UK Real Estate's Labour Party Love-In Begins
As the Conservative government fights inflation, rising interest rates and self-inflicted damage, real estate is reassessing its feelings about the Labour party.
The political ground is shifting. In fact, it may already have shifted. A poll published 5 October by Redfield & Wilton Strategies suggests the Conservative government could be on course to have just 117 seats (out of 650) after a general election.
It is the latest in a long line of polls suggesting the governing party is on the way out, and that Labour is on the way back. The trend predates the recent self-inflicted wound of Chancellor of the Exchequer Kwasi Kwarteng's unfunded £45B tax cuts. But the 'minibudget' controversy, and the 10 days of market turmoil and negative headlines that followed, has accelerated the shift in the minds of voters toward Labour, at least if the pollsters are correct.
That shift has some serious policy implications for property, with the Labour party conference leaving some clues on what to expect. The party reaffirmed its 2021 commitment to abolish business rates and replace the £26B tax with something fairer. The Labour leader, Sir Keir Starmer, announced that Labour would be the party of homeownership, and set a target of 70%.
Meanwhile, reforms of the private-rented sector are promised. A new tenants’ charter, a register of landlords, an end to no-fault evictions, and more tolerance for pets were among the changes on offer, Inside Housing reported.
The property reaction so far has been muted. The fallout from the last fortnight of Conservative government policies has left Labour’s pluses and minuses in the shade.
But as the party conference season ends, and day-to-day politics resumes, attention is turning to what Labour could do, or undo, for UK real estate.
The Balance Has Changed
Big international money has looked at the last two weeks of turmoil, assessed its borrowing costs, and it is beginning to feel that somebody else ought to be running the country.
Jonathan Goldstein co-founded Cain International in 2014; today it has more than $14B in property assets under management. Goldstein’s view is that the balance has tipped away from the Conservatives.
“My medium term interest rates, my five year swaps, on Thursday before the Kwasi Kwarteng budget was in the 3% area," he told Bisnow. "By the following Tuesday it was 5.69% — and what business can deal with this? Business is not set up to deal with that level of volatility.
“Everyone was expecting slow incremental increases in interest rates, and what we’ve suffered instead was a spike in short-term and medium-term rates caused by confusion, caused by the government. That is not a way business can operate.”
If the Conservatives are down in his estimation, then the Labour party is up.
“You can’t talk about one’s performance without talking about the other, so you’re comparing relative benefits, plusses and minuses," Goldstein said. "So we have to asses the potential of Keir Starmer as prime minister as a comparison with the last four weeks, four weeks when the country and markets have run for cover. It has put the Labour Party in a very different light.”
Goldstein is a longtime Labour supporter, but does not mindlessly trumpet the party's policies — he was also an outspoken critic of previous leader Jeremy Corbyn.
The fondness goes a bit further than a sense that Starmer couldn’t be as bad as Truss. There is, said Goldstein, a genuinely shared space in which real estate and the Labour party can both be happy.
“We’ve begun to regain confidence that the Labour party is not antibusiness, which is a big step towards getting confidence that with Labour we are not walking into a high tax, high spending world, because we’ve got that today with the Tories. It feels like some level of fiscal prudence from Labour, with some emphasis on training and skills which we so desperately need,” he said.
“Starmer and the Labour party are on a journey, and they increasingly understand what they have to do.”
The Business Rates Test
There is one well-explored policy that could prove the acid test: the abolition of business rates.
The starting point is that business rates is a tax that nobody, property owners or occupiers alike, thinks is equitable. Yet it raises £26B a year and is easy to collect. All attempts to reform it have therefore ended in failure.
If Labour can crack this nut, and leave the property business smiling, then its credibility will rocket.
Gerald Eve Head of Business Rates Simon Green is sympathetic to Labour's abolitionist approach. “There is much to be said for the business rates initiatives emerging from the Labour party," Green said.
"The business world has been highly critical of the lack of responsiveness of the rates system to changing economic circumstances due to the infrequency of revaluations. Annual revaluations of commercial premises will ensure rates paid reflect the current economic environment, rather than from up to six years ago as is currently the case."
Labour is also right to say any falls in rates bills as a result of revaluations should be passed on immediately, rather than reduced slowly over time, Green added.
“The current rules result in some of the most deprived high streets essentially subsidising the richest ones because the much-needed reductions are not passed on immediately.”
The government is currently consulting about these ‘transitional arrangements’ in respect of next year’s revaluation and it needs to steal some of Labour’s well-considered policy initiatives, Green said.
Goldstein too was sanguine about the commitment to abolish business rates — rather that that cutting income tax for the better off, he said. But not everyone agrees.
For others the business rates pledge is just grandstanding and sound bites. This is the view of Colliers Head of Business Rates John Webber, and he wants to see sensible discussion instead.
Webber’s target is Labour’s pledge to freeze business rates rises until the next revaluation and expand small business reliefs.
“Whilst we are great advocates of business rates reform, the Shadow Chancellor’s suggestion to abolish the system altogether without any concrete means of raising £26B of tax, smacks of playing to the gallery at the Labour party conference,” Webber said.
Besides, the next revaluation is due in 2023, at least a year before the next (scheduled) general election, and therefore beyond Labour’s control. Although, as Green hinted, the Conservatives might adopt the Labour policy.
Webber said he won’t be impressed until Labour can come up with a tax that raises £26B and is as easy to collect. The current proposals — which involve a hike in the long-delayed and (as yet) nonexistent digital services tax — doesn’t make a convincing answer.
The Truss government is still in its early days. But the Conservative party, now approaching its 13th consecutive year in power, is not. Property is starting to think about what a change might mean.
