Project Fear by the Conservative press or the start of a serious campaign to hit those with second homes in the UK, only time will tell. While the Labour Party has confirmed radical plans to increase council tax on second home owners it is not clear where Jeremy Corbyn will be moving next. At a time when the UK property market is under pressure, with Brexit concerns, a potential doubling of council taxes on around 174,000 properties does not bode well.
Labour plan to raise £560 million a year
Hard pressed councils up and down the UK have encountered budget cuts over the last decade, costs continue to rise and services are under pressure. Therefore, some people may assume that local authorities would welcome additional finance where the Labour Party takes the flak and local authorities take the money? If only it was that simple….
The idea to double council tax on holiday homes/second properties is not a new one. In reality, many would have expected the Labour Party, currently in conference mode, to announce some hard-hitting ideas. However, there are a couple of problems surrounding this policy:
Funds collected by the Treasury
Despite the fact the funds will be raised by increasing council tax for certain properties, the funds will actually be collected by the Treasury and not local authorities. The idea is the funds raised will be used to help hard-hit areas of the UK with particular focus on child poverty and children in temporary accommodation. In reality, nobody would argue against raising funds to assist this worthwhile cause. However, there is a danger of draining money out of the more prosperous areas of the UK, leaving local economies to pay the price.
Reduced local economy spending
It is fair to say that a doubling of council tax for holiday/second homes will in some shape or form lead to reduced spending in the local economy. This in turn will reduce various tax streams for the authorities and we could end up in situation of robbing Peter to pay Paul. Syphoning money out of local authorities across the UK via the second home tax and redistributing it could result in no real net gain.
Could we see the return of domestic rates?
In a surprise move, the Labour Party has also floated the idea of replacing council tax with domestic rates. There are suspicions this could be a cover which could increase bills by around £470 a year on a typical band D home. This may well go down with socialist supporters who have been campaigning for a redistribution of wealth in the UK, but few UK governments have a good track record when it comes to spending taxpayer’s money.
Property values
If the cost of maintaining a property, in terms of council tax, doubles overnight then it goes without saying that the attractions of said property reduce immediately. If there is less competition for property this will impact the performance of house prices in the area which would likely soften. Whatever happens over the coming months, whether we see a change of government or the Conservative party continues to rule in zombielike fashion, there will be a clamour for hardline socialist based economic policies.
The property market has “cried wolf” in years gone by when there has been a threat of a Labour government. This time, the polls are suggesting the country is split down the middle with property investors becoming ever more concerned about increased taxes, stronger tenant rights and a potential all-out attack on investors.