Let’s just hope tax doesn’t go through the roof: David Alexander comment

After agriculture and medicine, the property sector provides the next big “basic essential” in the lives of our citizens.

David Alexander is managing director of DJ Alexander.

Without food to fuel and sustain the body and medical science to fix it when things go wrong, the population would wither and die. Yes, life could continue without a roof over our heads but it would be a pretty miserable existence.

It is this “vital commodity” factor which has allowed developers, builders, landlords and estate and letting agents, to continue to trade since the country was hit by the feared second wave of Covid-19 that gathered pace in early autumn.

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Even in the first stage of lockdown, astute agents improved their “virtual viewing” facilities so that, in the lettings sector at least, business was able to continue, albeit not at the same level as previously. Even now, with 11 local authority areas in Scotland currently in “virtual lockdown”, the property sector in these locations continues to operate in a way denied to High Street and edge-of-town retailers as well as bars, restaurants and hotels.

So residential property is likely to come out of this pandemic better placed than most (sadly, the commercial sector may be a different story).

Nevertheless, casualties there will be and even those businesses with the strength and resilience to survive are likely to find life a lot tougher for some years to come.

With the country in deep economic limbo and Christmas on the horizon the Chancellor of the Exchequer, Rishi Sunak, understandably decided his statement to Parliament last week was not the time to go into detail about tax rises. But make no mistake they are coming.

The Office for Budget Responsibility (OBR) has predicted that the combined impact of the virus on the economy and the government’s policy response will push the national deficit this year to £394 billion or 19 per cent of gross domestic product (levels not seen since 1945-46, at the end of the Second World War) and driven by a collapse in tax receipts and an increase in government spending from 41 to 56 per cent of GDP.

Therefore it seems almost inevitable that this will mean rises in business and personal taxation. On the business side the result in many cases will be leaner operations involving less staff and fewer premises.

As for the general public, reduced net income (and higher VAT on spending) will affect their ability to pay rent, service mortgages and save for deposits on a first home (which in any case are likely to rise as lenders move to reduce the risk of borrowers falling into negative equity).

As we know, there are politicians who argue that reducing taxes is the best way of boosting the government’s coffers through consumer spending and higher company profits, with the bonus that this policy is likely to create additional jobs.

In principle, my instincts are in tandem with the above strategy but with such a deep financial hole I expect the Chancellor to start digging himself out of it by using, at least partly, the blunt instrument of taxation as part of his strategy; my only hope is that it doesn’t go through the roof, if you’ll forgive the pun.

One option is higher council tax (via local authorities rather than directly through government) although with the Holyrood elections due in May this may complicate the situation in Scotland.

Still, looking at the situation here, the coronavirus cloud may at least have one silver lining. Presuming the much-awaited vaccines do what is claimed of them, the Scottish Government and local authorities will have their hands full balancing the books and, generally, trying to return things to as much as what used to be called “normal”.

Hopefully, this will take political minds away from, among other harmful things, rent controls in so-called property “hotspots”. In practice such a move would add to costs without any additional income to compensate so that in itself should be an incentive to drop the matter.

But in theory such an idea is just plain wrong on two counts: it’s unfair to landlords for whom this will be a disincentive to offering properties for rent, inevitably leading to a reduction in stock; and, consequently, unfair to many voters who will undoubtedly welcome the flexibility and lack of long-term financial commitment provided by rented property in an uncertain, post-pandemic environment.

- David Alexander is managing director of DJ Alexander

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