Having won the election, George Osborne used his first Budget of the parliament to rifle through the pockets of his vanquished political rivals. He abolished non-dom status for permanent UK residents and announced an increase in the minimum wage, dubbing it the Living Wage in the process - both more or less Labour election policies.
And he nicked a Green Party policy by cutting tax relief for landlords.
We have long been calling for a review of landlord subsidies - we proposed in February that a new levy should be imposed to recoup the £9.3bn of housing benefit that we funnel into landlords' pockets. This money could then be invested in new social housing.
This policy is a pale imitation of that, but it's a big move from the Chancellor. First, he'll stop higher rate taxpayers from claiming tax relief on mortgage interest payments, and second, he'll replace the blanket 10% wear and tear allowance with a system where the landlord has to prove that they replace furnishings, etc in order to claim relief.
A few observations on this:
- Mortgage interest relief isn't entirely abolished - corporate landlords can claim interest as a business expense, so we might see higher rate paying landlords heading en masse to Companies House. But at least that will create a level playing field between genuine businesses which are more likely to be professional and in it for the long term, and the speculators who tend to be responsible for the poor practices.
- With the wear and tear allowance scrapped, landlords will have to do a bit of work to qualify for their tax relief. Tenants living with faulty boilers and mouldy sofas should see them start getting replaced.
- We estimated in the link above that the Exchequer loses over £6bn from interest relief and £1.7bn a year from the wear and tear allowance. Neither are scrapped so not all of this will be recouped. In fact, the Treasury estimates that only £2bn will be raised over the next five years, or £835m by 2020-21, but that money could build 20,000 homes by 2021 and 8000 homes a year thereafter.
- Industry groups have already complained that this will lead to rents going up. That's nonsense. Landlords are already receiving a premium for their properties because demand is so high. Extra taxes to pay will do nothing to demand, so rents will remain at the same (high) level. Only a third of landlords have a mortgage so this won't even affect that much of the market.
- That said, landlords may well decide to sell up - in this case renters will need protection from eviction. We would like to see councils, housing associations and other responsible landlords step into the market to ensure renters can stay in their homes.
The other big announcement was the Chancellor's extension of tax relief to homeowners who take in lodgers, the culmination of the Raise the Roof campaign, led by Spare Room and supported by us as a modest way of increasing supply of housing. Lodgers still need improvements to their rights - which are far below those of tenants.
Unfortunately, the Budget also contained long-expected cuts to housing benefit for under-21s (with exceptions), local housing allowance (in the form of a four-year freeze) as well as the new benefit cap, all of which immediately hit people's the support provided for people's housing costs. These are some of the most vulnerable people in society and few will have anywhere to turn once the cuts bite. The housing benefit bill is large and unsustainable, but it can't be fixed by taking money away and storing up bigger problems for the future. With borrowing still cheap at 2.2%, the government could be making a better return by investing in housing. This would reduce the housing benefit bill without forcing people out on to the streets.