Less than a week after Labour’s election win on 4 July 2024, the new government announced policy changes relevant to the real estate sector. In this article we take a closer look at the potential impact a Labour government may have on the real estate finance industry.
Planning and housing
One week into the new government, new Chancellor Rachel Reeves pledged to build 1.5 million homes over the next five years and to reinstate mandatory housing targets. To achieve this, the National Planning Policy Framework will be overhauled giving priority to planning approval for brownfield and grey-belt land to meet housing targets. The focus on getting the UK building, with the investment opportunities this will provide, will be attractive to developers and investors as well as other players in the real estate sector.
Planning decisions for major infrastructure projects will be made nationally rather than locally to reduce red tape which slows down important projects such as data centres. This will enable investors to move more quickly and increase participation in this market.
Additionally, the Chancellor launched a £7.3 billion national wealth fund to invest in new industries of the future and infrastructure, aiming to unlock private investment and generate economic growth, which will positively impact the real estate market.
Business Rates
Labour intends to replace business rates with “business property taxation” to “level the playing field between high street businesses and online giants”. Labour has yet to set out its policies on how to achieve this and what business property taxation will look like, but the retail sector will welcome changes promised to reinvigorate and attract new investment into the high streets.
Carried Interest
One controversial issue, particularly for private equity real estate, may be the proposed reform of the carried interest regimen. Currently carried interest (i.e. the fund manager’s share of the overall profits of a private equity fund) is subject to 28% capital gains tax. Labour has previously proposed that this should be treated as income, which could be subject to tax at 45%. However, the Chancellor reportedly stated that fund managers who put their own capital at risk may continue to benefit from the current treatment and that Labour will consult on its plan to change how carried interest is taxed. While the details of Labour’s policy on carried interest remain outstanding, it is expected that the industry will water down Labour’s previous propositions.
Stability
As Labour’s win was widely anticipated, this election did not affect the markets as previous elections have. After several politically tumultuous years, what the industry really craves is stability. Labour recognises this in its Financing Growth Report for the financial services sector and promises a stable regulatory environment, continuing to consult the financial services sector and backing reforms currently underway.
A strategy focussed on dialogue provides a welcome opportunity to influence future policies affecting the financial services sector, while a stable regulatory environment will provide financial services firms with the required certainty and consistency to allow them to plan and grow. This should attract renewed investment in the UK and, with the promised planning reforms, the real estate sector.