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Scottish housing market is surviving despite uncertainty – John Kelly

As we await the result of the ­pre-Christmas general election and what changes this may or may not bring to the position of Scotland in the UK and Europe, it feels like something of a renaissance is afoot.

Although the overall level of confidence in the economy remains fragile, the news is not all doom and gloom. Even with the political and economic uncertainty we have lived through over the last year, house prices in Scotland continued to grow by 1.3 per cent.

The industry body for home building, Homes for Scotland, has highlighted that despite home building numbers eventually falling back to pre-recession levels, there is still a massive shortage of homes. Recent research by Fraser of Allander on behalf of Homes for Scotland showed that house price growth is far from being evenly spread across the country, with Edinburgh and the East showing particularly high growth. In the West of Scotland, areas like Renfrewshire and East Dunbartonshire, where school performance is strong, also showed higher house price growth.

In our experience, and as shown by ­several economic indicators, Glasgow city centre and the West End also continue to be property hotspots. The news that the next stage of the City Development Plan focusing on the Govan, Partick and the Clyde Corridor will be submitted to ­Scottish ministers is welcome and we anticipate this will provide impetus for the property market.

‘Lack of second-hand stock’

Our business is focused on the West of Scotland and, for us, east and north ­Ayrshire has been a significant area for growth, with average transactions rising by 6.9 per cent and 2.7 per cent, respectively. Thanks to the improved road network, Ayr and Stewarton are attractive prospects as they are commutable to Glasgow. At the same time the property prices there are more competitive, with buyers getting more square footage and a garden for the same price as a flat in central Glasgow.

The biggest challenge currently is a lack of second-hand residential stock. The influx of new homes projects has helped keep the wheels turning. Projects that were halted are now either completed or well underway in terms of construction and consumers are snapping them up.

We are encouraged to see the Scottish Government’s ambitious net zero emissions target being reflected in many building projects. We are currently marketing City Garden Apartments, a new build of 65 eco-conscious, luxury apartments in Glasgow. Buyers concerned about ­climate change and their carbon footprint can benefit from state-of-the-art energy ­efficiency, electric car charging and an outdoor roof with a bee hotel. New build homes are also attractive to downsizers.

These consumers are moving to more urban locations, nearer restaurants and amenities, into lower maintenance and running cost properties. A ­garden is often replaced by a much more manageable balcony. A good example of an ambitious new project is G3 Square in Finnieston, which we’ve been supporting since the outset, as well as Cathcart House in the south side and the upcoming Fairfields, due to launch in Partick next year.

Another key trend is the number of small to mid-size luxury home developments springing up on the outskirts of Glasgow in areas such as Croftamie and Strathaven. These cater for millennials looking to lay down roots with a family home, who would be otherwise priced out of Glasgow’s “go-to” areas of Newton Mearns, Giffnock and Bearsden.

While life changes, like children or getting married, will happen regardless, there can be no doubt that many potential homebuyers view their next move as discretionary, as opposed to borne out of need. However, we know from lessons of the recession that the property market can survive extreme circumstances. Even though we can all expect more uncertainty, the desire for home ownership is a certainty.

By John Kelly

Source: Scotsman

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Landlords facing tax increases

One of the biggest life events to provoke a conversation about protection is when people buy a house and take out a mortgage.

This has been a constant for a long time in the UK.

Residential mortgages are a big catalyst for people taking out some form of protection cover.

Sometimes though, advisers find it a bit more difficult to position the idea of protection to landlords because the protection need is not quite as obvious.

People who purchase properties which they intend to rent out typically use buy-to-let interest only mortgages.

Often, their long term expectation is that property prices will increase and they will eventually cash in by selling them.

In the meantime, the rental income will fund the monthly mortgage payments and will also provide them with additional income.

Many landlords see the value of a property portfolio as a crucial part of their retirement planning.

However, in 2017, we saw the implementation of some new tax rules that meant over the next four years, the amount of mortgage interest which could be offset from rental profit reduces.

In this current tax year (2019/2020), landlords can offset 25 per cent of their mortgage interest from their rental profit.

From April 2020, this reduces to zero.

There is a tax credit relief available based on basic rate tax, but landlords will have to pay income tax on all of the rental income they receive meaning that many of them will pay more tax.

This new tax rule is going to change the landscape of the buy-to-let market.

How it normally works

For example, let’s say a landlord has five properties in their buy-to-let portfolio.

The properties are worth about £700,000 in total, but there are 5 lots of £100,000 interest-only mortgages, a total of £500,000.

Let’s say the interest rate on each buy-to-let mortgage is 3 per cent.

The total interest-only mortgage payments each month would be £1,249 or £14,988 each year.

Let’s say the income received on each property is £600 each month – in total this is £3,000 each month or £36,000 a year.

Clearly we can see that despite the large amount of mortgage debt and mortgage payments that need to be paid; the rental income will fund these mortgage payments and still yield a generous profit to the landlord.

A private landlord would typically complete a tax return each year and on it they would detail the income from their property portfolio and then detail all of their expenditures such as management fees and repairs, along with other expenses including the mortgage interest.

Income tax on the rental income profit is then charged at the normal rate of income tax.

But as you can guess, from April 2020, many private landlords with buy-to-let mortgages will simply pay more income tax on their rental income.

What if interest rates go up?

We know that we have been experiencing record-low interest rates for the past decade but inevitably, at some point, they are going to go up.

With this same example, let’s say the interest charged on those buy-to-let properties goes up to 6 per cent. I would imagine most people reading this would have experienced paying something close to that rate at some point in the past.

In my example scenario, the mortgage interest payments would increase to £2,501 each month or £30,012 each year.

This scenario looks a lot less attractive for a landlord.

If they can not offset interest-only mortgage payments from their rental income profit; this will result in significantly lower returns and then they will inevitably have to consider alternative options.

How will landlords adapt?

Let’s say a landlord runs their property business through a company rather than as a private venture; would these new tax changes I mentioned above apply? The answer is no.

If a company owns the property portfolio then the tax which is paid on the profit of the business is corporation tax.

At the moment, the corporation tax rate is 19 per cent but this is going to drop to 17 per cent in the next tax year (2019/2020) making the idea of holding properties within a limited company or specifically a SPV (Special Purpose Vehicle) quite attractive.

This is because a lot less tax will need to be paid which means a much greater net profit.

I must caveat that any landlords who do decide to move their private property portfolio across to a SPV would need to take proper advice because there are lots of implications to consider including stamp duty, lending criteria for new mortgages and various other considerations.

That said, at face value, it feels like these tax changes will nudge many landlords to move across to this type of model going forward.

Partners in business

Let’s look at a scenario where landlords set up a business to hold their property portfolio.

What are the protection opportunities that could arise for situations where people work together on a property venture?

Let’s say three skilled tradesmen get together with the idea of setting up a rental business.

They set up an SPV and they each invest £50k of their own money to buy their first property from an auction.

They buy the property with the cash they have pooled together with the intention of renovating it and putting it on the rental market.

Bob is a builder, Eric is an electrician and Paul is a plumber.

They do all the necessary work themselves and when the property is complete, they put it on the rental market.

The value of the property has increased, so they mortgage it and using those funds, they return to the property auctions to find their second property.

Their plan is to carry on doing this and build up their property empire.

Opportunities for Protection conversations?

What are the immediate protection opportunities up for discussion?

Control – Each partner will have a shareholding in the business to the value of how much they invested, so there is a question of how they keep control of their business if one of them dies or gets sick.

How would the surviving business owners feel if someone came into the business that they did not want to work with, because they had inherited their deceased business partner’s shares?

What if this new person has no useful skills but wants a say in how the business is being run?

Would the surviving business partners like to have control of their own destiny?

The answer to fix this problem is simple business protection.

This could be life insurance or critical illness cover, which would provide the necessary funds to allow the remaining shareholders the ability to purchase the shares of the other shareholder who might have died or been diagnosed with a critical illness.

Part of this solution would include a legal agreement which is designed to protect both parties – the business but also the family of the deceased or sick director.

Key people? – A scenario like this also suggests that all three business owners are key people.

If they perform duties which are essential to the running of the business, then sickness or death of one of them could affect profitability.

The answer to this problem is simple protection cover for each key person.

This could be life cover, critical illness cover or income protection; all of which are designed to allow the business the funds to protect their profits and perhaps bring someone into the business to perform the duties of their sick or deceased business partner.

Debts? – Another problem is those mortgages.

Simple loan protection in the shape of life cover or critical illness cover could be used to repay part or all of those debts – just like normal mortgage protection.

I also mentioned the initial funds that each partner put into the business when they set it up.

Each of those £50,000 deposits which were used to buy the first property are directors’ loans to the business.

In the event of the death of one of the business owners, how quickly would the family want that money back?

It is payable immediately, but it would be a problem if the surviving business owners did not have that kind of money available and they would not be in a position to pay it back.

Would this result in the surviving business owners needing to sell one of their properties to release equity? How will this affect things?

Future prospects

I think that over the next few years we’re going to see more landlords moving across to the SPV business model purely for tax reasons but this will open up a whole world of protection opportunities with buy-to-let landlords who have often been a tough nut to crack.

The trick for advisers is to not over complicate your process. Keep it simple and keep things clear.

Build your conversation around two key points: what is the problem and how do we fix it?

Problem: what specifically is the problem? What would happen if? What would the effect be?
Solution: what is the solution to fix this problem?
It does not need to be complicated, but this is another example of where proper financial advice is crucial for your clients.

By Vincent O’Connor

Source: FT Adviser

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UK house prices: should you worry about the General Election?

UK house prices are showing signs of recovery despite the fast pace of political events in the country, including the impending General Election on the 12th December. The most recent house price index from Nationwide reveals that the rate of house price growth increased to 0.5 per cent in November, up from 0.2 per cent in October. This is the highest rate of house price growth since April, yet buyer confidence remains low.

It is understandable that, in light of recent political events and the unpredictable outcome of the election, first-time buyers in particular are anxious and would rather wait it out than take the plunge and take out a mortgage now. But is this anxiety justified by a historical correlation between house price fluctuations and elections?

The dataexamining the behaviour of house prices around previous UK elections (taking three months either side as the time period) is clear: elections do not have a significant impact on house prices either way. There is some indication that election results may slightly affect the rate of mortgage approvals (depending on how confident mortgage lenders are feeling following the election result), but again, the rate of change isn’t significant enough to become a phenomenon that recurs during every election.

Economists at Nationwide comment, ‘It appears that housing market trends have not traditionally been impacted around the time of general elections. Rightly or wrongly, for most home buyers, elections are not foremost in their minds while buying or selling their home.’

What prospective buyers do need to bear in mind is the potential for house prices to keep growing for reasons unrelated to the political situation in the country. Urban regeneration and investment in northern England, for example, are likely to see house prices increase substantially in the region over the next five years. London will inevitably continue to see house price growth thanks to fresh wave of foreign investment and the completion of transport projects such as Crossrail.

The slowing down of the pace of house growth, if only for the time being, should be welcomed by first-time buyers as an opportunity to secure a home at a time when we are seeing a relatively stable economy and steady wage growth. Our advice, as ever, is to just go for it if you are in a position to do so.

BY ANNA COTTRELL

Source: Real Homes

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Businesses expect UK economy to slow further in 2020

Businesses expect UK economic growth to slow further next year as the US-China trade war and Brexit uncertainty continue to weigh on industry.

The Confederation of British Industry (CBI), which represents 190,000 businesses, said on Monday it expects UK GDP to grow by just 1.2% in 2020, down from the expected 1.3% growth rate this year.

The CBI blamed Brexit for the weak economic picture, along with the US-China trade war which is hurting global growth rates.

“Should these dual headwinds subside, we expect a gradual pick-up in activity,” said Rain Newton-Smith, CBI’s chief economist.

“But the bigger picture is one of fairly modest growth over the next couple of years – growth that should be far better, given the UK’s relative strengths.”

The CBI’s weak forecast is in fact based on a best case scenario for Brexit that sees the UK leave the EU on 31 January and make smooth progress negotiating an “ambitious” trade deal with the EU that allows frictionless trade. If reality falls short of these expectations, the CBI expects GDP to grow by just 1% in 2020.

“Transforming a lost decade of productivity will only be possible if supported by a good Brexit deal – one that keeps the UK aligned with EU rules where essential for frictionless trade along with protecting the UK’s world-beating services sector, which accounts for 80% of our economy,” Newton-Smith said.

The CBI said consumer spending would continue to account for the lion’s share of growth, but government spending would also provide a growing boost thanks to major spending pledges from both main parties. Business investment is forecast to essentially flatline.

Separately, Make UK, the manufacturers lobbying group, on Monday downgraded growth forecasts for growth in its sector. Make UK and accountants BDO forecast manufacturing growth of just 0.3% in 2020, down from an earlier forecast of 0.6%. However, this would represent a pick-up on the 0.1% growth expected in 2019.

By Oscar Williams-Grut

Source: Yahoo Finance UK

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South West to outpace UK economy next year – but growth will be slower than average

The South West will be among the UK’s fastest-growing regions next year, according to new research by global accountancy group PwC – although the rate of 1.2% will be significantly below its long-term average rate of around 2%.

PwC’s latest UK Economic Outlook forecasts that the UK economy will achieve growth of 1.1% next year against 1.2% this year.

The South West’s slightly better performance puts it alongside the South East and Scotland in terms of regions performing at or above the UK average.

PwC forecasts that all 12 UK regions will achieve modest but growth in 2019 and 2020.

According to the report, economic growth has slowed over the past two years primarily due to a dampening of business investment, resulting from both a lack of clarity over Brexit as well as heightened global trade tensions.

Although consumer spending has continued to drive the UK economy, supported by recent rises in real incomes, a cooling housing market coupled with slower jobs growth means there is likely to be only moderate consumer spending growth of around 1.2% in 2019 and 1.4% in 2020.

PwC West and Wales regional leader John-Paul Barker, pictured, said: “It’s good to see that the South West is projected to be among the top performers among the UK regions, but the differences between how it is expected to perform versus the UK average growth rate are small.

“But it’s not just the financial performance of a region that’s interesting to highlight. Swindon, Bristol and Plymouth are all performing strongly in our latest Good Growth for Cities Index so it’s encouraging to see the South West delivering on a number of fronts.”

PwC chief economist John Hawksworth added: “UK economic growth is likely to remain choppy throughout the rest of this year and in early 2020. However, there could be a modest bounce in business investment later in 2020 if the UK achieves an orderly Brexit, but the uncertain global economic outlook could hold back a stronger recovery in investment next year.

“Any potential weakness in private sector spending in 2020 should be offset at least in part by stronger trends in government spending. Both major political parties have shifted away from austerity, which is likely to support growth in 2020, irrespective of the outcome of the forthcoming general election. But this will also leave a bigger budget deficit to deal with in the longer term.”

The UK Economic Outlook forecasts that most industry sectors can expect relatively modest growth in 2019-20, though short-term trends remain dependent on how events develop around Brexit.

The distribution, hotels and restaurants sector remained strong in the first half of 2019, but a slowdown is expected next year, whereas the weakened business services and finance sector could enjoy a modest recovery in 2020 assuming an orderly Brexit can be achieved.

The manufacturing and construction sectors have experienced considerable volatility in recent years and are unlikely to see sustained recovery until there is clarity on both Brexit and the global trade outlook.

The report says that while inflation has fallen back below the Bank of England’s 2% target in recent months, real earnings have started to grow again at a relatively strong pace.

Although this upward trend is expected to continue into 2020, it would be difficult for strong real wage growth to be sustained on a longer-term basis unless productivity also picks up.

By Robert Buckland

Source: Swindon Business

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Plans to build 400 homes on land near Nuneaton’s largest tip

A decision on whether 400 homes could be built on land near to Nuneaton’s largest tip will be made in the New Year.

New plans have been submitted to Nuneaton and Bedworth Council to build a mini housing estate on land off Tuttle Hill.

A target decision date of February 14, 2020 has been set for the plans, which are the second to be submitted.

It was in May last year that proposals were first sent to the Town Hall, but they did not ever get to the stage where they were debated.

This followed a public consultation in November 2017, when plans for a local centre which would include uses such as a ‘canalside’ pub, doctors surgery, shops, a coffee shop and small hotel were on the table.

However, the latest proposals are simply for up to 400 homes to be built, with two access points off Tuttle Hill, landscaping, open space and two new bridges over the Coventry Canal.

What the plans show

The homes will be split into phases and be built to the right of the entrance to the tip.

It includes the current building, used as offices, at the main entrance.

There are new bridges over the canal and an access point at the side of the new development.

What happens next?

Residents can look at the plans and make comments during public consultation, which will run until December 10.

They can be viewed on the council’s website, searching for planning application number 035595.

Once the public consultation is over, any comments will be reviewed before the target decision date in the middle of February.

It is likely that the plans will be debated by the Town Hall’s planning applications committee.

By Claire Harrison

Source: Coventry Telegraph

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Commercial Finance Network Joins NACFB

Commercial Finance Network, a leading whole-of-market Commercial Finance Broker, has recently been granted full membership to the National Association of Commercial Finance Brokers (NACFB).

The NACFB is counted as the most prestigious and renowned commercial finance association in the UK. This membership comes as a recognition of the transparent and responsible broking and lending practices followed by the Commercial Finance Network and its associates for several years.

When asked about this significant acknowledgment, Dan Yorke, MD at CFN, said that he is extremely delighted to be formally associated with the NACFB. “Commercial Finance Network has been an industry innovator for several years and much of the good work we’ve done has come directly as a result of the high standards of transparency we’ve set for ourselves. This acknowledgement is great news for all of us here at CFN as it’s, in a way, a seal of approval for our standing in the industry,” he added.

The NACFB membership now puts Commercial Finance Network in the company of the best commercial finance brokers in the UK. It will also allow the company to add over a hundred specialist commercial lenders to their panel.

About NACFB

National Association of Commercial Finance Brokers comprises of over 1,600 commercial finance brokers in the UK. All members are extensively vetted and required to have a credible track record of responsible operations, along with longstanding partnerships with nationally recognised lenders.

About Commercial Finance Network

Commercial Finance Network is a whole of market commercial finance broker in the UK. The company has been consistently successful in bridging the gap between businesses and capital. The company has been recognised as a market innovator, with a primary focus on Customer Service and responsiveness.

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UK real estate to rebound by 2024 – Savills

  • The U.K real estate could rebound over the next half a decade
  • According to Savills, the average UK property prices are expected to jump by 15.3%
  • Savills warns that the growth will be slower due to higher taxes and rising interest rates

The UK real estate could be headed for a major bounce back in the next five years, after months of plummeting prices. The crisis, which has now lasted across the country for several quarters, could not-so-long from now come to an end, this is according to a Wednesday report by Savills.

Savills is a brokerage and real estate adviser based in London and its recent report predicts a 15.3% price jump for existing UK homes between the year 2020 and 2024. The report further states that the growth may not be uniform across all regions; the North-West is likely to lead with a 24% growth, while the East and South-East may experience an average growth of 11%.

“We anticipate a continuation of trends seen historically, where London and the South East underperform markets in the Midlands and North,” the head of residential research for Savills, Mr. Lucian Cook stated in the report. “This stage of the cycle appears to have begun in 2016, coinciding with the referendum, when London hit up against the limits of affordability.

The Savills’ report, however, noted that London’s luxury market would undergo a significant upswing; prime central London could rise by 20.5% on average, starting with an increase of 3% within the next year.

“Historically, a recovery in the prime markets has been sparked in prime central London, when the city’s most expensive properties start to look [like a] good value on a world stage,” Mr. Cook said in the report. “Values have been bottoming out over the past year, resulting in a build-up of new buyer registrations over recent months. Both signal that the market is set for a bounce, but this is being held up by uncertainty.”

In areas outside London, prime property prices could rise by about 14.2% by 2024 while luxury homes outside central London are expected to increase by 11.5%, the report indicated.

Scotland could experience a 20% jump in prime property prices, with units in North of England and Midlands expected to hike by 20.5%.

Rental rates are also set to rise within the next five years; in London, renters can expect a spike of about 18.8% even as annual transactions are expected to remain almost constant at 1.2 million.

But Cook warned that the growth could be slower than in the previous periods due to increased taxes and interest rates.

By Damian Wood

Source: Invezz

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Professional landlords increasingly comprise the core investors in the PRS

Paragon revealed a sharp increase in specialist landlord business, up from 79% to 89% of buy-to-let mortgage completions as it reported full year results today.

Specialist business also increased from 88% to 91% of the buy-to-let pipeline, as Paragon’s strategy of focusing on landlords operating in corporate structures and with larger portfolios delivered positive results.

Buy-to-let lending overall was stable year-on-year at £1.480 billion compared to £1.495 billion in 2018, with a 17% increase in the pipeline of business in progress at year end to £912 million.

John Heron, Managing Director of Mortgages at Paragon, said:

“Paragon’s deep expertise in buy-to-let means we are now one of a small number of specialist lenders offering solutions for the more complex requirements of the professional portfolio landlord community..

“Following tax and regulatory changes, professional landlords increasingly comprise the core investors in the UK’s private rented sector and we continue to support them and our intermediaries with enhanced service and tailored products specially designed to meet their needs.”

“Paragon’s results show a 9% increase in total new lending across the Group to £2.5 billion, along with an expansion in the net interest margin to 2.29% (2018: 2.21%) and a 5% increase in underlying profit before tax to £164 million (2018: £157 million)”

Source: Property 118

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Labour’s manifesto could break the fabric of the UK economy

Labour’s manifesto would completely break the fabric of Britain’s liberal and tolerant free market economy, replacing it with a command and control centralising experiment that would do untold damage to the very people Labour claim to support.

Let’s be clear; this is not a normal Labour manifesto. This Labour manifesto would uproot society to the detriment of rich and poor.

Labour is right about one thing – the so-called rich (defined by them as earning over £80,000) would be hit hard while those who are actually rich and already pay 28 per cent of all the tax ( the top 1 per cent of earners) would, in numbers, leave the country, rendering their policies totally counter-productive.

Where Labour are 100 per cent wrong is that ‘the many’ would soon see their pensions, NHS and education crumble as capital fled the country and tax receipts withered.

Let’s make no mistake. This election will define whether Britain remains a liberal, tolerant free market open economy or moves towards a command, retributive and increasingly politically arbitrary country where investment, opportunity and jobs collapse.

The scale of Labour’s proposals are staggering. The headline £83bn, or 4 per cent of GDP, works out at an addition £2,515 of tax for each and every employee, but it is the scale of the detail that compounds this unprecedented largesse.

Over a decade Labour propose a £400bn ‘National Transformation Fund’, of which £250bn will be earmarked for a new Green Transformation Fund. Then there is the £250bn ‘National Investment Bank’ with a network of regional banks directly lending into ‘infrastructure and innovation’. Sounds great but such centralised direction of capital is not the role of the state. Such policies were tried to much smaller effect in the 1970s with disastrous consequences.

If this was not enough a £140bn Social Transformation Fund would direct investment in key infrastructure. Of course all this is before the potentially £200bn cost of nationalising water, rail, post and taxpayer-funded broadband.

Add that little lot up and we find additional commitments of close to £2 trillion over a decade or around £54,000 for each and every employee in the country. It is simply not credible.

What is clear is Labour wants to direct and control this investment in a highly centralised top-down fashion. This is the opposite to what should happen in a liberal economy with a myriad of micro individual and business bottom-up decisions based on the free market. Labour’s ideas are a recipe for waste, inefficiency and declining productivity.

Britain’s accumulated debt is currently £1.8 trillion, or 84 per cent of GDP, which is what many economists consider is close to a safe maximum. The deficit has, despite the disastrous position the Conservatives inherited from Labour, been brought slowly but surely under control.

To increase spending even remotely on the scale proposed by Labour will cause immense capital flight and be counter-productive. Britain is currently an open economy and frankly individuals and business invested here because they viewed the UK as a safe haven in a dangerous world, with the rule of law, stable taxes, strong cultural assets and because, property rights were secure. Labour’s prospectus breaks that covenant.

Capital and talent will leave instantly if this Labour prospectus comes anywhere near happening. There is no example of any liberal, open western democracy that has adopted such a centralised command and control and frankly illiberal regime. None. We have to look to Latin America with Argentina being the closest analogy.

Soft words Mr Corbyn but your actions will do untold harm. You are honest enough to say you will harm the rich. But alas you will harm the poor too and cause immense social discord in the process.

Prosperity cannot be taken for granted, it is a fragile flower. Argentina, one of the richest nations on earth before the First World War now languishes. If Corbyn wins he will start the process of sending this great nation on the road to Argentina.

By Ewen Stewart

Source: City AM