A mansion tax won’t fix the UK’s dysfunctional property market
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Version 0 of 1. Whatever one thinks of the so-called bedroom tax, there is no doubt it has led to considerable hardship for some poorer families (many of which have a disabled relative), as well as being an administrative burden for local authorities. It’s worth remembering that when evaluating the hysterical reaction in some quarters to the mansion tax, and in particular, the claims that it would be uniquely difficult to implement or desperately unfair to those who just want to continue living where they’ve always lived without having to pay an extra tax. Some of those objections are absurd. Virtually every developed country has some form of property tax, so the idea that valuing residential property is uniquely difficult, or that it would be widely evaded, is nonsense. And the idea that it is somehow “unfair” to tax a small number of mostly rich people who were lucky enough to buy houses in central London that have soared in value to over £2m is perverse. About 6% of homeowners in the UK own a house worth more than £500,000, let alone £2m. The fact that the assistant editor of the Daily Telegraph describes the mansion tax as a “middle class tax” says more about the distorted perceptions of well-off London-based journalists than it does about the reality of the wealth distribution in the UK. But a mansion tax would just scratch the surface of the problem. Over the past 40 years, the housing market has transferred huge amounts of wealth from the young and poor to the middle-aged and well-off, especially in London. Meanwhile, our system of property taxation is a disaster. Council tax, introduced as a stopgap after the failure of the poll tax, is highly regressive, particularly in the capital, where the owners of the luxury penthouses in One Hyde Park pay little more (or sometimes less) than those living in an average three-bedroom house in north London. The political cowardice of successive governments means it is levied on values not properly assessed in living memory. This is unfair and inefficient, and makes it almost impossible to devolve genuine power over local tax and spending decisions to local government. The consequences are dire – it is no coincidence that the UK has both one of the most dysfunctional property markets in the developed world and one of the most centralised systems of government. Would a mansion tax help? A little – it would make the system somewhat fairer. But it would affect few properties, mostly in London, and if the revenue raised were simply appropriated by central government it would do nothing to address the fundamental problems with either property taxation or the financing of local government. A serious reform would replace both council tax and, ideally, stamp duty (another terrible tax) with a progressive tax on property values, levied, collected and mostly kept by local government. This would have several beneficial effects. Mansions would be taxed more, but so would millions of other properties that have risen sharply in value in the past 20 years, while others, less fortunate, would be taxed less. It would redistribute wealth from the property rich to the property poor and – if levied at an appropriate rate – would help dampen excessive price rises. By removing the distortions caused by stamp duty, it would make the property market work more smoothly and efficiently. Moreover, by providing a buoyant and progressive method of financing local government, it would be a major step towards a new system of council financing, where councils could raise and keep a far greater proportion of the money they spend – a necessary prerequisite to real localism and devolution in England and Wales. There is nothing radical about this prescription – it’s what happens in most of the developed world. The next government will have a rare opportunity, born of necessity, to give local government more power and responsibility, but that cannot happen without reforming the way it is financed. A mansion tax is not the answer but taxing mansions – and property more generally – could be. |