This article was initially written two days before the Prime Minister’s government reshuffle. It will therefore not take a genius to work out that originally it reviewed next month’s Budget and what (the then) Chancellor, Sajid Javid, might announce.
What’s that saying about a ‘week being a long time in politics’ – how about two days? Now, of course, the complexion of that March 11th Budget looks rather different with a brand new Chancellor, Rishi Sunak, occupying Number 11 and the Westminster gossip suggesting that it’s more likely to be Dominic Cummings writing the Budget rather than Sunak.
And what of its contents? Well, the judicious leak of two potential measures that might be included now seems to make more sense, even if neither of them actually make it to the Statute book. Perhaps the chances of them appearing have now been greatly reduced?
This, was already an eagerly-awaited Budget announcement – that’s suddenly gone up 10-fold. Some were already calling it a ‘once in a generation’ Budget and one that Javid might well use to cement himself in the role – if that was the case, then it’s now gone out of the window. Instead, Sunak might well be delivering a Budget which has little of his own input in, although we will wait to make judgement on his ability to perform well as a Chancellor. There are many who believe he will do just fine.
But, back to its contents. Last weekend, The Telegraph newspaper signaled two surprising potential tax-related measures that might be introduced, one of those will be of particular interest to property owners, a new version of the ‘Mansion Tax’, hitting homes valued over £2m, plus there is speculation that higher earners will have their pension tax relief cut.
Not exactly traditional Tory measures, although it’s speculated that a ‘Mansion Tax’ may be introduced in order to cut stamp duty – however this is unlikely to affect the majority of homeowners – and that the Conservatives will have no option but to increase taxes in order to fund the investment they have already signaled will take place.
Earlier this year, Javid himself talked about delivering an “infrastructure revolution” and one suspects this will still be a core part of the Budget even after he’s gone. This will clearly not be cheap, and the Conservatives may well feel they have to deliver large levels of public spending in order to prove to their new voters in the Midlands and the North that they can ‘lend’ them their votes again in future General Elections.
How might traditional Tory voters, particularly those in the South East of England view a ‘Mansion Tax’ though? When Ed Miliband introduced the idea prior to the 2015 General Election, I seem to recall some significant pushback against it, so it will be interesting to see how this flies now. That said, it won’t affect most of middle England and will probably play well in the Midlands and North who again will largely be unaffected.
Might we see a combination of measures introduced? Perhaps removing CFT relief from the sale of one’s own residential home with a tax on higher-value property – which also happens to be a better name than ‘Mansion Tax’. It could be argued that a lot of people who might voice displeasure at such measures won’t really notice the ‘lost’ money. A graduated tax on very expensive properties – many of which are owned by wealthy foreign individuals, who again won’t notice it because their money is secure in the ‘home’ – seems preferable when you consider it will hit far fewer people than other options.
Whether this was however merely a testing of the policy waters remains to be seen. At our recent Fleet Conference, we heard from the chief economist at Toscafund Asset Management, Savvas Savouri, who shared with us his thoughts on what next month’s Budget might include, and what it should include.
He believes a strong majority held by the Conservatives does provide them with the opportunity to deliver a truly radical and ‘expansive fiscal programme of a like not witnessed for decades’. This means reworking the tax and physical landscape by changing personal, business and property taxation, and using state investment in transport infrastructure.
He also believes that Sunak’s appointment might actually herald a positive move in terms of rolling back on the extra stamp duty charge for additional property landlords, in particular, landlords. He argues that it would be possible to provide a real boost to the property market here, and cites OBR figures which suggest the introduction of the additional property surcharge will lead to a circa-£4bn tax revenue loss between 2018-2023 rather than the increase anticipated. Is it possible that Sunak will consider such a move to be a common-sense approach – increasing revenues and bringing more properties into the PRS? We shall see.
Savvas also talked about the potential for the government to introduce a new Help to Buy Scheme along more ‘green’ lines, plus a real focus on a new, more incentivised scrappage scheme for cars deemed harmful to the environment, which should also boost car sales. In the wake of our leaving of the EU, the impact on the car industry has been talked about a lot – this might be one way of helping manufacturers and the thousands of suppliers that rely on them continuing to produce in the UK.
Overall, all eyes will be on the House of Commons dispatch box on March 11th – even more so now. It seems obvious that this will be a hugely significant Budget that is likely to touch all our lives considerably, and indeed could well mean great change for the housing and mortgage markets. It may well be his first, he may not have been in office for long, but for Sunak and the Government this could well define their tenure like no other.
Bob Young is chief executive officer of Fleet Mortgages