‘Pound at risk’ from Burnham council tax raid

Andy Burnham risks triggering a slump in the pound if he launches a council tax raid on the South, according to investment managers.

RBC BlueBay Asset Management, which looks after more than £420bn of client money, said it had become “cautious” about the outlook for sterling because of fears Mr Burnham would launch a raid on property.

Mike Bell, the head of market strategy at the investment manager, said the pound was sensitive to declines in house prices, something that is likely to happen if the Prime Minister ramps up taxes on homes.

Mr Bell said: “You’ve got high mortgage rates and you’ve got potential for taxes on property increasing, particularly in the South. And if that ends up leading to house price declines, then historically that’s not great for the pound.

“We continue to be cautious on the pound.”

A weaker pound means holidaymakers’ money does not stretch as far when converted into other currencies. It is also a blow for importers, who must pay more for foreign goods.

The Prime Minister has hinted at plans to increase property taxes in the South, telling the BBC last month that he wanted to “create some fairness” for northern England.

“There are people here in Greater Manchester who pay a much higher council tax than people living in much larger homes in London,” Mr Burnham said.

While the Prime Minister has ruled out scrapping council tax and replacing it with a land value tax, as had earlier been mooted, his comments have been taken as a sign that he could still change the way tax is calculated to raise more revenue from the South.

“They’ve talked changes in terms of council tax, essentially,” Mr Bell said.

The Telegraph revealed last month that Labour was planning an £18bn tax raid on millions of families across England.

The national council tax take is set to increase by 43pc by 2030, adding another £500 to average council tax bills by the end of the decade.

The Conservatives described the tax raid – which would hit 25.6 million homes in England – the “Burnham premium”, claiming it would increase bills “in every postcode”.

Weak housing demand

The pound is flat against the dollar so far this year but has rallied almost 1.8pc against the euro, helped by lower interest rates in the eurozone compared to the UK.

However, the pound tends to move broadly in line with the strength of the housing market, RBC BlueBay analysis shows.

Mr Bell said: “Housing demand in terms of new enquiries and sales in the South are already pretty weak, which is not surprising given where mortgage rates are.

“If [tax changes] were to lead to downward pressure on house prices, historically, weakness in the housing market, particularly in the South and London, is something that the pound pays attention to.”

House price growth ground to a halt in July, according to Lloyds Bank. However, the national picture hides significant regional moves.

Prices in the South East have fallen at the fastest pace in England over the past year, down by 2pc to an average of £381,146.

By contrast, average prices in the North East were up 2.8pc to £182,488 and the North West up 2.1pc to £247,836.

‘Cautious on the pound’

Beyond potential council tax reforms, sterling could also be affected if John Healey, the new Chancellor, ramps up borrowing in the Budget on Oct 28.

He is thought to want to borrow more to fund spending on infrastructure by finding “flexibilities” within the current fiscal rules. Treasury officials are “alert” to the risk that this could unnerve investors, Bloomberg reported on Sunday.

Mr Bell said: “With a weakening private sector labour market, downward pressure on house prices, particularly in the South, and concerns that the UK’s fiscal position could potentially deteriorate under the new Government, we are cautious on the pound.”

A Treasury spokesman said: “The Chancellor is fully focused on his priorities, which will boost business, help with the cost of living and support people in every postcode.

“As has always been the case, decisions on tax are a matter for the Chancellor to set out at fiscal events, rather than routinely commenting on rumour, speculation or proposals.”

[Source: Daily Telegraph]