We should reform council tax – not impose Ed Balls’s ludicrous mansion tax
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Version 0 of 1. The case for a mansion tax in Britain is overwhelming. The case for the mansion tax proposed by Labour and the Liberal Democrats is not overwhelming. It is rubbish. In Britain there are three sorts of taxes: taxes, bad taxes and property taxes. Property taxes seem to drive politicians mad. They overthrew Margaret Thatcher. They all but drove Scotland to secession. They have eroded English local democracy. There are already four levies on property: council tax, stamp duty, capital gains tax and a new tax on overseas company properties. All have been so abused by waves of craven politicians that those studying them lose the will to live. The shadow chancellor, Ed Balls, wants another property tax, one that will raise £1.7bn from the rich “for the NHS”. The way to get tax from the rich is to tax their income, but the shadow chancellor has not the guts to do that. As far as “for the NHS” is concerned, this is not proposed as a hypothecated tax. Balls might as well say it is for Trident or for HS2 or for Ed Miliband’s latest folly, bombing Iraq. Balls can be defended from his wilder critics. He reckons he can get his new revenue from 50,000 houses worth over £2m, at an average of £12,000-£15,000 a house. That would raise no more than £750m. According to Hometrack, Zoopla and others, there are more likely to be 100,000 houses worth over £2m, almost all in the London area and 40% of them worth under £2.5m. That would come nearer Balls’s hoped-for yield. But since a quarter of those who would be hit are estimated to be pensioners or cash poor, Balls has had to offer exemption or relief by rolling his tax up and making it payable on sale (or death?). People would not have to move out overnight, but the revenue would be correspondingly diminished. Balls can reasonably argue that most of those hit have had a near-free ride over the 30 years since Thatcher first capped and then abolished local rates in favour of her poll tax. Houses in parts of Westminster, Kensington and Camden that are now worth over £2m were in 1990 paying between £3,000 and £10,000 in rates. Had the rates not been abolished, mere inflation would now have them paying £6,000-£20,000. That is without revaluation or any increase in the cost of local services, which would have pushed some rates to more than £50,000. Rich London does not know how lucky it has been under both Tory and Labour governments. While the very rich will shut up and pay the Balls tax, his chief victims will be residents of inner-ring Fulham, Islington, Hackney and Lambeth, who dream of their recently acquired £1.5m houses being worth £2m or more. Balls’s plan for “slabbing” the tax in bands will produce furious distortions at the £2m and £2.5m thresholds. While a 1% tax on the lowest slab, from £2m-£2.5m, would be £5,000 a year (plus current council tax), 2% would be £10,000, requiring many residents to earn an extra £18,000 before income tax just to pay it. That is a swingeing overnight imposition. The property lobby is howling that the tax will depress property prices in the capital below the £2m mark, or lead to a rash of sales or flat conversions. Any tax that promotes the efficient distribution of urban housing is good. But if Ball’s proposed roll-up becomes an option, it would be like enhanced stamp duty – already 7% on a £2m property. That is a powerful disincentive to sell. It would make London housing supply less rather than more flexible. Balls says he will increase the £2m threshold in line with (presumably local) property values. He will thus lose any buoyancy from rising prices. None of this makes sense, for a maximum yield of just £1.7bn. But then every new tax tends to wither under the spotlight, while old ones such as the local rates look ever saner. Balls’s idea is poll tax for slow learners. We already have a perfectly serviceable mansion tax, and it is called council tax. It has become a grotesque impost, the walking undead of public finance and desperately in need of reform. The bunching of top band H, covering all properties that were worth over £320,000 in 1991, means that Westminster city council levies £1,353 on sheikh and pensioner alike. The local authority raises more from its parking fund than from its residents. The solution is blatant: to add new higher bands to council tax. Wales has already done it with a band I. Such a change would be beyond controversy. London would get I, J, K, L and M bands. These would achieve Balls’s desire of taxing expensive properties, and in a progressive way that owners could not reasonably protest at. In addition, revaluation and distributing some of the extra cash from rich to poor councils would ensure such new revenue was fairly spread. By narrowing the bands, there would be no great incentive to fiddle valuations. Databases such as Zoopla could monitor price movements at minimal cost. The higher-end payers would howl, but the tax could fall on band H “mansions” in the £1.5m-£2m range and thus be less swingeing – say 0.5% of the valuation. The shock would also be less sudden. The rich would still be better off than had the old rates been left in place. Why does Balls reject such a proper mansion tax? The answer is simple: he is a Westminster politician. A proper tax would be susceptible to local democratic discretion and, worse, would go to councillors rather than to him. His tax is another step in the nationalisation of local finance. He could, of course, adjust grants to councils to take account of their new revenue source, in which case he would still get more money for the NHS or Trident. But even that is not sufficient control for an old Treasury hand. The very idea of a lower tier of politicians – Labour or Tory – getting a sniff of more revenue appals him and his colleagues. The control-freak outlook of modern Westminster is beyond belief. It took the threat of independence for Scotland to be offered “more powers”, yet to be identified. Balls would rather a messy, controversial and probably trivial levy than go for a sensible and progressive tax on property. His tax is not socialist but centralist.It would be another nail in the coffin of local democracy. |