Taxing unearned assets: the argument for a mansion tax

The Conservative case against Labour for the next election is clear. Taking advantage of the return to economic growth and the fortuitous fall in prices, their strategy is safety first. Their politics will evoke the modern-day Conservative Party’s deep-rooted instincts, to stave off chaos and uncertainty, defend the social order and project an image of authoritarian but moderate centrism. In the last two years, politicians associated with fractious ideological argument (Landsley, Willetts, Gove) – have been pushed rout They’re eplaced by bland PR professionals and technocrats – Nicky Morgan and Jeremy Hunt for example.

The Conservative hope is that people ignore the multiple, structural crises in our society and economy, or the devastating effects of the top-down reforms unleashed in the first few years of their government. British is struggling after an unsustainable attempt to centralise power over schools and the return of a vicious internal market in the NHS. We’re suffering from the failure of wages to rise despite increases in growth, and the reliance of our much-vaunted return to prosperity on increasing levels of personal debt.

But none of this matters as long as the Conservatives can prove they are more moderate and trustworthy than their rivals on both the left and right. UKIP’s rapid rise and quicker fall are an asset to Tory strategists. Cameron will revel in being outflanked on the right. Refusing to following every one of Nigel Farage’s hysterical positions on Europe and immigration shows his supposed moderation.

More importantly, the strategy depends on portraying Labour as a group of dangerous lefties who will unleash chaos and disaster on British society. The front page of the Conservatives’ website defines the line of attack. The Tories offer lower taxes and ‘strong and stable leadership’; Labour, by contrast, will bring ‘weakness and instability’ and most importantly, force us all to pay higher taxes.

I worry that this plan might just work. For me, the Labour movement is about organising society so we all – not just the elite – have more power over our lives. Taxation isn’t a virtue in its own right. Tax is a way to pay for things better done collectively, and there are many of those, but the last Labour government relied too much on tax. It spent too little time reforming the structure of the economy so wages and living standards stayed high in bad times as well as good. There wasn’t enough of what Ed Miliband calls pre-distribution. As thousands of commentators have since argued, 1997-2010 was about the treasury reaping the short-term returns of a flawed model of capitalism, not challenging the status quo until the economy and tax base collapsed.

My point, though, is that there are different kinds of taxes. Conservative voters (the kind we need to vote Labour) worry that money they’ve worked hard to earn goes into a big black hole.  The problem is with attitudes to a tax on income. The case for a tax on property is different. Yes of course, a proportion of the value of every house is paid from wages. But house prices increase far quicker than earnings – everyone, including readers of The Daily Mail think that is mad. The point we need to be emphasizing is that the vast bulk of a mansion tax falls on value that has not been earned.

In Britain, we are far too squeamish about taxing assets: every party is bottling out of revaluing council tax bands, for example. The left in Britain used to have a property tax as the centre of its economic platform. The Labour Party never argued that labour in a capitalist society is inherently exploitative. Labour’s founding argument was against income that wasn’t earned. We need now to make similar arguments, and make a clear case for taxing unearned assets.

One of those arguments is that a nation-wide property tax can help rebalance the extreme variations in house prices across the country. Let’s be honest. Anything which reduces house prices in the South East, and which shrinks the gap between London and the rest of the country would be a good thing. A property tax set at a single rate (I think £2million is too high) would offer a disincentive for house prices to rise. The weakness in the mansion tax policy has been that we were vague and unclear about who it applied to and how it’d work, not its principle. Before it is announced, every policy needs to be fully worked on.

At the moment we’ve got tax policy the wrong way round. We have a property tax set by local councils, and income tax set by national government, when the tax on wages need to be able to respond to local economic conditions but a tax on property used reduce national inequalities in house prices. My tax plan would be to give councils a bugger slice of income tax, letting them vary rates in response to local wages and local circumstances. We’d use a property tax to fund national services and equalise property prices across the country. As it increases as a proportion of total state revenue, we can cut income tax a corresponding account.

But isn’t the problem with a property tax the fact we don’t know the price of property until it’s sold? How do we assess value at another time, particularly with such a volatile property market? It’s a problem. But smart solution can have an effect reducing property price. Within limits, why don’t we ask taxable owners to declare the value of their own assets? The owner would declare the value (presumably quite low), and then be unable to sell their property for more than the amount they pay tax on plus inflation. The treasury would lose a little money. But the restriction on increasing asset prices would bring a greater benefit to society.

The problem is that too many Labour people instinctively think taxing people and spending money is a good thing – so when the Tories accuse us of “tax bombshells”, we’re stunned into inaction. We need to get far more confident and sophisticated in the arguments we make about tax, and that means make the case for some sources of revenue more than others. Labour should be the party that values labour, and try to tax it as little as possible. We should, by contrast, denigrate money-making from the mere possession of assets.

There is, of course, one disadvantage. But if a mansion tax means Britain loses investment in our property market from wealthy foreigners who contribute nothing other than property price inflation prices, I won’t complain. We could do with losing a few oligarchs.