About a month ago, I was moved to do something that I have never done before – I wrote to my MP! As my MP is Mr Philip Hammond, Chancellor of the Exchequer, I felt that I could expect to receive a swift and well-informed answer to a particular issue which has been troubling me for some time now; namely, the removal of tax relief on buy-to-let (BTL) mortgages.
In simple terms, my complaint was that, like me, many people who are not fortunate enough to draw from a nice fat company pension scheme in their old age, have opted to invest in BTL property as a pension substitute. So, the recent brutal attack on tax relief for private landlords by the government has made life much more difficult for those of us who thought we had secured our retirement income by investing in a BTL portfolio.
To be fair to Mr Hammond, he was swift in his response to my letter and, to his credit, responded with a well-prepared and extremely comprehensive answer. Although much of it looked to be generic in nature (perhaps hardly surprising given the amount of post he must have received on this subject), he at least made an effort to answer most, if not all of my specific questions – even if the answers were not entirely to my satisfaction.
The main thrust of his argument was that it was not fair that BTL landlords were enjoying a tax break that was not available to home owners who had the very same perk of property ownership removed some years ago. To be completely honest, I was prepared to be very British about it all and get on with my life – that is until I saw the contents of his latest Budget and the proposed National Insurance (NI) increase for self-employed people, where the same type of logic was being applied.
It is, in the eyes of the government it would seem, unfair for self-employed people to pay lower NI contributions than those people who are employed. However, this argument conveniently overlooks the fact that self- employed people enjoy very few of the benefits that go with stable paid employment, such as holiday pay, sick pay, maternity/paternity leave etc.
Speaking personally, I believe that it is the Chancellor who is missing the real point here, which is that people who are self-employed enjoy a lower rate of NI in order to make more money available to employ others and, in so doing, drive the economy forward. After all, it shouldn’t be forgotten that it is the many small businesses in this country that create a significant portion of our taxable wealth. Surely, they should not be discouraged (through the tax system) to continue to do so?
Indeed, the very same could also be argued of private landlords who, at a time when young people are forced to rent because they cannot get mortgages (largely thanks to the ludicrously tight rules on affordability imposed on lenders by the government), are starting to exit the market and, consequently, diminish the available stock of rental property. You really don’t need a GCSE in basic Economics to realise that rents will rise (basic supply and demand) and young people will find it even more difficult to rent as well as to buy!
Given the points raised above, it came as no particular surprise to learn that the Chancellor has subsequently bowed to public and political pressure, and reversed his decision to raise NI contributions for the self-employed. However, the fact that he has, quite openly, said that he is determined to follow through on this policy as soon as he able, would imply that he is still not quite grasping the wider picture.
So, sadly, I remain pessimistic about Mr Hammond revisiting his plans for BTL mortgage tax relief, and accordingly, I guess that means that many young people will be forced to remain living at home with their parents for so much longer than the tax system should allow.
The author of this article is Jeremy Wright, Director of Ideology Consulting. For more information, go to www.ideologyconsulting.co.uk .