Labour weighs its relationship with the wealthy
Making sense of the latest trends in property and economics from around the globe
3 minutes to read
Next month's Budget will be the Labour government's first opportunity to make a detailed statement about how it intends to deal with private wealth in Britain.
We've had plenty of clues. Those with the "broadest shoulders should bear the heavier burden", Sir Keir Starmer said last month. Adding the standard VAT rate to private school fees from 2025 was a sign of intent.
But, more contentious issues must be ironed out in the budget, like taxes on non-doms, or gains made by private equity executives. How these are managed will signal whether the party is primarily seeking to balance the books or would like to make a broader statement about its political values.
Should I stay or should I go?
It's hard to know the real impact of decisions like abolishing the non-dom regime because we can't know exactly how many wealthy individuals will opt to leave.
Labour's reasoning is clear. UK non-doms are thought to have at least £10.9 billion in offshore income and gains that is free from tax in the UK, according to a research paper by Warwick University and LSE cited by the FT. The Conservatives proposed its own set of reforms to the non dom regime, which the Office for Budget Responsibility estimated would raise £3 billion a year.
However, Oxford Economics research commissioned by Foreign Investors for Britain does attempt to quantify the abolition of the non-dom regime on the population of UK non-doms. The paper includes a survey of 73 non-doms and 42 tax advisers. In one scenario, the government reforms how foreign income gains are treated. The population of non-doms drops by 7%, which would still raise about £1.1 billion in 2029/30. In another scenario, the government reforms both the treatment of foreign income gains and inheritance tax, which prompts the population of non-doms to fall by almost a third. That would cost the taxpayer almost £1 billion in 2029/30.
Second round effects
The Oxford Economics research asked respondents how they would react to the implementation of a particular policy, but the Budget will send a broader political message, and the wealthy are listening. Yesterday, the heads of Lloyd’s of London and CVC Capital Partners expressed their concerns over the treatment of private equity income and the impact it might have on the UK's population of dealmakers.
The Wealth Report 2024 covered this in detail - see page 21. Following a period of post-Brexit uncertainty, the capital’s reputation as Europe’s dominant hub for wealth and finance is looking more secure, but a heavy handed approach to taxation does pose risks to that.
Paddy Dring, Knight Frank's Head of The Private Office said at the time. “Feeling welcome is important. Clients use those words and I think it’s important that a new government conveys that Britain still values international investment.”
House prices
UK house prices climbed 0.3% in August, Halifax reported this morning. That brings the annual rate of growth to 4.3%, the most since November 2022. Amanda Bryden, Head of Mortgages at Halifax, said the company expects continued, modest house price growth through the remainder of the year, and we agree.
“We expect demand and transaction activity will be stronger this autumn than the last two years," said Knight Frank's Tom Bill. "People will continue to roll onto less favourable mortgage deals compared to recent years, which will keep house price growth in check, but rates are expected to head further down over the next 12 months.”
Berkeley this morning reported stable trading through the first four months of its financial year, adding that it supports the government's proposed changes to the planning system.
"Achieving this ambition requires a change of attitude and a refreshed partnership approach to allow developments, that are currently stalled, to come forward," the company said.
In other news...
UK construction growth slows despite housing drive, PMI shows (Reuters), Starwood and Segro agree deals as commercial property heats up (FT), cheapest 5-year mortgage rate dips to lowest level since Liz Truss’s ‘mini’ Budget (FT), Vistry boss: Our affordable homes strategy looks like a winner (Times), and finally, Europe pulls back from the EV shift (Bloomberg).