Ground rents
More advice for Andy Burnham
Andy Burnham - like the current government - sees the cost of living as a major priority. That is understandable.
But reducing prices is hard, particularly in the short run. Even reducing or eliminating VAT does not guarantee prices will fall. Different researchers find very different effects on prices from, for example, cutting VAT on period products (see here and here for different conclusions).
One thing the government can do, however, is to make a charge illegal. When it does that, it can be certain that the benefit will be passed on.
An obvious charge to abolish is ground rent. This is an anachronistic part of the leasehold system. It gives the tenant no rights (indeed, not only is it an obligation, the consequences of not paying can include forfeiting the flat).
There is a consensus for abolition.
In 2022, the last Conservative government banned ground rents for new leasehold flats.
In 2024, they also eliminated ground rents for existing leases, when the lease is extended.
In 2026, the current Labour government capped remaining ground rents at £250 a year, although it seems that this will only be implemented in 2028.
In 2026, they also said that in 40 years time all remaining ground rents will go to zero.
And they abolished forfeiture for non-payment, although again, implementation is delayed.
My suggestion to Andy Burnham is that he shortens the 40 year period for ground rent abolition so that no ground rents are paid from the next financial year.
Clearly, some people find this offensive because it is messing with property rights. People bought leasehold flats knowing that they would have to pay ground rent, and they can take that into account when agreeing a price. But the “don’t touch property rights” ship sailed in either 2022 or 2024, when the previous Conservatives banned ground rents for new flats, and then for leasehold extensions.
The winners and losers are unclear. For sure, owner occupiers living in flats will be better off. But since flats are disproportionately in London, and London owner occupiers are generally better off than average, most winners will not be drawn from the poorest part of society.
The biggest individual winners will be landlords who own many flats, since they will gain many times over. We would not expect them to reduce rents, which are determined by demand and supply. So some rich people will gain significantly.
We know less about who owns the freeholds. For sure, some are owned by incredibly rich individuals and families, but others are owned by financial institutions, including pension funds. The losers are probably richer than the winners, but it would be hard to come up with an accurate analysis.
But whatever the actual facts, the Labour party definitely perceive lower ground rents to be a vote winner. Keir Starmer even announced it on TikTok. (Sadly the government press release announcing this does not include a link)
A Burnham government could simply lower the £250 figure to £25, or to zero (technically a peppercorn, but no peppercorn is actually required, it is a legal anachronism that could also be abolished).
As an alternative, it could come up with a fast track way for tenants to get a 1 day leasehold extension. This would come to much the same thing, since under existing legislation any lease extension ends the right to ground rent. Indeed, since this extension would be a hassle for landlords, most if not all would voluntarily eliminate ground rent immediately.
Of course, every winner means a loser, and UK GDP would not rise. But it would allow Andy Burnham to show that he “gets it” that bit more than Keir Starmer, and that seems a useful thing for him to achieve at the start of his premiership.