Anyone who doesn’t reside under a stone and can barely colour in newspaper pictures, must have heard mutterings about the imminent Budget regarding resurrecting the Mansion Tax corpse. As if this wasn’t alarming enough, it may be topped up with a possible raid on what’s left of private pensions.
I was a little confused about the former Chancellor Sajid Javid’s mindset. We were all confident that he would ‘break the economic mould’, rather than end up being covered in it. For instance, where is the clarity on the 3% surcharge which could be slapped on international buyers of UK residential property? Does this mean that at the higher end SDLT could be an eye watering 18%?
The new Chancellor, Rishi Sunak, needs to make this clear in his first Budget, which I hope will still be in early March.
Javid, fiscal pragmatist
At a private meeting with Sajid Javid recently, it was evident that he was a ‘fiscal pragmatist’, i.e. he believed in the notion that taxes are designed to raise as much money as possible for the Treasury, rather than being a cunning, socialist device to ‘redistribute’ (or should I say, steal?) wealth or penalise entrepreneurs.
Since the new Chancellor was an able Chief Secretary to the Treasury, I’m sure that he will pick up the thread from his predecessor. All eyes will be on Mr. Sunak, hopeful that he will reform ex-Chancellor Osborne’s SDLT escalator. This ill-conceived smash and grab was hurriedly imposed on the property market in 2014; reckless George claimed that it would increase the Stamp Duty tax take from £14.5billion to £19.5billion in 2019. The unfortunate truth is that according to the Office for Budget Responsibility (OBR), there is now a shortfall of £7billion, as the tax take this year is a paltry £12.6billion.
Add in the loss of opportunity cost for other taxes, such as VAT, PAYE, Corporation and Capital Gains Tax etc., even the most bumptious of Chancellors would see the big picture here and reach for the smelling salts. Meanwhile, the new boy is about to open the sluice gates of spending, in accordance with the manifesto promises made in the December 2019 Election, designed to appease the northern populace, that temporarily lent the Tory Party their votes.
Admittedly, the Brexit uncertainty and fears of a neo-Marxist Corbyn dictatorship in the last two quarters of 2019 stultified liquidity in the residential property market. As if this were bad enough, the historic Stamp Duty surcharge has further constricted the top end of the market and as such, inhibited transactions further down the pipeline. Potential movers are stuck in a rut despite the beauty parade of very attractive mortgage deals. Were it not for Help-to-Buy, first time buyers would be wearing concrete waistcoats.
Stewed prunes, not Imodium
My recommendation is to blast everything through the system with dollops of stewed prunes, rather than the constipating diet of dry toast and Imodium.
A throbbing economy lives on the inside leg of a vibrant housing market. As well as house sales, there are the knock on effects on retail spending which is one of the key drivers of UK consumer led economy.
The Old Age Pensions Act came into being on January 1st 1909 and was only given to those “deemed of good character” – an interesting criterion that would exclude most of our recent Chancellors. Remember also that private pensions reduce the pressure on State handouts, which are thin gruel at the best of times. Even though they are small facsimiles of their former morphosis, they’re vital to the financial security of elderly people, when they most need support.
The engine of the economy
The main engine of the economy is a robust and growing residential property market that underpins the value of one’s house. While an Englishman’s home is the proverbial family castle, it also now has to provide a pension later in life, as well as a piggy bank to help any offspring establish their own nest.
So now that potty-training has been accomplished, the Prime Minister and the new Chancellor need to escape the straitjacket of fiscal orthodoxy since the budget deficit has narrowed this year to 2% of GDP and is probably, one of the lowest amongst the G7. They should learn from Thatcher and Reagan, who chose the low tax route to allow the masses to share in the wealth of the nation.
Let’s look on the bright side, if that’s possible in British politics. Assuming that Boris isn’t stupid (and we know he isn’t), this media hype about Mansion Tax could just be a Machiavellian trick, by using this emotive sound bite to appease the left wing zealots in the party and beyond, by raising the existing Council Tax Bands at the higher end. The Tory administration may gain some brownie points by seeming to hammer the privileged, which will undoubtedly please the have not’s. The problem has always been that Council Tax raises money for local boroughs, keeping it out of the Treasury’s grubby paws.
The problem for Boris is the two-tier economy where the north considers London to be the favourite son, hence the commitment for HS2 to help the northern powerhouse, despite the plundering effects of this financial sinkhole on the government’s coffers.
Adore it or abhor it, what is inescapably true is that the Capital contributes 30% of the country’s GDP. It’s a very British trait not to appreciate what we have on our doorstep, but there is no question that our international brethren have an insatiable appetite for UK property, which they see as a piece of English heritage. London to them, is virtually a country in its own right, not just a capital city.
Legacy of reflux
There is another legacy of reflux left to us by the Laurel and Hardy duo of Cameron and Osborne, when they tried to appease the left wing faction of the Tory Party and others besides, by the foolish reforms of Non Dom taxation which may have satisfied some critics at the time, but never the less, represents a net cost to the Treasury of a whopping £3billion in lost revenue.
These wealth creators have instead decided to pitch their tents in the wilds of Italy, France, Portugal and Spain, where they are being lured to bring their saddlebags of booty with them.
Note to oneself; reforming taxes is all very well, but when it costs the Treasury money to implement, it is the equivalent of burning down the house to keep warm in winter!