Burnham, Bonds and the Battle to Attract Wealth

The Chancellor would have been delighted to read this week’s headlines about a possible ‘oligarch premium’ for high-value council tax bands.

At a time when cabinet ministers are vying to prove their soft-left credentials as Labour leadership speculation intensifies, it’s a policy that ticks all the right boxes.

Under the proposal, non-UK tax residents would pay a levy on top of the high-value council tax bands introduced by Rachel Reeves in November’s Budget for properties worth more than £2 million.

The story appeared as Manchester Mayor Andy Burnham stepped up his fight to become an MP in the constituency of Makerfield in north-west England. It is the first stage in his plan designed to ultimately unseat Prime Minister Keir Starmer. 

Burnham’s communication style means he will connect with more voters, but his political instincts appear to lean towards higher levels of tax and spending. That said, it’s difficult to be sure of anything said on the campaign trail. I discuss the possible repercussions for the property market of a new Prime Minister on the latest episode of Housing Unpacked with the CEO of Blonde Money Helen Thomas.

The property tax headlines made grimmer reading for others. They are not helpful for a country trying to attract global talent and investment, said Leslie MacLeod-Miller, chief executive of Foreign Investors for Britain.

“The UK needs to demonstrate it is open for business and wants to attract talent on a competitive global stage, but the government keeps delivering signals that it is not listening,” he said about the council tax surcharge proposals.

Prime Market Downturn

High levels of stamp duty and the scrapping of non dom status are already having an effect in prime London postcodes.

The number of exchanges above £5 million in prime central London in the first four months of this year was 18% below the five-year average, LonRes data shows. That’s a lot of lost stamp duty revenue, as we have shown.

Meanwhile, average prices fell 3.8% in the year to April, which means annual growth has been falling for three years and prices are 22% below their last peak in 2015.

“The term ‘oligarch’ feels like an outdated and loaded term from the tail-end of the Blair government two decades ago,” said Stuart Bailey, head of prime central London sales at Knight Frank. “People from overseas who buy £2 million-plus homes tend to be wealthy individuals who live in them and contribute to society and the economy.”

Attracting Overseas Capital

At the same time, the government appears to understand the benefits of attracting overseas capital. 

Another story this week suggested it was weighing up a plan to grant residency for three years in exchange for £5 million. However, there would be strings attached to make it more palatable for Labour backbenchers. It would be invite-only and investment could only be made in so-called ‘priority areas’.

While the scheme could open the door to permanent residency, a three-year initial timeframe doesn’t feel like a strong incentive.

“We are all aware that the government in distracted at the moment, but we will need to talk about the economy again, and it’s either a question of growth or tax,” said MacLeod-Miller. “The visa plan won’t work because they haven’t listened to the people that matter. Three years is far too short.” he told Knight Frank.

Capital Gains Tax Controversy

Wes Streeting was another Labour politician attempting to enhance his left-wing credentials this week after resigning as Health Secretary earlier in the month. 

He suggested income tax and capital gains tax (CGT) rates should be aligned, citing the example of a cleaner paying more tax on her income than her landlord will deduct from the rent she pays.

However, together with the Renters Rights Act and the prospect of tougher Minimum Energy Efficiency Standards, it would provide another reason for landlords to sell, which would ultimately put upwards pressure on rents, as we explored here.

The Office for Budget Responsibility acknowledges that costing CGT proposals is highly uncertain because of the unpredictable behavioural response. Accountant RSM highlighted how raising CGT could lose money here.

Streeting’s plan prompted criticism from opposition politicians that amounted to the view that the government is in charge of a capitalist machine but doesn’t understand what makes the machine tick.

Burnham Versus The Bond Market

I discuss the risks already priced in by bond markets due to the growing prospect of a soft-left Labour government on the latest episode of Housing Unpacked with Helen Thomas, a theme I also explored in last week’s note.

Helen believes a general election before the next scheduled date in 2029 is likely thanks to the growing financial pressures on the government, which have been aggravated by the Middle East conflict.

We also discuss why mortgage rates will stay higher for longer, why the Bank of England may raise Bank Rate this year, what could be in the autumn Budget and Andy Burnham’s chances of winning the Makerfield by-election.

Andy Burnham will have to be careful what he says on the campaign trail over the next few weeks because financial markets will be reading closely between the lines. However, if he becomes Prime Minister, the real test will come when his words have to translate into actions.