Osborne's plan to tax foreign property owners is smart politics and smart economics

Imposing capital gains tax on this increasingly resented group will gift the Treasury more easy revenue.

After stoking a new housing boom with Help to Buy, George Osborne has every intention of taking advantage of it. Sky News's Ed Conway reports this morning that the Chancellor is investigating imposing capital gains tax on foreign property owners with an announcement expected in the Autumn Statement. At present, while British citizens pay CGT at 18% or 28% when they sell a property that is not their main home, non-residents are exempt. But with foreign investors purchasing around 70% of all new builds in central London, Osborne, still burdened by a deficit that stood at £115bn last year, has spied a revenue-raising opportunity. 

The move would follow logically from the new charges already introduced by the Chancellor. Largely unnoticed, he has imposed CGT on residential properties bought through overseas companies (thus eliminating a popular loophole) as well as stamp duty of 15% - and the Treasury is pleased with the results. As the Telegraph's Benedict Brogan wrote in his column this week, "Not only did introducing a swingeing 15 per cent recurring levy on properties held by off-shore companies drive plenty of buyers to switch to pay high levels of stamp duty, but it appears a good number of wealthy foreigners are more than happy to pay the charge, enriching the Exchequer still further." He added: "Indeed, it is tempting for the Treasury to conclude that there is more to be plucked from this golden goose than initially realised. First non-doms, then company-held property, next the foreigners queuing at property fairs in Singapore and the Gulf to buy a little piece of London off-plan, with no intention of ever living there: the political case for monetising this wealth looks increasingly attractive."

It is the latter group that Osborne is targeting with his new raid on capital gains. Esate agency Knight Frank estimates that 65% of overseas buyers rent their London properties rather than live in them, using the housing market as a global reserve currency. For this reason, the move is politically astute; it targets an increasingly resented group and allows the Chancellor to claim, however implausibly, that he is ensuring the wealthy pay their fair share. 

It is also smart economics. Property taxes are easy to collect (you can't move a mansion to Geneva) and aid growth by shifting investment away from housing and into wealth-creating industries. Consequently, they are less economically harmful than taxes on consumption, income and corporations.

But one person unlikely to be impressed by Osborne's plans is Boris Johnson. The capital's mayor wrote recently in his Telegraph column: "It is true that London is now globally recognised as such a desirable city that its property is treated effectively as another asset class – a safe investment in a turbulent world. It is also true that this phenomenon has helped – I stress helped – to buoy property values and to fuel the anger of professional people who cannot live in districts where their parents grew up, and who cannot see how their kids will ever be able to afford to buy in London.

"But the answer is not to try to persecute rich foreign investors with new mansion taxes, or complicated and unenforceable taxes on the tiny proportion of homes they leave empty."

It looks as if Osborne, to quote Gordon Brown, has rejected his representations.

 

George Osborne leaves 10 Downing Street on October 7, 2013 in London. Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

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Cabinet audit: what does the appointment of Andrea Leadsom as Environment Secretary mean for policy?

The political and policy-based implications of the new Secretary of State for Environment, Food and Rural Affairs.

A little over a week into Andrea Leadsom’s new role as Secretary of State for Environment, Food and Rural Affairs (Defra), and senior industry figures are already questioning her credentials. A growing list of campaigners have called for her resignation, and even the Cabinet Office implied that her department's responsibilities will be downgraded.

So far, so bad.

The appointment would appear to be something of a consolation prize, coming just days after Leadsom pulled out of the Conservative leadership race and allowed Theresa May to enter No 10 unopposed.

Yet while Leadsom may have been able to twist the truth on her CV in the City, no amount of tampering will improve the agriculture-related side to her record: one barely exists. In fact, recent statements made on the subject have only added to her reputation for vacuous opinion: “It would make so much more sense if those with the big fields do the sheep, and those with the hill farms do the butterflies,” she told an audience assembled for a referendum debate. No matter the livelihoods of thousands of the UK’s hilltop sheep farmers, then? No need for butterflies outside of national parks?

Normally such a lack of experience is unsurprising. The department has gained a reputation as something of a ministerial backwater; a useful place to send problematic colleagues for some sobering time-out.

But these are not normal times.

As Brexit negotiations unfold, Defra will be central to establishing new, domestic policies for UK food and farming; sectors worth around £108bn to the economy and responsible for employing one in eight of the population.

In this context, Leadsom’s appointment seems, at best, a misguided attempt to make the architects of Brexit either live up to their promises or be seen to fail in the attempt.

At worst, May might actually think she is a good fit for the job. Leadsom’s one, water-tight credential – her commitment to opposing restraints on industry – certainly has its upsides for a Prime Minister in need of an alternative to the EU’s Common Agricultural Policy (CAP); a policy responsible for around 40 per cent the entire EU budget.

Why not leave such a daunting task in the hands of someone with an instinct for “abolishing” subsidies  thus freeing up money to spend elsewhere?

As with most things to do with the EU, CAP has some major cons and some equally compelling pros. Take the fact that 80 per cent of CAP aid is paid out to the richest 25 per cent of farmers (most of whom are either landed gentry or vast, industrialised, mega-farmers). But then offset this against the provision of vital lifelines for some of the UK’s most conscientious, local and insecure of food producers.

The NFU told the New Statesman that there are many issues in need of urgent attention; from an improved Basic Payment Scheme, to guarantees for agri-environment funding, and a commitment to the 25-year TB eradication strategy. But that they also hope, above all, “that Mrs Leadsom will champion British food and farming. Our industry has a great story to tell”.

The construction of a new domestic agricultural policy is a once-in-a-generation opportunity for Britain to truly decide where its priorities for food and environment lie, as well as to which kind of farmers (as well as which countries) it wants to delegate their delivery.

In the context of so much uncertainty and such great opportunity, Leadsom has a tough job ahead of her. And no amount of “speaking as a mother” will change that.

India Bourke is the New Statesman's editorial assistant.