It was hard yesterday not to have some sympathy with Green Party leader Natalie Bennett after that painful interview. But coming unstuck on the numbers or not, it highlighted the point that they are the only party with a shot of winning seats (in England at least) that actually has a target for building significant numbers of social homes and which has identified private sector landlords as the ideal source for funding this.
We kind of wish she’d talked to us first because we’ve looked into this in some detail. Earlier this year we worked out that landlords are receiving something in the region of £27 billion a year of largely unjustifiable taxpayer support, including the mortgage interest relief that landlords get by identifying as a “business” even though they get 0% business rate liabilities by identifying their asset as “not a business”.
Landlords also benefit from loopholes that help them sidestep Capital Gains Tax, a notorious 10% “wear and tear” allowance, £9 billion of Housing Benefit receipts and half a billion pounds of good old-fashioned tax evasion (according to HMRC anyway).
But we also found that unpicking this £27bn taxpayer subsidy of landlords is a bit complicated. It would require changes to the tax regime that would have unpredictable, knock-on effects on other taxpayers, simply because of the vague status of whether a landlord is a homeowner or a business.
Our conclusion was not to try to unpick these landlord subsidies, but for the taxpayer to claw back an appropriate amount through a new Landlord Tax that doesn’t interact with the wider tax regime. And in thinking about how much this should be, we identified the number that highlights most the cost to the taxpayer of a landlord-friendly environment that distorts the housing market. We decided that the total Housing Benefit bill in the Private Rented Sector is the total amount that should be recouped – roughly £9 billion a year.
So our proposal is to set a rent cap, it can be at any level, but something like a “living rent” level as mooted by organisations such as the Joseph Rowntree Foundation and the Resolution Foundation. However, we also propose that this just is a threshold, above which every landlord has to pay a flat percentage in Landlord Tax.
We further suggest that the tax rate is set at a level that not only recoups the previous year’s HB bill in the PRS, but also adjusts year on year so that over-receipts are discounted the following year and under-receipts likewise. Therefore, from the commencement of the policy all Housing Benefit in the PRS will be recouped and any landlord who evades simply passes the cost to the compliant landlords.
For any tax, particularly a new one, enforcement is a major issue. But we have an answer for that too. Allow tenants to register their rent payments with HMRC and incentivise them to do so by awarding tenants with a landlord fine of one year’s rent if their landlord is found to have been avoiding or underpaying the Landlord Tax. By this simple mechanism, and at near zero cost, you would create 100% compliance as a landlord would have to be an idiot to try to get away with avoidance.
On the latest figures, 22% of rental income would bring in about £9 billion. However, we believe this should be a Robin Hood Tax for renters, not going into tenants’ pockets, but going straight into the public house building budget – a sum that currently stands at about 1.2 billion. This is a huge increase worth about 90,000 homes a year (even if that is just a large conservatory for Nick Ferrari).
But our tax is ultimately fair on landlords. Because by two mechanisms it reduces year on year. Firstly, because something like 90,000 households would move from PRS Housing Benefit claimancy to lower cost social tenancy. Secondly, because removing 90,000 households from PRS housing demand lowers rents, meaning the HB for the remaining tenants is reduced.
We’d love to model this with some experts but you could imagine the tax reducing by about 2% or more each year until it all-but abolishes itself when there’s negligible HB being paid into the PRS. And the lack of PRS Housing Benefit would be an indicator that we have enough social housing.
So, including the current social housing budget, you can see exactly where 500,000 council and housing association homes can be built, the increase not only being funded affordably by landlords but also delivering the taxpayer a permanent annual saving on the Housing Benefit bill. Not to mention, this large boost in housing supply would bring down everyone’s rents and make home ownership more affordable.
The only caveat I’d add is that 500,000 social homes might be fundable in a parliament but there’s a lag of maybe 18 months to completion that should be forgiven. But if this money existed, I’d expect Councils and Housing Associations to step up to the plate with a willingness to get building.
But don’t knock Natalie Bennett for fluffing the numbers when the details show her vision is deliverable. Because without this kind of bold vision from the next government, whichever party wins the election, Britain will become a nation divided between those people who have assets and those who rent, and tenants will find themselves in deepening exploitation for the rest of their lives.