Labour’s leasehold plans won’t help modest earners

    9 July 2019

    The paradox of Jeremy Corbyn is that while he has a reputation as a rabid socialist—in many ways well-earned — he is capable of sometimes coming up with a policy which could not be better designed to please the well-off. One example was his flagship policy in his 2017 manifesto of abolishing student tuition fees – of no benefit to non-graduates and of little interest to low-earning graduates who would never have to repay their debts anyway, but of enormous help to those who have used their university education to secure high-paying employment.

    Labour’s proposed leasehold reforms, detailed in a document this week, are another example. True, there are plenty of modest earners who live in leasehold properties who would appreciate reform of the system to prevent them being ripped-off by unscrupulous freeholders, but the greater beneficiaries will be those who live in – or own as investment properties – high-priced flats in London.
    Labour and Conservative governments have been fishing around the subject of leasehold reform for years.

    We have had numerous leasehold reform acts since the 1960s, but none have quite managed to free all leaseholders from the worst excesses. Indeed, in recent years, the abuses have got worse, with ground rents that double every 10 years and bizarre charges – hundreds of pounds in many cases — for anything from owning a pet to replacing a doorbell. Not only that, there has been a resurgence in the same of leasehold houses, which until a decade ago seemed to be dying out. Worse, this practice has been encouraged through George Osborne’s Help to Buy scheme. The scheme specifically excluded commonhold properties – which was the alternative system of flat ownership introduced by Labour in 2002 and which most developers have shunned.

    Mrs May’s government has put forward its own proposals on leasehold reform – saying it will ban new leasehold flats and set ground rents in new leasehold flats at zero. But it has faffed around too much, delaying legislation and doing little to help owners of existing flats – the result of which has been to present Labour with a golden opportunity to appeal to flat-owners, not least the better-off ones.
    In addition to the Conservatives’ promises, Labour proposes:

    • To cap all ground rents on existing properties to 0.1 percent of the capital value of a property, with a maximum rent of £250 per annum
    • To give leaseholders the right to acquire their freehold for no more than one percent of the capital value of their property – far lower than is paid by freeholders exercising their existing right to buy.
    • It is also looking at ways which the purchase of a freehold can be made easier in cases where it has proved hard for leaseholders to club together to buy the freehold – a particular problem in the many London apartment blocks where most flats are owned by overseas investors.

    It isn’t hard to see who will benefit most here: well-off homeowners and buy-to-let investors who have the ready cash to acquire their freeholds, and the owners of multi-million flats in London, for whom a ground rent of £250 a year is pigeon feed.

    In many other ways, of course, Labour promises to soak the wealthy – with a higher top rate of income tax and possibly (an idea which John McDonnell has advocated on several occasions) a wealth tax. But its enhancement of the right-to-buy for leaseholders will be widely welcomed in London’s better addresses and among buy-to-let investors as much, if not more so, than among poorer households.

    If I were the new PM I would be minded to adopt these proposals and enact them quickly. How better to start than with a measure which has wide cross-Parliament support, which can be assured of a huge majority in the Commons, and which will please the Conservative heartlands no end?