The latest fault line in the Coalition seems to be developing around taxation.
Chancellor George Osborne is ‘reviewing’ the top 50% income tax rate, much to the annoyance of the LibDems, whose priority in income tax terms is to raise thresholds to take the lowest paid out of tax altogether. The LibDems have the Coalition Agreement on
their side and Danny Alexander is on the record as saying: “The idea that we are going to shift our focus to the wealthiest in the country at a time when everyone is under pressure is just in cloud cuckoo land.” But Osborne faces a lot of pressure from the Tory right, including Boris Johnson, who has called loudly for the 50% tax rate to go.
The LibDems’ Vince Cable has admitted that the top rate of tax should be removed, because the Coalition are united against high marginal rates of tax, but that it should be
replaced by a tax on wealth or on highly valued property, not a position that will endear him to the Tory right. Cable was a strong advocate for the LibDems manifesto promise (which didn’t make it into the Coalition Agreement) to introduce a Mansion Tax.
Last weekend Eric Pickles joined the debate (or bitter in-fighting, whichever you prefer),
arguing that the 50% tax band was only a temporary measure to reduce the deficit and lambasting the Mansion Tax idea: “It would be a very big mistake to start imposing
taxation on the back of changes in property values, particularly with big regional variations”….”People will suddenly find themselves in a mansion and they hadn’t realised it was a mansion. If it is only going to be mansions, the kind of thing you and I would regard as a mansion, it ain’t going to raise very much.” But he also makes clear he is against any increase in taxes on ‘the middle class’. As he is also against taxes for the rich, that doesn’t leave many options other than more cuts.
The LibDems’ original proposal for a 0.5% annual Mansion Tax on properties valued at £1 million or more was quickly revised when they realised how many people in LibDem target seats in London and the south east already owned homes that were over the threshold. Their revised proposal – a 1% annual tax on homes over £2 million – hit far fewer people and attracted more support – including from David Miliband during the Labour leadership election. The tax was estimated to raise £1.7 bn a year and Miliband claimed it would avoid the need to make savings in the housing benefit budget.
Taxing wealth, property and land has been a shibboleth for many in the Labour Party over
the years. The Labour Land Campaign has argued long and hard for the introduction of a Land Value Tax saying, in principle, that land is a finite resource, that increases in value are created by the society as a whole not the individual landowner, and that the community as a whole should benefit.
An excellent pamphlet by Toby Lloyd published by Compass in 2009 called ‘Don’t bet the house on it’ looked at the ways major reform of property taxation could help tackle our dysfunctional housing market and the crisis in housing supply. He detailed the advantages of introducing a LVT, making possible a total reform of the complex array of property-related taxation in this country.
Whether Labour’s housing policy review will venture into this territory will have to be seen. It would not be good if the LibDems managed to push the Coalition into adopting a Mansion Tax or any other additional property tax as part of a deal over removing the 50% tax band but Labour had not even got round to considering the matter. The argument about Mansion Tax could raise some fundamental issues about the housing and land markets that all parties have dodged for many years. Even if the Tories don’t like it, there may even prove to be a progressive majority in favour of a big reform.