The October Budget is beginning to look less a Budget and more an underwater ‘Houdini tangle’ with the key to the lock, lost.
Talk about a ‘buggers muddle’.
He must raise money; restrain spending; satisfy the fiscal rules; reassure the Gilt market; encourage growth; keep the Manifesto promises; appease the Back Benchers, whilst at the same time create growth that produces some tax revenues and shrinks debt.
What could possibly go wrong and where is David Copperfield when you need him?
BUT THE PROBLEM IS…
His predecessor, the hapless Rachel Reeves, managed to asphyxiate the economy over the last two Budgets by raising taxation by more than £66billion (across the 5-year forecast) and borrowing by £185billion. And it’s this legacy of grand ineptitude and poisoned chalice that the present Chancellor must bear.
He doesn’t have an unlimited overdraft and his paymaster is not who you think it is – ‘The First Lord of The Treasury’, i.e, the Prime Minister, but the Gilt market.
That has no vote in Parliament but nevertheless, its opinion must be respected, otherwise Britain’s substantial service of its debt (of almost 100% of GDP) will go off the Richter Scale.
PROPERTY ANSWERS
Property is the Treasury’s perennial cash machine (ka-ching, ka-ching) because it is visible, immobile and in the eyes of the tax man, conspicuously difficult to hide.
Stamp duty (SDLT) is an obvious example. It raises substantial sums of circa
£12bn per annum but its downside is that it taxes the transaction, rather than the ownership of the asset. And this distinction matters.
A tax which makes someone think twice about buying or selling, is not necessarily economically neutral.
It can ‘gum up’ the housing market by locking up potential capital which would otherwise flow into the economy through taxation, retail spending and stimulate growth.
This is why the debate about replacing transactional taxes, with some form of recurring property taxation, is becoming more enticing (and real) than any small adjustment to the stamp duty rates.
Already the government is moving towards a new tax on higher value property, with the Council Tax surcharge due to apply to qualifying properties worth £2million or more, from April 2028.
The temptation will inevitably be to push the threshold downwards towards £1.5million in order to squeeze more revenue out of less expensive homes below this limit.
It is interesting that the government is determined to call this a ‘Mansion Tax’ which is plainly for judicious reasons and a deliberately emotive ‘label’ which will certainly appeal to the Left-Wing zealots of the Labour Party.
If, on the other hand, they were more politically moderate and the propagation of socialist ideology was so not so paramount, it would of course be called the ‘Home Tax’.
Indeed, in the less salubrious environs of Chelsea, not far from Shepherds Bush, you would be lucky to acquire a two-storey terraced house for this money. That’s hardly a mansion!
“You would be lucky to get a pied-a-terre in London today for £1.5-2 million.”
In fact I’m sorry to admit that for £1.5-2 million you would be lucky to get a pied-a-terre in London today.
Both Reform and the Tories have brazenly announced that they will abandon SDLT if they get half a grasp at the ‘tiller of power’ at the next election.
Were the Chancellor ever to consider this audacious reform, the Budget coffers would need a lot of replenishing with recurring property taxation to replace the £12billion or so that SDLT usually generates.
If this was to be the case, initially there will be a flood of transactions from buyers in all price ranges, trying to benefit from this unexpected change, and no doubt residential values would momentarily rise sharply, until the market fully absorbs the implications of a painful, annual Mansion Tax, to replace the lost revenue.
I get the distinct feeling from coded messages sent out by No 10 and No 11, that such a major reform will probably not be considered, as they would prefer that this year’s Budget be a less momentous event (as it has been in the past) and instead they would like the financial analysts to focus on the Spending Review, sometime next year.
My Machiavellian instincts are telling me that they are hopeful that there will be a resolution to the Iran war by then, which will take the pressure off inflation, interest rates and debt service.
GETTING ONTO THE PROPERTY LADDER
Don’t forget, the first-time buyers trying to get onto the property ladder wish for a collapse in the residential property market, not a further rise.
Whilst on this subject, it is interesting to note that the Housing Secretary Angela Rayner is trying to rejuvenate the Help-to-Buy government initiative, whereby the first-time buyer pays a 2.5% deposit and the government provides a 25% equity loan, initially interest free. The mortgage covers the rest.
The problem is that usually, a scheme like this is limited in scope and I’m afraid to say, allows some gluttonous house builders to over-charge these naïve buyers for their unsold properties, leaving them with negative equity if property values don’t grow.
It is the equivalent of ‘putting the fox in charge of the hen house’, but there it is.
TREASURY’S BOOBY TRAP: CGT
Capital Gains Tax (CGT) is more interesting because it is an ‘elective tax’ in the broadest economic sense.
You can often decide whether to realise a gain or not, as the case may be.
You can delay a transaction or retain an asset.
You can also restructure the ownership and for internationally mobile people, they could move to warmer and more accommodating fiscal climes, elsewhere in the world, without paying this tax.
An inconvenient detail is that there is an annual exemption for CGT and where there is a Capital loss, this has to be taken into account, thereby reducing the revenue to The Exchequer.
The Institute of Financial Studies notes that HMRC’s estimate suggests that a 10% increase in higher CGT rates could reduce the revenue, in the short term, by around £2bn. I did say reduce the revenue, didn’t I? And ‘therein lies the rub’.
SPITEFUL SYMBOL OF CLASS WAR TACTICS
The burning question to the government must be this: Is taxation a revenue raising device or is it another spiteful symbol of class war tactics?
This will be the litmus test that we will all bear witness to when the full extent of the Budget is known.
If Mr. Healey reforms the Triple Lock pension arrangements in order to fund free, elderly social care, they are going to need some sort of counter balancing tax hike, which will appear to be ‘kicking the rich’ and a rise in CGT would be a perfect candidate, even if it doesn’t raise much money.
LOOKING AT WHAT’S LEFT
What is left is planning reform, boosting house and infrastructure building. Despite all the gaseous protestations of Angela Rayner, who thinks of herself as a latter day Boudica, she claims that her planning reforms are going to open the sluice gates of housing development across the UK. Really?
Already there is tacit acceptance by her and the government that the well-chronicled and much vaunted target of 1.5million homes to be built across the electoral term, is now woefully overstated.
It has been recently quoted that planning approvals for new homes have plunged to a 13 year low in a blow to Labour’s promise to oversee a house building revolution.
“The gap is widening because of the slowdown in the house building sector.”
The truth is they are fortunate to get within 50% of this target and the gap is widening as we speak because of the slowdown in the house building sector, as evidenced by recent trading results of the UK-wide developers.
Whether the government likes to hear it or not, the private sector produces 71% of new build completions with housing associations and local authorities building the rest.
The building sector is mired with massive increases in building material costs, shortage of manual and skilled labour, rising borrowing rates and as if this were not enough, negative growth in values.
Let’s face it, the housebuilders usually relied upon inflation in values as their ‘Get Out of Jail’ card.
On development sites that Glentree New Homes deals with, we are struggling to generate interest of boutique and nationwide developers in this challenging climate, unless of course, there is a collapse in land values to compensate, which ain’t happening, at least yet! But this could still come.
The housing market represents about 5% of the UK economy and a 10% rise in house values can increase consumption by 0.35-0.5% and the inescapable truth is that confidence in the housing market, is the ‘canary in the retail coalmine’.
PROPERTY INCOME TAX
This is particularly relevant to landlords where, from April 2027 and the Budget of 2025, changes to income tax rates for property income will be 22%, 42% and 47%, compared with the ordinary Income Tax rates.
This means that landlords face a further tax squeeze even before the October Budget offerings and since there is every likelihood that the Mansion Tax threshold will be lowered, this will be a further burden to buy-to-let landlords who will face this liability and not the tenants.
This, together with increasingly restrictive regulatory and tax pressures on landlords, will greatly exacerbate this exodus.
The question now must be, if you make buy-to-let investments even less attractive than they have been in the past, provoking more landlords to sell up, where then does the replacement rental stock come from?
There are many reports that 28% more buy-to-let properties were put up for sale to March 2026, which is significantly reducing the supply of available properties to rent, pushing up prices and further endangering the vulnerable renters.
THE UNHAPPY SUBJECT OF IHT
There is talk amongst the ‘chattering classes’ that in the Budget, IHT will either be raised, or the tax-free element reduced.
This is a gift for Left-wing supporters who feel that only the rich pay this tax, when in fact, we know that this is not necessarily the case.
If this takes place, it is by any measure another vindictive tax which would be highly unfortunate and suppress the ‘feel good factor’ even further.
The Chancellor enters the fray ‘locked on the horns of a dilemma.’
He is between Scylla and Charybdis – the Homeric image of a sailor who cannot avoid one danger, without heading towards another.
I’m bound to say, that our ‘esteemed Prime Minister’, ‘Andy Pandy from oop north’, did cut an unedifying spectacle when he met President Trump at the United Nations gatherings recently.
The image of a whale playing with a sealion before being eaten alive springs to mind.
Perhaps the low standing of Britain in the world could not be further evidenced by the fact that his speech was third from last in the running order (of 23 speakers) and that his graveyard slot of midnight tells a very poignant story when the auditorium was practically empty.
