Pension funds are anticipating a penalty worth tens of billions of pounds as levelling up secretary Michael Gove attempts to save his dream of reshaping the centuries-old property leasehold system in Britain.
Gove's Leasehold Reforms Stir Investor Worries and Government Talks
According to information obtained by Sky News, the insurance and pension sectors estimate that Mr. Gove's current preferred course of action—imposing a £250 ceiling on ground rent and gradually moving to "peppercorn" levels over a 20-year period—will cost somewhere near £30 billion.
Insiders said the number is believed to reflect the Treasury's internal estimate of the cost to investors.
To make the leasehold system more equitable for homeowners, Mr. Gove is committed to modernising and overhauling what he refers to as the "feudal" system.
His plans, however, have scared off investors in the City and the pensions sector, including the asset management divisions of major insurers that have accumulated substantial ground rent holdings.
Following a vigorous industry lobbying campaign and resistance from certain cabinet colleagues, The Sunday Times revealed last month that Mr. Gove had to soften his reform plan.
Discussions have been going on for months between Downing Street, the Treasury, and the Department for Business and Trade.
Lawyers for the government reportedly expressed concern over the possibility of legal challenges to efforts to change property rights in the past.
But Mr Gove said he might move on with his proposals as early as next week in a Thursday interview with the Financial Times.
The potential that was revealed was referred to as "a compromise agreement" that Number 10 had approved.
Pension Funds Brace for £30 Billion Impact as Leasehold Reforms Loom
According to sources in the city, the business was getting ready to discuss the financial impact on pensioners in a more transparent manner should the changes advance.
"£30bn is the ballpark figure that the City and Treasury are now thinking about in terms of the impact on pension funds and insurers," stated an insider on Friday evening.
A DLUHC spokesperson declared: "It is not fair that many leaseholders face unregulated ground rents for no clear service in return.
"As set out in our 2019 manifesto, we are committed to reducing ground rents to a peppercorn, and we have already legislated to remove ground rents for new residential leases.
"We recently consulted on a range of options to cap ground rents for existing residential leases and we are carefully considering the responses.
"We will make an announcement in due course."
Both the Treasury and the Association of British Insurers declined to provide additional comments on the matter.