Tomorrow, Rachel Reeves will set out her first Budget. The Labour government was elected with a big commitment to improve renting and tackle unaffordable housing, and, compared with other tenures, renters were the most emphatic supporters of the party on election day. It’s therefore a significant moment and we have urged the Chancellor to take action for renters. This is a summary of six things renters need to see in the Budget.
Build genuinely affordable homes
The biggest problem with renting at the moment is the sheer cost, with rents rising faster than incomes over recent years. The cause of this is a lack of homes in the places people want to live, and our research has shown that urban areas that have built homes faster in the past decade have seen improved rent affordability for average households.
However, people on lower incomes are struggling the most and it will take years for them to feel the benefit of private sector housebuilding. A generation ago, council homes were more available but now many of them have been sold off into the private sector, and haven’t been replaced with accommodation aimed at the neediest. A lot of “affordable” housing investment has gone into tenures aimed at would-be first time buyers like shared ownership, leaving our poorest neighbours stuck in the worst private renting – or or the limbo of cramped temporary accommodation.
While private developers are supposed to provide some affordable homes, if they don’t build at all then we get no social homes. That’s why the government has to increase investment in new social homes. We’ve already heard reports that the Chancellor will be bumping up investment by £500m, but that only delivers 5,000 social homes, when we need more like 90,000 per year.
Local Housing Allowance that covers actual rents
Even building social homes will take a while to make an impact. In the meantime, the benefits system helps households afford private rents through Local Housing Allowance (LHA) which is paid through Universal Credit or Housing Benefit. It is supposed to cover the cheapest 30% of homes in a given area, but the last government had a habit of freezing the rates to save money. All this did was make it a lot harder for tenants to afford the rent, plunging many into rent arrears and the risk of homelessness, and discouraging landlords from renting to households getting benefits in the first place.
LHA rates went up in April 2024 after being frozen for four years, but because rents have been rising so quickly, they’re already out of date. Reeves has to uprate LHA in line with actual rents next April to take the pressure off renters, prevent more evictions and homelessness, and ease the pressure on councils, which have a duty to provide emergency accommodation. Ideally the rates would track rents on new tenancies, which tend to be higher than average rents across the private rented sector – currently very few advertised rents are affordable on LHA only, as this chart from Savills shows.
Tax landlords more fairly
While boosting benefits will help lower income households more comfortably afford a home, that money will go to landlords, who we know are very often providing substandard homes that make tenants ill. Renters and the government need value for money – so it is essential that the Renters’ Rights Bill gives tenants and councils effective powers and incentives to challenge poor quality homes.
The Chancellor should make sure that landlords are also paying their fair share of tax. The government has pledged not to raise taxes on working people – and there is a lot of scope to tax income from investments more instead.
Landlords who don’t have a mortgage pay a lower tax rate on their rental profits than someone in the same tax bracket who only has an income from their job. This is because wages are subject to National Insurance but rental profits are not. Requiring landlords to pay NI contributions would restore some balance with workers – though if this is announced, expect grumbling from landlords with mortgages, who have had some tax relief withdrawn on their interest payments.
Profits from the sale of assets should also be taxed at at least the same rate as income from work. Property, in particular, increases in value as a result of changes in the local area that have nothing to do with effort on the owner’s part. There is no reason for this type of asset to be taxed more generously than work, so the capital gains tax rate on property should increase to at least match income tax rates.
However, there have been news reports that the Chancellor isn’t going to raise capital gains tax after all – because raising it might reduce sales and lead to less tax collected through stamp duty.
Whatever happens, landlords will continue to sell up because of higher interest rates. This is a necessary outcome if more of us are going to have a hope of buying our own home, but the government must recognise that it creates unnecessary hardship for tenants.
When landlords sell, it usually involves eviction. It would be much better if the tenant had the option to buy it or nominate another landlord, such as the council or a co-operative, to buy it.
The government should consider policies to encourage the use of concessionary mortgages to help tenants buy out their landlords, particularly if the need for a deposit could be reduced through a discount on the sale price.
Landlords already have some incentive to sell to their tenants, which entails no void period (landlords otherwise face at least three months of mortgage payments on a vacant property before completing the sale), no marketing costs, and reduced risk. The government should give landlords another nudge to sell to, or with, sitting tenants, by requiring them to waive the final two months’ rent if they evict tenants for the purpose of sale or moving in.
There were 134,000 “residential property disposals” recorded for capital gains tax in 2023-24. The majority of these would have involved uprooting tenants from their homes. Ministry of Housing figures report that 31,520 of these households in England faced homelessness.
Based on Stamp Duty data, we estimate that 19% of house sales were investments or second homes, so out of 134,000 disposals in 2023-24, around 26,000 sales might have been landlord-to-landlord. As many of these as possible should be sitting tenant sales.
Overhaul property taxation
Property taxes are poorly designed and disadvantage people on lower incomes (including renters) who pay more as a proportion of their home’s value in council tax than richer people. Stamp duty also discourages sales: many owner occupiers who move away temporarily hold on to their property and rent it out as reluctant amateur landlords. Without stamp duty to pay when they return, these home owners could instead sell their home and allow one more renter to become an enthusiastic home owner (or a dedicated landlord to step in and provide a long term home to renters).
Rachel Reeves should replace council tax and stamp duty with an annual property tax based on a proportion of the property’s value. We have signed Fairer Share’s letter making this call.
Holiday lets
As of next April, councils in England will be able to charge up to double council tax on second homes, and landlords anywhere in the UK with holiday lets will not be able to deduct mortgage interest from their taxable income. Holiday lets must already meet higher minimum thresholds to qualify for business rates and small business rate relief. These are all policies we’ve campaigned for to bring homes back into the residential sector and reduce rents in rural and coastal Britain.
New thresholds are having an effect. In the year to March 2024, the number of holiday lets registered for business rates in England fall by 7,160 to 70,320. But many of these now appear to be council tax-paying second homes. Between September 2022 and September 2023, the number of those rose from 256,913 to 263,318, largely cancelling out the drop in holiday lets. Still, the growth of the holiday home sector appears to have halted after significant growth during and after the pandemic.
Wales has had stricter criteria and higher council tax for second homes for longer and the holiday home sector seems to be shrinking. In the most recent figures (March 2023 to March 2024), the number of second homes registered for council tax has fallen from 24,184 to 21,931, and holiday lets registered for business rates have fallen by 650 to 10,690.
Councils in Wales now have greater powers to charge additional council tax on second homes, and holiday lets face stricter criteria than in England so the sector may well shrink further, freeing up more homes for locals.
The government should consider giving English councils more powers to set council tax on second homes. The government should at the very least set out benchmarks of success for the current policy and measure changes in the number of holiday homes at local level to guide future policy decisions.
Energy efficiency
Rents aren’t the only thing that makes renting unaffordable – too many of us have homes that are expensive to heat. One in four private renters are in fuel poverty and more than a third of all fuel poor households are in private rented homes.
The Government is rightly committed to raising energy efficiency standards in order both to tackle fuel poverty and reduce the carbon footprint of housing.
Improvements will be easier to achieve and less disruptive with grant funding, particularly as it is more difficult for people in fuel poverty to find a new home if their landlord decides to evict them in order to make improvements. It is also harder for landlords with lower value homes to finance improvements, particularly in regions such as Yorkshire and the Humber where energy efficiency in rented homes is worst.
However, the benefits of insulation grants, like ECO, currently flow to landlords, who find it very easy to raise the rent to reflect improved quality (and cancel out the bill savings), or sell their newly more valuable property – to the detriment of the tenant who qualified for the grant in the first place. We’re calling for changes to the Renters’ Rights Bill to make sure grants benefit the tenant rather than only the landlord.
The rent assessment tribunal, which will become more important under tenancy reforms, must treat grant-funded improvements to the property as the tenant’s own so that the rent does not rise as a result, and for restrictions on the landlord using eviction grounds for sale, moving in or refurbishment for at least six years after the improvements have been made.
These protections would give tenants a stronger reason to apply for grants, which in turn will make it easier for landlords to comply with the new Minimum Energy Efficiency Standards.
With a clearer framework to benefit tenants, it would also be easier for the Chancellor to justify putting more money into the private sector and reducing fuel poverty that way.
We also recommend switching the tax relief for energy efficiency measures for private rented homes from Capital Gains Tax to Income Tax.
Where landlords are investing their own money, they should be able to deduct the cost of in energy efficiency measures from their taxable income. At present, the deduction applies only for capital gains tax so the landlord cannot realise the benefit unless they sell the property. This gives landlords an extra, unnecessary reason to evict their tenant.
Some of these changes would be bold and controversial so may take more campaigning to achieve – some of them are no-brainers. Every Budget is a balancing act to raise money and keep public services functioning. But fixing the public finances would be far easier if we had a housing system that kept us healthy and allowed us to flourish. The Chancellor should grasp her opportunity to make renting fair and affordable.
