Why Andy Burnham’s coronation is bad news for homeowners​​​​​​​

The incoming prime minister’s potential policies could do serious damage to the housing market, writes ​​David J Alexander.

The coronation of Andy Burnham as prime minister will happen next week with little detail about policies or the political direction he intends to take the country. On housing there have been some clues about potential policies, with several having the possibility of seriously damaging the housing market and costing homeowners much more money in the future.

Burnham believes that the UK has always overtaxed work and undertaxed wealth and therefore he is contemplating introducing new measures to target assets, homes, and investments. He has spending plans but has pledged not to change the existing restrictions on raising VAT, NI or income tax.

Among the policies being discussed are a wealth tax; land value tax; the removal of inheritance tax (IHT) and replacing this with a new levy to fund a national care service; an expansion of capital gains tax (CGT) to target homes levying a 24 per cent charge on the difference between the value at purchase and at death; an annual wealth tax on all assets including property and pensions; charging National Insurance (NI) on landlords income; and an extension of the existing mansion tax reducing the threshold to £1.5m from the current £2m.

While it is unlikely that all these policies will be implemented any one of them has the potential to cause enormous problems for the property market. The mansion tax and CGT changes, for example, will bring in little revenue but could cause enormous distress to elderly homeowners who may be asset rich but cash poor and would face an annual levy simply because they have lived in their home for many years and its value has increased. The rate of inflation over the last 40 years has gone up by 207.3 per cent while house price inflation has been much higher at just over 800 per cent.

Introducing a wealth tax and changing IHT to a levy to fund a national care service sounds attractive to politicians but these policies rarely bring in as much as expected and tend to hit middle earners and savers rather than the rich who have advisers to ensure they don’t pay these taxes. Equally introducing National Insurance on landlords’ income would potentially reduce the volume of homes available to rent as well as result in higher rents for tenants.

The anticipated revenues from all these policies are always predicated on those affected not changing their behaviour. The reality is that the wealthy can afford to live and work anywhere and will move if need be. For the majority this isn’t an option and they end up being taxed on their hard work and savings and the revenue raised is millions below the forecast.

The issue is that the homeowner, or someone with assets, is often seen as an easy target for taxation. They cannot hide their home, so it is easy to identify and tax. The problem is that such policies always target aspiration, thrift, hard work, and saving. These are all attributes which society encourages and yet too often they are the first place that politicians look when they seek to increase revenue. Instead, we need to grow the housing market, encourage people to save and invest, and to provide more homes for the population and not tax existing properties.