Mansion tax vs Council tax: don’t believe the hype

The mansion tax isn't just a short-term revenue raiser - it’s also popular

Mansion ncr

Peter Mandelson’s description of the ‘mansion tax’ as a ‘crude, short-termist measure’ is the most recent denouncement of Labour’s proposal to tax properties worth over £2m.

His criticism can be added to that of the ‘opposition chorus’ of others who’ve criticised Labour’s moves, and who have cited reform of council tax as a more sustainable revenue stream and a less divisive tax reform for the party.

From a policy perspective, comparing council tax reform with the introduction of the mansion tax as interchangeable property taxation alternatives doesn’t quite make sense. However this very comparison is one being made by politicians and voters, and an intelligible pros and cons list is hard to find.

So today we’ll look at the much maligned ‘mansion tax’ and tomorrow we’ll assess council tax reform.

PROS

  1. Popularity: The idea of a popular tax might seem a contradiction in terms, but Labour’s ‘mansion tax’ has a staggering 72 per cent approval rating, reflecting statistics which indicate a public preference for increased spending on public services (even at the cost of borrowing and tax increases) – perhaps even echoing the idea that ‘voters actually love tax’.

  2. Hypothecation: Complicated-sounding, but fairly simple, ‘hypothecated’ or ‘earmarked’ taxes are those which have their revenue assigned to a particular end. Labour has earmarked the revenue generated from the ‘mansion tax’ to the NHS ‘Time to Care’ fund of £2.5bn to fund an additional 20,000 nurses and 8,000 GPs by 2020.

    Indeed, the estimated contribution of £1.2bn to the fund is part of its popularity, as polling this month indicates that the NHS has overtaken immigration as the top priority for voters.

  3. Short-term: Cited by Mandelson as a criticism, the ‘short-term’ nature of the tax is actually one of its strengths, with its potential to raise much needed revenue quickly a very positive one. In addition, the tax is simple to administer and difficult to avoid.

  4. Fairness: Despite fears to the contrary, the tax will target only the very top tier of homeowners. Irrespective of Conservative claims of a ‘family homes’ tax, this is a tax on the very wealthiest alone: indeed, only 6 per cent of UK homeowners own a house worth more than even £500,000. It will also be graded and proportional, with at least three bands at £2m, £5m and £10m.

 

CONS

  1. Sound-bite over soundness?: The need for comprehensive and fair property tax reform, especially of council tax, has been widely explored from report to report. It is possible, in the long-term, that this specific hypothecated tax might detract attention from the need for a comprehensive review of property taxation. It is this ‘short termism’ that Mandelson and others have criticised.

    However it is also possible that a mansion tax will comprise the first step in fuller property tax reform. Indeed, the introduction of a mansion tax and reform of council tax are not necessarily mutually exclusive options.

  2. The party of increased taxes: Irrespective of the tax’s popularity, Labour needs to be wary of avoiding the Conservative’s ‘tax and spend’ mythologies of old.

  3. The repercussions: It’s been claimed that the tax will hurt the UK’s attraction for international entrepreneurs and investors, a familiar criticism whenever any progressive reform is mentioned. And it is perhaps unsurprising that this suggestion has come from the Thatcherite Centre for Policy Studies.

  4. Enemy of the elderly: Myleene Klass’s claims that the tax would hit the ‘little grannies’ has been echoed by politicians like Tessa Jowell who fear the effect on the elderly who are ‘asset rich but income poor’.

    However the £2m threshold will see only 100,000 liable to pay, while mechanisms will ensure that those on incomes of less than £42,000 could defer the charge until the property is sold, somewhat cooling these fears.

It seems that despite any drawbacks, and the criticisms of high-profile Labour figures, the mansion tax is not only a much-needed, short-term revenue raiser – it’s also popular (a huge achievement for a new tax).

Indeed, in the context of the Conservative promise to cut taxes for 30m people, a party that prioritises public spending and wisely links its spending plans with clear revenue sources shows itself to be the most ‘cautious’, in the words of the Institute for Fiscal Studies, and the most principled, in the face of considerable public scrutiny.

It may just be this sort of moral compass that sees Labour secure voters’ confidence in May.

Daisy-Rose Srblin is research fellow at the Fabian Society. Follow her on Twitter

36 Responses to “Mansion tax vs Council tax: don’t believe the hype”

  1. Selohesra

    72% of people who wont have to pay support a tax that others have to pay – no surprise there

  2. LB

    How are you going to get 6,000 new extra Doctors in 6 years when it takes 7 to train them up?

    Yep, import them.

    Just more migration

  3. Lorne Gifford

    Ed says the average mansion tax bill will be £2000 per year, and he
    expects to gain an extra £1.2 billion in revenue. Here’s some really simple
    mathematics – £1.2 billion divided by £2,000 equals 600,000 homes.

    So 600,000 homes will be expected to pay. Not the ‘top 1%’ but the ‘top
    20% of all homes’ Every single home worth more than £750k will be targeted as a
    ‘Mansion’. That makes it probably (a little) less popular than it was before

  4. Lorne Gifford

    For every celebrity or oligarch that we sneer and snigger at, there are a hundred middle class families with finances and mortgages pushed to the limit that will be devastated by this tax. For a typical £3m London semi it means an extra £30,000 per year tax. That’s the same as adding a £2m debt burden, so
    whilst there may be 100,000 homes that today are ‘mansions’ this will drop dramatically, and along with it you can kiss goodbye to much of today’s £12 billion annual stamp duty revenue.

    So you get 1,000 celebrities and oligarchs that we can laugh at, perhaps 9,000 bankers that actually deserve it, but another 90,000 families that are royally sc@@wed by it.

    This tax is not targeting the super-rich, it is targeting those people that have worked for 25 years under millstone mortgages to buy something that can passably be called a comfortable family home and for whom it is more important to get home at a reasonable time than it is to live in a large house or drive a fancy car. In other words, it specifically targets those in the South East that have families and children.

    The last country that tried to do this was Greece and it resulted in a 40% across the board drop in property value, uncontrollable levels of tax evasion, enormous capital flight, loss of confidence and collapse of the government. Are Labour really taking their key economic policies from Greece
    these days?

    oh and if you think a £3m semi is anything other than average just look at Zoopla for a less fashionable part of London like Fulham. Welcome to the Rat Race.

  5. christinemelsom

    What about the Millionaires who live in the North? Because of lower property values they will get away with it. A mansion is a mansion wherever it is situated. Many of the properties hit by this suggested tax will certainly not be mansions but small terrace houses.
    If you want a mansion tax, then it must be fair to all and this Labour tax would be anything but. How many lots of MPs mansion tax bills will the electorate be expected to pay? Perhaps that’s why they changed the original figure from £1million to £2million, their |London homes may just escape. Cynic or not I don’t trust them an inch.

  6. Kathryn

    there are 23.4 million homes in England and Wales.

    I’m not sure your figures add up.

    600,000/23,400,000 is more like 5%.

    You’re welcome.

  7. silburnl

    You’re numbers don’t gibe.

    Firstly google tells me that there are 25 million homes in the UK, so 600k homes is 2.4% of the total not 20%.

    Secondly the rate for houses valued at between 2 and 3 million is cited on the wikipedia page for Mansion Tax as being £3000, not £2000; using that number gives us 400k homes (1.6% of the stock).

    Thirdly the average rate across all ‘mansions’ is given on that same wikipedia page as being £12000 (ie houses in the £3M+ brackets will be paying significantly higher amounts than £3k); using this number it works out to 100k homes (0.4% of the stock).

  8. Kathryn

    Zoopla – Fulham – 3 and 4 bed properties.

    There are 13 pages of results and it drops below £2m on the third page.

    I’m still not entirely sure what point you were trying to make, but I don’t think your example supports it much.

  9. silburnl

    “oh and if you think a £3m semi is anything other than average just look at Zoopla for a less fashionable part of London like Fulham.”

    I checked Zoopla for Fulham – it gives valuations of £2.7M, £2.5M and £1.8M for Detached, Semi-detached and Terraced properties respectively. Then I checked the most recent figures (Sept 14) from the Land Registry for the same area which gave me average sale prices in the borough as £1.8M, £1.5M and £1.2M for the same categories. I think those records of actual sales are rather more reliable than whatever ‘secret sauce’ zoopla put into their estimating methodology.

    Searching around the various inner London boroughs on the land registry, the only one I could find where the sale price for a semi-detached property averaged £3M+ is Kensington & Chelsea (and that only since May 2013).

  10. Lorne Gifford

    Hi Kathryn

    The point I’m trying to make is that Mansion tax will clobber (as Mandleson puts it) the hard working middle classes in London. These are the same people who have seen their tax bills rise consistently in the last 10 years, and often have seen income static or falling. The same people who’s ‘broad shoulders’ are already buckling. The British tax system is currently very fair and very progressive (in that higher income groups pay significantly more). To add an ill thought out Mansion tax runs a very high risk of collapsing the whole pack of cards.

    The ‘top 1%’ in the UK earn about £160k per year before tax. It sounds a lot I know, but take the income tax and national insurance off and then take the mortgage payments, council tax, car tax, congestion charge (ie living in london tax) and every other payment and you don’t end up with a great deal left. It’s a lot more than left over from an average wage I know, so there is no pleay of poverty going on, but if you then add in school fees for those that want to give their children a far better start in life than we had (speaking from personal experience here), you end up with about zero left over. No new cars, no fancy holidays, and certainly not the odd £30k kicking around to pay an annual mansion tax.

    Given that tax evasion can be achieved quite simply (just ask all those celebrities that get away with it), trying to over tax honest people to the point they don’t have anything left simply leads to an enormous incentive to say, ‘oh sod it’, and go find themselves a decent accountant. Mansion tax did not work in Greece, so why on earth do people think it will raise a penny here.

  11. Lorne Gifford

    you’re absolutely right, if mansion tax were to be £2000 and Labour wanted to gain £1.2 billion per year from it, then it would be payable on the top 5% of all homes

  12. Lorne Gifford

    so that’s what I like about this column, people are prepared to check claims and will say when they’re wrong. Let me amend my original phrase to “oh and if you think a £3m semi is anything other than slightly better than average just look at Zoopla for a less fashionable part of London like Fulham.”

    The point is a £2m or £3m home in London is not really what we all think of as a Mansion.

    The picture at the top of the article here shows a typical image of a Mansion, but you bet your bottom dollar that it falls short of being classified as a ‘Labour Mansion’ if it’s more than 50 miles from London.

  13. Jean Hughes

    I think the obvious thing would be to look at council tax banding

  14. Guest

    Keep whining about a tax you’ll have to pay.

  15. Guest

    Ah yes, the “middle class” people with £3 million houses. Right.

    Your poor, poor lower end of the 1%.
    And wow, they worked in the city for 25 years and are now retired.

    Then you launch into false equivalence.

    Personally I’d just make more council tax bands – you’d be paying FAR more than the proposed mansion tax.

  16. Guest

    No, you’re trying to defend the merely city millionares. It’s quite simple.

    You then try and use only income tax data, rather than looking at total incomes. As you cry for the poor people on only 160k.

    And you should be audited, and tax loopholes closed. Let’s spend 10 billion more on tax collection, it’ll pay off.

  17. Riversideboy

    “Typical £3million London Semi” have a word with yourself mate, out of touch doesn’t come into it. Try Bury, Middlesbrough, Gateshead or Grimsby. If you think people are going to feel sorry for people wallowing in vastly overpriced property in a country called London that’s established its self inside Britain you are certainly very wrong. Let the house prices fall to what they are in those real
    BRITISH towns mentioned above and they won’t have the problem.

  18. Guest

    No surprise you want far less doctors, so the peons can’t have healthcare, as you cry as usual for stopping the 99% from crossing borders.

  19. Lorne Gifford

    ok mr Guest,

    Your first point – absolutely bang on correct

    Your second point – not poor, and 1% of the population do not own 50% of the wealth, 85 people in this world own 50% of the wealth.

    Your third point – surprisingly if you cared to google my name you’ll find I haven’t worked for 25 years in ‘the city’ and I am far from ‘retirement’. You’re talking about the 9000 bankers that I personally think should be lined up against a wall and shot for their reckless stupidity.

    Fourth point – surprisingly mathematics is the only language you can’t lie in, as accurately pointed out by a couple of others here I did get some of my maths wrong, but the key maths is absolutely bang on correct.

    Fifth point – I doubt it. Council tax goes primarily to the local council and not into the infinitely deep bucket that is big government. This is why Ed & Ed want a whole new tax.

  20. Lorne Gifford

    Middlesborough where they hung a monkey for being a French spy? Been there and quite liked it. Gateshead, not been there as I hate shopping. Grimsby – spent rather a long time there once, and hated it.

    Do I want anyone to feel sorry for me? No, not really. I couldn’t give a t@ss what most people think

    Do I want a taxation system in this country that is fair, proportional and representative – Yes.

  21. Riversideboy

    monkey hanging… Hartlepool mate. I’ve spent a lot of time in London and I feel sorry for ordinary decent working Londoners taken to the cleaners by property spivs. When you say middle class do you mean Nurses Teachers, NHS workers who can’t afford to live in the overpriced dump?

  22. Lorne Gifford

    Yeah , you’re right, but it is close enough to go for the monkey hangers joke.

    London is as you say a bit of a dump, but when it comes time to retire i’d like to be able to sell my house for something close to what I paid for it and not 40% less just so Ed & Ed can win an election by dividing a country. I don’t think that is decent behaviour on their part. It’s not even as if mansion tax will raise money.

  23. disgruntled

    Most of the people that will be caught by this tax will be those that are on a reasonable salary and have bourght their home on taxed income. It is wrong to hit them twice. As for avoiding tax it is not those on c£100k that avoid tax but those on millions and let us not forget to earn £100k u have to work hard. Just envy and mis-directing anger away from the super rich like Blair who are the only ones that Labour protects

  24. Guest

    So you are, once more, calling your 1% “middle class”.

    And I see, DIRELY poor merely millionaire, blah blah…

    Ah, so you’re plain rich and young. Okay. And? Of course you’ll shoot the ones in the *other* firms. Why, they’re the competition.

  25. Guest

    So you demand that you get all your cash back, and that people not rich like you not be able to afford houses, as you try and divide the country between rich and poor even more sharply than today.

    Not decent to try and make you pay tax, right, as you try and convince people you’ll, what, firebomb your mansion? Yea, right.

  26. Frann Leach

    6% own houses worth more than half a million. A lot less have £2million plus homes, which are the ones to be taxed.

  27. Frann Leach

    so you admit you’re a t@sser then?

  28. Frann Leach

    Divide and Rule is much more a tactic of the Conservative Party, and has been since the late unlamented M. Thatcher was in charge

  29. LondonStatto

    What a terrible defence of a terrible policy.

    Sure it’s popular – 72% of people probably think that they’ll never be successful enough to have to pay it – but this is in itself a depressing indictment of how successful Labour’s war on aspiration has been, thanks to their stoking of envy.

    But a policy being popular doesn’t mean it’s right. Letting banks offer mortgages over 100% was popular once. So would giving £1m to everyone who isn’t already a millionaire. Ditto renationalising the railways and scrapping HS2 – and no doubt you all have your own lists. Why is this? Because most people don’t think through the implications.

    In this case two risks are clear: first, that the tax raises less than projected, leading the Eds to drop the threshold; secondly, that they can’t be relied upon to ringfence the money. And as ever there is the Law of Unforeseen Circumstances to consider.

    There’s a word for policies that are both popular and wrong: populist. This assuredly qualifies; it’s no wonder that Farage wants Miliband to be PM. Populist and Establishment both, they are two peas in a pod.

  30. Lorne Gifford

    look Mr Guest, as I have stated quite clearly, there is no intention of avoiding paying a fair, reasonable and progressive level of tax, because that’s what we do in Britain where we try to have a fair society that allows people to make money and do well for themselves whilst maintaining a catch net for those not so lucky. If mansion tax comes in then it is not fair, not reasonable and although it is progressive, its about as progressive as a kick in the teeth.

    If you want to look at the world as a whole then the top 1% includes about 8 million people that live in the UK. So who is rich and who is poor? Is everyone that pays higher level income tax rich?, because they form part of the global 1% that own 50% of all the wealth?

    Stop being so angry and try to look at things with a level head. I could get furious about the incompetence of a mansion tax and rant spittle fueled put downs all day long, but it wouldn’t achieve anything.

  31. Guest

    Ah right, we should all aspire to be rich…when poverty is rising rapidly and inequality rising.

    YOU are leading a war on aspiration, as you try and avoid paying taxes, and hence having a state able to pay for the basics. As you argue that paying massive sums for poor services is good if you get the profits.

  32. Guest

    Salary, you’re careful to say, as you ignore their non-salary income. Then you use income for seeing that they’ve used (lightly) taxed capital income to buy a home. You try and thread the needle, rich man.

    Collecting dividends is not work, as you frantically try and avoid paying taxes.

  33. Guest

    Quite, you are rabidly against all tax.

    The anger is yours, at having to possibly pay a tax you can’t easily avoid, and at least you admit you’re flailing in the dark.

  34. Mark Wadsworth

    “the introduction of a mansion tax and reform of council tax are not necessarily mutually exclusive options.”

    Indeed, and both are fairy steps towards proper Land Value Tax, which is what you should be discussing

    http://kaalvtn.blogspot.co.uk

  35. LondonStatto

    No, inequality and poverty are not rising.

  36. james

    Guest you are a wealth envying dickhead. What a twat you are. It wont work and it will stifle business and investment which will stop pathetic tiny dicks like you earning a living. Actually you are probably on benefits anyway.

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