Well, ‘Houdini George’ seems to have managed to keep our deficit reduction plans on target by the end of the Electoral Term with a small surplus thanks to Tax Receipts that are greater than expected. Whether these will be recalculated along the way who knows? One hopes that the Chancellor has not been imprudent here by assuming that all is ‘well with the world’.
Education and Healthcare were ring-fenced as expected and Defence spending meets our NATO commitment of 2% of GDP as promised. Everything was ‘rosy in the garden’ until the subject of Housing was brought up.
The building of 400,000 new homes by 2020 is a laudable aspiration as is the doubling of the Housing Budget to £2billion towards the building of more homes. A ‘pat on the back’ for this.
Even extending the Right-To-Buy scheme is a very good thing for first time buyers who are not able to go to the ‘Bank of Mum & Dad’ for the deposit. The London Help-To-Buy initiative is a positive for the Capital and must be ‘heart warming’ to those on the lowest rung of the ‘property ladder’ who qualify.
Extending loans to small builders is much needed as is releasing more public land for development of new homes. ‘On it like a bonnet!’
The closing of the Victorian prisons, built in the 19th Century, is a good move since the land can be sold for private and affordable housing and the Receipts will pay for several prisons elsewhere, which will be properly facilitated, giving much needed extra capacity for the Prison Service. The area surrounding the former Prison will undoubtedly improve and will be further enhanced by the new development built in its place. So, it’s a win-win for the government, the Prison Service, the Police and the Prisoners as well as the Chancellor in-order to meet his housing target that is clearly dear to his heart.
There is no question that the Chancellor is trying to help those caught by the housing crisis and assist people to move from renting to purchasing so that they can control their own destiny and shape their future.
Now lets turn to the dubious elements of the Statement. Adding 3% to Stamp Duty for second homes and Buy-To-Let investments, from April 2016, will be difficult to rationalised when it is analysed, retrospectively, ‘further down the track’.
George, do be careful of unintended consequences.
We all know the ‘devil is in the detail’ but how are they going to police this new initiative? Example: If you would like to move and you purchase another property under the auspices of moving from your first home, and then, you are unable to sell your existing home, but still go ahead with the completion of the new one, you may have to let the new purchase until you sell your existing home. In these circumstances why should you pay the 3% surcharge Stamp Duty when the purchase was not a Buy-To-Let in the ordinary way?
I can see a real ‘buggers muddle’ coming up in this direction and I am not sure that the Chancellor and his Treasury Team have worked this one out properly.
Goodness knows what will happen to the markets for country homes after the April watershed since this surcharge will put a big dampener on this. A significant part of the buyers are from London and this additional burden will not help with positive sentiments and could dampen this sector further as it has done with London in the middle to upper markets with the Stamp Duty rises.
I can just see that there will be a rush to buy between now and April that will keep the estate agents and conveyancing solicitors busy until then, but beyond, the market will ‘run into the buffers’. Need I remind you of the ‘bun fight’ running up to the August 1986 deadline after the double Miras Tax Relief on mortgages was removed by, the then Chancellor, Mr. Lawson in Margaret Thatcher’s administration at the time?
One needs to understand that, in the main, Buy-To-Let investors are not all oligarchs from the Far East – the majority are normal UK residents who have become disillusioned with private pensions. Successive governments have pruned back Pension Allowances over time and these were aggravated by the former Chancellor, Gordon Brown, when he withdrew Tax Credits from pension companies that rendered a number of schemes insolvent.
If ‘Middle Class England’ wants to protect their family’s future by supplementing a small private pension with Buy-To-Let investment why make it even harder for them? The Chancellor has taken away Tax Relief at the higher income level and now he is ‘slamming the brakes on’ even further. I’m not sure how clever this is particularly as it is a London centric problem.
George is using the Stamp Duty lever now not only to re-distribute wealth but to control the housing market. By way of illustration the reforms in last years Autumn Statement (2014) gave a fillip to the lower end of the Housing Market, which was doing well beforehand and did not need further stimulant, and by doing so further disenfranchised the first time buyer. At the same time this put a big dampener on the Residential Property Market by imposing a draconian Stamp Duty levy of 12%. This rendered the middle to upper Residential Market, notably in London, into a premature recession that will have its own consequences and ramifications.
The effect of the 12% draconian Stamp Duty Tax is that transactions are down, in this sector by an average of 50% and prices are falling by 10% that may well percolate down to the lower end of the market. Here was a perfect opportunity to justify reducing the top band to, say, 8% by claiming, justifiably, that the Tax Receipts were down by 25%. You missed an ‘open goal’ here George.
It’s a mixed blessing Budget, mostly good, but parts of the London Housing Sector will, I’m afraid, be badly affected. Don’t forget the Capital produces 30% of the GDP. So, I’m afraid, it’s seven and a half out of ten for George on this Budget Statement in my humble opinion.
Written by Trevor Abrahmsohn.