The Office for Budget Responsibility (OBR) is expected to downgrade its key productivity forecast ahead of the Chancellor’s Autumn Budget – a move that could force Rachel Reeves to either raise taxes or cut spending to avoid breaching her fiscal rules.
The OBR, the government’s independent fiscal watchdog, has reportedly completed a “stocktake” of its economic models over the summer. Treasury insiders now privately acknowledge that the result will likely be a significantly weaker growth outlook.
One Treasury source told The Guardian last that they expect the OBR to “kitchen sink it” — delivering a major downward revision in one go, rather than making gradual changes.
In response, Reeves is expected to highlight the UK’s long-term productivity struggles and outline plans to address them through public investment and economic reform, which could have significant consequences for the property market, according to former Treasury special advisor James Nation.
In a podcast with Knight Frank’s head of UK residential research, Tom Bill, Nation, a formerly a special advisor to Rishi Sunak as chancellor before becoming deputy head of the Number 10 Policy Unit, said: “The government has probably been told privately or at least been given indications that a downgrade is on the cards. And they’ll be thinking, let’s get ahead of it now, let’s blame it on the last lot.”
We will discover the size of any downgrade on Budget Day, but what would a lower forecast mean?
Nation, who is now managing director of UK politics at consultant Forefront Advisors, explained: “A 0.1 percentage point downgrade means Rachel Reeves needs to find about £9bn.
“If that become 0.2 percentage points, that goes up to £18bn. That means the chancellor is going to have to consider doing some more politically controversial stuff.”
In relation to the property tax rumours, the list of possibilities includes changes to stamp duty, capital gains tax on residential property, re-banding council tax and levying National Insurance on rental income, if recent media speculation is to be believed.
Nation says scrapping stamp duty and replacing it with a sellers’ tax and re-banding council tax “feels like a tall order”.
“The revenue foregone from stamp duty in the early years would be a problem and I think that sort of full-scale tax reform is disruptive. It is a bit ‘novel and contentious’ to use Treasury language,” he said.
What about charging capital gains tax on main residences above a certain price point, an idea that was also floated?
He continued: “I think it’s very tricky. I see this as similar to how the British public think about inheritance tax. It is uniformly unpopular even though the vast majority of the public won’t qualify and that’s because of the principle.
“You’d be saying to someone that in theory, if you improve the state of your property, there is a world in which the taxman would be able to come and take away some of that gain. That is a hard political sell.”
However, Nation believes charging National Insurance on rental income fits the philosophy of individuals like Torsten Bell, the former chief executive of the Resolution Foundation think tank, who is helping to draft the Budget.
“Torsten Bell and others are sympathetic to broadening the base on national insurance and you could well see that coming in the Budget,” said James, referring to National Insurance generally.
However, the government would be wary of squeezing rental supply further because it could drive rents and inflation higher, he added. .
He believes a “limited revaluation of properties in higher council tax bands” could be proposed as it’s something that has been looked at by previous administrations.
It would also be more straightforward than overhauling stamp duty or capital gains tax.
“The pull towards the (tax) status quo gets stronger, the weaker you feel. This is not a confident government that’s just won a majority coming in with their first budget. This is a government that I’m sure will have to do some quite big things simply because of the arithmetic, but also just needs this budget to go well. It means the scope for bolder, riskier, more radical options is slightly diminished.”
Read the orginal article: https://propertyindustryeye.com/with-obr-set-to-downgrade-productivity-is-the-property-market-facing-new-headwinds/
