London Property Market |
The Conservatives got trounced at the local elections.
This was not a surprise.
But it has made some people rather jumpy.
What will happen to the London Property Market if Labour win the next general election?
One major concern for parents who send their children to private schools is that Labour has been threatening to start charging VAT on school fees. i.e. fees would effectively increase 20% for parents. Understandably this is not an attractive proposition and many families would struggle with the additional cost.
The extraordinary thing is that not only does conventional wisdom think that a Labour victory is already a certainty (just as they did with Corbyn), but it also seems to think that VAT on school fees will be a certainty if Starmer wins. But is it really?
By the way if you are wondering what this has to do with London property, please bear with me.
For years, I have been trying to find out what percentage of manifesto promises (by either party) have become policy. No-one has been able to give me the exact figure, but it seems to be below 25%. Indeed, if you look at a number of pledges that Starmer made when he was running to become the leader of Labour, many have already fallen by the wayside. The most recent being abolishing tuition fees which he says is no longer feasible.
Why? Because it is financially not an option. Likewise, adding VAT to school fees will drive so many out of private schools that the state system would crumble; there is simply no way the state system could absorb the extra number of pupils. In other words, it may make a good soundbite in the run up to an election, but it is totally unworkable.
What about removing the preferential tax status of non-doms?
This is an idea that appeals to politicians of all parties because it is an easy way to curry favour with British voters: Tax those pesky foreigners who come to the UK and “dodge” tax by using the non-dom status.
And if it happened, it would most likely be dreadful news for London as a global centre and therefore would probably have a negative impact on London property prices. Again, conventional wisdom seems to think this is a certainty if Labour wins the next election.
However, several governments – both Conservative and Labour – have considered abolishing the non-dom status over the decades, but it has never happened. There is one very simple reason for this – it would be galactically stupid.
The Telegraph reported on figures that HMRC and Pinsent Masons published which showed that:
“To match the £8.2 billion (tax) from just under 115,000 non-domiciled residents, you would need the contributions of around 10 million lower-income income taxpayers. The income tax paid by the bottom 50 per cent of taxpayers, around 14.65 million people, would marginally beat the amount paid by the non-doms, comprising 9.8 per cent of the total income tax take.
Just to repeat that point, 115,000 non-doms are paying as much tax as 10 million British workers.”
And they are paying only marginally less than the bottom 50% of taxpayers.
Now these figures are a few years out of date, but they will not have moved dramatically. We also know that the civil service is against abolishing the non-dom status. They are aware that it is an important way to attract the world’s best talent as well as significant sums of money; the money may not all be taxed directly but it also feeds into the UK system through VAT and the inevitably huge spending by the non-doms.
So would it be unreasonable to suggest that while this makes a juicy promise for a manifesto, it might be “forgotten” (or pushed to one side like the abolition of tuition fees for students) should Labour come to power?
Of course, this doesn’t mean that it can’t happen – there are no certainties in life – but, judging by everything we have seen to date, it seems highly unlikely. The civil service are massively against it and while Keir Starmer may not be to everyone’s taste, he is not an idiot and he is no Jeremy Corbyn. He is very aware that money can move jurisdictions quicker than ever before. And it’s not as if other countries aren’t trying to attract the same people by using similar incentives.
Please remember this in the coming months because there will be lots of sensationalist headlines promising a drama that has a very low probability of happening…
Please also remember that a Labour government isn’t bad for London property. The property cycle repeats like clockwork, irrespective of which party is in power. For example, there was a massive boom during Thatcher’s Conservative government and then there was a crash which was exacerbated under John Major’s Conservative government.
Then property prices shot higher during Tony Blair’s Labour government and then crashed soon after Gordon Brown took over as Prime Minister. A similar pattern can be seen before the World Wars.
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