Pre-Budget autumn 2026 - tax and housing
Future Cities Forum has been talking to two academics about the forthcoming autumn Budget 2026.
Professor Yolande Barnes, former Chair of The Bartlett Real Estate Institute, UCL and Director of World Research at Savills, now Director of Yolande Barnes Consulting and Professor Paul Cheshire, Emeritus Professor of Economic Geography at The London School of Economics - were interviewed about potential tax rises, whether business rates would be lowered to help the struggling high street along with how existing measures - around for example the first time buyers' scheme - would help the housing market and the economy.
Professor Barnes, began by telling Future Cities Forum that the situation in Europe with regards to the bond markets might be helpful to the UK economy:
'One thing that did occur to me is the situation in France, and to some extent, Italy, might take the bond markets eye off the UK. One senses that the wolves have been circling, as it were, ready to push bond rates higher and borrowing costs higher. I think that perhaps France will be attracting more of that kind of international investor flack at the moment. So there may be a little more forgiveness in the UK, than there might have been a few months ago from bond markets.
'I don't think, though, that the Chancellor John Healey should use that as an excuse to increase spending. And it seems to me that ideally, the characteristics of this administration should be being much more clever, you know, really taking the trouble to understand both the complexity and the nuances, but also a more holistic picture of who pays what. I'd love to see somebody really tackling tax simplification. I think, you know, if you're going to be asking, as Burnham will do, so much of the new care system, you've got to give a taxpayer something in return.
'What's interesting is people sort of deride, you know, the bus fare, and these small things he's doing, the car parking charges, for example, they can look very inconsequential. But actually, in people's day to day lives, they can make a big difference. I think that recognition gives me a little bit of hope that actually, if you applied the same sort of thinking to tax and its complexity and inequities - an 0.8% annual charge on real estate for example in my view - actually, you could end up, if you were really bold like that, you could end up with some taxes much cheaper to collect, much easier to administer much more transparent to the payer, and have the headline of we've done away with this taxes tax and this tax in return.
'The problem with taxation is that it discourages the thing that is taxed and I think capital gains at the moment in all sorts of different assets, including real estate, have been really minimal. So it would seem inappropriate to charge a higher rate, but also problematic because I think that quite probably the government can expect fewer capital gains to tax in the future or at least lower ones. I think anything that taxes business and investment activity is always fought with unintended consequences and probably thinking about it and then leaving it alone at least sends a positive signal that the UK is sort of open for investment.
'I personally think that property taxes are a complete and utter mess. I did quite a close analysis of how it creates absolutely horrible, regressive, jagged sort of price points in the market. So I looked at how a combination of council tax and stamp duty work together to create these sort of cliff edges and sort of bunching of pricing and so forth. So I'm afraid the extra council tax over 2 million will also create a nasty sort of cliff edge. And you can already see it in the market, everything's priced at below 2 million, and that sort of bracket.
'I think inheritance tax is part of the picture. And what I would personally favour is abolishing inheritance tax on property, abolishing seriously reforming council tax, and doing away with stamp duty as well, and replacing it all with, I reckon, a 0.8% annual charge on current capital value will produce the same returns, simplify the tax, get rid of all that regression, that nasty cliff edge, and the absolutely iniquitous sort of treatment of lower value properties compared to higher value, much greater percentages taken in council tax for them. I think you have to deal with how you might localise that tax effectively.
'But I think, you know, 0.8% is really what everybody should be paying. I think it would be much more effective at getting rid of all those sort of unintended consequences that previous taxation has done. And I mean, I'm not an expert in tax, but I do marvel at how individuals are not taxed on what they inherit. So everybody doesn't pay, but the estate does. And I think there's a case for sort of switching inheritance tax from the donor to the recipient, as it were, of the inheritance, and maybe allow individual allowance tax allowances as to how much you can inherit tax free and above that you pay your marginal rate.
Yolande was then asked about the first time buyers scheme:
'Well, again, if I'm honest, I'm slightly disappointed with it, because I suppose it all depends what you're trying to do. If you're trying to help first time buyers, I don't think it does for reasons I'll go into. If you're trying to boost the construction industry, then it's probably quite a good move. But I think there's some smoke and mirrors there about what the true purpose is. If you are trying to help first time buyers onto the so called housing ladder, but just helping them into ownership, I think there are better ways to do it. If that's what you're trying to do, there'd be no reason at all to confine it to newly built homes.
'Most of what first time buyers will buy or traditionally bought is in the second hand market. I mean, 90% of supply is second hand. And it seems to me, sensible when people are young with energy and not much money, that, you know, DIY improvement to older property, it's probably a better realm for the 20 somethings and 30 somethings than it is for older age groups. So I think it ignores the reality that actually a lot of property types that might be eminently suitable for first time buyers.
'If you're looking for a family home, then probably more established communities with good infrastructure and existing infrastructure and amenities and everything else are probably better than a lot of new housing estates and so forth. I could go into a whole issue about infrastructure provision, but I'll steer away from that and say instead that the practical result of these equity loans is that very often there will put a sort of at a localised or sector level push up the price of new homes.
'The problem is that with new build properties, you tend to have a new build premium anyway, just the cost of it being new, if you like. Now that is somewhat offset by an absence of maintenance and upkeep and other bills in the first, say, five or 10 years. But all the signs are that that new build premium actually exceeds the value of that convenience, if you like, and will erode over the first five to 10 years. So you have a kind of automatic loss built into new build property. Now, in the past, that hasn't mattered so much when you've had general market rises that exceeds that loss.
'But I think in the market as it is now, where you cannot rely on automatic asset price inflation, you are going to find people increasingly, and I think this has happened already with some of the other schemes, finding it very difficult to sell because the second-hand stock that they're selling doesn't attract the same subsidies as they enjoyed, and the risk of negative equity. So either a very sluggish and difficult to sell product, or at worst, actually, people finding themselves in negative equity. So I don't think it's good for the first time buyers.
Professor Barnes also commented on the potential to abolish the Building Safety Levy as the House Buyers Federation has been pushing for:
'No, it seems to me that you're just targeting the wrong thing. I mean, maybe what we should be doing is looking at building controls and rules much more broadly and holistically. And I do think streamlining. There are so many different sort of elements, which I do think complicate and undoubtedly have caused a decline in the number of SMEs in the sector. I think there are things that can be done to simplify it. But just doing away with safety legislation, I think is particularly dangerous.'
On any measures to increase the number of planners in councils across the UK, Professor Barnes said:
'Unfortunately, I don't hold out very much hope for the budget, because I think too much of the mindset of policymakers, and I say this across the political spectrum, is kind of rooted in 20th century norms, which no longer apply. I think, even in the 20th century, we didn't have a very good understanding of how housing markets actually work. So without sort of really understanding some of the myths or mis-directions, as it were, of current commentary, I think it's very unlikely you're going to have effective interventions.
'The chance of unintended consequences rises subsequently. This obsession with increasing housing supply, when it is perfectly clear that, you know, in some markets, prices have been falling and falling quite substantially, when most of the supplies in the second-hand market, you know, it's just a red herring of very, very expensive proportions. What I do think is interesting is maybe the rhetoric switch to council housing, rented accommodation, because that is the area where supply does matter.
'If one was to concentrate on increasing supply in the rented sector, that, I think, provably has an impact on rents. But actually, legislation has gone the other way and restricted supply because we're so reliant on private landlords. Restricting that supply has caused rents to rise much faster than house prices. And it's pure scarcity value. So, yes, introducing either social or council housing as a kind of competitor and genuinely large new supply possibly would make a difference in that rental sector.
'But again, the risk of doing that and concentrating only on social housing is if you, that social housing is restricted quite widely by, you know, household means or whatever, you've still got a body of people in the private sector competing for dwindling supply as the landlords recede there. So you're still going to have price pressures and rent rises in that part of the market. There's a tendency to love sort of single bullet solutions and oversimplified sort of mantras about how the market works, but it is a lot more complicated than really suits the politicians.
There has been a suggestion that the Chancellor might continue to tweak the business rate for high streets and on this Professor Barnes suggested:
'I think this is another area where we could be a lot more imaginative and sophisticated about how we tax businesses, particularly when it relates to real estate and the real estate they either occupy or own. I think I'm a great fan when it comes to sort of issues of reviving the high street. I think turnover rents could and should work much better, especially where you have single owner rather than multiple owners who can actually then, if you like, curate the high street like a shopping centre, putting in the mom and pop shops and the butcher maker and candlestick maker alongside the sort of high baying chains and what have you.
'But I think what's relevant for all of them is that really a rent and rates should reflect the turnover of that business. So if you have actually rents reflecting turnover and then rates related to that rent, I think that that would probably be the more sort of equitable solution. But it does mean, like so many solutions, I think we need to apply to the wicked problems of the 21st century. It does require quite a holistic wholesale rethinking of the whole system, not just tinkering around with one bit of it.'
On tax Professor Paul Cheshire, LSE remarked:
'What is needed is radical change of the taxation, the way we tax and fund local authorities on the one hand and that's something beyond just a budget and on the other hand it's to do with radical transformation of our totally dysfunctional planning system. So the budget may make small adjustments but it's not going to be able to make big significant changes to housing supply and the real problem is the number of houses we don't build.
'Yes, construction costs have gone up. Over the last 50 years, construction costs have been, relative to other prices, fairly stable. But they have gone up in the last 10 years or so. But nevertheless, the real problem is the price of land because we restrict the supply of land against the demand for it. So if you look at the value of England's stock of houses in total, something like 80% of that value is in the land, not in the bricks and mortar. The bricks and mortar is relatively small in comparison.
'However it is true that construction costs have gone up and they've gone up not just because bricks and mortar, so to speak, have gone up and the labour costs have gone. But they've also gone up because the regulatory requirements on building have become much more complex, partly for understandable reasons of safety, but also for completely insane regulatory requirements like having a matrix of, I think, 15 by 5 for the number of bicycle spaces you have to have in a new building, or insisting on having only dual-aspect flats, which hugely increases the cost of building them.
'Cambridge is an interesting example in that clearly there's a crying need for housing in the Cambridge area, as there is in the Oxford area. Cambridge is the place that's been trying to do a little bit about it over the last 10 years, but nevertheless they've been hugely under building. Now, while having a Mayor for a strategic authority is in principle helpful because one of the major problems of our existing system is that if you think about development, all the costs of development are very, very localised. I mean, literally within 100 yards of where your building site is, most of the costs are. So if you give all the voice and the power to the people who live locally, what you're really doing is hugely tipping the scale in favour of NIMBYism, because the benefits of building spread out over a wider region, a much wider region, the whole housing market, you know.
'My grandchildren would like to be able to buy a house one day, but they don't have a vote in what's happening in, shall we say, Harpenden, where they might want to live. So the problem is we give all the power to very local people who suffer from development, and they suffer two-fold. One is the disturbance, but the other is, of course, loss of views, worry about loss of house value, etc. Second is that the local authority doesn't get any money to support better services for local residents. That's because of the way our local fiscal system works and the council tax receipts are such a small proportion of what a Council has available to spend. So having a strategic input at a wider level in principle is helpful but that's a long-term sort of horizon - a 2040 thing - it might have an impact by then when what we need is tomorrow and the day after.
Professor Cheshire was asked about the impact on the Green Belt and how that needs to change, and could the Chancellor do anything about that?
'Well, the Treasury can be part of the effort to relax the Green Belt, but the Green Belts are historically a major part of the crisis in British housing, because they've been in place with almost fixed boundaries since they were established between 1955 to 1965, the boundaries were determined and they sterilize, if you like, a vast area of land in Britain. So the total area of greenbelts that surround all our major cities is about one and a quarter, one and a half times the size of all the urban areas in England. They're very, very large areas. But not only are they very, very large areas, they're exactly those areas in which people would most want to live because, of course, they're close to the big cities and the jobs.
'There's a Greenbelt around Cambridge, there's a Greenbelt around Oxford, there's a Greenbelt around London, which people don't realize. I mean, it stretches from the North Sea to the edge of Aylesbury. It's a very large area, which is almost entirely impossible to build on. So that is a really frozen supply of land. But the other thing about greenbelts is they're called green, and that makes for wonderful rhetoric, but they are of course not green. The biggest land use in the London greenbelt, or overwhelmingly in the Cambridge greenbelt, is intensive agriculture. Intensive agriculture not only doesn't give you any access, but it completely eliminates all wildlife and nature from the landscape. So it's one of the most destructive in environmental terms forms of activity in which we engage. Of course, we have to have agriculture and we have to reserve land for agriculture. But the problem is two different, very laudable targets that got confused, one of which is to protect and preserve green beautiful countryside and to enable access to it, and the other is to control the spread of our cities.
'Within the London Green Belt, for example, you've got two Areas of Outstanding Natural Beauty. Now, with Areas of Outstanding Natural Beauty, there's a very strong argument for ensuring that they are conserved and people don't spoil them with large-scale development. On the other hand, the area in Surrey that's covered with golf courses is more than the area of Surrey which is covered with houses. So there's a huge area of golf courses and I wouldn't say it's a dying sport but it's not a thriving sport and it's very, very land intensive. So the idea that within the GLA area, the area of golf courses is bigger than the borough of Kensington and Chelsea, is frankly insane. And similarly, we've got stations that are completely frozen. So there's a station on the Central line, which is on the fringes of the GLA area, which is in the Green Belt, and it's a station on the underground which is entirely surrounded by empty fields. I can give you other stations, for example, there's a station called Knockholt just on the edge of the GLA boundary, just into Sevenoaks, where again there's about a ninety hectare derelict golf course, it's not even a used golf course, quite derelict and you can't build on it, it's in the Greenbelt.
'So we need to be sensible about releasing small parts of our Greenbelt and you don't need to release very much of the Greenbelt to build a lot of houses. I did some calculations about six or seven years ago using satellite remote sensing data which suggested that there was land within 800 metres of commuter stations around London sufficient to build a million houses and that would only take 1.8% of London's Greenbelt land. So certainly you should be preserving Sites of Special Scientific Interest. You should be preserving Areas of Outstanding Natural Beauty. You should be enhancing the public's access to beautiful countryside and to greenery. But you don't want these vast tracts which are sterilised and where you can't build in exactly those places when people most want to live so they can get decent jobs.
'The problem is that the planning system still makes it extremely difficult. Despite the changes in the recent revision of the National Planning Policy Framework, which came out in August, it's still going to be extremely difficult to build around commuter stations which are in the Greenbelt. And most of the land that you want to build on is exactly there, around commuter stations in the Greenbelt. So yes, you want to enhance access to rail travel because it's environmentally, you know, the best way to move people around. But at the moment you have all these stations, you can't build any house near. So when you built the £20bn Elizabeth line, as soon as you got to the edge of London near Heathrow, you couldn't build another house. You were suddenly transforming the access to central London for people living in, for example, Taplow or Maidenhead, at huge public expense but you couldn't build any more houses there because it was in the Greenbelt. If you were looking at this as a person from Mars, this would appear to be a form of mental decrepitude, it's a criminal insanity that you're putting £20bn into building cross-railroads and you can't build any houses. I mean, London was constructed on the basis of the railway system and the underground system and that's exactly how we were able to make a big city that functioned quite satisfactorily.
Professor Cheshire was asked would it take an Act of Parliament to change major building on the Green Belt?
'No, it's relatively simple, but it would have to be much more clear-cut. I mean, it could be done by a very legally watertight definition of what Grey Belt land is, and a change to the wording of the NPPF, as it's called, the National Planning Policy Framework document, which guides what you can do, so you could make a presumption in favour of development where other reasonable conditions were upheld on greenbelt land that didn't have any environmental or amenity value.
'I think in terms of the chances of that happening, I'm very old, so the chances of that happening in my lifetime are not all that great. The chances of it happening in the lifetime of someone who's now 50, I think, are very high indeed, because we have this sort of, this rock-and-a-hard-place problem that on the one hand, older house owners and people who live in the greenbelt don't want to change. They have a big financial incentive to be NIMBYS. But younger people are getting priced out of housing. So the age at which people are able to get a decent home is now approaching 40 years old. That group is growing relative to the house owners so in time the political pressures to allow building will outweigh win.
On the English or the British obsession with having a house with a garden rather than living in apartments, Professor Cheshire commented:
'Well, I think it's up to people to live as they wish, subject to resources, etc. So this is a myth which is strongly promoted by the CPRE. We have this myth that there's no land in England. But if you fly into any London airport or you look at any aerial photographs or satellite images of southern England, you can see it's chock-a-block full of green space. So even in the whole of south-east England, including London, the reality is only 5% of it has got any building of any sort on it at all. So 95% of it is green space. So there's plenty of land. We just manufacture this idea that we're a small island and we're in danger of concreting over it. There's not enough concrete in Europe to concrete over London, let alone the south east of England.
'Our problem in not just London, but the wider Southeast is that all housing at all levels is unaffordable. So, I work at the London School of Economics and we pay relatively attractive salaries by the standards of universities. but we have a lot of people who we want to attract who won't come because of the cost of housing in London. I've had two colleagues who were very, very good colleagues who left because they wanted children and they simply couldn't afford a decent house in London. So it's not just midwives and teachers that you can't get in London because of the cost of housing, it's across the labour market because everybody wants somewhere to live that they can afford. And if you can't afford to live there, you can't afford to work there.
Professor Cheshire was asked whether LSE should do what Cambridge University has done by building Eddington because Eddington wasn't built for students, it was built partly for staff?
'I don't think it's within the power, I mean it's Cambridge University, which controls a lot of land. Other universities except for Oxford do not. So it's beyond the capacity of any university or any employer to control what happens in their city. I actually, when I was an undergraduate at Cambridge a very long time ago, wrote an extremely critical report on the then Holford plan for Cambridge, which intentionally restricted the growth of Cambridge. There was a sort of very reactionary view in Cambridge that it shouldn't go down the route of Oxford and allow industrialization. So they virtually sterilized the growth of Cambridge in a post-war plan, which wasn't changed until the colleges began to realize that they could get a lot of money from science parks. So, you know, Cambridge is an exception. Even compared to Oxford, it's an exception. LSE has no power whatsoever. It's only a process of political change and influencing the system. And at the moment, I mean, the Mayor and the new draft London plan is not at all helpful to the economy of London and promoting the availability of housing for Londoners.
'The only thing that I think is possible but is not helpful, that the budget might do is to introduce subsidised financing for first-time buyers of houses. This has been a very popular response of politicians to the problem since the George Osborne's 2013 budget. Help to Buy and similar policies. The problem is that if your supply of housing is the problem because it's inelastic and you can't build more houses, If you help particular groups to buy, all it does is increase the price of houses. There's a very powerful economic study done of the first of these policies introduced by George Osborne, which demonstrated that actually the increase in the price of houses that resulted from the Help to Buy scheme in areas where the housing supply was inelastic, like London and the south east of England, the increase in prices was more than the value of the Help to Buy. So, I have no hope at all, but it's a typical sort of short-term, please the public type of sticking plaster that does not really help the fundamental problem at all, indeed. if anything it makes it worse.'
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