Pension funds are braced for a hit worth tens of billions of pounds as Michael Gove, the rising secretary, tries to salvage his ambition to reform Britain’s century-old property renting system.
Sky News has learned that the insurance and pensions industries believe that Mr Gove’s now preferred option of imposing a £250 cap on ground rent and transitioning to “peppercorn” levels over a 20-year period will cost around £30 billion.
The number is understood to reflect Treasury’s internal estimate of the cost to investors, according to internal sources.
Gove is determined to review what he describes as the “feudal” rent system and modernize it to make it fairer for homeowners.
His proposals, however, alarmed the city’s pensions industry and investors, such as the asset management arms of major insurance companies that have accumulated large portfolios of land rents.
Last month, the Sunday Times reported that Gove was forced to water down his reform plan after an intense lobbying campaign from industry and opposition from some cabinet colleagues.
Negotiations involving the Department for Business and Commerce, the Treasury and Downing Street have been ongoing for months.
Government lawyers reportedly raised concerns about the prospect of legal challenges to moves to retroactively alter property rights.
However, in an interview with the Financial Times on Thursday, Gove signaled that he would move forward with his plans as early as next week.
The announced potential was described as “a compromise agreement” which was signed by Number 10.
City sources said the industry is preparing to talk more openly about the financial impact on retirees if reforms move forward.
“£30 billion is the approximate figure the City and Treasury are now thinking about in terms of the impact on pension funds and insurers,” a source said on Friday evening.
A DLUHC spokesperson said: “It is not fair that many leaseholders face unregulated ground rents without any clear services in return.
“As set out in our 2019 manifesto, we are committed to reducing ground rents to a peppercorn and have already legislated to remove ground rents for new residential tenancies.
“We have recently consulted on a number of options for limiting ground rents for existing residential leases and are carefully considering the responses.
“We will make an announcement in due course.”
The Treasury declined to comment further, while the Association of British Insurers also declined to comment.
secretary, tries to salvage his ambition to reform Britain’s centuries-old property leasing system.
Sky News has learned that the insurance and pensions industries believe that Mr Gove’s now preferred option of imposing a £250 cap on ground rent and transitioning to “peppercorn” levels over a 20-year period will cost around £30 billion.
The number is understood to reflect Treasury’s internal estimate of the cost to investors, according to internal sources.
Gove is determined to review what he describes as the “feudal” rent system and modernize it to make it fairer for homeowners.
His proposals, however, alarmed the city’s pensions industry and investors, such as the asset management arms of major insurance companies that have accumulated large portfolios of land rents.
Last month, the Sunday Times reported that Gove was forced to water down his reform plan after an intense lobbying campaign from industry and opposition from some cabinet colleagues.
Negotiations involving the Department for Business and Commerce, the Treasury and Downing Street have been ongoing for months.
Government lawyers reportedly raised concerns about the prospect of legal challenges to moves to retroactively alter property rights.
However, in an interview with the Financial Times on Thursday, Gove signaled that he would move forward with his plans as early as next week.
The announced potential was described as “a compromise agreement” which was signed by Number 10.
City sources said the industry is preparing to talk more openly about the financial impact on retirees if reforms progress.
“£30 billion is the approximate figure the City and Treasury are now thinking about in terms of the impact on pension funds and insurers,” a source said on Friday evening.
A DLUHC spokesperson said: “It is not fair that many leaseholders face unregulated ground rents without any clear services in return.
“As set out in our 2019 manifesto, we are committed to reducing ground rents to a peppercorn and have already legislated to remove ground rents for new residential tenancies.
“We have recently consulted on a number of options for limiting ground rents for existing residential leases and are carefully considering the responses.
“We will make an announcement in due course.”
The Treasury declined to comment further, while the Association of British Insurers also declined to comment.
This story originally appeared on News.sky.com read the full story
