Why Chancellor John Healey needs to find some carrots for housing sector

Targeting property may seem an easy Budget option, but it would have serious repercussions, writes ​David J Alexander.

Next week’s highly anticipated first Budget by Chancellor John Healey will provide a key indication of the future direction of the Burnham premiership. While the rumour mill has been less vocal than for the previous two Rachel Reeves budgets there has still been some media speculation and there is little doubt that there remains a need to raise substantial funds.

The great shadow that hangs over this process is the manifesto promise not to utilise the key tax-raising areas of tax, national insurance, and VAT. Without these major funding sources, the Chancellor will have to resort to more niche taxation if he is to gain the funds he needs for existing and future spending pledges.

There is a risk that the Chancellor goes for ‘easy’ targets and hits assets such as housing which will have a major impact on the market. At a time when there are pressures across all tenures of the housing market which need to be addressed, targeting property may seem an easy option, but it would have serious repercussions.

Chancellor John Healey is reported to be wanting a “steady as she goes” budget but really that won’t be enough. Whilst it is welcome that he is reported to have rejected a change to Capital Gains Tax which would have targeted landlords and second homeowners there needs to be a more positive approach. He may have rejected the stick but where is the carrot to encourage growth?

The only way to encourage growth to ease the current shortages in the housing sector is to reduce taxation. At a time when the homebuying market is fragile in many parts of the country; when investors and landlords in the private rented sector are viewing the market more tentatively because of political uncertainty; and when social housing requires major investment it would be problematic to increase the costs of buying, owning, investing in, or building homes. What is required is a positive series of policies that show the government wants growth in the housing sector and is actively encouraging the sector through tax incentives, the speeding up of planning, and the development of a strong working relationship with the private rented sector.

He could, as a sign of the need to encourage growth, remove the mansion tax which is already law and will impose an annual levy on homes worth more than £2 million but which will actually be a charge on elderly homeowners who have benefitted from decades of property growth and who are now asset rich but cash poor.

What is actually required at the moment is greater encouragement for housebuilders, more investment in the private rented sector, and a substantial increase in the volume of social housing if we are to meet existing and future demands.

The predicted revenues raised from property taxes rarely achieve their projected levels because all taxes result in changes in behaviour. This Budget needs to promote growth in the housing market rather than contraction and I hope that sense prevails and we have policies which encourage rather than punish home ownership, property investment, and housebuilding in the coming years.