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
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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’.
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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.
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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.
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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
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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.
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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.
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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.
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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”
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.
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).
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.
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).
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.