Why the left should resist the temptation of the Mansion Tax

By Tim Nicholls / @tim_nicholls

I’m a leftie. I believe, to my very core, in the redistribution of wealth because more equal societies are better functioning, happier and more just. I believe that the rich have a moral duty to help pay for those in need. So, I must be positively cock-a-hoop about the Lib Dem’s new plan (if infighting does not cause them to retract it) to implement a new mansion tax. I should be calling on Labour to propose the same. Right?

Wrong.

First of all, I find it shocking and more than a little hypocritical that the Lib Dems can spend years railing against Council Tax and how unfair it is to base a system of tax on house value, only to then proclaim it as the fairest base for their new policy. David Laws showed this hypocrisy, wholeheartedly but quite obliviously, last night on Question Time: one minute defending Vince Cable’s new tax, and the next lambasting Michael Heseltine for bringing in Council Tax. Now, don’t get me wrong, there is nothing wrong with lambasting Michael Heseltine, but by unconsciously admitting this double standard in their tax policy, the Lib Dems have shown themselves to be just as untrustworthy on tax and redistribution of wealth as the Tories.

But my main problem with the Mansion Tax is not that it is patently hypocritical: it is that the Lib Dems actually had it right before. Council Tax is unjust and house value is not a sound basis for tax liability. In my mind, taxes should be levied on the transfer of wealth or the use of services. We pay tax on our income, the purchase of a house, the purchase of shares, the sale of a business, and inherited wealth, among other things. All of these revolve around a transaction of some sort. Road Tax and TV Licences are fees for the right to use something and go towards its maintenance: i.e. there is a tangible gain for us to be able to use it and this nominal profit is what legitimises the charge levied by the Government.

But the Mansion Tax does not have this underlying legitimacy. Instead it is a tax on continuing to own something. It is like having to pay VAT every year on, say, a computer. You pay more tax simply for the right to carry on owning something.

I agree with higher rates of Income Tax and proposals for higher levels of Capital Gains Tax and Inheritance Tax without any difficulty. The prime function is pay for state services and to redistribute wealth, but a person is receiving a nominal gain every time they pay tax. That is not the case with the Mansion Tax and, even though it will redistribute some wealth, it is still a bad tax. Furthermore, it carries with it all the flaws of Council Tax (it ignores that a house worth over £1 million may not be a remarkable house in some areas, or that the person living there may not be wealthy themselves).

Tax, in a redistributive system, should be based on ability to pay: i.e. levels of actual wealth. House value ignores this. Aiming it at the presumed rich (although this may not be the case in reality) does not give the plan legitimacy. If house value is an unsound basis (and it is), it is unsound for everyone.