McDonnell’s distorted and dangerous version of Right to Buy9:01 AM, 5th September 2019
About 2 weeks ago 35
Professor Philip Booth of the Institute of Economic Affairs and our own member Dr Rosalind Beck have written a paper titled “Taxation Without Justification” An economic analysis of the Treasury’s treatment of privately rented housing. You can click here to download the full document.
The summary states:
“The private rented sector has played a critical role in increasing and improving housing provision in the UK. Around 80% of private sector tenants are satisfied with their homes and satisfaction in the sector compares favourably with that in the social rented sector. This contribution has gone unrecognised: instead, landlords have been made scapegoats for a housing crisis primarily caused by land-use planning restrictions.
“The government has recently passed tax measures that discriminate against private rented housing, both as an asset class and as a form of housing tenancy. The most damaging of these measures is ‘Section 24’1 which prevents landlords entirely offsetting interest against rents before taxable profits are calculated. This move is unjustifiable and will raise rents. The Treasury’s rationale for the tax change has no justification in public finance economics and it is concerning that the Treasury would make the arguments that it has made.
“As a result of Section 24, many landlords will pay huge amounts of tax as a proportion of profits. Interest rate rises are likely to cause the tax rate to exceed 100 per cent of their underlying profit in some cases. Tax will even be payable by some landlords who make a loss.
“The government has also increased Stamp Duty on buy-to-let properties. Stamp Duty in general is widely regarded as one of the worst taxes from an economic efficiency point of view. The late James Mirrlees, Nobel Prize winner in economics wrote: ‘There is no sound case for maintaining stamp duty and we believe that it should be abolished’ and ‘Stamp duty and business rates defy the most basic of economic principles by taxing transactions and produced inputs respectively’. The government’s decision to increase Stamp Duty on buy-to-let properties will also damage the market and raise rents.
“The increase in Stamp Duty was introduced with the expressed intention of promoting buying over renting. This may happen at the margin. However, any such effects will benefit a small minority of potential purchasers who will be relatively well off.
“Increases in taxes on landlords are likely to reduce the supply of rental housing, increase rents, reduce quality and reduce the size of the ‘professional’ landlord sector which is most affected by the changes.”
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