Asset manager M&G has swung to a loss driven by the Labour government’s introduction of a cap on existing ground rents.

The FTSE 100 group hit out at the government after it reported a £165m loss for the first six months of the year, driven by a £325m write-down eating into its bottom-line. In its core operating profit, a measure which excludes the write-down, the group posted a 15 per cent increase to £435m.

Housing secretary Angela Rayner has been one of the key advocates for the £250 annual cap on pre-existing ground rents, which refers to annual fees paid by current leaseholders to a freeholder for the land beneath an older property.

The move was part of a bill that added reforms to the Conservative government’s ground rent legislation.

M&G’s shareholder fund holds approximately £722m in UK ground rent assets, which generate long-term income streams to pay future customer pensions. The group was forced to recognise the write-down after the cap limited the cash flows the freeholds could collect, slashing the value of the assets.

The firm’s top boss Andrea Rossi said: “We are disappointed that we have not been able to agree on a proportionate solution that works for all parties.”

Labour’s solution is ‘disproportionate’

Labour is targeting eventually phasing the cap down to £0. M&G said it had lobbied the government for a softer alternative, advocating for a cap tied to initial lease amounts with inflation-adjusted escalations as opposed to a blanket £250 cap that winds down.

“While M&G fully supports the Government’s objective… the proposed solution is disproportionate,” the asset manager said.

It added: “These changes, if implemented, would negatively impact savers and companies that have chosen to invest in UK assets; they would also set a worrying precedent, leading to consequences for the UK’s reputation as a stable investment location.”

Elsewhere, M&G posted a jump in total assets under management to £387.4bn, up from £375.9m at the end of the year.

Net inflows reached £2.4bn, a hefty increase from just £300m the prior year. Meanwhile asset management inflows topped £2.2bn, with £1.3bn across private markets and £900m in public.

“The strong financial position of M&G and our thoughtful planning mean that we are well positioned to absorb and manage the negative impacts generated by [the ground rent] legislation,” Rossi said.