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.

Photo: Getty
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Are the Conservatives getting ready to learn to love the EEA?

You can see the shape of the deal that the right would accept. 

In an early morning address aimed half reassuring the markets and half at salvaging his own legacy, George Osborne set out the government’s stall.

The difficulty was that the two halves were hard to reconcile. Talk of “fixing the roof” and getting Britain’s finances in control, an established part of Treasury setpieces under Osborne, are usually merely wrong. With the prospect of further downgrades in Britain’s credit rating and thus its ability to borrow cheaply, the £1.6 trillion that Britain still owes and the country’s deficit in day-to-day spending, they acquired a fresh layer of black humour. It made for uneasy listening.

But more importantly, it offered further signs of what post-Brexit deal the Conservatives will attempt to strike. Boris Johnson, the frontrunner for the Conservative leadership, set out the deal he wants in his Telegraph column: British access to the single market, free movement of British workers within the European Union but border control for workers from the EU within Britain.

There is no chance of that deal – in fact, reading Johnson’s Telegraph column called to mind the exasperated response that Arsene Wenger, manager of Arsenal and a supporter of a Remain vote, gave upon hearing that one of his players wanted to move to Real Madrid: “It's like you wanting to marry Miss World and she doesn't want you, what can I do about it? I can try to help you, but if she does not want to marry you what can I do?”

But Osborne, who has yet to rule out a bid for the top job and confirmed his intention to serve in the post-Cameron government, hinted at the deal that seems most likely – or, at least, the most optimistic: one that keeps Britain in the single market and therefore protects Britain’s financial services and manufacturing sectors.

For the Conservatives, you can see how such a deal might not prove electorally disastrous – it would allow them to maintain the idea with its own voters that they had voted for greater “sovereignty” while maintaining their easy continental holidays, au pairs and access to the Erasmus scheme.  They might be able to secure a few votes from relieved supporters of Remain who backed the Liberal Democrats or Labour at the last election – but, in any case, you can see how a deal of that kind would be sellable to their coalition of the vote. For Johnson, further disillusionment and anger among the voters of Sunderland, Hull and so on are a price that a Tory government can happily pay – and indeed, has, during both of the Conservatives’ recent long stays in government from 1951 to 1964 and from 1979 to 1997.

It feels unlikely that it will be a price that those Labour voters who backed a Leave vote – or the ethnic and social minorities that may take the blame – can happily pay.  

Stephen Bush is special correspondent at the New Statesman. He usually writes about politics.