The city minister claimed tax raid on the “unearned income” of the owners

The City minister called for a national insurance raid on landlords in a speech before taking power, it can be revealed, as ministers were urged to impose tax on rental income for the first time.

Before taking office, Tulip Siddiq said she would be in favor of taxing “unearned income” such as rent-to-own to rent property more in line with wages.

Her comments, from a speech in 2022, are likely to fuel further speculation about a crackdown on buy-to-let.

Economists at the Resolution Foundation think tank are urging Rachel Reeves, the chancellor, to hit landlords with National Insurance, which is currently levied at 8% of wages.

A Treasury spokesman declined to comment on the proposal. However, the recommendation is in line with suggestions from Ms Siddiq’s speech, when she backed the attack on investment income as part of the pledge to “unlock capital”.

At the time, she said, “We want to make sure that unearned income is properly taxed, and we don’t think it is at this point.”

The biggest difference between rental income tax and employee income tax is that National Insurance is not charged to landlords.

The government is preparing to raise taxes after handing out a series of inflation-busting public sector pay rises.

However, experts warned that landlords were already struggling with a heavy tax burden and further raids would only drive up rents and worsen the housing crisis.

Adam Corlett, chief economist at the Resolution Foundation, said: “Landlords pay no National Insurance on rental income at the moment and face tax rates that are much lower than on other sources of income, especially with employees face.

“We believe that the income tax rates on rental income – 20%, 40% and 45% – should be supplemented by a new class of National Insurance.”

Ms Reeves will receive the first projections from the Office for Budget Responsibility ahead of the budget in October.

She warned of a £22bn black hole in public finances after she found higher-than-budget asylum spending and accepted big pay rises for civil servants, prompting speculation of a range of tax increases.

Sir Keir Starmer made it clear this week that the best could fund the deficit, saying: “Those with the broadest shoulders should bear the heaviest burden.”

Mr Corlett said Labor should seek to reform the tax system to ensure more consistent rates “across different types of income”.

That would ideally involve adopting similar tax rates for capital gains that exceed the rate of inflation, self-employment income and rents, he said.

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However, these measures also work on their own to help Labor shore up the public finances, according to the think tank.

Mr Corlett suggested the Treasury should go even further than simply applying the employee National Insurance rate.

He said: “If they are looking for income, raising landlord tax rates would be reasonable.

“You would end up with a rate of maybe 37% as a basic rate on rental income, compared to a tax rate of 20% at the moment. But you shouldn’t go from 20 to 37pc overnight. An increase should be less or gradual over time.”

Other experts warned that further increases in taxes on landlords risked intensifying pressure on rents, which continue to rise at a near-record 8.6% rate.

Many homeowners have retired in recent years, blaming tax changes and high interest rates in a move that has tightened supply while demand has increased.

National Insurance, often described as employment tax, is paid by employees and employers to help fund benefits and pensions. Setting it on income from the property would be a substantial departure from the current rules and would also leave pensioners who have been renting out the property paying for it for the first time.

Tim Stovold, partner and head of tax at accountants Moore Kingston Smith, said charging landlords National Insurance on rental income would “go against a lot of theory about tax and National Insurance”.

However, there are examples of previous governments putting together a new tax that is effectively National Insurance in all but name, such as the apprenticeship levy, he said.

Mr Stovold warned that any move to raise taxes on landlords would need to be “very finely balanced” as it could easily backfire on renters who are already struggling.

He said: “The rental sector has been hit with various things so far along the lines of non-deductible mortgage interest. Whenever you increase the tax burden on a landlord, the first thing they think about is how much they can raise their rent.”

The Resolution Foundation – until recently led by Torsten Bell, who is now a Labor MP – rejected claims that another tax raid on landlords would harm the rental market.

Mr Corlett said rents had risen as a result of large increases in nominal wages in recent years, rather than cost-shifting by landlords.

He said: “It is true that many costs have increased for landlords with the changes to tax relief that have already taken place and interest rates rising. But we’re generally skeptical that these things will be passed on to tenants. This is not how it should work in theory, but it can mean that the size of a rental sector shrinks and home ownership increases. But that’s a good thing.”

A Treasury spokesman said: “Following the spending audit, the chancellor has been clear that tough decisions are ahead on spending, welfare and tax to fix the foundations of our economy and tackle the £22 billion hole sterling from the public finances left by the last government. Decisions on how to do this will be made at the budget in the round.”

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