Many landlords have retired in the past few years, blaming tax changes and high interest rates in a move that squeezed supply while demand soared.
National Insurance, often described as a tax on work, is paid by employees and employers to help fund benefits and pensions. Levying it on property income would be a substantial departure from current rules and would also leave pensioners who let out property paying it for the first time.
Tim Stovold, partner and head of tax at the accountant Moore Kingston Smith, said charging landlords national insurance on their rental income would “would go against quite a lot of theory around tax and National Insurance”.
However, there are examples of past governments making up 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 ramp up taxes on landlords further would need to be “very finely balanced” as it could easily backfire on already struggling renters.
He said: “The rental sector has been hammered 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 put their rent up by.”
The Resolution Foundation – which until recently was led by Torsten Bell, who is now a Labour MP – rejected the claim that another tax raid on landlords would damage the rental market.
Mr Corlett said rents have soared as a result of high nominal wage growth in recent years, rather than because of landlords passing on costs.
He said: “It’s true that lots of costs have gone up for landlords with the changes to tax relief that have already happened and interest rates going up. But we’re generally sceptical that these things get passed on to renters. That is not how it should work in theory, but it may well mean that the size of a rental sector shrinks and that home ownership rises. But that is a good thing.”
A Treasury spokesman said: “Following the spending audit, the Chancellor has been clear that difficult decisions lie ahead on spending, welfare and tax to fix the foundations of our economy and address the £22bn hole in the public finances left by the last government. Decisions on how to do that will be taken at the Budget in the round.”