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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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 [email protected]@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.

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