Published:


Field Mark Feb 2012Mark Field is the Member of Parliament for the Cities of London and Westminster and currently serves as a member of the Intelligence and Security Committee. Follow Mark on Twitter

‘It’s like the
Harrods sale!’ exclaimed Rob Tincknell in January. As Chief Executive of the
Battersea Power Station Development Company, it was no surprise that he greeted
the stampede to secure new Battersea homes with elation. More than £600 million
worth of prime London properties – three quarters of the 800 homes on site – had
been snapped up in a frantic four days. The final tranche of 200 properties is
now on a homes ‘road show’ in Singapore to attract wealthy Far East buyers.

For
property-owning Londoners, the Battersea frenzy was no doubt a welcome sign of
the continued robust health of the capital’s housing market. But I suspect the average
renter found the news utterly demoralising. For them, the financial crisis
brought great promise of lower house prices. But that never came to pass.
Instead, already-stratospheric rents have crept steadily upwards. Mortgage
deposit requirements have increased. House prices are climbing and yet still properties
are being snapped up in double quick time. When even a Battersea studios costs £343
000, the hope of owning the smallest of homes seems more remote than ever.

Contrast that to
the ease with which wealthy foreigners, many of whom will not be resident in
the capital, are hoovering up London real estate. Such is their spending power
that it is becoming increasingly common for agents to market new London
property developments first to overseas buyers whose appetite for homes in the
capital, alongside their ability to pay for them, seems not to abate.

An increasing
number of Londoners are feeling locked out of their own city. Whatever one’s
politics, this cannot be desirable– an overcrowded capital in which much of our
precious housing stock is being bought by part-time or even absent residents. To
many there is no starker example than the London property market of the growing
global divide between the super rich and everybody else.


To me the
greatest attraction of capitalism and globalisation has always been its ability
consistently to deliver improved living standards to billions. It held promise
that each generation would be better off than the last, with hard work,
innovation and talent given just reward. So it had generally been. Yet, in
recent years, as wages have stagnated and living costs risen, more and more
people have begun to feel that the rules of the game are instead skewed in favour
of a growing global elite. This elite seems not only immune from the headwinds
battering everyone else but largely uncommitted to and disconnected from the
societies that their money influences.

As Chrystia
Freeland observed in her recent book about the world’s superrich, Plutocracy, the wealthy of today are
different to the rich of yesterday. Members of this elite, she concludes, tend
now to feel more affinity with one another than their own countrymen. They are,
in many ways, not citizens of any one country but belong to a pan-global
village in which they can cherry pick the very best that each society has to
offer. While they believe in state institutions that permit social mobility and
political stability, when it comes to the taxes required to pay for them,
enthusiasm can swiftly wane.

It is in
London that this phenomenon has become most visible. In 2011, top estate agent Savills
published a report, The World in London,
that documented billions of pounds of foreign money flowing into the capital’s
prime housing market, ‘boosted by the weakness of sterling and the perception
of London as a safe haven amid political and economic uncertainty’. The biggest
investors in central London property have been from Eastern Europe (15% of the
market with an average purchase price of £6.2m) followed by Middle Eastern and
Northern African buyers (14% market share with a £4m average purchase price). Arabian
playboys now race supercars along Park Lane, Russian oligarchs buy the
capital’s football clubs and frequent its auction houses and glamorous offspring
dazzle London boutiques with their family credit cards.

The strength
of demand from international cash buyers has only intensified over the past
year with prices in the two boroughs of Kensington & Chelsea and my own
City of Westminster rising 15-20%. Such is the scale of transactions in these
two areas alone that in 2011-12, they accounted for 13% of all stamp duty
collected on house sales nationwide.

It is
undeniable that as a collective, this international elite’s colossal spending
power injects verve into certain sections of the capital’s economy. Luxury
retailers, restaurateurs, hoteliers, property developers and high-end service
providers (private schools and the like) all benefit from the presence of
global high rollers. At a time of zero to low growth, Britain can ill afford to
drive away those with money to burn.

But there is a
more pernicious economic impact as well. As the international enclave expands,
more and more Central London stock is made unavailable to residents, driving up
prices in less central areas as those who would have lived in the city centre
are forced out. It is arguable that inflated house prices have, and continue to
have, a distortive effect on the competitiveness of the UK economy. In truth
they lead to ever higher wages, a drain on the benefits budget and diminish
available resources for investment and economic innovation. This will become
especially acute as the UK tries to thrive in ever more competitive global
economic markets. With greater proportions of household budgets consumed by
rent and mortgage costs, people have less money to save and to spend.
Ironically the high cost of London property also becomes a significant factor
in detracting the brightest and the best from abroad from coming here to work
or study.

There is an additional
problem in London having become a ‘safe haven’ for international capital flows,
a proportion of which has its origins in corruption and rent-seeking activities
that would be illegal in the UK. As detailed in Misha Glenny’s McMafia, laundering the proceeds of such
activity in London property is just about the easiest and most secure way of
banking a large amount of money. The UK is one of the few countries which
combines a unique mix of deep and liquid real estate supported by supply
shortages, an open capital account, a foreign banking presence, stable judicial
institutions, and the rule of law.  In running
an open capital account without there being a level playing field whereby the
UK’s benign investment conditions are mimicked elsewhere, there is a net
transfer of British assets to a class from developing regions who have obtained
money from acts that would be criminal on these shores. It is one thing to have
an open border to welcome foreign business people who create employment and
contribute to growth and government revenue. It is quite another for the London
housing stock to have become an international currency that is traded between
foreigners with little connection either to the city or the nation.

This state of
affairs has been tolerated as the price for high foreign investment in Britain
in the absence of economic growth. But as the living standards of the majority
diminish, we are fast reaching a tipping point at which this inequality is so
exaggerated as to become intolerable. I am not advocating a return to the class
warfare of the 1970s – it was my distaste for the politics of envy during that
era that first motivated my aspiration to public life. However I fear that the
capitalist system’s safety mechanisms are being undermined by exaggerated
wealth.

People work
harder if they are incentivised to do so. Witnessing those who have made their
money from cartels and monopolies or from risking other people’s money in a game
of ‘heads I win, tails you lose,’ mocks the ambition of the ordinary man. It
creates a sense of impotence – that no matter how hard one works or how
talented, the simple desire to own a home and afford a family is becoming out
of reach. It means that the restoration of growth alone is insufficient to
rectify the structural flaws that stand between the ‘squeezed middle’ and their
aspirations. It also explains why there is such anger being directed towards
those who apparently dip into our society, enjoy all its benefits and yet pay
little tax.

Naturally this
disconnect between the superrich and everyone else is not an exclusively British
problem, as we know from the ‘We are the 99%’ Occupy protests which first took
root in New York. Occupy protestors have been criticised for having no coherent
alternative plan. Yet it is not up to them to deliver solutions, politicians
should recognise them simply as a manifestation of society’s outrage. It is our
job as political representatives to address that outrage rather than simply to
mimic it. The effect in politicians sharing public anger is for governments to
look either utterly impotent or disingenuous in that outrage. This must be
addressed before the last vestige of faith in our economic and political
institutions is undermined.

I believe policymakers
must now undertake an objective cost-benefit analysis of the presence of an
international superrich. If the cost is found to be too high, how do
governments seek to minimise it? How do politicians design a system that
inculcates a sense of societal responsibility within this elite without driving
money, talent, investment to other shores? How can we distinguish between
genuine foreign business people who become resident in Britain, create
employment and contribute to the UK economy, and those who effectively free
load on the nation’s infrastructure?

Passionate
domestic debate about the imposition of a ‘mansion tax’ is now all the rage. In
part it is seen as an answer to some of these very questions. My primary concern
over such a levy has always been for those who happen to reside in homes whose
value has inflated to a level that bears no relation to a household’s ability
to stump up large cash sums. In other words, the asset rich and cash poor. I
suspect a mansion tax would most likely drive greater numbers of Londoners from
their homes, vacating even more prime, central property for the delectation of foreign
buyers. In short, a mansion tax would exacerbate rather than fix the
problem. 

In light of
this, in recent months I have canvassed interested constituents for alternative
solutions. A first suggestion has been to publish data. Only then can the
problem fully enter the public consciousness and inform national debate. We
need to understand just how much London residential property is owned by
non-resident, non-tax paying foreigners.

Next it has
been suggested that we look at the levying of taxes on non-resident,
non-British owners of property through the abolition of the distinction between
domicility and residence. Residents would be taxed on their worldwide income
and assets while non-residents would be levied with special holding taxes on
passive property assets they hold. In New York, apartments can incur a tax of
up to $20 000 if they are left empty – might we look at sure a plan here?

Some of my
constituents believe these plans could discourage non-resident foreigners from
buying real estate assets in the UK while making the fiscal regime attractive
to foreign business people who wish to be resident in the UK. Even just a 5%
capital tax would generate sufficient revenues to make a big difference. Furthermore,
a reduction in net capital inflows would reduce the value of sterling and add
to our competitiveness.

The government
has made a start with stamp duty – a 15% levy on purchases of property over £2
million by non-natural persons and an annual charge on UK residential
properties valued over £2 million owned by non-naturals. Undeniably, however,
the Conservative Party is nevertheless being left behind in public debate on these
issues. If we are to oppose vigorously a mansion tax, we must rapidly come up
with an alternative solution before we cede these contentious and important
matters to Labour and the Liberal Democrats. It is not difficult to frame this
debate in a distinctly ‘Conservative’ way. The principles that make capitalism
work are being warped and it is for our Party to declare that it wishes to address
that in order to nourish hard work, aspiration and responsibility. This is not
about envious wealth confiscation, rather a government addressing the
structural problems that are snuffing out ambition.

Over the past
few decades, we have witnessed an unprecedented shift in the ownership
structure of central London residential housing stock. The ripple effect has
been profound and the inequality of wealth in our capital is now reaching a
tipping point. Enough with public hand wringing and moralising. Ultimately
these are issues which politicians are elected to address – we must now change
the rules of the game.

Comments are closed.