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Archive for June, 2019

Lease of life: How will Labour shake-up the rental market?

While John McDonnell keeps up his ‘tea offensive’ to reassure City and business leaders the economy is safe in Labour’s hands, the party continues to offer up a series of controversial policy ideas. Following Labour endorsing the nationalisation of water companies at less than the market rate and committing to a significant decentralisation of the energy sector, Labour has now set its sights on reforming another fundamental resource: land. Land for the Many, a report commissioned by the Labour Party, makes a series of radical policy recommendations aimed at altering the way land is used, owned and governed in the UK.

The proposed reforms to the private rented sector will be of most interest to investors; especially the introduction of a cap on annual permissible rent increases within tenancies. Under the plan, rents will not be allowed to increase at more than the rate of wage inflation or consumer price inflation (whichever is lower). However, landlords will be allowed to set rents at any level when advertising the property to new tenants.

Despite criticism from economists across the political spectrum, a cap on rents will be popular amongst Labour’s core support. However, the proposed cap only restricts future rent increases, taking current rents as the base level. It is telling that the report did not recommend a more punitive rent cap, where prices are forced below the current market level. The reasoning behind this move is to avoid a destabilising fall in house prices that could create social and economic risks. This commitment demonstrates the policy tightrope that Labour has to carefully traverse: signal its commitment to fundamental economic change while maintaining the confidence of investors and asset holders.

The likely result of a cap is that rents will increase sporadically – but significantly – once tenancies finish. This is a scenario that large institutional investors will be better able to navigate than smaller buy-to-let landlords, thanks to their superior ability to withstand variable returns on their investment over time. One of the rent cap’s expressed aims is to reduce housing demand from buy-to-let investors, and, in conjunction with the report’s other proposals, some smaller landlords could be forced to leave the market. An exodus of private landlords from the market will put more pressure on rents, further increasing rents for new tenants.

While investors that stay in the market will benefit from higher rents once a tenant leaves, they face the prospect of being locked into long-term tenancies where rent only increases with inflation. As rents for new tenants diverge further from rents existing tenants pay, the greater the disincentive for existing tenants to move into a new home. Tenants in homes that suit their needs will stay for a long period of time, but those that do need to move will have to pay a premium, which may be unaffordable to some. In the long-term, larger investors will divest from the market; this could potentially help those looking to buy a home but will do little for renters as the supply of housing for rent decreases further.

The prospect of a rent cap (and a whole host of other interventions) will encourage some investors to run for the hills and leave the market. However, the authors of the report are prepared for this and suggest pre-emptively strengthening renter’s rights so landlords cannot sell their properties within the first three years of a tenancy (unless the property is either sold to a tenant or to another landlord). However, this will only delay any sell-off rather than prevent it. Perversely, it could also increase rents, as investors will mitigate the increased risk associated with the new rules by raising rents at the beginning of a new tenancy. Once again, this option will be more realisable for larger investors, who can commit to the market over a longer time period.

The report also suggests replacing council tax with a progressive property tax, payable by the property owners and not the tenants. However, the legal incidence of a tax and the economic incidence of a tax are rarely the same. Normally, some of the tax would be passed on to tenants, but under a rent cap this will only be possible when a new tenant moves in. As such, the property tax will initially be paid by the landlord, but future rent agreements will incorporate the cost of the property tax to the landlord. In other words, the tax will not be (completely) paid by the landlord.

Not every policy contained in Land for the Many will be in Labour’s next manifesto, but it is a useful indicator of the party’s direction of travel and demonstrates a Labour government would create a more challenging environment for property investors. If Labour implements the report’s recommendations, renters will enjoy more rights than ever before, but the proposed rent cap will create incentives within the rental market that could be to the detriment of renters and could change the viability of the private rented sector if not managed in a considered way. ‘Land for the Many’ could all too easily become too few landlords.

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Who will make it to No.10? The runners and riders compared

As you’ll have seen, the WA team has developed a runners and riders guide to help you understand the different approaches of the candidates, and the likelihood of their campaigns being a success. We’ll be regularly updating this as the campaigns progress, policy platforms are developed, and the field narrows.

In the meantime, for those of you that can’t get enough of the leadership contest gossip and intrigue, here are some more details about the race so far, WA’s predictions for who’s likely to come out on top, and a timetable for what’s next….. Watch this space!

The list of candidates vying to replace Theresa May has now been finalised. The contest has already seen some early casualties, with James Cleverly and Kit Malthouse bowing out due to a lack of support, and Sam Gyimah joining them shortly after nominations closed.  The rules for selecting a new leader have been changed, with the 1922 Committee now requiring candidates to secure eight MP nominations, as opposed to the original two.

What is the state of play?

A clear favourite has emerged in the form of former Mayor of London and Foreign Secretary Boris Johnson. Memorably, his 2016 leadership campaign was scuppered by the perceived betrayal of former Vote Leave colleague Michael Gove, and compounded by wide distrust of him within the Parliamentary party. It may be going too far to say that this distrust has evaporated, but in the three years since his last attempt at securing the keys to No.10 the landscape has changed in Johnson’s favour. Gains by Corbyn’s Labour in 2017 and Farage’s Brexit Party in 2019 seem to have convinced swathes of Tory MPs that whatever their personal misgivings about Johnson (be it his frequent and often offensive gaffes, his less than stellar record as Foreign Secretary or his reputation as an often shameless self publicist), they see him as the party’s best bet to hang on to the reins of government. Given his standing with the membership, amongst whom he remains the most popular candidate by some distance, it’s perhaps unsurprising that he occupies pole position.

Aside from his commitment to leave the EU on 31st October, deal or no deal, Johnson has pledged to raise the 40 per cent tax rate from £50,000 to £80,000 – a move which is likely to be hugely popular amongst middle income, metropolitan Tory voters who deserted the party in 2017.

One of Johnson’s biggest challengers, Michael Gove, has had a weekend to forget. In a campaign which has been dominated by the past recreational drug use of the candidates, Gove’s use of cocaine while a journalist in the late 90s appears to have been the most damaging, not least as it happened at the same time as he penned an attack on middle class drug users. Having legislated to introduce a lifetime ban for teachers who had used cocaine whilst Education Secretary and implemented harsh sentences for drug-related crimes as Justice Secretary, the revelations, which have been revealed in an upcoming biography by journalist Owen Bennett, could prove very damaging. Despite a campaign launch littered with policy ideas, the early questions focused on Gove’s historic drug-use.

Foreign Secretary Jeremy Hunt also faced scrutiny over the weekend, largely due to his announcement that he was in favour of reducing the legal limit for abortion to 12 weeks (although he stressed this would not be government policy). Long seen as a political chameleon given his changing stance on Brexit, there remains concern among Conservatives that he is too much of a continuity candidate, with insufficient long-term vision to fend off the challenge from Corbyn and Farage. However, the endorsement of Remainer and leading One Nation Tory Amber Rudd is a boon to his chances of making the final two, as is the endorsement of Brexiteer Penny Mordaunt.

Another candidate to gain an influential backer over the weekend was Home Secretary Sajid Javid, with widely respected Scottish Conservative leader Ruth Davidson pledging her support. This will undoubtedly strengthen Javid’s standing with that wing of the party, as will his pledge to invest more in public spending – particularly education – by slowing the pace of debt reduction. His humble background and his being the first Muslim to hold one of the great offices of state mean there are many within the party who see him as the ideal story of the Conservatives for the 21st Century. A key turning point in the leadership contest will be which two of the three members of the Gove-Hunt-Javid axis anti-Boris MPs will coalesce around. In order to prevent Johnson advancing to the final round (from where he would be in a strong position to win outright), two of these three will need to make the final two to prevent a Johnson coronation.

The other candidates, while still harbouring slim hopes of becoming Prime Minister, are more likely to be aiming for a strong showing which paves the way for a future Cabinet position. Dominic Raab, whose team are believed to be responsible for the Gove story leak, has offered an extreme Brexit position – even threatening to prorogue Parliament to ensure a 31st October exit – but with arch-Brexiteers such as Steve Baker backing Johnson, this stance appears to be increasingly redundant.

Esther McVey has also flirted with this extreme Brexit position, and is seen by some as the kind of blue-collar Conservative that could shore up the vote in target seats in the North. However, despite her hard-line stance on foreign aid and sex education playing well with the party membership, concerns abound regarding her appeal to wider Tory voters.

Andrea Leadsom was the Brexiteer’s choice during the last leadership election in 2016, but unlike Johnson her support doesn’t seem to have broadened second time around. As with Raab, the support of Brexiteers for her former Cabinet colleague is likely to prove fatal.

Health secretary Matt Hancock is occupying a very different position and has already floated major policy proposals such as an insurance scheme for social care. Seen by many to lack the political weight for the top job, he could perhaps shift his attention to securing a plum Cabinet position in the new administration.

Rory Stewart is probably in the same boat as Hancock, although his campaign of talking to ordinary people in a variety of places around the country seems to have captured the imagination, not least of political sketch writers. While many may see it as a gimmick, and the expectation is he will drop out of the race well before the final two, his optimistic message may well land him a top job in Cabinet.

Mark Harper’s USP of having not served in the Cabinet is unlikely to win him much traction among Tory MPs, and his lack of profile surely rules him out.

What happens next?

The next stage is the first round of voting by MPs, which is scheduled to take place on Thursday 13th June. Candidates will need 17 nominations to clear this stage. A further vote will be held on Tuesday 18th June, with the BBC interviewing candidates still in the race. The final two candidates will be put before party members across the UK on 22nd June, with the result announced a month later – due to be the week of 22nd July.

Boris Johnson starts the race as clear favourite. The question is whether his opponents can manufacture a scenario where tactical voting prevents him making the final two, or whether any of them can supplant his favoured status among the Conservative membership. It looks to be a tall order, but as we know, stranger things have (and continue to) happened in UK politics.

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And they’re off – Tory leadership runners and riders

The results of the final round of voting amongst the Conservative parliamentary party are in, and the head-to-head contest will be between Boris Johnson and Jeremy Hunt. Amid accusations from Michael Gove’s supporters that Johnson’s team engaged in dirty tricks to force him out of the contest, Hunt beat Gove by just two votes to make the final two – 77-75. Johnson finished with 160 votes, more than twice that of Hunt. The leadership contest will now be decided by the 160,000 Conservative Party members, with the winner to be announced on 22 July. Hustings begin in Birmingham on Saturday 22 June and will continue over the next month in 15 additional locations. Hunt will face an uphill battle if he is to take the leadership, with Johnson being the firm favourite. However, Hunt has committed to giving Johnson ‘the fight of his life’; whether Hunt can find a knock-out blow remains to be seen. Take a look at our updated runners and riders guide to see where the final two candidates stand.

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Industry’s future leaders enjoy an evening with The Times’ Esther Webber

This week, WA Communications hosted its first evening for young professionals. This was to demonstrate the importance of young people across the industry sharing networks and information, as well as reflect the diversity of experience here and across sectors. It was an opportunity to ensure often overlooked voices within the industry are heard, as well as for young professionals to find out what was really happening across politics and policy. WA welcomed young professionals from across politics, policy, public affairs and industry to our offices for an evening of discussion on the current political milieu, taking in Brexit, the Conservative Party leadership race and what the future might hold.

Hosted by WA’s own Rebecca Brake, The Times’ Esther Webber delivered the key note speech and summed up the entirety of British politics in just a few short minutes…almost. Esther began by saying she was glad she could make it given this week was supposed to be the last throw of the dice for the Withdrawal Agreement, and although the Prime Minister had since resigned, if anybody could still bring forward the Bill after that it was her.

Reflecting on the relief of journalists no longer having to talk about the Snell Amendment, Malthouse Compromise or the Cooper-Letwin Bill, discussion then moved on to the Conservative leadership race. From Hunt’s foreign languages to McVey’s views on Brexit (she quite likes it!), Esther covered all the key people and what their ascension to the throne might mean. And of course if there was anything we needed clearing up, Rory Stewart would no doubt be along shortly. Unfortunately he was otherwise engaged, but we’re sure he’ll make his way to our offices soon.

Concluding that Boris Johnson was the most likely to combine the necessary characteristics of ardent Brexiteer and populist, discussion moved on to what the year had in store: a first Brexit Party MP; Prime Minister Johnson; Prime Minister Corbyn; and the seventh or eighth splintering of Change UK. The bar for surprise in modern politics seems to be extremely high, and yet we keep on raising it.

In an informative Q&A session, topics ranged from Brexit (surprisingly), the Tory leadership contest, and when things will return to normal (answer: who knows). You can find a full summary of questions and answers on our Twitter feed.

To round off the evening there were drinks, dips and deep house, and no small amount of networking across sectors. This was an opportunity for all attendees to find out what was really going on across the industry and in politics, away from the headlines and official statements. We hope all those who attended found it as useful as we did.

A special thanks to Esther Webber for providing her valuable insights and trademark humour to the evening, and to all those who attended to make it as interesting and informative as possible. We hope to see you all again soon.

WA will be hosting a number of further events over the course of the year aimed at all sectors and demographics, including additional young professionals events. If you would like to stay up to date with what we’ve got going on email info@wacomms.co.uk to subscribe to updates.

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