Anyone expecting a post-Brexit fillip from Philip Hammond today is likely to be disappointed. Continued austerity and long-term planning are the key themes that have been trailed by 11 Downing Street, while the Chancellor himself said that the country’s debt position was “eye-watering” during an interview with the BBC on Sunday. The national deficit is currently estimated to be £1.64trn – that’s equivalent to over £25,000 for every man, woman and child living in the UK.
But while the government will want to stick to its rigid fiscal disciplines, it will wish to stimulate growth to drive down the current account deficit. There are, therefore, some key areas where we can expect action within the Autumn Statement – and housing will be among them.
The structural shortfall between rising demand for housing and the supply of new homes continues to go unanswered. The UK needs 250,000 properties to be built each year to keep up with demand but, up to now, house building targets have consistently been missed by a mile.
Housing is an area where the so-called free market is not working. The top 10 house builders account for nearly half of the market, but the best interests of their shareholders are not served by meeting demand for housing in full – their agenda is to optimise profitability by constraining supply.
This requires bold action. Government either needs to take action to stimulate competition between house builders (which is difficult) or to intervene directly and start building homes probably via local authorities (which has been done before). Apart from creating a massive and sustainable stimulus to the economy it would enable government to have much greater control over the location, tenure and nature of new housing.
It is clear that Stamp Duty Land Tax (SDLT) rates are too high and have created a damaging and adverse impact to liquidity in some parts of the country. There are strong arguments that the current 5% payable above £250,000 and the 10% payable above £925,000 are significant drags on transaction levels. There is some merit to the old idea of shifting the burden of SDLT from the buyer to the seller but this would require a period of transition and we don’t have the time. A simple cut in the rate of SDLT across the board would be simple and immediately effective. Despite a reduction in rates, direct government revenue would increase as a consequence of greater turnover and indirect tax revenue also would rise.
The most obvious win would be to reverse the additional 3% SDLT levy on buy-to-let property purchases and communities secretary, Sajid Javid, has recently hinted that there could be a reversal of buy-to-let tax changes.
The precedent for cancelling hostile action against landlords was established by the Irish government which, in October, reversed its 2009 policy of restricting landlords’ ability to deduct mortgage interest from income for tax purposes. The Chancellor will also be mindful of research that points to a significant number of landlords already liquidating their investments in response to increasing tax; policymakers are concerned that a reduction of supply in the private rental sector cannot be made up with social housing.
I do not expect material changes to UK buy-to-let taxation but I do dare to hope. 2016 has already established itself as a year of political surprises. Let’s hope that any surprises in the Autumn Statement are positive ones.
