The property tax trial balloons the government let loose this summer could be back in the air soon.
The reason is the mounting pressure on Chancellor Rachel Reeves, which was evident in her Labour Party Conference speech last week.
She set out spending ambitions designed to satisfy her backbenchers while stressing the importance of strict fiscal discipline.
Reeves needs to find between £30 and £50 billion to meet her fiscal rules but faces a so-called trilemma.
MANIFESTO COMMITMENT
Labour made a manifesto commitment not to increase VAT, income tax or National Insurance – although there are growing questions over whether that promise will hold.
Meanwhile, backbenchers have resisted meaningful spending cuts, and the bond market is already uneasy about high levels of government borrowing.
Manchester Mayor Andy Burnham said last week the party had to “get beyond this thing of being in hock to the bond markets”.
The reality of government means the statement is the equivalent of a homeowner no longer wishing to be in hock to their mortgage lender.
On Friday, the Treasury received so-called ‘round one’ forecasts from the Office for Budget Responsibility (OBR), which laid bare the scale of the Chancellor’s challenge.
A downgraded UK productivity outlook would further increase the pressure to raise taxes in the 26 November Budget – inevitably fuelling even more speculation about property and wealth taxes. I discussed the speculation on a recent episode of Housing Unpacked with a former Downing Street insider.
SPECULATION VERSUS FACT
On this week’s episode, Carol Lewis, Property Editor of The Times and Sunday Times, says the trial balloons are likely to continue between now and the Budget due to a long-standing belief that taxes will need to rise.
“There won’t be a tax story coming out of Westminster that someone will respond to by saying ‘oh, let’s not cover it,” she said on the podcast.
Carol also discusses why house price stories in the media can appear contradictory, which articles receive the most clicks, and she offers advice to readers trying to separate speculation from fact.
Meanwhile, financial markets appear unmoved by what they heard at the Labour Conference last week.
“After the Budget last year, I wrote ‘fiscal headroom is still tiny in historical terms, leaving open the significant risk that Reeves will have to come back for more tax hikes’,” said Michael Brown, an analyst at financial broker Pepperstone.
“After the Spring Statement, I wrote, ‘the Chancellor’s days appear to be numbered, with it being a question of whether a complete loss of market confidence, or manifesto-breaking tax hikes, eventually bring about Reeves’s demise’. As things stand right now, both of those statements continue to hold water.”
HESITANCY IN PRIME LONDON
The pre-Budget uncertainty contributed to average prices in prime central London falling by 3.6% in the year to September, the steepest decline since February 2021.
A mood of hesitation has even now started to permeate the previously robust top-end of the London rental market,.
Meanwhile, there was an increase of 0.1% in prime outer London over the same period in a market driven to a greater extent by buyers who need to move for reasons including education and employment.
By contrast, demand in PCL is more discretionary.
The number of exchanges in PCL was down by 10% in Q3 2025 compared to the five-year average (excluding 2020).
The equivalent decline was 9% in prime outer London. With prices down by a fifth over the last decade in PCL, the relative value on offer is underpinning demand and means the gap with POL is not bigger.
However, leading demand indicators were more suppressed in central areas due to the impending Budget. The number of new prospective buyers in PCL was down by 11% over the same period, whereas the equivalent drop was 2% in POL.
Leslie Macleod-Miller, Chief Executive of Foreign Investors for Britain, said wealthy foreign investors will be closely watching what the government does next. He urged it to introduce an Italian-style flat tax and an investor visa.
“Failing to act risks more wealth leaving Britain’s shores, tax burdens shifting onto ordinary citizens, and growth being generated abroad,” he said.
All of the above is already happening, but November’s Budget is the Chancellor’s opportunity to stem the flow.
Lettings – Rental Value Growth Strengthens as Pre-Budget Nerves Surface in London Super-Prime Market
Meanwhile, rental value growth continued to strengthen in September across prime central (PCL) and outer London (POL).
The annual increase in PCL was 1.8% in September, having risen from 0.6% in January. In POL, the figure increased to 2.1% from 1% over the same period.
The increase is largely down to tighter supply, which is the result of more landlords attempting to sell due to the prospect of the Renter’s Rights Bill and tougher green regulations.
The number of new lettings listings in PCL and POL in the year to August was 3% lower than the previous 12-month period, Rightmove data shows.
RENTERS’ RIGHTS BILL
The Renter’s Rights Bill is designed to protect tenants but raises the risk of void periods and could make regaining possession of a property more onerous.
Meanwhile, stricter green regulations mean that rented properties must have an EPC C rating by 2030, which will require more upfront investment.
Furthermore, a proposal was floated last month, which may mean rental income is subject to National Insurance payments.
If the idea is contained in the Budget, it could reduce supply further and may even prove to be inflationary as costs are passed on.
“As a result of the uncertainty, we recently revised our rental forecasts marginally higher.”
The government’s aim of making life easier for tenants through the introduction of the Renters Rights Bill has had the opposite effect as rents steadily climb in prime London markets.
If nothing else, it proves the law of unintended consequences is alive and well.
Meanwhile, there are signs that some prospective super-prime tenants (£5,000+ per week) are watching events unfold in the run up to the November Budget.
Tenant demand in higher brackets had been supported by uncertainty in the sales market due to the changing tax landscape. Scrapping the non dom rules, for example, meant some wealthy overseas individuals had kept their options open by renting.
The number of super-prime (£5,000+/week) tenancies agreed in the year to April was 21% higher than the previous 12 months, LonRes data shows. In August, there was an equivalent decline of 4%.
MIXED PICTURE
However, it’s a mixed picture and the market in the Home Counties remains buoyant. The number of super-prime tenancies started in the Home Counties in Q3 was the highest in four years, thanks to resilient demand in the sports and film sectors.
“Following a strong spring and early summer, demand began to flag in September in a way you wouldn’t normally expect,” said Tom Smith, head of super-prime lettings at Knight Frank.
“Activity had been buoyed by more subdued conditions in prime and super-prime sales markets due to higher rates of stamp duty and recent changes to non dom rules. However, it appears tenants are also now taking more of a wait-and-see approach as the Budget gets closer, which is something landlords will need to factor into asking rents.”
The lettings market is quicker to respond to events than the sales market, which makes it harder to read longer-term signals.
For example, any hesitancy among tenants could quickly reverse following the Budget. And while global appetite for a London address is weaker than in recent years, history has proven its long-term resilience through electoral cycles and Budgets.
