The Tenant Always Pays

Imagine you work at Costa Coffee, perhaps you do. 

The average pay for a barista at Costa Coffee is under £7 an hour, but after the chancellor George Osborne announced that the minimum wage would be rising from £6.50 an hour to £7.20 an hour (steadily increasing over the next four years to reach £9.35 an hour) Costa Coffee’s hand was somewhat forced into paying their employees a little more. 

Fear not though, Costa’s ‘strong sales performance’ has translated into an 18.5 percent growth in underlying pre–tax profit, rising to heights of £488.1 million, additionally to this they reported a 19.4 percent growth in earnings per share - so financially, things are running quite smoothly.

However, Whitbread - the company that owns Costa, announced shortly afterwards that we, the public, can expect to see some prices increased in order to mitigate the ‘substantial cost’ of paying their staff. With things, financially, appearing to be quite positive for Costa and Whitbread, it does seem odd that their business plan doesn’t accommodate paying their staff a decent wage without the customer subsidising it. 

Now I’m not particularly fussed if Costa raise their prices but it’s another example of the increasingly popular circumstance in which service providers pass the buck on to the customer to avoid the intended consequences of legislation, something we’re seeing quite often in landlords. And as often is the case, when the problem is translated over into terms of landlord and tenant, it becomes a little more serious than settling for Kenco over Costa. 

During the same budget announcement, the chancellor said he planned to cut mortgage tax breaks for buy to let landlords from 45 per cent to 20 per cent. According to Mr Osborne these cuts would help to ‘level the playing field for homebuyers and investors’ after many experts said that the 45 percent tax breaks give landlords an unfair advantage against first-time buyers. The chancellor also revealed that there would be changes to the 10 percent wear and tear allowance so that landlords can only claim maintenance costs they actually incur - which seems perfectly logical. 

However, as has previously been demonstrated in many other fields, Landlords are finding ways to make the tenant pick up the cheque on these changes. Online letting agent, Rentify.com, revealed 56 per cent of landlords said they were likely to make tenants pay more to cover the costs of these changes - so much for levelling the playing field. Similarly, Hilary Osborne reported in The Guardian that almost a third of landlords said they were delaying expensive maintenance work until new wear and tear rules come into force next year, leaving many tenants in a potentially hazardous environment.

Mr Osborne announced another tax against landlords, this time in the form of adding 3 per cent to every stamp duty band for buy-to-let properties, the chancellor cited that 'frankly, people buying a home to let should not be squeezing out families who can't afford a home to buy’. Stamp duty land tax (or Land and Buildings Transaction Tax in Scotland) is a lump-sum tax that anyone buying a property or land costing more than a set amount has to pay and the chancellor suggests this increase increase will raise almost £1 billion by the year 2020. 

However, Rory Meakin of City AM describes the stamp duty surcharge as ‘petty, shallow and stupid’ suggesting that there is ‘almost nothing to recommend this measure on any sober analysis of how it will actually work’. Meakin’s issue with the surcharge is this; yes by withdrawing returns it may prompt a few landlords to withdraw from the market, after the summer budget 9 percent of landlords said they were thinking of selling up, so the reduce in demand, in turn, will reduce sale prices which is beneficial to first time buyers. However, the lack of demand by landlords in sales translates to lack of supply for tenants in the private rented sector resulting in a rise in rents, which could be more harmful, as Meakin’s puts it ‘renters tend to be somewhat poorer than people who are in a position to buy’. 

Alex Chesterman, head of Zoopla, echoed these predictions saying “More housing - great. Further taxes on the market - not necessarily great. It may move some marginal supply from the rental market into the sale market but that has negative repercussions on the rental market. You will see fewer rental properties in the private sector... and higher rents.”

So the problem we have here, as often is the case, is the dependence on the Private Rented Sector. Whilst people are having to rely on landlords to provide accommodation, landlords are able to pass on any further expenses to the tenant, and until people are able to afford to buy - they have no choice but to pay up.