Rent cap proposals pair Section 24 reversal with NI extension to split landlord opposition

Three rent control models and their projected impact

The Autonomy Institute modelling presents three mechanisms, all starting in 2025:

• CPI-linked cap: Rent increases limited to inflation during and between tenancies, projected to save tenants £130 annually per tenancy by 2031
• Moderate controls: CPI cap during tenancies, CPI plus 2% between tenancies, with estimated savings of £701 per tenancy by 2031
• Nominal freeze: No rent increases permitted, modelling £1,418 annual savings per tenancy by 2031

These figures rest on assumptions about counterfactual rent growth, mortgage rate trajectories and supply responses over a seven-year horizon. The research does not publish sensitivity analysis, confidence intervals or methodology for baseline rent growth assumptions. That omission is significant. If market rents grow more slowly than modelled—due to economic downturn, increased supply from planning reform, or landlord exits reducing competition—the "savings" shrink or disappear.

The modelling projects that without policy change, the proportion of loss-making landlord tenancies would rise from 10% in 2024 to 17.05% by 2031, driven primarily by higher mortgage costs. Under the three proposed rent control scenarios paired with tax reforms, loss-making tenancies would reach 12.48%, 14.16% and 15.33% respectively by 2031. Mean post-tax return on equity, excluding capital gains, is forecast at 2% without reform versus 1.81%, 1.68% and 1.52% under the three alternatives.

These projections assume landlords remain in the market despite compressed returns. They do not model the threshold at which marginal operators exit, the pace of portfolio sales, or the reduction in new lettings supply. The IFS research published the previous day addressed precisely this omission, warning that rent controls reduce the number of homes available to rent—a supply contraction that ultimately harms tenants by reducing choice and concentrating demand on remaining stock.

The tax trade-off and why it signals political negotiation

Each rent control option is explicitly paired with two tax reforms. First, full restoration of mortgage interest deductibility by reversing Section 24 restrictions phased in between 2017 and 2020. Second, extension of National Insurance contributions to landlord property income—currently landlords pay income tax on rental profits but not NICs, which for self-employed individuals run at 9% on profits between £12,570 and £50,270, then 2% above that threshold.

Section 24 reversal would represent a substantial tax concession. The restriction of mortgage interest relief to a basic-rate tax credit rather than full deduction was widely credited with triggering landlord exits and buy-to-let contraction from 2017 onwards. Restoring full deductibility would materially improve post-tax returns for leveraged landlords, particularly higher-rate taxpayers.

The NI extension, however, would claw much of that back. Applying 9% NICs to rental profits would represent a new and significant tax burden. The net effect on individual landlords would depend on their leverage, tax band and portfolio structure, but the pairing suggests an attempt to construct fiscal neutrality for the Treasury whilst offering something tangible to both tenant and landlord constituencies.

This is mechanism design intended to fragment opposition. Landlords with high leverage and marginal returns gain from Section 24 reversal. Cash buyers and lower-leveraged investors gain less and pay the full NI cost. The package is structured to split the industry lobby between those who would benefit and those who would not. That is a political calculation, not an economic one.