Clause 24 and Housing Choice – An Open Letter to Labour MP Rob Marris

Rob Marris Labour MP

Dear Mr Marris,

I am writing to you in connection with Clause 24 of the Finance Bill which will restrict finance cost relief for individual landlords.

I am aware that you will have received a number of representations from landlords like me expressing their concerns about the Clause, a Clause which I know Labour is supporting.

I think we can agree that there is a housing crisis in the UK which is caused by a chronic shortage of supply. The question is how do we as a nation address the issue through policy.

Let me make it clear to you at the outset that I support proposals to increase home ownership. For some, home ownership is the right housing choice.

I also support proposals to increase the supply of affordable social rented homes because in many parts of the country demand for this type of housing far exceeds supply.

It will come as no surprise to you that I also support the need for a strong and growing private rented sector, because for many this is the right housing choice. It is a sector which has grown in response to demand, especially at a time when the population has been increasing, lending criteria for potential home owners has been tightened as a result of the Mortgage Market Review (MMR) and there has been a decline in the number of social rented housing, because of right to buy legislation.

As the housing problem is one of supply, what we need is more investment in housing of all tenures. We need housing choice and to appreciate that people may move to different tenures as their circumstances change.

The problem with Clause 24 is that it will force portfolio landlords to sell houses as their business model will no longer be sustainable. Regrettably, tenants will be evicted. For those landlords that try to remain in the sector, they will be forced to pass on their increased costs to their customers and put up rents. There is already evidence that landlords are responding to Clause 24 by increasing rents. Investment in the private rented sector will fall dramatically.

I have followed the debate about Clause 24 very closely since the Summer Budget announcement. What has come as a surprise is that the only people who are pointing out that many thousands of tenants will be adversely affected are landlords. I have not heard one MP say that they are concerned that the Government’s Clause 24 proposal could have unintended consequences and that this could include increased rents for tenants and increased homelessness as a result of tenant evictions. It seems to me that the less well off in society did not cause the banking crisis, but are having to pay to lower the deficit. It is a surprise to me that Labour are supporting a Clause that could result in the less well off being disadvantaged.

It would help my understanding of Labour’s position on Clause 24 if you could:

Confirm if you believe that rents won’t go up as a result of this measure and explain your reasoning;

Confirm if you believe that tenants will not be evicted as a result of landlords’ reactions to the measure and explain your reasoning;

Confirm if you believe that Clause 24 will have no impact on the level of homelessness and explain your reasoning;

Confirm how as a result of Clause 24 the supply of housing will increase.

If you agree with me that rents will go up and the level of homelessness will increase, can you confirm if you think this is a price worth paying to achieve greater home ownership?

Response from Mr Rob Marris MP for Wolverhampton South West

Thank you for your e-mail.

Clause 24 of the Finance Bill introduces a restriction on the deduction of finance costs related to let residential properties, and instead provides for a tax reduction for such costs by reference to the Basic Rate of Income Tax. To put it another way, the change will essentially prevent residential landlords claiming Income Tax relief at the Higher Rate on interest paid on loans to buy a property to rent.

To give landlords time to adjust, the restriction and tax reduction will change gradually from the tax year 2017-18 over 4 years.

The background is that persons subject to Income Tax are currently able to deduct interest and other finance costs, such as the fees incurred when obtaining or repaying a loan, from the rental income in arriving at the profits of the property business, where the costs are incurred wholly and exclusively for the purposes of the property business.

Individuals are also able to make a claim to deduct interest on a loan to invest in a partnership when calculating their net income.

Clause 24 restricts those deductions for finance costs relating to let residential properties, and instead allows for a deduction from an individual’s Income Tax liability. The maximum relief that can be obtained is the Basic Rate value (currently 20%) of the total finance costs on loans referable to let residential properties.

This clause will ensure that landlords with higher incomes no longer receive the most generous tax treatment. Despite the concerns raised eloquently by you and others, this still seems to Labour to be the right thing to do.

Regarding your 5 specific questions:

1. Rents should not go up as a result of this measure. The reason is that there is competition in the housing market and, due the chronic shortage of housing in many parts of the country, many landlords already charge what the market will bear.

2. Tenants should not be evicted as a result of landlords’ reactions to the measure. Legislation provides some protection for sitting tenants. If a landlord sells, it is likely to be another landlord who buys.

3. Clause 24 will have no impact on the level of homelessness. There will be just as many houses and flats after the introduction of this measure as there were before.

4. Clause 24 is unlikely to cause the supply of housing to increase.

5. N/A

Rob Marris

MP for Wolverhampton South West

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