Abbott and Mandelson agree, so the Eds must be right on Mansion Tax

It’s interesting how many wealthy people have strong views on the Mansion Tax but have no recorded views about the Bedroom Tax. We’re in this together? Well no we are not.

Over the past few days the news from Oxfam that 1% of the world’s population own as much as everyone else put together shocked a lot of people. It’s patently wrong and in terms of economic development, totally counter-productive. In the UK the earnings and wealth of the richest 1% continue to grow at a rapid rate whilst the earnings of ordinary wage earners have grown less that inflation – ie been cut in real terms – for the last four years.

We expect Tories and minor celebrities to bleat when taxes are increased on the rich. Rather more surprising are the interventions by Peter ‘intensely relaxed about people getting filthy rich’ Mandelson and Diane Abbott – who apparently thinks it’s a hoot that she and Mandelson agree about something.

What they had to say and how they said it was unhelpful and gives the Tories ammunition, particularly Abbott’s bleating about some of the money raised being spent in Scotland and Mandelson agreeing with the LibDem alternative of additional council tax bands. National taxes, which the Mansion Tax will be, have different impacts on different regions. Taxes on oil were mainly generated in Scotland but were of benefit to the whole country – it is the SNP’s line, and not the Labour Party’s, that the money should benefit Scotland alone. Lots of other taxes produce more from London, but only because relative to the rest of the country it has a lot of wealthy people and hugely valuable property.

My complaint about Mandelson’s interview was that it is not the first time he has spoken out in a way that undermines Ed Balls and Ed Miliband (especially talk about ‘clobbering people’), having insisted on total loyalty when he was in charge. He is long enough in the tooth to know what impact his interview would have. At least he did appear to accept that it is right in principle to tax very valuable property, wealth that has not been earned but is effectively a windfall due to the property bubble.

It is fair enough to argue that the council tax option is the better one. But there are specific problems with it, which is why the Labour approach is the right one at present. First, Mansion Tax is easier to introduce and will start generating income far more quickly. To produce a fair result, introducing additional council tax bands would involve a revaluation of the national housing stock, which has not been done since 1991. This would be a very expensive and drawn out process, which the Tories would whip up into a national storm, and it might not produce revenue in the next Parliament. Secondly, council tax is collected locally and the additional income would not go into the national coffers to be redistributed to the National Health Service – which is now the purpose of raising the tax. I have no interest in boosting the income of Westminster and Kensington and Chelsea, which have far too many advantages in the local government finance system already, and a complex arrangement would be necessary to ‘nationalise’ the income. This would be heavily resisted by local politicians. And thirdly, as a graded system, additional council tax bands would be likely to penalise a much wider range of people whose homes lie in between the current top council tax band and the proposed £2m Mansion Tax minimum.

Disinformation about the Mansion Tax is being widely spread. My local Tories are running a scare campaign that Labour plans to tax everyone more for their homes, sending out letters without a Tory logo on top, designed to look like an official communication.

Ed Balls has done his best to deal with the concerns about the Mansion Tax, although a hostile media (made up of quite a lot of people who will have to pay it) doesn’t help. The ‘poor grannies’ (as Myleene Class called them), asset rich but income poor, have been exempted so the tax will roll up until their bubble-boosted capital asset is sold. The administration of a banded system doesn’t involve valuation for most people. He has promised that the £2m threshold will rise with the inflation of these types of property, so there will not be tax creep to catch more people. And the money will go to the NHS.

Polly Toynbee wrote a good column recently about how the national discourse on wealth is controlled by a tiny number of super-rich people who are clueless about the lives of the majority. On Mansion Tax, she argued:

But what inflames inhabitants of the 0.5% of properties affected is the idea of paying at all. No one likes taxes, especially new ones. But every rational review of the UK tax system concludes that failure to tax assets is a disastrous distortion. The sweat of our brow is taxed but not the unearned, undeserved windfalls from damaging property bubbles. Homes often earn more than their occupants do at work. That makes neither economic nor social sense. Even in America most states tax homes at around 1% a year.

Labour would do well to say that it will review property taxation thoroughly when it comes into Government, so that Mansion Tax could be a stop gap to a more thorough reform of property and land taxation. A new system should seek to moderate rapid rises in value which benefit a small number of people to the disbenefit of many more. Taxation of landlords as well as home owners should be reviewed, as should the taxation of foreign investors in land and property.

Ed Balls knows the Mansion Tax is popular in the country but that some of the people who will have to pay it are powerful with easy access to the media, so it will have a rough ride. It will be difficult for some Labour Candidates in areas with high property values, but its impact is no greater than some Tory tax increases – for example VAT, removal of child benefit for high rate tax payers, and increased stamp duty on valuable properties. Mayoral Candidates in particular should be very careful what they say because trying to be populist with this issue is more likely than not to lose them support within the Party.

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One Response to Abbott and Mandelson agree, so the Eds must be right on Mansion Tax

  1. danfilson says:

    I’m unsure how popular the Mansion Tax is around the country and outside London, but I will take your word for it.

    Meanwhile we should pursue the extra Council Tax bands and a revaluation IN PARALLEL WITH a Mansion Tax. The former produces revenues that will go to local authorities and would require a simple Bill in Ed’s first Parliament. Contrary to many fears, I suspect many properties might not change bands (which will all be uplifted as to the clue range spanned) but where they all move up in a particular local authority area, the product of a Band D council tax will correspospondingly rise meaning a lower Council Tax can instead be levied, all things being equal; it would just be that the new two top bands would contribute a bigger share.

    The Mansion Tax, as at present conceived, needs restructuring as it seems quite wrong that a property just over £2million wil bear the same as one nearly 50% more valuable, so a sliding scale needs more subtlety.

    We might allay fears of properties creeping into taxation by declaring the starting valuations would be as at 1 January 2015 and the first statutory upgrade in the threshold (and of each valuation made) would apply on 1 January 2016 at the rate by which all properties valued at 1 January 2015 as worth over £1.8 million had appreciated by 1 October 2015 or 2% whichever is the higher percentage. This would reassure the current or aspirational Georgian villa dwellers of Belsize Park who live in fear of paying a tax! I think with a bit of art we coud make it a low administration cost tax, in which those with properties worth over £1.8 million self-registered, then by a given date they would register the value they think their property is precisely worth (as at 1 January 2015) and then would do a Self-Assessment of the amount due. HMRC would announce that it would sample check a percentage – perhaps as low as 5% – of all values registered between £1.8million (which wouldn’t produce liability) and £3million, a higher percentage – perhaps 10% – of those values registered at £3-6million and a probably much higher percentage – perhaps 50% – of the properties valued between £6million and £15million, with all values over £15million being checked. They would also sample check the Self Asessments of the amounts due. Clearly therefore not every property would require a formal valuation but it might be prudent for owners to do so – with such depth or accuracy as they think fit – as there would be very severe penalties for under-declaration by more than 20% and severe penalties for errors of over 5%; the rest of under-declarations would simply be charged the extra tax and interest thereon. We could have a generous rebate for properties listed as Grade I or 11* in recognition of the costs of maintenance of such properties, and perhsps a modest nod for Grade II other properties or even those in formal conservation areas (maybe 5% of the tax due).

    I think we should recognise the micro-economic consequences of the Mansion Tax in the authority areas most affected, eg Royal Borough of Kensington & Chelsea and the City of Westminster, where the bulk of the national Mansion Tax take will arise. The amount removed from the local economies would exceed £1billion, which could be quite damaging to local traders whether ?Harrods or the corner convenience store – yes, the wealthy use shops! – so whilst the bulk of the Mansion Tax would flow to HM Treasury and be spread back across the nation (personally I don’t support hypothecation of taxes, but at present the Labour policy is to spend the money on “saving the NHS”) there might need to be some means conceived of rectifying the money-sucking effect by granting special allocations for acquisition of housing by housing associations in the boroughs most affected in the hope that this redresses the social consequences of driving out the poorer from their boundaries and alleviating London’s housing crisis. Who knows, the Mansion Tax payers might sell up and flee to the Cotswolds!

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