all of his Treasury advisors so that Number Ten could install their own instead. Javid refused and resigned.
That being said, attention has now turned to his intended economic plans which he was set to reveal in the budget in April. It leaves his successor Rishi Sunak the unenviable task of surveying the wreckage to decide which policies he’d like to keep and which he’d like to ditch.
After a raft of high-profile changes to taxes and laws regarding property, we’ll once again be focused on the red briefcase come budget day to see what impact, if any, this year’s announcements will have within the industry.
Not particularly positive, or even well received, were the recent announcements which included the abolishment of agent’s fees, the reduction of tax relief on Buy To Let, and some others.
The rumour doing the rounds between political journalists, the halls of Westminster and economic geeks right now is whether, following an election victory owing to northern working classes flipping in their favour, the Tories will break with what many consider to be their bread and butter, and announce a mansion tax.
The last time you’re likely to have heard this particular term is when Ed Miliband was running to be the Prime Minister back in 2015, which now seems another lifetime ago. Initially the policy was conceived by Vince Cable and the Lib Dems, and was broadly designed to be an annual levy on those who owned property over £1 million.
Eventually Cable revised the policy and aimed to introduce it to those whose property was worth more than £2 million, but it never really took off until Miliband adopted the policy and put it in Labour’s 2015 election manifesto.
The policy was received either as right and proper wealth distribution by supporters, or a nasty tax on aspiration by critics. As with most policies, it was probably somewhere in the middle, although it did appear to have quite significant draw backs.
There doesn’t really seem to be a realistic explanation of why the treasury might be adopting the policy now, although most political and economic commentators seem to think it’s in response to the Tories winning a wave of seats across Northern England and The Midlands.
Either way, the policy could have some unintended negative consequences, which may distort the market. As with Help-To-Buy, anything that artificially affects market prices can similarly affect consumer behaviour, in this case home owners and buyers.
Not just that but the starting point would most likely be those houses which are in the highest possible council tax banding, but they would still all need individually valuing, so the question posed is who would value that property?
Secondly, with council tax bandings being badly out of date, there would need to be a complete review of council tax bands, which would create many winners, but also many losers. Such a hot political topic could only be tackled by the bravest.
Finally, this could drive some asset-rich but cash-poor people into dire situations as new tax demands of up to £12,000 per year could land on their doorsteps despite not having the income to cover it. This, it is proposed, could drive many to seek to devaluate, re-evaluate, or simply avoid the system altogether, potentially distorting market prices and dropping the valuation of any property potentially over £1 million, due to buyers steering clear of anything over the valuation threshold.
Who’s to know, but instinct would tell you that even if the Tories do decide to introduce something like a ‘Mansion Tax’ it would probably look nothing like Cable’s or Miliband’s version of it, with them supposedly being ideologically opposed to wealth taxes.
That and the fact that with so much legislation coming in and affecting Buy To Let, there could be a real risk of a sustained backlash from investors and property owners, and despite a thumping majority for Johnson’s government at the last election, it would be a risk that doesn’t appear worth taking.
Will Leyland, 14 February 2020