The Mansion Tax isn’t good for Labour

‘Why have many people who support the idea of local property taxation come out against the mansion tax?’

Economy Guest Speaker

There are not many people who think that the taxation of residential properties in the UK is done either justly or efficiently. To be fair, it has to be based on valuations which are kept reasonably up to date but there has been no revaluation carried out since 1991 — the baseline for when the current residential tax system was introduced in 1993. To be efficient in terms of fairness, there needs to be, if not a progressive element to the system, at the very least a way of avoiding it being heavily regressive. By a long margin, the present arrangements fail this test. The bands for collecting council tax stop at Band H, which leaves all properties worth over £320,000 in 1991 paying the same amount. A band H property in Westminster this year pays £1,353. The London average is about £3,000. This is clearly unfair.

Taxing residential properties, however, if done efficiently and fairly, does have substantial merits. Collection is relatively cheap. Collection rates are high. There is  some sort of correlation between the value of the houses and flats in which people live and their income and assets. As there has long been a tradition in the UK that residential taxes are a major contributor to the cost of local services, there is a strong link between what people pay and what they receive in return. All these factors cry out for reforms to the system. We need current valuations; we need extended bands beyond H; and we need to ensure that harshness is avoided by reducing the payments due from those who really cannot afford to pay — especially those who live in properties which have risen enormously in relation to their incomes — to make the system generally acceptable. No one likes paying taxes but the money to pay for public services has to come from somewhere.

Why, then, with a tried and tested way of taxing residential properties in place have proposals for a mansion tax surfaced? This is essentially a way of raising significant sums of money only from those with very high-value residences, usually with £2 million being the cut-off point, while leaving the existing council tax system where it is. The advantages are not hard to see. There are not that many properties worth £2m or more, so the electoral damage from introducing this new tax would not be that great. A high proportion of those with properties worth more than £2m are not voters in UK elections. And no doubt for many people soaking the rich via a mansion tax has an appeal of its own. Why then have many people who support the idea of local property taxation and who believe that more expensive properties should pay a higher amount come out against the mansion tax? The answer is partly on issues of principle but much more on questions of practicality. 

First, who is to get the money? The proposals floated so far suggest that all the proceeds of the mansion tax should go not to local government, though this badly needs extra funding, but to the centre, possibly to finance increased spending on the NHS. Is further centralisation and less autonomy for local authorities really the direction most people want to go? Probably not.

Second, a mansion tax cannot be introduced until all the properties with the potential to be caught in its net have been valued. One of the advantages of the council tax system, with its eight bands, is that it effectively operates on a sliding scale, so it does not make a huge difference if a property moves up or down a band or two. If the mansion tax is not to be payable on properties valued under £2m but at quite a high rate as soon as the boundary is passed, it is not difficult to see the pressure there will be on valuations close to this dividing line. The more critical it is which side of the boundary any property falls, the more problems there are going to be in obtaining fair and generally acceptable valuations, and the longer it will take to get them established.

Third, who are all the people living in mansion tax residences? Surveys show that just over a quarter of all properties worth £2m or more in the UK are located in only two London boroughs, Westminster and Kensington and Chelsea, and that nearly all of these are not mansions but flats. More significantly, across the whole of Greater London, 38 per cent of all £2m-plus properties are flats while only 14 per cent are detached houses. Terraced houses are the second largest group at 36 per cent while semi-detached properties make up 12 per cent. So three-quarters of all the properties in London worth £2m or more are either flats or terraced houses-not quite the mansions of popular imagination. 

Fourth, how much money is going to be raised? If it is to be billions of pounds, the tax rates are going to have to be high because the total number of £2m properties is not that great. There has already been an enormous increase in stamp duty on sales of houses and flats, with £2m-plus properties in London alone contributing 14 per cent of all stamp duty revenue nationally. Will it really be acceptable to charge huge additional sums on top of this without there being so many hard cases, exemptions and disputed valuations that the actual proceeds eventually arrive much later and in much lower volume than was originally hoped?

Those who think that taxes on very high-value properties should be increased should not, therefore, be criticised for being sceptical about supporting the mansion tax proposals on principle. We agree with the goal involved in getting the tax rate up at the more expensive end of the market, but we want to make sure that the way this is done is workable, fair, acceptable and can be delivered reasonably quickly. 

I guess that most of us also think that the proceeds should not go to central government but that a higher priority would be funding more housebuilding in London, so that there weren’t quite so many £2m properties in the first place.