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

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

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