Burnham’s arrival puts land value tax and investor confidence in focus

How do you expect markets to respond in the short and medium terms to the new prime minister?

Kate Cowan

Chief financial and operating officer at Hope Capital Property Finance 

For property investors, the significant development is the renewed discussion of a land value tax. That conversation was already building before Sir Keir Starmer went, driven by Andy Burnham's rising popularity, and his return to Westminster has given the policy real traction. Burnham has long been associated with replacing council tax with a land value tax, so investors are now weighing up not just a change of leadership but also the prospect of ideas once considered politically distant moving into the mainstream.

In the short term, I expect volatility driven by sentiment. Media interest has been intense and, whether or not it is justified, that coverage feeds sentiment, and sentiment alone is often enough to move markets. What we are seeing is a reaction to the possibility of disruption rather than to any certainty.

Over the medium term, the concern is not the principle of the tax but the speed and manner of any implementation. If investors and homeowners come to believe reform could reduce house prices, even marginally, expectations may shift quickly. In a highly leveraged market, falling valuations can tighten lending conditions, weaken consumer confidence and, in more severe scenarios, raise the risk of a credit event.

Stuart Dunk

Finance and treasury director at Morpheus Lending

Markets had already priced in Starmer’s resignation, with sterling down 3% since February and gilt yields rising, so the real question is how they will react to what comes next. 

Andy Burnham emerged as the only candidate and has sought to reassure markets through his commitment to Labour’s existing fiscal principles and early engagement with economic experts. Gilt yields dropped after the Makerfield by-election, an early sign that markets favour certainty of both outcome and policy.

Tom Cantor

Co-head of short-term finance at West One

In the short term, very little. Starmer's exit and Burnham's arrival were well trailed, so the market has largely priced them in.

The medium term hinges on policy and, above all, on what the new chancellor's plans are for tackling the nation's debt pile, closing the fiscal gap and boosting economic growth.

If Burnham and his chancellor can convince the market that they have the answer to those key questions, it will lower the UK's borrowing costs and, ultimately, that should bring down the cost of finance. Therefore, the sooner they set out those plans, the better.

Read the full Cut in B&C Magazine, here.