The plans the Prime Minister announced on Monday to reduce bureaucracy and increase the supply of housing are welcome. Equally welcome is her preparedness to consider the situation of each industry sector when determining the UK’s post-Brexit regulatory framework.
As we leave the EU, now more than ever the UK needs policies which attract investment to build the houses, offices, and industrial facilities we badly require to support economic growth.
The government needs to be bold if we are to ensure we remain Europe’s primary destination for property investment. Brexit should be the spur to cut transaction costs, reduce taxes, jettison constricting regulations, and direct capital to the regions where it is most needed.
If I were chancellor, I would aim to make Britain a more attractive place to invest than the EU. That must be basic common sense. So here are some ideas for Philip Hammond.
First, roll back the punitive levels of stamp duty ratcheted up by successive chancellors, particularly George Osborne. Stamp duty means fewer transactions and higher property prices. What we need is a vibrant housing market with smooth transactions.
This applies equally to commercial property. Stamp duty of 5% is vast considering the yield available on commercial property. In central London, yields are as low as 3% per annum, requiring a hold period of nearly two years just to recover the cost of stamp duty.
Second, lower business rates across the board to lessen occupational costs for businesses. Business rates have been far too high for too long. In particular, we need to eliminate business rates on vacant buildings – it is wrong to tax a landlord on a building which yields no income.
Third, reverse the chancellor’s short-sighted decision to abolish capital gains tax relief for foreign investors. Our market relies on foreign investment, so why attack the geese that bring their golden eggs to Britain?
Fourth, once out of the EU, abolish the requirement to adhere to Solvency II. Under Solvency II, insurance companies do not need a capital buffer for investing in Greek government bonds, for example, but must hold one of at least 25% when investing in property. This is misconceived regulation, and we would be better off without it.
Our banks must be enabled to lend without the hindrance of punitive regulations. In Poland, you can raise cheaper debt on better terms for commercial property investments when compared to the UK. That makes no sense given the comparative sizes of our respective economies and markets.
Fifth, consider domestic tax breaks for specific regions. Leaving the EU means we can direct tax incentives where we need them most without breaching EU anti-competitive regulations. Imagine what it would do for the economy of the north of England if the rate of income tax were slashed for people living and working there.
These are just some ideas for spurring investment and competitiveness in the property sector.
Britain is an attractive place to do business, with a deep capital-markets based economy, strong financial institutions, a long history of entrepreneurialism, and political stability. It can become even more competitive out of the EU, but politicians must have the imagination and courage to take the necessary steps.
If Theresa May is serious about reforming the property sector, spurring more housebuilding, and maintaining Britain’s status as an attractive location for overseas business investment, this is what she must urge her chancellor to do – and Brexit is an opportunity, rather than a hurdle. Over to you, Prime Minister.