Maskells Year End Thoughts

“One of the things that has eroded trust in politics and politicians has been a failure to stick to manifesto commitments. We don’t want to be that sort of government; I don’t want to be that sort of chancellor.”

Rachel Reeves, Chancellor, The Guardian, November 2024

“Back then, Government’s view of the economy could be summed up in a few short phrases: If it moves, tax it.  If it keeps moving, regulate it.  If it stops moving subsidize it.”

President Ronal Reagan, National White House conference on small business, 1986

2024 was always going to be about the General Election in the UK.  In May, William Schomberg for Reuters wrote in the run up to the Election “Britain’s economic performance since the coronavirus crisis has been the weakest among the G7 economies with the exception of Germany which was also hit hard by the jump in energy prices following Russia’s invasion of Ukraine”.  But By Q2 2024, the economy was improving, allowing the Tories to hail growth on the campaign trail. Riding these coat tails, Labour was promising to turn Britain into the fastest growing economy in the G7 by attracting private investment and claiming their budget was fully costed, business friendly and, importantly, no tax increases were mentioned.

Fast forward 5 months and matters have become dire. In the 117 days between the Election and the Budget, the Government managed to demolish business sentiment in the UK. The “Tax and Spend” nature of the budget was unhelpful and proved that Manifesto pledges are good for elections and possibly not much more. When Labour was in opposition, they were being briefed as early as February 2024 as to the state of the economy, as noted by Jeremy Hunt in Parliament, and therefore much (not all) of this “black hole” is politics, amplified by large public sector pay increases. The fact that so much has changed led to the Prime Minister giving a “reset speech” last week after only 4 months in office.  At the same time, The Chancellor’s fiscal headroom has all but vanished (even with the changing of the Fiscal Rules) and we await the bond markets’ eventual reaction.

It really does seem that Labour have upset everyone:  From vindictive taxes on education to IHT on small businesses and farms, both of which will inevitably have to be sold to pay the tax. Shockingly, IHT on UK farms will raise just about enough to fund the ten programmes supporting overseas farmers – £536m – as noted by the Taxpayers alliance and the Daily Express, which is bonkers; to an increase in Employer National Insurance Contributions which may reduce hiring, reduce wages and generate inflation as companies seek to increase their prices to counter the tax burden; to the exodus of the mobile capital held by the High Net Worth and Ultra High Net Worth to more tax friendly jurisdictions (and the resulting drop in tax receipts).  We also sense that the Bank of England will slow down the pace of their interest rate cuts in light of the current policies, which will then hit mortgages. This week, accounting Firm BDO released its latest Optimism Index – with a fall of 5.81 points this month to 93.49, marking the largest monthly decrease since August 2021.  This is “likely to reflect business’ immediate reaction to the announcements in the Autumn Budget” BDO said.   It does seem that Labour have become “that sort of Government” notwithstanding the Chancellors comments to the Guardian.

We have seen the effect of the budget on our clients in Prime Central London. Year-on-Year transaction volumes in both sales and lettings have increased substantially over the past couple of months:

Sales (Data provided by Lonres.com)

South RBKC includes SW3, SW10, SW7. North RBKC includes W11, W14, W8

Lettings (Data provided by Lonres.com)

South RBKC includes SW3, SW10, SW7. North RBKC includes W11, W14, W8

One noticeable trend is the large increase in rental transactions immediately after the budget and the large increase in sales transactions over the past 2 months.  We speculate that post the election, people did not want to buy, and therefore rented, unsure as to what was going to happen.  We also speculate that post the budget, many felt the need to sell, for whatever reason and were incentivised to lower prices to attract buyers.  We do not believe that there is a correlation between the increase in rental market volumes and then the subsequent increase in the sales market volumes due to minimum rental periods.  Our takeaway though, is that there is still an active market, and this is what we are seeing.  It may just be that properties have been too expensive and have now found a level where they will trade. Volume refers to transactions which require not just vendors, but also buyers.

Prices have come down and may well continue to fall.  Pundits are estimating a decrease of 3-4% for next year in Prime Central London and we agree with that.  An interesting article in the FT titled, “Why London’s property market is stagnating” suggests that whilst prices have come down, the market is stuck in a rut.  London is expensive, as is New York, and Paris but the sales transaction volumes suggest that London is not stuck in rut. There is an active market and demand will continue: in the same article, the author shows with data from ONS and GLA that London’s population has never been bigger which may explain some of the transaction increases.  We do also expect rental prices to increase over the next twelve months as particularly those coming from overseas will seek to rent rather than buy given the stamp duty they will pay, and the 4-year window they have to live here before their global assets are taxed.

The only thing that is going to change all this is what Labour might do next.  Will they continue to make the UK unattractive for investment? Will they make Private Equity move overseas (Will carried interest be subject to Employer National Insurance when it is deemed income in April 26?), Will they continue to tax and spend?  Can Labour draw closer ties to the EU for trade without significant concessions (the Europeans are against cherry picking access to the Common Market)? London is a barometer on the global economy, and there is uncertainty around the world, however, the uncertainty in the UK is due to ill-judged policies at home.

As always, the property market is open and so are we, but accurate pricing in both sales and lettings is everything and we are expecting some volatility.  Please talk to the teams, and we will try to help you navigate the next four years at which point the Parliamentary Petition for a new election will become a reality. 

In the meantime, we hope that you will enjoy the Festive Season, and we wish you and your families, a very Happy and Prosperous New Year.

Charles Curran

Managing Director

Maskells.