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26 January 2024

Michael Gove’s £30bn trap for Labour

Could the Tories, as Keir Starmer has accused them, be “trying to salt the ground” for the next government?

By Will Dunn

Last autumn it was possible to argue that Jeremy Hunt’s plan for chaos – the idea that the main point of Conservative policy now is to make life harder for a Labour government – was a bit of a conspiracy theory. Surely no Chancellor would be so irresponsible as to gamble the economy on a series of vindictive traps for their successor?

Consider this extraordinary statement, made by Richard Hughes, the head of the Office for Budget Responsibility, on Tuesday: “Some people,” Hughes told the Lords Economic Affairs Committee, might call the current projections for the economy “a work of fiction – but that is probably being generous”. A work of fiction, he explained, is at least something that “someone has bothered to write… The government hasn’t even bothered to write down what its departmental spending plans are, underpinning the plans for public services”.

This was followed yesterday by a report from the Institute for Fiscal Studies which agreed that the next government faces a “thorny inheritance… on one measure, it will be more difficult to reduce the debt-to-GDP ratio over the next parliament than in any other parliament since the 1950s”.

Jeremy Hunt is trying to persuade voters that tax cuts are possible within this constrained fiscal picture. Keir Starmer is now openly saying that the Tories are “trying to salt the ground” with policies that Labour will, if victorious, either have to accept (and pay for, at the expense of their own policies) or overturn (and annoy the people who voted for them).

If Starmer is clear enough about what Hunt’s tax “cuts” mean and what Labour would do in response – such as making the tax system fairer – it may be that these traps can be safely sprung. The danger may be in those that lurk beneath the surface.

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One of these can be found in Michael Gove’s Leasehold and Freehold Reform Bill, currently at the committee stage. The bill has cross-party support and contains many sensible policies that address the unfairness inherent in an archaic property system. It also contains an unexploded bomb.

The risk for the next government is the bill’s removal of “marriage or hope value”, an extra charge that a great many leaseholders currently have to pay when they extend their lease or buy the freehold on their property. These charges are egregious, and they should be reduced, but simply abolishing them, without compensating the freeholders, is a huge gamble.

Should the bill pass as it currently stands, the government (by which I mean the next government, whoever that may be) would face a legal challenge from the country’s freeholders. Some of these are extremely well resourced, most notably the Duke of Westminster, whose immense fortune (well over £9bn) is comprised of the freeholds on big chunks of central London. Many others are small investors, for whom a freehold is part of their retirement portfolio, and who would become another aggrieved campaign group if their property was abruptly devalued by the government.

Between them, these groups could create a multibillion-pound problem for the next government. James Wyatt, a property expert who I’ve spoken to before about the leasehold “gravy train”, told me the costs could grow to “over £30bn”, and that current legal advice gives the freeholders a 50 per cent chance of winning.

“They [the government] have got to be incredibly careful,” Wyatt told me. This is certainly true for Labour, which risks being forced to choose between either a U-turn that would enrage millions of leaseholders, or a long series of court battles and a potential £30bn bill.

This piece first appeared in the Morning Call newsletter; receive it every morning by subscribing on Substack here.

[See also: Why Michael Gove’s planning reforms won’t deliver sustainable housing]

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