Robbing us of the incentive to get rich would be a big mistake
After years of being pointedly ignored, economists have suddenly found themselves basking in an unfamiliar glow of adulation recently. All sorts of people, including politicians, listen to their advice, and sometimes even follow it.
However, economists have an Achilles heel, which is that they tend to look at life through an economic prism. While such an outlook can help explain the motivations of the masses, it often pays less attention to the elephants in the room.
One of the most glaring examples of this in recent years is the economic prediction that the size of the buy-to-let and secondhomes sector will continue to soar in the coming years, while the number of people who own their own home will fall and the number of renters will increase.
Granted, the logic is flawless. Houses are tradable assets as well as places to live, and there is always demand for rental accommodation, so allowing people to have more than one house helps lubricate the wheels of the economy. And there is evidence that, when people buy second homes, it helps transfer wealth from well-off areas to less fortunate ones. Moreover, changes to the tax system mean it is sometimes more economically attractive to rent than buy.
But while all this is fine in an entirely rational world, it ignores the facts that politicians do not always behave rationally.
And I have an increasingly strong suspicion that the major political parties could be lining themselves up for a tax grab on those who own more than one property. Labour has already muttered about this. The Lib Dems have proposed increasing tax for second homeowners. And while John Redwood recently suggested abolishing inheritance tax, he also wanted to maintain a considerable capital gains tax on second homes.
One likely measure is an increase in stamp duty for those who leave their homes unoccupied. At the moment they are able to claim an allowance, but the Government has already allowed individual councils to rescind this and could well scrap it entirely.
This proposal makes economic sense. Allowing people to leave a property unoccupied penalty-free encourages people to waste resources in a country where the supply of homes is falling short of demand.
The other prime candidate for overhaul is capital gains tax, which charges people a cut of any profits they make on their assets (though first homes are excluded). The tax has already been the subject of huge outcry when it emerged that private-equity barons have used it to cut their tax bills. So I suspect that the Government may also raise the rates paid by second-home owners if they sell on the properties.
This is a real worry. As any economist will tell you, robbing people of the incentive to get rich would be a serious error. I would say this, wouldn’t I? Let’s hope the politicians keep listening to the economists that little bit longer.
edmund.con[email protected]graph.co.uk Edmund Conway is Economics Editor of The Daily Telegraph