Covid-19 Bounce Back loans for property businesses16:06 PM, 5th May 2020
About 3 weeks ago 46
Here is my exchange of emails to date with Rob Marris, Labour MP and Shadow Financial Secretary to the Treasury and also Sir Roger Gale, Conservative Chair of the Finance Committee. See if you can spot any ways in which Rob Marris’ approach differs from that of David Gauke, actual Financial Secretary to the Treasury. And then, ask yourself, is this the role of the Opposition? To agree with everything the other one says?
6th October 2015:
Dear Mr Marris
I am writing with regard to Clause 24 of the Finance Bill, which, as you will be aware, abolishes landlords’ right to offset the main cost of our business when calculating profit (and to tax us in effect on turnover). As a landlord I’m still in a state of shock over it; the Conservatives were silent on the subject of landlords during their election campaign, so this was very unexpected.
Many landlords do not yet understand the significance of it as George Osborne presented it in an incredibly misleading and disingenuous way in his Summer Budget speech. In addition to landlords, it is going to have a terrible impact on private tenants who will see rents rise and will be displaced and some will be made homeless as landlords are forced to sell up businesses suddenly rendered unviable.
I am pasting below a copy of the letter I have sent to all of the members of the Finance Bill Committee (including yourself) and I would be grateful if you could read through it carefully as it is important. I would then like to ask if you can discuss these matters with your colleagues on the Committee and ask them to support the amendment we are proposing (also pasted below)? I am sure you would not like to vote for something that will be detrimental possibly to millions of tenants in the private rented sector. The Conservatives are trying to sneak this thing through, hoping no-one fully understands it.
Dr Ros Beck
[this letter went unanswered!]
16th of October 2015:
Dear Sir Roger and Mr Howarth
I am writing regarding the Finance Bill Committee meeting yesterday. There were approximately 90 submissions made, the vast majority relating to Clause 24. These covered the issues most comprehensively, in addition to letters sent to Committee members which summarised the salient points. As you can imagine, many hours would have been spent preparing these by concerned people and experts in the field from the whole country in order that the Committee could be fully informed, and for an intelligent debate to take place. We had been encouraged to volunteer our expertise and understanding of the measure, utilising this democratic procedure.
We were, therefore, astonished to read the transcript of the meeting, because it was instantly apparent that no MPs had read any of this vital information. The sparse discussion that did take place for a couple of minutes demonstrated the Committee members’ ignorance of the contents of the Clause and its repercussions and implications. Had the Committee members read even a fraction of the written evidence, they would have had serious concerns about this going ahead. I am surprised that you, as the Chairs, did not admonish them for this and adjourn the meeting.
If the Committee members do not even read the written evidence, what is the point of this being invited from concerned parties? I would prefer to be told that no written evidence is admissible as none is going to be read. This would be the honest course of action.
Could you please let me know the procedure to follow to make a formal complaint about this?
Dr Rosalind Beck
Property118 Landlords Group
16th of October 2015:
Dear Dr Beck,
While I appreciate your concern it is also clear that you do not understand the conventions under which the Speaker`s Panel of Chairmen work.
Our duty is to act, in committee, on behalf of the Speaker. As such we maintain, irrespective of political party, strict impartiality and neutrality. It is most certainly not for the Chairman to suggest that Members of the House should consider any line of argument or debate any issue other than that on the face of the bill. Our job is to manage the business in an orderly fashion and, at the end of the debate, to cause the findings of the Committee to be reported to the whole House for further consideration.
In an endeavour to be helpful I can only suggest that you direct your observations to the Treasury Minister, Mr. Gauke and to the leading Opposition Front Bench Spokesman, Mr. Marris.
Sir Roger Gale MP
17th of October 2015:
Dear Mr Gauke and Mr Marris.
Sir Roger Gale has suggested that I write to you about a serious complaint. I have also contacted the Scrutiny Office regarding this matter.
For ease of reference I will paste here my communication with Sir Roger and Mr Howarth. Can you please get back to me urgently regarding this?
I believe that Parliamentary procedures will be brought into disrepute if this matter is not resolved. What has happened is nothing short of a disgrace.
Dr Rosalind Beck
17th of October 2015:
From Rob Marris:
Thank you for your e-mail.
In preparation for the debate on clause 24 of the Finance Bill, I did look at submissions made. I did not look at every one: the Opposition simply does not have the resources.
In a nutshell, the clause provides that landlords with higher incomes will no longer receive the most generous tax treatment.
I would like to think that I was aware of the likely effects of this clause, and that my awareness was reflected in the remarks I made during the debate on it. It is a judgement call as to whether those likely effects will be desirable or undesirable. That is what politics is about.
On balance, having given it quite some thought, Labour decided that those likely effects would be more desirable than undesirable, bearing in mind the long transition period – from the tax year 2017-18 over 4 years.
MP for Wolverhampton South West
22nd of October 2015:
Thank you for getting back to me regarding Clause 24. Naturally, I am disappointed that the Labour Party isn’t yet changing its position on this (however, it is only a matter of time). As I am determined to get this insane decision reversed, I shall view your reply as the beginning of a dialogue on this. With that in mind, I respond here to some of your points, in the hope that I can make a tiny chink in how you see this.
The ‘level playing field argument’ is of course untenable, and has been categorically proven to be so, not least by the Director of the IFS, Paul Johnson, by other leading economists, including Professor Philip Booth of the Institute of Economic Affairs (with whom I am in communication and who suggested to me that I ask the Telegraph to start a campaign against it, which I did) and by numerous reports which outline how the tax system in the UK overwhelmingly supports the owner-occupier and the tax system for landlords is not generous at all, in comparison with many countries (where there are far more policies to incentivise the PRS, rather than attack it).
It is in any case wrong to compare the business of renting out houses to the non-business of owning your own home. The former produces tax revenue – with tax paid on the rental income and any increase in the value of the property. It has only been possible to link up the two in this tenuous fashion, because of the misnomer ‘tax relief’ being applied to what has always been (up to the 8th of July 2015) acknowledged as the offsetting of business costs. It’s about time the thing was called by its proper name.
The Treasury seems to want it both ways; firstly, to treat us like owner-occupiers, but when it comes to CGT etc., to treat us as businesses to be taxed. Which is it to be? Are we a business or are we not? (NB. I am giving you the arguments here that you could be using against David Gauke)
Also, if there is to be a ‘level playing field’ no-one has presented an argument explaining why ‘individual’ as opposed to ‘incorporated’ landlords have been targeted (unless the Chancellor will once more ‘level the playing field’ once he’s driven out many private landlords). The Institute of Chartered Accountants of England and Wales in its submission to the Finance Bill Committee (which seems to have been published late with no indication that anyone even looked at it) said that this leaves a ‘cliff edge’ in the middle of the field.
I must also answer your point about affordability of mortgages; it is wrong to say mortgages are cheaper for landlords – we pay higher interest rates and we cannot borrow larger ‘unsustainable’ amounts as mortgage lenders limit LTVs far more than they do on owner-occupier mortgages. Historically, even during the credit crunch, business mortgages were a much safer bet than owner-occupier ones and ran at lower repossession levels (0.7% v. about 2.1% IIRC). Landlords are not threatening the economy; Clause 24 is.
So I can only assume you are referring to the fact that landlords can get interest-only mortgages and owner-occupiers can’t. The answer to that is easy – outlaw interest-only mortgages from now on. This may as well be done anyway, as pretty soon, no-one will take out a BTL mortgage. Who would take out a business loan to purchase a tax-producing asset, take all the risks and do all the associated work only to be told they could not offset the main cost of creating the profit, and would even be taxed on the money paid out as though it were money still in their possession?
You also say this is about stopping higher-rate taxpayers from receiving favourable treatment. Well the wealthiest landlords (who have no borrowings) will continue to get this ‘favourable treatment,’ as they will be unaffected; on the other hand, as the Residential Landlords Association has pointed out, an estimated 60% of basic rate taxpayers will become higher rate taxpayers immediately as a consequence of the policy, because their main outgoing has been redefined as ‘profit.’ Apparently, the Treasury is a bit worked up about this ‘unintended consequence’ behind the scenes; a fact that the Labour Party has not exploited.
Rental demand in this country is booming and we have had the legs kicked out from under the PRS at the exact time when it would have been more appropriate to offer landlords incentives to build to rent, to renovate to rent and to increase the supply of ‘social-type’ housing. This is the message the Labour Party should be getting across – offering an alternative vision to the Tories. If it did, it could be seen as supporting both business and tenants. With a greater supply, rents would go down. Instead, I’m sorry to say, your email sounded like it could have come from David Gauke.
I have an awful feeling that the reason behind the Labour Party’s reluctance to take this common sense, pro-PRS stance is because it conflicts with the populist position. There is a refusal to see the symbiotic relationship between landlords and tenants (most surveys actually point to us getting on really well with each other, contrary to some scare-mongering and scapegoating done by, for example, Shelter). If the Labour Party doesn’t take a proactive position on this, the record will be there for all to see – that the Labour Party supported this attack on tenants, because they couldn’t face saying or doing anything that veered from the PC anti-landlord standpoint that no-one dares deviate from; that at the same time as they were loudly protesting about tax credit cuts they were unanimously backing something which could affect even more people – especially those on benefits – and to a far more damaging degree.
The problems are now beginning. Trust on the part of landlords in the Government has been greatly damaged and we also can’t trust the Labour Party and what they might do if they got into power. In order to survive, landlords will now do whatever is necessary. I started my rent increases this month. I defy anyone not to do the same if they were faced with potentially astronomical tax bills based on ‘fictitious income.’ I have a pensioner and her adult son living in a house in Caerphilly whose rent has been £500 pm since October 2008. I estimate I can raise this to £625 within 3 years. I don’t want to do this and it is quite likely at some point I will have to evict this woman from her home and let it to tenants who can pay more.
You and David Gauke mention the ‘gradual phasing in’ of this; well I believe the Labour Party should be more focused on how people will now be ‘phased out’ of affordable rentals. I have personal experience of having been brought up by an unemployed father on benefits (after 30 years on building sites and on the buses). My father was able to remain in his council house until he died aged 79. Had he been displaced in his old age that could have been enough to finish him off. These are the human costs of Clause 24.
So I clearly don’t want to increase rents or evict people settled in their homes, but I am being forced to by the ‘lunatic tax’ (as Richard Dyson called it). This is happening all over the country and then I read yesterday that a member of the Labour Party suggested the Chancellor should go even further to remove these ‘generous tax breaks’ landlords receive. Here is the comment:
‘May I suggest, from the party of Siobhain McDonagh, that if the Government are looking for a compensating saving for ameliorating the situation of the poorest families, they should look at the mortgage tax relief given to buy to let landlords. In the Budget the Chancellor cut it back to the basic tax rate. If the Government want £2 billion more, they should cut it a bit more, help the housing market in London and make sure that poor families and poor women do not lose out.’
Can you confirm if this is the official position of the Labour Party? For all the reasons I have already outlined, this is further madness. Everyone seems to have swallowed the line that offsetting our business costs is in fact receiving some kind of allowance from the Government. You can’t imagine the frustration and anger felt by landlords when we read these comments.
George Osborne is wrong about this Clause, as he is about tax credits and about involving China in our nuclear industry. He ignores experts on all these matters. He is dangerous, and we need somebody who will make an effective stand against him.
The Labour Party needs to table and support an amendment that it only apply to new purchases and must try to persuade some Tories to follow suit. This way you would still be supporting Clause 24 (if you feel you have to) but without its adverse consequences of higher rents and bankruptcy. Nobody from any party has adequately explained why this cannot be done. Please let me know if you are able to take this on.
4th of November 2015:
You may recall my earlier correspondence asking that the Labour Party reverse its position on Clause 24 of the Finance Bill? I am determined to get the Party see sense on this and to this end I have just had an open letter published. Your name is mentioned in it. I have also forwarded it to the Telegraph journalist leading the campaign against the ‘tax grab.’ Perhaps you can give me your opinion on its contents?
Also, feel free to let anyone in the party adapt and take on any of my points in any speeches they may make announcing a reversal of Labour Party policy on this – I don’t care if my work is attributed or not!
All the best.
4th of November 2015:
From Rob Marris:
Thank you for your courtesy in sending me a copy of your heartfelt response to my colleague Siobhain McDonagh MP. Like you, she spoke from the heart, based on her values and on her own experiences of housing.
You say: “This dangerous Government decision to prevent landlords from offsetting the main cost of our businesses.” That is not entirely correct.
Clause 24 of the Finance Bill introduces a restriction on the deduction of finance costs related to let residential properties, and instead provides for a tax reduction for such costs by reference to the Basic Rate of Income Tax. . To put it another way, the change will essentially prevent residential landlords claiming Income Tax relief at the Higher Rate on interest paid on loans to buy a property to rent.
To give landlords time to adjust, the restriction and tax reduction will change gradually from the tax year 2017-18 over 4 years.
The background is that persons subject to Income Tax are currently able to deduct interest and other finance costs, such as the fees incurred when obtaining or repaying a loan, from the rental income in arriving at the profits of the property business, where the costs are incurred wholly and exclusively for the purposes of the property business.
Individuals are also able to make a claim to deduct interest on a loan to invest in a partnership when calculating their net income.
Clause 24 restricts those deductions for finance costs relating to let residential properties, and instead allows for a deduction from an individual’s Income Tax liability. The maximum relief that can be obtained is the Basic Rate value (currently 20%) of the total finance costs on loans referable to let residential properties.
This clause will ensure that landlords with higher incomes no longer receive the most generous tax treatment. Despite the concerns raised eloquently by you and others, this still seems to Labour to be the right thing to do.
Rob Marris MP
Shadow Financial Secretary to the Treasury
5th of November 2015:
Thank you for taking the trouble to reply and so promptly. I really appreciate it.
But I am afraid to say that you are sounding like David Gauke again! As you know, Clause 24 is not about doing anything against the ‘wealthy’; they will remain as they are. It is an attack on landlords who took out mortgages to purchase houses to rent out; people who provide housing to millions of people.
Up until the 8th of July 2015 this was a normal business like any other (although in recent years we have been targeted and spoken about as though we are the devil incarnate). On that day, however, renting out houses became effectively defined as a quasi-criminal activity, subject to a new punitive tax regime whereby one section of landlords is singled-out (‘private’ landlords with mortgages) with no rational justification for this discrimination to pay tax on a ‘fictitious income’ rather than their actual income. Apart from anything else, this sets a dangerous precedent in the tax regime of the UK, whereby a large part of what is effectively ‘turnover’ is taxed. It’s crazy, pure and simple.
The IFS, the IEA and several academics have warned against it, aware that it does not remove any special ‘reliefs’ for ‘wealthy’ people, but simply prevents the claiming of the same business expenses by landlords that any and every other commercial activity has a right to. Obviously, it cannot be logical to tax debt. Where else does this happen?
As the Shadow Financial Secretary to the Treasury I don’t understand how you can support it. As I said to Ms McDonagh – are we businesses or are we not? I’d love an answer to that question as if we are businesses we can offset the costs of producing a taxable profit and if we are the same as owner-occupiers we can enjoy the massive tax advantages granted to them. Instead, blind prejudice is leading politicians of all parties to ‘punish’ us with the worst of all worlds picking and choosing which category to put us in, depending on the various arguments being used. Naturally, we will be investigating ways of obtaining legal redress if the decision is not reversed. Anybody looking at this dispassionately would find in our favour, as the chief economists mentioned above have done.
Going back to Labour’s stance on it, I am looking for answers regarding why Labour has nothing to say about the effect of this clause on tenants. HMRC wrote one sentence from the OBR’s ‘assessment’ several months ago saying that rents would be unaffected and this is clearly a joke. Landlords who have understood the change are all now looking to increase rents, if they haven’t already started. Many landlords haven’t understood yet that they’re going to have pay tax on non-profit – misled by the Chancellor’s false reassurance that the majority would not be affected. They will soon follow suit. Contrary to some views, many of us have not put up rents in years, as we are not the ‘money-grabbing’ people we are depicted as (and why other businesses, selling whatever their wares or services are within a capitalist system are not attacked in a similar way for making a living out of their work is beyond me).
Of course when surveys show a big spike in rent increases over the next couple of years Labour will then speak up very loudly and no doubt attack landlords and talk about rent caps as though landlords chose to raise rents to bolster our own coffers instead of as a direct and inevitable consequence of this lunatic tax on finance costs. You only need to look to what happened in Ireland to see the inevitability of this. In the meantime not only landlords will suffer but many tenants will also.
Which leads me to a simple and straightforward question. It is said that politicians can’t answer these. Let’s see if you can. It’s an ‘either/or’ question (and as it about priorities, you’re not allowed to answer ‘both’).
What is the priority for you and the rest of the Front Bench of the Labour Party in 2015?
Is it to support:
The answer to this question should dictate your position on Clause 24.
If your answer is ‘a’ you must oppose it (as the Clause is ruinous for tenants).
If your answer is ‘b’ you may as well all join the Conservative Party now.
I look forward to your response and would like to thank you for the fact that you do indeed respond (Ms McDonagh is yet to respond to my letter, so I will copy her in to this letter and see if that encourages her to answer me. She made some very serious accusations about landlords and I would like to hear how she chooses to justify them). I will then try not to bother you for a while, if you give me a straightforward answer to my question!
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