While MPs are enjoying their summer holidays, Chancellor Rachel Reeves has been busy trying to plug a growing budget shortfall. Unable to cut spending because of backbencher fury, inevitably she will look to increase taxes.
One of the ideas that’s been floated is charging capital gains taxes on people’s primary homes. Details are sparse, but this has the potential to completely gum up London’s housing market.
Say you bought a house in 2010 at the London average price of £300,000. If you were to sell that today at London’s average price of £560,000, you would have made a solid £260,000 return. But if this new tax comes in, you’d be stung with a £62,000 bill from HMRC. Facing such a steep tax charge, people will rightly stay put, even if they’d like a bigger or smaller home to better suit their family’s needs.
The chilling effect such a tax has on people being able to move is the reason no other OECD country levies capital gains taxes on people’s main homes without generous reliefs and deferrals.
Even if the new tax only applies to expensive properties, London, with its overheated property market, would be the biggest loser if this tax was brought in. The amount that might buy you a mansion in the North East is barely enough for a 3 bed semi in the capital. If this new tax only applies to ‘mansions’ many average London families will still find themselves caught up in the tax trap.
Yet this isn’t the only way the Labour Government has been draining the life out of London.
London’s severe housing shortage kills ambition. Despite the average Londoner earning 17% more than the average Brit, once housing costs are factored in, Londoners are actually 3% worse off. Why move to the capital and earn a higher wage if the housing crisis will make you worse off?
More disturbingly, 1 in 50 Londoners are in temporary accommodation and facing homelessness, the same as the entire population of Oxford. Failure to build and home people securely is ruining lives.
The capital clearly needs more homes but housebuilding in London has fallen off a cliff. Only 2,158 homes started construction in the first half of this year. That’s less than 5% of London’s overall housing target. The Mayor’s inflexible London plan with more than 500 pages of regulation and the chaotic start of the Building Safety Regulator are to blame.
Yet there’s been no apology or willingness to reduce the burden on building new homes. Instead Angela Rayner, the Housing Secretary, cancelled a request to review the London Plan last autumn and has wasted a year thinking about new towns and mandating higher affordable housing rates rather than fixing the pressing challenges that new homes in London face.
At the same time as London’s housebuilding slows down, the increasing tax burden is warding off London’s business leaders and the jobs that they create. Rachel Reeves’s last budget hiked capital gains tax rates, ended a beneficial tax status for internationally mobile non-doms and slashed tax relief for investors. As a result, titans of industry are leaving in droves.
A Bloomberg analysis of company filings shows a massive increase in the number of business leaders going overseas, with 4,400 disclosing an international move in the year to June 2025. Over the next few years, if people leave at a sustained rate, such a trend could cost the UK economy £12.2 billion and thousands of jobs. London - the business hub of the country - will bear the brunt of these losses.
London’s rich, like steel tycoon Lakshmi Mittal, Pimlico Plumbers founder Charlie Mullins and shipping billionaire John Fredriksen, have all either already moved or are considering going overseas because of high taxes. Countries like Greece, Portugal and Italy have all seen golden visa applications from UK nationals surge. Greece has seen a 47% rise in visas granted to Brits in just the past year.
Talk of a potential wealth tax, that the Chancellor has been slow to disavow, could be the final nail in the coffin for London’s entrepreneurs and industry leaders. Just today, major retailers like Tesco, Sainsbury’s and Boots have all warned the Chancellor that raising taxes any more will lead to lower living standards and more job losses.
London has natural advantages from centuries as an international business hub, world-class transport, and deep professional expertise. But Labour’s failure to build more homes and the ever-increasing tax burden risks killing the golden goose. Given that London and the South East contribute £60bn more to the Exchequer than they take out, the Chancellor needs to tread very carefully with any more tax increases.
Ben Hopkinson is the Head of Housing and Infrastructure at the Centre for Policy Studies
