GEORGE OSBORNE’S failure to win the argument on tax credit cuts that he introduced in the summer budget will be bad news for landlords.
As the Guardian reports today HERE, the Resolution Foundation is saying alternatives to tax credit cuts are possible, viable and less politically damaging. We can all expect a U-turn from Osborne in the coming days and weeks, thinly veiled as a ‘listening to the people’. But make no mistake he is seething and cannot avoid the U-turn because the only alternative is political suicide.
But any climb down on the tax credit element of the summer budget will simply harden him to maintain the rest of what is now becoming clear as a farcical knee-jerk budget. That means the tax on landlords turnover is more likely to make it through to legislation despite the clear problems it poses.
Let’s recap on those problems:
1: Tax on landlord turnover will force many to sell, bankrupt others and push many into the high earners band and face paying more tax than profit made.
2: Expect large corporations to step in and buy private landlord stock. As big suppliers, they will control the market and pricing.
3: Rents will go up unavoidably as landlords seek to mitigate against losses caused by the tax. Big corporations are designed to make profit, so they will use their supply influence to command premium prices.
4: Higher prices, less supply and increasing demand will force the poorest out of the private rented sector and dependent on an already creaking housing association social supply. Expect more homeless on the street and local councils paying through the nose for housing out of the area. Council tax rises will be following to meet this demand.
5: Getting away with a turnover tax on landlords, Osborne will target the next sector to receive such treatment – how about a tax on all pension income, no personal allowance?
6: Banks will lose buy to let customers and put interest rates up elsewhere to make up for the profit deficit.
7: The construction industry will lose buying buy to let customers and scale back because residential demand cannot stand up to the deposits and mortgage regulations now required.
8: Am I going too far and suggesting the already precarious recovery with deflation and miniscule growth tips the UK back into recession, especially with higher interest rates looming and oil prices only able to go up from where they currently are?
But at least Osborne and his corporate wealthy property buyers will be better off when the legislation is changed back to taxation on profit rather than turnover.
I don’t need a crystal ball to see all of the above. In the meantime, landlords can do their best to save money on landlord insurance by visiting The Property insurer.