The Mansion Tax: A stopgap, not a solution

24th January, 2015 9:12 am

It is easy to get on the bandwagon to oppose a new tax. The mansion tax may have flaws but it represents the restoration of some rationale to property taxation in the UK and therefore it is very important to get behind the principles underpinning the idea.

mansion_house.jpg

Let’s first get the flaws out of the way. The very name ‘mansion tax’ is daft, implying that anyone in a £2m house lives in some kind of detached palace. Secondly, the cut off of a valuation of £2m (at current prices unlike the council tax bands which are based on 1991 prices) is totally arbitrary when, in fact, there should be a series of new bands above the current £320,000 band H. Thirdly, revenue raised through property taxation is one of the few ways councils can obtain funds and therefore it seems odd that the money has been earmarked for central government spending on the NHS.

However, despite these issues,  the concept of mansion tax should be supported. It is interesting that Lord Mandelson supports the principle of more bands, and yet this is not a view he ever expressed while in office.

General elections are about ideas and general principles rather than specific details. While it is now mandatory to cost every commitment, in practice these are little more than educated guesses at the mercy of all sort of unknown unknowns.

The other issues identified by opponents of the tax can be easily dismissed. The notion that it is a tax on London per se is nonsense. It hits London disproportionately because that is where there is most affluence. Any progressive tax will have a greater impact on London than, say Liverpool, but that is something we, as a party, should embrace. While the proposal may, indeed, make it more difficult to campaign in some London constituencies, that cannot be a reason not to embrace the idea.

The mansion tax has, therefore, to be viewed as an interim measure paving the way for a wider consideration of the council tax system and, indeed, business rates which ultimately could be based on the concept of a wider reform such as a land value tax which would be much fairer and progressive. Ultimately, it should trigger the process of revaluation and the addition of extra bands. It also will stimulate the debate over how locally raised money is used, which should result ultimately in the greater devolution that council leaders across the country hope for.  Given the proximity of the general election, the mansion tax concept should be supported and then the details of how it will work and be implemented can be thrashed out.

Christian Wolmar is seeking the Labour nomination for the 2016 London mayoral election

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  • barry

    Christian – since you’re a supporter of the mansion tax perhaps you can tell us how it works please. Can you set down the different bands and what the rates of tax to be levied for each band are? And can you tell us approximately how many homes fall into each band? And how this adds up to £1.2bn? And what the approximate number of those homes who are expected to delay payment of the tax until death or sale amounts to? And how we intend to assess property values? Sorry to ask you so many questions but as someone who is in favour of the tax I’m sure you must have these facts at your fingertips. Many thanks.

    • christianwolmar

      I am a supporter of the principle, as set out in the article, not the detail as set out by Ed Balls. The numbers, I reckon, are pure guesses since there has not been a revaluation since 1991 and no one knows how many homes would fit into the new category. As quoted in the Guardian, my support is ultimately for extra bands and a revaluation which would raise money for local government. However, we ought to get behind the principle of the tax as it is broadly progressive

      • barry

        Thanks for your reply Christian. So what your saying is that you don’t know whether this policy adds up and you have few worked-out details of how it will function in detail but we need to go out and argue for this on the doorstep because we support progressive taxation in principle. And this is one of our keynote economic policies! We need fully worked out, credible and costed policies if we are to persuade a doubting electorate that we’re sound on economics.

  • rwendland

    “not a view [Lord Mandelson] ever expressed while in office.”

    Mandelson also did not own an £8 million pound house when he was in office, so having a personal interest in such a tax! Mandelson now also objects to the HS2 which runs near his house: “political trophy project justified on flimsy evidence”.

  • PeterBarnard

    I don’t particularly like the idea of a “mansion tax.” One of my objections is that it triggers off a “politics of envy” accusation from our political opponents, which leads to nowhere satisfactory.

    As I have said before, UK residential property was valued at around £4,650 billion in 2013 (Blue Book 2014, Chapter 10), and council tax collected was £25.9 billion : say 0.6 per cent. Why not just levy a flat rate of 0.6 per cent on all properties? This would get rid of the Band H anomaly, and also result in a lower annual charge for Bands lower down from Band H.

    Of course, a property revaluation would be required, but isn’t one due anyway, since the last evaluation was 24 years ago?

    • jaime taurosangastre candelas

      A nice idea Peter, but the 0.6% would need to be annually assessed. Even in small localities, prices change relative to a neighbour locality (for example, a school rapidly improving so the catchment area becomes attractive, a new road making commuting easier, and no doubt for lots of other reasons). Your’s seems like a recipe for challenge, argument and a big bureaucracy to keep it working. Unless I miss something?

      • PeterBarnard

        I think that there are (potential and actual) anomalies in any system of raising tax against dwellings, Jaime. When prices change, due to the examples that you give, does the dwelling move up a band, for example (thereby occasioning challenge, argument and a ‘big bureaucracy)? And what about new dwellings – who assesses the value of those?

        The current system – banding – is also riddled with anomalies. A dwelling at the bottom of Band G is worth half that of a property at the top end of Band G, yet both attract the same council tax payment. Band G properties are worth about six times Band B properties, but pay just two and a half times in council tax. That’s an example of a distinctly regressive tax … and don’t even mention Band H ….

        Possibly – I’m thinking out loud, here – the 0.6 per cent could have been set in 2013, and then move up gradually in pace with the necessary local authority expenditures, but keeping the 2013 property valuation, with the next property valuation in 2023, and a “re-set.”

        An 0.6 per cent rate would be neither progressive, nor regressive, except it would be progressive in the sense that generally higher earners would pay more in property tax.

        I don’t think that your ‘room count’ is realistic, for the simple fact that not all rooms are equal, from house to house.

        • jaime taurosangastre candelas

          Indeed Peter, these things are not simple.

          Sometimes while letting my thoughts run unchecked, I think of two simple taxes. The first on income alone, a flat rate of perhaps 25%, payable on global earnings. No NI, which you correctly declare to not be a tax, but that i think in the real world people do think is a tax.

          The second, 2% on total global assets, with the proviso that if it is not declared as an asset, it is legally deemed “not owned”, and subject to state confiscation. But I am sure that the clever accountants would run rings around my foolishness.

          • PeterBarnard

            Almost a bit before your time, Jaime, but before VAT was introduced, we had what was called ‘Purchase Tax,’ and it had two (f not three) bands – a low band for everyday purchases, and a higher band (or bands) for “luxury” items.
            Of course, lawyers and accountants challenged decisions from time to time …. reminds me of the Great Jaffa Cake dispute (was it a cake = food = non-taxable), or a sweet (= taxable)? I can’t remember what was decided.
            No tax system is perfect.
            Not everyone in a local authority is a fool (indeed, the majority are decent, sensible folk)…. you really should not make such (foolish) generalisations ….

          • Chris Cook

            Here’s a thought experiment for you, Peter, which I floated at a Land Reform conference here in Scotland earlier today.

            First, apply a Land Use Levy on land rental values and pool the proceeds.

            Second, issue a Land Dividend to the aggregate value of the resulting pool as of right equally to all property occupiers, whatever their tenure.

            The innovation is that the land dividend would not be in £ sterling created and issued by banks, but in £1.00 denominated Land Use Credits issued by a local ‘custodian’.

            Owner occupiers may use the dividend towards their own obligation, while tenants would be able to pay their rent with it, since landlords could use it to pay their own obligation.

            The result is a net transfer from those with above average use of the land commons to those with below average use. Better still, for those averse to government, it needn’t go anywhere near government. The collected levy would simply be cancelled by the Bank of England like time-expired currency. There are many interesting policy options one could base upon such a land/location use levy.

          • MrSauce

            A Jaffa Cake is a cake: a small one, but a cake nonetheless.

    • BillFrancisOConnor

      This sounds like a non-progressive tax.

      • PeterBarnard

        I’m not sure that there is a catch-all definition of what is a progressive tax, Bill. For sure, someone living in a property valued at two million would be paying 10x the amount that someone living in a £200,000 property would pay.

        The current system – the tax rate goes down, as the property value goes up – is certainly regressive, and I guess my thought is, at least, a move in the right direction.

        Of course, a lot of these things would be a lot easier if incomes were to be considerably more equitably distributed.

  • jaime taurosangastre candelas

    I am a little discomforted by the repeated use of the photograph of the house by the LL editorial team. It looks like a very nice house, but whether it is worth over £2 million depends on where it is. It is also some family’s house, and they might be greatly irritated to know that it is being repeatedly used to illustrate a political article about Mansion Taxes. Emily Thornberry learned to her cost that using a photograph of someone’s house for political purpose can end up in embarrassment.

    • Derek Barker

      Like, is this your second home Jaime? Can’t quite identify the car, Jag? DB9, Mazda?

      • jaime taurosangastre candelas

        My second home? Goodness, that would be nice, but I am afraid that I have no plans for a second home in England.

        Our Canadian plans advance, but slowly. We have now the permissions to build the house, but as yet no agreed design or builder selected. It is completely the opposite way to the UK, where you only get planning permission once you show designs. I want a stone built house, but it is about three times the price of brick and timber. We continue to discuss.

        • Derek Barker

          If I were so lucky, I’d opt for a log style home.

          Up the A9 heading North in Scotland there are some beautiful plots but being the person I’ am i’d not be happy unless all my country men and women could hold such of their own.

          • jaime taurosangastre candelas

            You don’t need to be lucky, Derek, it is a function of having a plan and working towards it.

          • Derek Barker

            The Boys played at a wedding not to long ago, the couple had relatives at their wedding from Canada, they were ex-Scots who had moved to Canada over twenty years ago but were as Scottish if not more than the day they left.Canada is a beautiful country and yet those I’ve met who have moved their think no less of their birth home and often talk about returning home.

            I have a vision! that one day all people will have a nice home and no worries over bills, I wont live long enough to see my vision occur but deep in my heart I know that one day all the people can live in relative comfort.

            Happy Burn’s Day in a few hours! For to see us as others see us!

        • bikerboy

          That’s British Racing Green. Classic colour

  • FMcGonigal

    Instead of a specific tax on mansions give each Local Authority the power to set their own bands and rates, or even better let local people decide in referenda.

  • treborc1

    I was listening to a program this week on radio one of the biggest expense to the NHS is obesity the NHS is saying they want to use the gastric band on people stomach at a lower weight of 28 stone this is to save peoples lives. Well why are these people over weight was the question and one lady said she was eating ten or twelve burgers a day they were cheap they were ready and they were nice.

    Well why not stop messing about and accepting that tobacco kills people so you taxed it, so tax fat food like burgers and all those retail outlets that do fast foods people like KFC and McDonald’s Chip shops. Tax placed on drink because alcohol is another one of the things which affect the NHS, and drug use legalize it and charge the users , they pay for illegal drubs make it cheaper but not free and give the money to the NHS.

    Fast fatty food 3p NHS health tax sugar food high in sugar over say 10% tax it, pop lemonade that had as much as 29 spoon full of sugar tax it , sweets if it is sugar tax it a penny nobody who flogs off the worse type of food which is nothing but fat cheap tax the bloody stuff and give it all to the NHS.

    I bet the Tories and labour are eyeing up fuel now for a tax rise because it’s dropping bet the idea is 4p of litre to give to the NHS or pay off the deficit.

    We have to help the NHS by helping people get treatment people are over weight leading to a rise in the Use of the NHS well then . tax the damn foods that cause it.

    Last time we said to all these retailers that planning laws would be changed to stop these burger retail outlets from going within five miles of schools which McDonald’s have always done , so McDonald’s said they would give labour £30 million for schools sports it was dropped so labour are as much to blame as anyone.

    Stop messing about with mansion taxes which are not taxes, but make a charge on all those who are causing the glut of fatties.

    • MrSauce

      You’re so behind the times.
      There isn’t an obesity crisis any more. No-one in Cameron’s Britain can afford to eat.
      Do keep up.

    • Jane Manby

      tax the rubbish processed foods from manufacturers too and remove the VAT on healthy basics

  • “The mansion tax has, therefore, to be viewed as an interim measure paving the way for a wider consideration of the council tax system and, indeed, business rates which ultimately could be based on the concept of a wider reform such as a land value tax which would be much fairer and progressive.”

    You missed the word “more” in front of “progressive”, but apart from that, agreed.

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