Why does Labour want to force out tenants on benefits to make room for Tory owner-occupiers?

by Dr Rosalind Beck

10:26 AM, 4th November 2015
About 3 years ago

Why does Labour want to force out tenants on benefits to make room for Tory owner-occupiers?

Make Text Bigger
Why does Labour want to force out tenants on benefits to make room for Tory owner-occupiers?

This is the transcript from the anti-landlord speech made by Siobhain McDonagh, Labour MP, on the 2nd of November in the House of Commons, with regard to the Housing and Planning Bill.

The transcript is followed by a reply from the Property118 member, Dr Rosalind Beck.

Siobhain McDonagh said:

Siobhain McDonagh Labour MP

Siobhain McDonagh Labour MP

“We know that the first-time buyer, whom we all suggest we support, is being crowded out by many things—not just by the number of properties being built, but by buy-to-let landlords and non-UK international investment in our property market. To give any chance to first-time buyers, the Government need to reassert the crucial moral and civic distinction between owning one’s family home and using the housing market as an investment to further one’s financial assets.

Last year international money bought 28% of central London properties. Much of that money was illegally gained. Property is bought with international money not just in central London, but even out in Mitcham and Morden. Two years ago a constituent emailed me to report that his daughter, who was looking for a property, found 32 people trying to purchase the same property on the same morning. His daughter and her boyfriend were standing next to a representative of a Chinese bank. That couple were in no position to compete with that money.

We must tackle two things if we want first-time buyers to have any opportunity in London and the south-east. If we want more money to build more homes, and everyone is agreed that we do, why not abolish tax breaks on buy-to-let mortgages? Why is it right for somebody who wants to be a landlord to get a tax break, but not for somebody who wants to live in their home? I appreciate that the Chancellor recently announced a reduction in tax breaks for landlords, and I saw in The Telegraph at the weekend that some landlords are starting a backlash. I hope the Minister will hold firm and consider that getting rid of tax breaks on buy-to-let mortgages would release £6 billion—enough to build 100,000 new homes.

Why do the Government not look at international investment in the London property market? Why not introduce a levy on people who do not intend to live in their property or even to let the property out, but to keep it empty while its value increases? That is abhorrent in the current situation. I ask the Government to look at exciting developments such as the YMCA’s Y:Cube in my constituency, whose opening the Minister attended. This offers prefabricated properties at 65% of the area’s market rent, with great standards of heating, providing a good place to live at a reasonable cost and a great investment for social investors, with a guaranteed return.

I have worked at the coalface of housing for most of my life, when I had a proper job. I worked in Wandsworth as a receptionist on the homeless persons unit, I worked as a housing adviser, I argued with landlords to get temporary accommodation for homeless families, but I have seen nothing like I am seeing now. The families who were homeless when I worked at Wandsworth were families with young children. The families I see in my advice surgery have three or four children, who are at the top of their primary school or at the start of their secondary school. I say every week to half of the people who turn up, “Don’t worry. Section 21 will expire, then you’ll go to court, then you’ll get evicted, then you’ll go to band B on the register. It will be fine and the council might provide you with temporary accommodation.” That is in my constituency in south-west London.
The families in Merton who become homeless get housed in Luton, Harrow or Wembley. The parents plead for the right to be able to continue their work. They plead for the right for their children to get to school. All this means that we are storing up social problems, the like of which we have never seen. On behalf of all those families and for the future of those kids, I plead with the Government to look at the situation with a fresh eye.
(Citation: HC Deb, 2 November 2015, c774)

Full transcript:

http://www.theyworkforyou.com/debates/?id=2015-11-02a.721.0&s=%22buy+to+let%22#g774.0

Reply by Dr Rosalind Beck

“Dear Siobhain.

I am writing this letter in response to remarks you made in a debate on the 2nd of November on the Housing and Planning Bill, specifically your attack on private landlords. I would just like to let you know that I will be publishing this letter on an open forum and circulating it to the newspapers, including to Richard Dyson and Nicole Blackmore, whose article you referred to; so you may wish to exercise your right to reply.

As a group, landlords are now very much under siege from all directions. The Telegraph has been the only newspaper to not go along with the lazy, inaccurate reporting of Clause 24 of the Finance Bill. You state that you are officially in support of landlords’ finance costs being re-defined as part of our profit as though we had not paid out this money to a mortgage lender, and upon which we are then to be taxed (taxed therefore on a greatly inflated ‘fictitious income’ rather than our actual income).

Your comments based on a single anecdote of one person going into an estate agents only adds fuel to the anti-landlord hysteria sweeping the country. This kind of singling-out of one group for vilification is going to have devastating results and you will have to accept your part in this.

If you believe that anecdotes should form the basis upon which massive policy decisions affecting millions of lives are made, then I can give you my own anecdote; namely, that as a landlord with a portfolio of properties I have never been at the estate agents competing with first time buyers and more often than not the properties I have bought have been on the market for many months before I bought them, they have been in a poor state of repair and I have extensively renovated them (I have even hand-stitched curtains for these homes in addition to all of the other renovation works).

There are several reasons why my ‘anecdote’ holds more weight than yours. For one, it is my first hand experience and repeated many times; it is not a report from a third party. Secondly, my experience of how landlords do not compete with first time buyers in the vast majority of cases is proven by the fact that many landlords buy derelict buildings, old terraced houses needing lots of work which may be unmortgageable at the time of purchase and large student-type houses.

It is fact that the majority of landlords are not in this stereotypical ‘battle’ with first time buyers at the point of purchase. There are countless obstacles to first time buyers’ buying their own home; low wages, no deposit, not meeting rigorous mortgage criteria, lifestyle choices, the need for job mobility, existing owner-occupiers thwarting new housing developments because they fear their house values dropping – I could go on; none of these central reasons have anything to do with landlords.

This dangerous Government decision to prevent landlords from offsetting the main cost of our businesses is going to put much of the essential housing we provide into jeopardy and is going to be particularly catastrophic for the poorest of our tenants – those on benefits and the low-paid (although rents will be forced up across the board). As you will see in the examples contained within the many excellent submissions to the Finance Bill Committee (evidence which was solicited by the Government and which then, disgracefully, was not even read by the members – the link is provided below), this decision is already leading landlords to increase rents and serve notice on tenants, as many of our businesses will be rendered unviable.

It seems to me that you cannot have grasped the distinction between being an owner-occupier and being a landlord, whereby if you are the former you can live in the home yourself, rent out rooms and pay no tax up to a certain amount, enjoy massive capital gains as your property gains value over the years and pay no capital gains tax and have to follow none of the rigorous legislation and licensing etc which rental businesses have to operate under. The IFS, amongst many others has rubbished this whole move – but the Labour Party only seems to selectively quote from this source and is conveniently ignoring the incontrovertible evidence that landlords are at a massive tax disadvantage already in comparison with owner-occupiers.

If you are interested in supporting the Chancellor’s alleged aim of creating a level playing field I assume you will therefore also campaign for the removal of capital gains tax for landlords and for us to be able to not pay tax on rent received up to the same amount as owner-occupiers enjoy and for the abolition of the hundreds of pieces of legislation governing us – as you want us to be treated as owner-occupiers and not businesses (or do you want it both ways?).

What seems clear is that you are looking for someone to blame for the housing shortage and you don’t want to lay it purely at the door of insufficient building, the selling off of social housing etc. You would prefer to jump on the bandwagon of landlord-bashing. I have been in correspondence with Rob Marris about this and he has also confirmed to me that the Labour Party is still supporting the Conservatives on this policy. This is despite the evidence of it being discriminatory (only applied to non-incorporated, encumbered landlords, but not to the wealthiest landlords who don’t need to borrow to purchase), outrageously punitive (with its logical consequence being effective rates of income tax that can exceed a million percent and indeed become infinite once landlords are paying tax on a loss) and very damaging for the poorest tenants, whom we will no longer be able to afford to house.

So it is indeed very strange that both the Labour Party and the ‘housing charity’ Shelter are now with the Tories supporting the ‘aspiring first time buyer’ to the detriment of everyone else. I thought Labour and Shelter were concerned about protecting the poorest in society. Not any more. So, for example, you would prefer to see someone who could be relatively wealthy – the graduate child of middle class parents for example, who may be living at home to save for a deposit or who may be gifted the money by mummy and daddy and who may also be on a good professional salary (as mortgage companies demand) – to be able to purchase a house sold by landlords, as a consequence of this confiscatory tax, and the current tenants to be displaced and/or rendered homeless. This is a bizarre and disappointing position for Labour to take. Who, now, is going to protect these tenants?

You may be sniggering by now, thinking that as a landlord I don’t care about these tenants really, that I am just a money-grabbing, evil person. I notice you brought ‘morality’ into the equation in your speech. Well, actually, I was brought up in a poor Labour-voting, single-parent family on benefits and I have not forgotten my roots. Along with many other landlords I have several houses with rents of not much more than £300 per month and I never increase my rents on houses where people stay for many years. This has now changed as a result of the policy and I have issued my first set of rent increase letters. I will now have to increase the rents every year. If interest rates don’t rise drastically I may survive, with my tenants and myself sharing the additional tax burden. What will happen if they do rise is going to be painful for all concerned.

You also said in your speech where you argue for the Government to take even more extreme measures against landlords (not a very novel approach if I may say so – everyone wants a piece of that action, pretending to be ‘caring’ by supporting tenants and attacking landlords) you ‘argued with landlords’ to get them to house homeless people and you worked on the ‘coalface’. Well, we don’t argue with people to get them to house people; we actually house them. What do you think landlords do? Have you any idea of the risks landlords take when they accept homeless families and the extra work and stress involved? It is an uncomfortable fact, that this category of tenant carries additional risks – of not paying the rent and of damaging the houses. When this happens, we get no support whatsoever. The councils and charities (and also yourself by your own admission) advise the tenants to stay put until bailiffs come and in the meantime each time this happens we lose thousands while we are still paying the mortgage interest and all other costs. Do you think we like going to court? It takes a terrible toll on our health (we are actually human beings). And you ‘argued’ with landlords that they should take these tenants on and then you imply that you advise them to remain after the expiry of the Section 21.

How you can say you have a moral objection to landlords providing cheap, safe, secure, long-term accommodation to many of the poorest in society – at a time when the idea of them securing a council or Housing Association home is a complete fantasy – is beyond me. No doubt you will also be arguing with us at some point to house migrant families – on the same basis that we take all the risks, whilst you show your ‘caring nature’ by then supporting the tenant as they wrack up even bigger debts with us, if and when it goes wrong (I wonder if you would be willing to take these kinds of risks that you advocate for us).

If, as you state, it is immoral to invest in the housing market, why just tax out of existence only those landlords who borrow, putting only their tenants out onto the street? If you want to take extreme measures, why not make letting residential property a criminal offence for all types of landlords, and deposit all tenants onto the street, with directions to the council’s housing department? That would also cure the problem of the tiny minority of rogue landlords.

Do you honestly think that this lunatic tax proposal will make London’s extreme problem of homelessness better, rather than significantly worse? Do you want this to be part of your legacy as an MP?

At the same time as this is happening, the Government is giving incentives to large corporations to build to rent – no level playing field there, no disallowing of finance costs there. And do you think they will be going up to Merthyr Tydfil to build cheap housing for people on low incomes and/or benefits? Don’t you realise that many landlords will have to evict these tenants, who are already struggling to get by and replace them with higher-earning tenants who can pay higher rents, directly as a result of this decision? At least landlords won’t be blamed anymore for accepting housing benefit payments as rent, as though we are thereby stealing taxpayers’ money, although where these tenants will go is anyone’s guess. You said you were worried about homelessness; this policy will lead directly to that and you even push for more extreme measures. Sorry, but I don’t think you know what you are talking about. If you look at the examples in the submissions you may begin to understand. That is the problem with prejudice; it is blind.

Both you and the Labour Party are backing the wrong horse with this and letters like mine and articles like those in the Telegraph will stand as a permanent record that the left completely let down the people it purported to defend and supported the Tories in a move that will see rents rise exponentially as the massive, potentially infinite tax rates hit landlords.

There needs to be a sea-change in the Labour Party’s position on this, and the sooner the better.

Yours sincerely

Dr Rosalind Beck

References:
All of the written evidence ignored by the Finance Bill Committee is towards the bottom of this page:

http://services.parliament.uk/bills/2015-16/finance/documents.html

This brief submission addresses the issue of prejudice and anti-landlord myths:

http://www.publications.parliament.uk/pa/cm201516/cmpublic/finance/memo/fb09.htm

This submission shows what will happen to one portfolio landlord and her tenants. She has already begun issuing notices to these families, in order to sell, illustrating perfectly that the effect of Clause 24 is to socially cleanse housing of lower-paid families, which may be comprised of a large number of people, to make way for the number one priority: first time buyers (which are likely to be one or two people):

http://www.publications.parliament.uk/pa/cm201516/cmpublic/finance/memo/fb05.htm

Ben Hardaker, who lets 7 properties in Flintshire, and who “grew up as a child that was dependent on the benefit system as my father was disabled and unable to work” made submission FB 64 on Clause 24:

http://www.publications.parliament.uk/pa/cm201516/cmpublic/finance/memo/fb64.htm

He wrote:

‘In conclusion I foresee that landlords like myself are currently helping society during the housing crisis by providing housing for the most vulnerable low income people in the community with housing that would otherwise be left in disrepair. The government is not currently providing housing and this has been left to landlords and building companies working for profit to fill the gap that has been created by recent economic difficulties. If the new tax proposals are enforced simple supply and demand principles have shown us in the past that rents will go up to combat these changes to the free market. The result will be that already vulnerable tenants will have to make way for middle class tenants or struggle to make payments.’



Comments

Trendo

16:43 PM, 4th November 2015
About 3 years ago

Spot on Ros !

Recardo Knights

17:13 PM, 4th November 2015
About 3 years ago

Well done Dr Beck a well written piece that shows the life of a landlord. You may have wasted your time composing the article as no one seems to realise that taxes should not be paid on outgoings. What's next lets buy a factory, equip it at a cost of £40k and class that as profit. And as a result the average LL with mortgages will have to evict all tenant. I would think most business would never start, that should be good for the GDP.

Putting up rents in the area I let is not feasible as tenants on HB which has already been cut cannot afford the top up. This is in an area where I rent 3 bed houses for £725pm, and if all families were evicted the council have nowhere to put them. These tenants will never own a house, and the ones I brought were on the market for months, run down and no one could get ,or would want a mortgage on them.

Its a bit like smoking the propaganda is it bad for you, cost the NH a fortune, so the best thing to do is not make it legal but No lets tax it to the hilt, the government make more from smokers and the tobacco industry, than it cost the NHS. I do not smoke but when everyone gives up who will have to pay the shortfall in taxes. I know why not increase VAT to make up for it.

why not ban renting, and if landlords are just money grabbing, I agree with the good Dr, ban it all and let the state provide. No more risk taking LL with mortgages. nor rich landlords without mortgages (sorry Duchy have to sell up) housing associations, rent a roomers at £7k with no tax to pay I can rent a house for that, but will get taxed on the £3k mortgage payments I make!

The media only portrays rough landlords (minority) not good landlords. Maybe there should be a drive for all tenants to bash the government, we like our home and our good LL so leave them alone until you have a council house ready for me.

Steven Burman

17:45 PM, 4th November 2015
About 3 years ago

Well written Dr Beck!

Siobhan McDonagh is my MP and I have always thought of her as a model MP. However, I am infuriated by the content of her speech and have today written to her as a supporter and constituent.

The content of my letter is as follows:

--------------------------------------------

4th November 2015

Dear Ms McDonagh,

Landlords Mortgage Tax Relief

As a constituent of yours and long standing supporter of both the Labour Party and you as an MP I have today read with utter disbelief the transcript of your ill-conceived, ill-judged and ill-thought-out speech made to the House of Commons on the 2nd November 2015 regarding the proposed legislation to remove tax relief for non-incorporated, unencumbered landlords.

I will not go into the detail of the many reasons for my assessment of your speech as you will, by now, be in receipt of the response to your speech from Dr Rosalind Beck. Dr Beck’s response details many of the reasons why the content of your speech is totally detached from the reality of the effects of the legislation proposed by George Osborne. Rather than repeat Dr Beck’s response you can take it that I wholeheartedly agree with the points made therein.

As you are obviously so ill-informed I will attempt to enlighten you as to the effects Mr Osborne’s proposal (and your unwavering support) will have on me and my extended family.

I have 2 properties which will be affected by the proposed tax changes as they both have mortgages of around 75% LTV (loan to value). For all intents and purposes I am one of the many landlords you are keen to hit hardest. However, the assumption that I am ‘lining my own pockets’ could not be further from the truth.

Property 1

Property number one generates a small income of around £170 pcm on which I currently pay 40% tax less allowable expenses; however this does not take account of maintaining the property. The property is meticulously maintained, my tenants are approaching retirement age, do not want the problems associated with owning a property and have indicated they are so happy that they will gladly stay in the property for as long as possible. In the 3 years they have lived in the property they have had 1 small rent increase of less than 2%, there are no plans to increase the rent for at least 2 years.

The small ‘profit’ I make on the property does not go into my pocket but is put towards the near £3,000 per month my family and I pay for 24 hour care for my seriously ill father; he suffers from Alzheimers and receives no state assistance.

If this property were to be sold, I would pay Capital Gains Tax on the increase in value; unlike owner occupiers.

Property 2

Property number 2 makes no ‘profit’ whatsoever. The ‘tenants’ of this property are my niece, her partner and two young children. The ‘rent’ I charge them just covers the mortgage and building insurance. I effectively run this property at a loss as I cover the maintenance at my own cost.

I do this because my niece and her family were previously living in a one bedroom property on a notorious estate, surrounded by drug users, dealers, pimps and no end of anti-social behaviour that the police seem so ill-equipped to deal with. The property was not fit for purpose, badly maintained and the local authority were (as usual) not interested because my niece’s partner prefers to work for a living rather than exist on state benefits.

Once again, if this property were sold I would pay CGT on the increase in value.

Under George Osborne’s ‘genius’ piece of legislation I would incur a 40% tax charge on the money I have borrowed to purchase these properties. This would mean an additional tax liability of around £112,000 per annum on property which generates an income of £1,400 per annum at most. Income from my ‘day job’ is around £28,000 per annum (on which I have already paid tax, thus taking me into the 40% tax bracket). This will give me a total net income of £29,400 out of which I will be expected to pay an additional tax liability of £112,000.

I am sure that you can see how ridiculous this is? Yet still you support this legislation? Indeed, you would take it even further. Astonishing!

Perhaps you can explain in what way you think this is fair and reasonable?

My only choices will be to sell the property before the legislation comes into effect or hike the rent I charge my tenants to a point where it will be unaffordable. Either way, my tenants will be forced to leave their well-maintained, affordable, happy homes. Where will they go? Certainly not to another private landlord as the legislation will have had the same effect on their ability to charge reasonable rents! Certainly not to incorporated landlords who will be inundated by the hundreds of thousands of evicted tenants who are in the same position as mine. Private sector rents will be driven through the roof by the unprecedented demand brought about by the wholesale evictions that non-incorporated landlords will be forced into. The only alternative will be social housing which is unsustainable at present and will certainly be in no state to cope after this legislation takes effect.

Perhaps now you can start to appreciate how ludicrous this legislation is and how devastating its effects will be?

Contrary to common perception the Labour Party does currently have support from individuals in all sections of the business community. However, both you and your party are in grave danger of losing that support due to your stand on this issue.

While I cannot speak for others, I can tell you with absolute certainty that both you and George Osborne are pushing my personal political allegiance firmly in the direction of UKIP. This would be a great shame as in many respects I have personally found you to be a fair, reasonable and committed MP. I do not want to take my vote elsewhere but my depth of feeling on this matter will give me no choice.

Yours sincerely

-------------------------------------------------------

Not sure it will do any good but I can't sit back and do nothing!

Joe Bloggs

17:51 PM, 4th November 2015
About 3 years ago

GREAT LETTER...WISH I HAD WROTE IT.

ONE MINOR POINT WHERE YOU STATE:
'What seems clear is that you are looking for someone to blame for the housing shortage and you don’t want to lay it purely at the door of insufficient building, the selling off of social housing etc.'

YOU COULD ALSO HAVE MENTIONED THE FAILURE TO CONTROL IMMIGRATION (OR IN FACT THE LABOUR POLICY OF ACTIVELY ENCOURAGING IT).

Dr Rosalind Beck

19:45 PM, 4th November 2015
About 3 years ago

Reply to the comment left by "Steven Burman" at "04/11/2015 - 17:45":

Great letter Steven and it will hold a lot of weight because you are her constituent. What about going to see her? I went to see my local MP, also Labour, and when I showed him the tax calculation of what would happen to my actual income if interest rates stayed the same and also if they rose by 3% he was genuinely shocked and pretty supportive afterwards. He was shocked enough at what would happen with no interest rate rises, never mind what would happen with the 3%. We have been finding that face-to-face meetings are the way to go... Some people may feel a bit daunted about this - I was a bit nervous about it - but they are well worth it as often they don't really read and take in what you send to them in a letter. NB. I've not had a reply from Siobhain McDonagh yet - but I have had one from Rob Marris, Shadow Financial Secretary to the Treasury - stating that they are still sticking to their guns and supporting the Tories' lunatic tax.

Mark Shine

20:06 PM, 4th November 2015
About 3 years ago

Very good letter Ros!

Also a good letter from Steven although assume you meant to write encumbered rather than unencumbered at the end of you first paragraph. Not that most MPs would spot it, anyway...

michael fickling

21:05 PM, 4th November 2015
About 3 years ago

Im wondering if theres another and perhaps more legalistic approach.Considering that its effectively a tax on turnover and represents such a new paradigm and is blatantly unfair it seems to me that there should be a legal avenue here. Some sort of class action if thats the right phrase...as its a massive shift in tax principles
it should have a higher courts remedy.Now the point is that cant be ignored if we can go that route. Even initiating it...and maybe going two pronged..its total unfairness..and its effective retrospective nature might get us a lot more attention. im certainly willing to sling a few quid at it and if we all did it is maybe do=able??? so we could force the government to listen..and maybe to comply with a legal ruling. ENDS.

Dr Rosalind Beck

21:23 PM, 4th November 2015
About 3 years ago

Reply to the comment left by "michael fickling" at "04/11/2015 - 21:05":

Hold that thought Michael. You're not alone in wanting to pursue legal action. We may be wanting to raise some finance for this soon and I'm sure a lot of us will be happy to throw a few quid at it.

Mark Shine

21:29 PM, 4th November 2015
About 3 years ago

Reply to the comment left by "michael fickling" at "04/11/2015 - 21:05":

Yes Michael. That went through my mind before GO had finished speaking on July 8th, as I imagine it did for others. Could any of this forums members who are legally qualified comment on this?

Simon Lever

10:34 AM, 5th November 2015
About 3 years ago

Reply to the comment left by "Steven Burman" at "04/11/2015 - 17:45":

Hi Steven

Good letter but I think you will be lucky to get a reply which shows your MP has read your letter.

I am not sure however that you have your sums right. For you to pay an additional amount of tax of £112,000 on the interest element of your mortgages you would, at a 40% tax rate, have interest to pay of £112,000 / (40-20)% = £560,000. In actual fact as this would take you into the 45% tax band the actual interest you pay would be higher.

My guess that this is the level of mortgage not the interest on it

Unfortunately if there is an error like this in a letter the recipient can turn round and say "you do not know what you are talking about" and then just ignore the letter.

Maybe rework the figures so you can better answer any questions your MP raises - if she replies!

1 2 3

Leave Comments

Please Log-In OR Become a member to reply to comments or subscribe to new comment notifications.

Forgotten your password?

OR

BECOME A MEMBER

44% of landlords fear Right to Rent

The Landlords Union

Become a Member, it's FREE

Our mission is to facilitate the sharing of best practice amongst UK landlords, tenants and letting agents

Learn More