Burnham Victory Sparks Questions on Fiscal Discipline and Property Tax Reform

Andy Burnham’s victory in the Makerfield by-election will ignite a wave of speculation about what happens next.

His emphatic win in the north-west England constituency will encourage Labour MPs to believe he is the answer to their electoral malaise. A leadership contest could follow, or alternatively a more orderly transition if cabinet ministers apply enough pressure on Keir Starmer to step aside.

Whatever the path, a new Prime Minister this autumn feels inevitable.

During the Makerfield campaign, Burnham lived up to his reputation for inconsistency by trying to allay the concerns of different voters.

Current fiscal rules will be followed, but will he eventually tweak them? He wants to get closer to Europe, but only as a long-term aim. He doesn’t want to be in hock to the bond market but says he won’t ignore it. He backs net zero but has no fixed position on North Sea drilling. He has also said net migration needs to fall further, in a nod to Reform voters.

If he becomes Prime Minister, pleasing everyone will be impossible, especially as taxes will have to rise.

What does that mean for the property market?

It won’t be a top priority but a move to tax the asset rather than the transaction appears to be on Burnham’s radar.

Fairer Share

He supports a proposal by campaign group Fairer Share, which wants to replace stamp duty and council tax with a levy equivalent to 0.48% of a property’s value, as The Times reported this week.

The simplicity of the proposal is commendable and scrapping stamp duty make sense given how it hinders social and economic mobility, but the proposal in question feels too overtly political. Shouldn’t the sole aim be to maximise tax revenue?

Under the plan, landlords, developers, overseas buyers and second-home owners would pay more. 

A similar approach with stamp duty since 2014 has curbed activity in exactly the sort of high-value locations where most revenue is presumably being targeted. A regular flow of tax receipts has obvious benefits for the Chancellor, but politicizing the housing market feels like an approach that’s been tried and failed.

At a time when many landlords are struggling to make things stack up financially, any further disincentive is likely to result in less stock and higher rents. And the notion that developers would rather “landbank” than build houses for a profit is a misguided assumption.

Recurring Liability

If any new plan is too financially redistributive, it would also distort decision-making. Annual revaluations would turn house price growth into a tax liability and there is a psychological difference between a one-off stamp duty bill and a recurring charge, particularly in London and the south-east where payments would be a proportionately larger share of household income.

We have also written previously about the difficulty in valuing the unique sort of homes you find in prime London postcodes compared to other parts of the country.

All of that said, it still doesn’t feel like the sort of plan a government on the financial back foot will find time to implement with just over two years before the next scheduled general election.

We explore other possible property tax changes under a new administration here.
I will be discussing what Andy Burnham’s victory means for the direction of the government and the property market on the Housing Unpacked podcast next week with James Nation, a former Treasury special advisor to Rishi Sunak.

Positive Numbers

Away from Makerfield, there were some positive numbers for the property market this week.

First, the oil price dropped below $75 a barrel, the lowest it has been since the first week of March.

The fall was on the back of an interim agreement between the US and Iran that has eased supply concerns. 

As inflation expectations fell, borrowing costs were also pushed lower. The five-year swap rate ended trading marginally above 4% on Thursday, which compared to 4.4% a month ago, creating a downwards path for mortgage rates.

It is welcome news after signs that the normal seasonal uplift this spring is falling flat, as we explore here.

The other positive number was 2.8%, which was the headline rate of inflation reported for the second consecutive month on Wednesday, which eases pressure on the Bank of England to raise Bank Rate from 3.75%.

Despite data that showed the jobs market was slightly stronger than expected on Thursday, the Monetary Policy Committee held rates, repeating that it expects inflation to increase.

I talked about the longer-term inflationary pressures caused by the Middle East conflict with Helen Thomas, the CEO of Blonde Money, on a recent episode of Housing Unpacked. 

These pressures will be one of the many headaches for whoever occupies Number 10 Downing Street this autumn.