"The pre-Budget uncertainty contributed to average prices in prime central London falling by 3.6% in the year to September, the steepest decline since February 2021"
- Tom Bill - Knight Frank
The property tax trial balloons the government let loose this summer could be back in the air soon.
The reason is the mounting pressure on Chancellor Rachel Reeves, which was evident in her Labour Party Conference speech last week. She set out spending ambitions designed to satisfy her backbenchers while stressing the importance of strict fiscal discipline.
Reeves needs to find between £30 and £50 billion to meet her fiscal rules but faces a so-called trilemma.
Labour made a manifesto commitment not to increase VAT, income tax or National Insurance - although there are growing questions over whether that promise will hold. Meanwhile, backbenchers have resisted meaningful spending cuts, and the bond market is already uneasy about high levels of government borrowing.
Manchester Mayor Andy Burnham said last week the party had to “get beyond this thing of being in hock to the bond markets”. The reality of government means the statement is the equivalent of a homeowner no longer wishing to be in hock to their mortgage lender.
On Friday, the Treasury received so-called ‘round one’ forecasts from the Office for Budget Responsibility (OBR), which laid bare the scale of the Chancellor’s challenge.
A downgraded UK productivity outlook would further increase the pressure to raise taxes in the 26 November Budget - inevitably fuelling even more speculation about property and wealth taxes. I discussed the speculation on a recent episode of Housing Unpacked with a former Downing Street insider.
Speculation Versus Fact
On this week’s episode, Carol Lewis, property editor of The Times and Sunday Times, says the trial balloons are likely to continue between now and the Budget due to a long-standing belief that taxes will need to rise.
“There won’t be a tax story coming out of Westminster that someone will respond to by saying ‘oh, let’s not cover it,” she said on the podcast.
Carol also discusses why house price stories in the media can appear contradictory, which articles receive the most clicks, and she offers advice to readers trying to separate speculation from fact.
Meanwhile, financial markets appear unmoved by what they heard at the Labour Conference last week.
“After the Budget last year, I wrote ‘fiscal headroom is still tiny in historical terms, leaving open the significant risk that Reeves will have to come back for more tax hikes’,” said Michael Brown, an analyst at financial broker Pepperstone.
“After the Spring Statement, I wrote, ‘the Chancellor’s days appear to be numbered, with it being a question of whether a complete loss of market confidence, or manifesto-breaking tax hikes, eventually bring about Reeves’s demise’. As things stand right now, both of those statements continue to hold water.”
Hesitancy in Prime London
The pre-Budget uncertainty contributed to average prices in prime central London falling by 3.6% in the year to September, the steepest decline since February 2021.
A mood of hesitation has even now started to permeate the previously robust top-end of the London rental market, as we explore here.
Meanwhile, there was an increase of 0.1% in prime outer London over the same period in a market driven to a greater extent by buyers who need to move for reasons including education and employment. By contrast, demand in PCL is more discretionary.
The number of exchanges in PCL was down by 10% in Q3 2025 compared to the five-year average (excluding 2020). The equivalent decline was 9% in prime outer London. With prices down by a fifth over the last decade in PCL, the relative value on offer is underpinning demand and means the gap with POL is not bigger, as we explored last week.
However, leading demand indicators were more suppressed in central areas due to the impending Budget. The number of new prospective buyers in PCL was down by 11% over the same period, whereas the equivalent drop was 2% in POL.
Leslie Macleod-Miller, chief executive of Foreign Investors for Britain, said wealthy foreign investors will be closely watching what the government does next. He urged it to introduce an Italian-style flat tax and an investor visa.
“Failing to act risks more wealth leaving Britain’s shores, tax burdens shifting onto ordinary citizens, and growth being generated abroad,” he said.
All of the above is already happening, but November’s Budget is the Chancellor’s opportunity to stem the flow.
