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Dr Rosalind Beck is a Doctor of Criminology and a Conservative Party member in South Wales.

After George Osborne launched his fiscal attack on the private rented sector (PRS) in 2015, Richard Dyson of the Daily Telegraph criticised the effect of the unexpected and arbitrary change in tax law, saying: “What we don’t need is an unstable, party-politicised tax regime where the rug can be pulled out from under our feet, whipped on by whatever populist cause wins the day.”

For private landlords who have since faced additional tax grabs, the days of stability in the tax regime seem long gone, and now the centre-right think tanks Onward and the Centre for Policy Studies (CPS) have come up with ideas for further change. Onward’s version consists of a ‘simple’ idea for ‘a capital gains tax break for properties sold to sitting tenants of three or more years continuous residency, with the gain from the relief split evenly between the landlord and tenant.’

It suggests that this ostensibly generous ‘carrot’ be offset by the ‘stick’ of ‘abolishing the £40,000 Lettings Relief given to landlords who have previously lived in their second home, and by reducing the Private Residence Relief grace period from 18 to six months’.

The think-tank says that this would ‘help a million people move from renting to ownership over five years’. Property experts call this ‘highly unlikely’  and suggest a lot more thought would need to go into it. Despite this, there are rumours Philip Hammond could announce some form of it as soon as the next Budget.

Some scrutiny is therefore imperative; here are ten problems I foresee.

Faulty rationale.

  • The rationale behind this is that home ownership has fallen and is thus in need of urgent stimulation. It hasn’t. The number of home owners has been increasing steadily, by 10,000 in 2014;135,000 during 2015-16; 261,000 during 2016-17 (England only); and with numbers set to surpass 350,000 in 2017-18.
  • In addition to this mistake, the think tanks see no value in the PRS; with Onward interested in ‘at once reducing the size of the private rented sector and increasing home ownership’ and the CPS describing buy-to-let as a regrettable development, under the heading ‘How Blair and Brown made things worse.’ They fail to recognise that without private landlords adding more than two million new homes to the housing stock, the landscape would look very different, with grave consequences for house prices, rents and the economy as a whole. It is simply wrong to decry this hugely positive contribution.

Flawed reasoning.

  • The CPS describe the abolition of MIRAS in 1999 thus: ‘Most damagingly, this created an imbalance in the treatment between BTL landlords and owner-occupiers with a mortgage. BTL landlords obtained relief on the interest costs of purchasing properties, whereas owner-occupiers did not.’  Philip Booth has explained how it is ‘an elementary undergraduate public finance error,’ to conflate ‘relief’ for owner-occupiers with a business offsetting its finance costs before paying tax. Paul Johnson at the Institute of Fiscal Studies (IFS) has also stated how the ‘imbalance’ is in fact tipped towards owner-occupiers (who pay no CGT or tax on imputed rent). To raise the factual inaccuracy of this is not just pedantry, sincde it is being used to justify the attack on the PRS. Serious economists should not repeat what is now clearly not just an error but, in my view, sophistry from the Treasury.
  • Onward, on the other hand, struggles to conceptualise the difference between a capital gain and capital gains tax, stating: ‘We estimate the average gain per property to be £15,000 in England or £39,000 in London,’ when they are presumably referring to CGT. They also suggest the ‘Wear and Tear’ allowance be removed for some. This allowance was abolished in 2016, so would need to be reinstated in order to be removed.

Significant omissions.

  • Neither think tank is realistic about tenant demand. I conducted a straw poll of landlords for their assessments of this.  63 responded, owning a total of 1,304 properties. It was their view that 2% of tenants in situ would currently be viable purchasers, if they were gifted the deposit by the taxpayer. This is in sharp contrast to CPS and Onward’s estimates.
  • Landlords cite the fact that many would not meet mortgage criteria; millions of private tenants rely on benefits, are on low pay, have a poor credit rating, are foreign nationals or are of an age which would disqualify them.  Others are professionals who need job mobility or do not want to settle down or face the vagaries of the housing market, preferring the security of renting – with no worries about house price falls (predicted by many as likely after Brexit), increased interest rates or expensive maintenance.
  • They also did not consult landlords, upon whose cooperation the policy depends. In fact, it has been met with disdain. In the view of one landlord: ‘The big problem here is people who do not understand the market getting publicity for silly ideas, and a government desperate to raise tax by ways which will distort the market in ways they (hopefully) never intended.’

Moral objections.

  • Onward also made no reference to the number of homes in the PRS in negative equity, with no capital gain to tax and no ‘saving’ to be gifted. The CPS gets around this by proposing a complicated scheme whereby all potential first-time buyers could benefit. They believe that the lucky few should be gifted up to £35,000 by the taxpayer. In what universe would this be fair? In the face of the inevitable fury this give-away would cause, are they to recommend a Corbynite ‘we’ll sort it’ approach and reimburse everyone else who worked hard to save their deposits themselves?
  • Onward then forecasts the give-away would create more Conservative voters; but is trying to bribe people with large amounts of cash to vote Tory an honourable or efficient use of taxpayers’ money?  As one of the many highly intelligent conservativehome readers stated: ‘Giving windfall benefits to some lucky enough to be tenants is not a housing policy that will solve problems. Maybe the lucky beneficiary will suddenly vote Conservative but maybe they will not.’ In addition, has anyone taken into account the possibility of accusations of corruption if the proponents of the policy benefit personally from it? Has anyone given any thought to how many votes from landlords are haemorrhaging away in the face of this constant interference?
  • Perhaps the worst aspect of the CPS proposal is their blasé assumption that less fortunate tenants can be ousted from their homes to enable the better off to live in them instead. This is social cleansing and completely unacceptable. In terms of the political consequences it would finish off any chance of renters and maybe also embittered home owners voting Conservative.
  • Finally, if a property has been owned for 20 years and over that period some tenants have lived in it for 10 years or more, why should the final incumbent receive a windfall and the previous ones get nothing?

Recent Government policies have led to rental supply falling at a rapid pace with evidence pointing to tenants suffering the more that landlords are attacked.  If the proposals of organisations such as Onward – whose anti-private landlord agenda I have critiqued before  – determine Government policy, things will only get worse.

Instead, we must move away from destructive and divisive property taxation and follow the Irish Government’s example; they have realised that fiscal attacks on private landlords exacerbate homelessness and have removed their equivalent of Section 24. The UK Government should follow suit and should also reject this latest outrageous suggestion that the ‘lucky few’ be gifted huge sums. There can be no justification for it.

120 comments for: Rosalind Beck: Why the CPS and Onward plans for housing sales to private tenants are wrong

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