One of the issues that we heard frequently on the doorstep in Haringey in the run-up to the Council elections was fear over the mansion tax. Many of our wards are in nice leafy areas, where the ridiculous rises in house prices over the last year have left some relatively modest family homes pushing up to the £2m barrier. A retired builder who had bought his home for under £50,000 forty years ago told me that he would never vote for us on account of the mansion tax. Our local party held a discussion earlier this week on priorities for the 2015 manifesto, and there was strong opinion that the mansion tax is an unfair tax on Londoners.
Danny Alexander has proposed new bands to be introduced at the top end of the scale which met with more enthusiasm from Haringey members. The fact that these bands would be up rated annually is also appealing, protecting people living in typical family homes being sucked into the levy. Protection for home-owners who have low income was also welcomed by our members.
My own personal view is that owners of property in London have had the good luck to see their homes rise substantially in value, and when they down-size as many will, they will benefit from a very nice cash windfall. However I do accept the argument that even with the introduction of new top bands of council tax, Londoners are still penalised compared to people living in large homes in the rest of the country.
Should the top bands be set at different levels for different parts of the country – e.g at £1m for regions where house prices are low? One of the benefits of this would be that the scope for raising additional (much-needed) tax revenue would be greater, as it wouldn’t draw only on that limited group of people living in expensive London homes.
* Cara Jenkinson is Vice-Chair of Haringey Liberal Democrats and PPC for Enfield North
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35 Comments
Cara,
the Joseph Rowntree Foundation published a report on property tax reform a couple of months back http://www.jrf.org.uk/publications/council-tax-impacts noting that London is a special case because of its high property prices, and needs to be handled differently, with its own scheme.
The study examined two key questions: would taxing property values be fairer than the Council Tax, and could such a tax help to reduce house price volatility?
Key points
– A progressive property value tax would reduce the size of median gross bills by £279 a year compared to the Council Tax.
– Gross bills would fall by more than 10 per cent for almost two-thirds (63 per cent) of households. Fewer than one-quarter (22.3 per cent) would experience increases of more than 10 per cent.
– A progressive property tax would reduce gross median bills for the poorest tenth of households by £202, and increase them for the top tenth by £184.
– However, London is a special case because of its high property prices, and needs to be handled differently, with its own scheme.
– A property tax could also have a supporting role in reducing house price volatility, along with other measures such as mortgage credit controls.
– Any national property value tax would need to be phased in gradually.
– A property tax should also take account of household income and a hybrid property and income tax should be investigated.
I appreciate that old people need to continue to be able to live where they’ve lived before retirement, but I’m afraid this sounds a bit like the rich soaking the poor. And making it cheaper to live in London isn’t going to solve the London housing problem, even if we’re just talking about mansions.
On another thread today, Nick Clegg is calling for ideas of how to revive the North. Taxing the North more doesn’t look consistent either.
I agree we should scrap the mansion tax. We should either get rid of it entirely or introduce a fairer net-asset tax.
Having higher tax rates for places where house prices are low would be regressive. It’s hard for the north to compete with the south whilst we have the same tax rates.
By the way, the London property boom/bubble is nothing to do with a lack of a mansion tax, just in case anyone wants to use it as a justification for one. 🙂
Regards
Joe, wouldn’t a property tax on property and an income tax on income be just as good as and simpler than a hybrid property and income tax?
Like the others, I’m not convinced that the mansion tax is unfair on London. It’s not meant to be a tax on the size of a house, it is meant to be a tax on its value. Sure, if you don’t have the income to pay the tax, deferral should be available.
Having said all that, extra bands of council tax is probably better, and a land tax better still.
fairer taxes….
make stamp duty rates marginal
add another couple of council tax bands.
So the poor Londoner’s who have seen the value of their houses rise by much more than the rest of the country are penalised by a system designed to redistributive by taxing house values. Please excuse me while I shed a tear for those so unfortunate as to have been able to afford a house in the one area where more government spending is concentrated than any other, leading to higher wages, more job opportunities and a much bigger entitlement culture than the rest. 🙁
David and others – my point is not that Londoners in expensive properties shouldn’t pay a new higher band(s) of Council Tax – they should. Rather if you are living in other regions is it right that you should pay the same whether your home is worth £350,000 or £700,000? So does ‘high value’ mean the same across all regions of the UK?
This is the full report from JRF http://www.jrf.org.uk/sites/files/jrf/property-taxation-reform-full.pdf.
Tax reform was examined on the basis of three criteria:
• to ensure fairness between places;
• to pursue fairness between people; and
• to reduce house price volatility
Key implementation issues identified included:
It is clear that in order to gain a fairer system of property taxation, it is necessary to move away from the Council Tax system of banded property values towards one that is more closely related to property values.
The report has shows that although a system of property taxation would be fairer between people and places, three principal problems emerge: the London effect, low-income losers and how to phase in the new tax.
London Effect:
On some measures, property taxation appears to tax London ‘too much’ due to its very high property prices. This is not only a question of transition, and it is likely that an upper limit on a property tax would be required in order to
prevent an undue burden on low- and middle-income households.
Low Income Losers:
The distribution of gainers and losers is such that low-income households in London would lose out, whereas well-off households in the North would gain. A tax based purely on property values without assessing the ability to pay would therefore be unfair.
Transition:
Because some of the losses would be large, any system of property taxation would need to be phased in. The Joseph Rowntree Foundation (JRF) Housing Market Taskforce proposed a scheme of moving from Council Tax, to a ‘point value’ system, whereby the tax would be set on the basis of property values within each local authority area and the revenue that the authority needed to raise, and then gradually to a national system of property taxation through the adjustment of grant in response to house price changes.
The Mansion Tax, now proposed by Labour as well as the Liberal Democrats, might also be a means by which a national property tax could be introduced and gradually extended. However, by itself the Mansion Tax sidesteps tackling the decayed system of Council Tax and many of the problems that arise from this.
Joe Bourke, thanks for the link – I will check this out.
Cara, I agree the new council tax band solution is also undesirable. However, London should pay higher taxes than the rest of the country, otherwise the regions will struggle to compete for business.
We need to scrap the idea of property taxes. It lets tech billionaires completely off the hook whilst going for property owners like they have done something wrong.
Regards
Cara, Your response to my post is rather confusing. I presume you have identified something that you consider unfair, but I’m not at all sure what it is. Can you provide an example of what is the problem of ” if you are living in other regions is it right that you should pay the same whether your home is worth £350,000 or £700,000?” which is not equally applicable if you are living in the South East?
I need to be clear in my post. Uniform tax rates can be fine because of the price system, but we can’t have a system that would effectively have lower tax rates in the South East than the rest of the country.
Having said that, I agree I don’t like property taxes. It’s far easier to just tax income and profits.
If someone could afford to £50,000 40 years ago, he must have been very wealthy. It doesn’t sound much today for a property, but back then it was a lot of money.
I don’t believe the mansion tax would cause any hardship, and I do not see any point in singling out one man who complains about it, maybe he would have voted Tory anyway. I do not see why we should listen to him anymore than someone who complains about gay marriage. Polling evidence suggests the policy is popular, and I am sure that is true in Haringey. I doubt there are many “asset rich, cash poor” people living in £2million properties, but for those who are there is a simple solution; move somewhere cheaper.
When it comes to the fairness test, why should we pay more attention to these people compared to those who are forced to move by the housing benefits cap? Have we become the party of the rich at the expense of the poor as well as the Tories?
Personally I would prefer LVT but if for some reason we are not going to support that policy at the next general election then the mansion tax is OK for a second choice policy.
Just to keep things in perspective as Geoffrey reminds us…
£50k then would be equivalent now…..
H.
historic standard of living value of that income or wealth £454,600.00
economic status value of that income or wealth £827,200.00
economic power value of that income or wealth £937,100.00
One of the biggest positives for property taxes is to stop house prices spiralling out of control because of the tax liability higher prices bring. The reason top-end family homes will be hit by mansion tax is the very reason we need it!
This just illustrate how stupid the mansion tax idea is. You either go for transition to LVT or you stick withthe current mess. The Mansion tax will be a disaster.
Duncan,
Prices are too high because of a lack of supply relative to demand and incredibly low interest rates. Interest rates will start to climb over the next few years but we need to fox supply.
High prices are not due to a lack of a mansion tax, houses were most affordable in 1996, there was not a mansion tax in place then.
For god’s sake if you want to tax the rich more there are perfectly good systems already in place called income and capital gains tax. Mansion tax is a mine field and no party is going to be popular bringing in more -higher – levels of council tax. How can we go to the electorate and say it’s alright for Amazon, Starbucks, Hedge Funds etc paying hardly any tax on massive profits, but god help the elderly couple – on a average income – who’s London house is now worth £2million.
The ‘mansion tax’ is a really stupid idea, the only worse one being new council tax bands. It never ceases to amaze me that a party which has long opposed council tax – which is an absurdly based tax full of anomalies – and has an excellent policy Land Value Tax should be led by people who waste their time coming up with schemes that extend the life of the very thing they were pledged to abolish.
Do you know, some people we should be bothered if they don’t vote for us – racist for example and people who think their house is worth £2 million but that they are in someway for or entitled o a windfall for having done nothing except buy it cheaper 40 years ago.
Can we also pleas ego back to including housing costs in the inflation figures – the frequent use of stats that wages are set to out strip inflation, when house prices in London have gone up 18% in a year gives a very misleading view of the economy.
no-one mentions the impact on values, caused largely by property investors who want the values to go up, and whose purchasing powers actually drive the values up, many of whom have no intention of renting the property out but simply sitting on it empty until its value goes up and they make a good return.
The advantage of having low interest rates is actually driving the property market, as a far better basis for investment. No harm in that but taxation or other means must be brought in to ensure those profits are shared withg the community and, vitally, the property is occupied. Without the latter, it just creates an ever growing demand for building on our green fields.
Peter – there is something wrong in that when what we are now seeing is a bubble in the housing market which will likely end in tears. What we are seeing in central London is investors buying properties with no intention of living in them, but with the intention of selling again a couple of years later at a huge profit. Houses should simply be where you live, not an investment.
The whole council tax system in England is stuck in a time warp, as it is based on the value of a property as in 1991. Wales is a little better as they readjusted the relevant values and added an extra band at the top in 2005.
Rates were subject to periodical revaluations and also there was no ceiling on valuations. Our house is Band E which was £66k to £90k in 1991. Another Band E house in my road has a £350k asking price. This means current values are around 4.5 times 1991 values. Band H starts at £240k (1991 value). This means current values in Band H start around 1.1M. ANY property valued at more than £2.2M is therefore is a partial freeloader in terms of council tax.New very high spec 4 bed-roomed houses in my ward are for sale at about £650k. This is the outer edge of Greater London.
There is room for for collection of more property tax from those with enormous assets. There are several wards in our borough where there are houses worth more than £2 million, who would be taxed more by any of revaluation, more higher bands or a mansion tax. There are a number of features in the council tax to reduce what the income-poor have to pay.
Council tax was a quick fix introduced in a hurry after the Community Charge ( so-called Poll tax) fiasco. ANY updated system would be worth it, including LVT. What is needed is a government ready to grasp the nettle, firstly to update the system and secondly to introduce a longer term solution.
I know this is partially tangential to the issue under discussion, but I can’t help thinking that if we as a country were serious about reducing the extreme heights of property values in London, we could do 2 small things, which don’t have much to do with property directly, but would have knock-ons:
– We could return the MP expenses system to the pre-1980s model and only pay for rent costs, not for mortgages.
– Then, we could move a significant institution of government (like a reformed House of Lords) and all its ancillary support somewhere a distance out of London.
Anyway,
Just because some people somewhere called London that is increasingly beginning to look like another country to the rest of feel that paying more would be unfair on them, doesn’t mean that a mansion tax is a non-starter.
I do agree (and I think I said this before), however, that regionalising any changes to property (or land) taxation would have benefits and would be in line with the values of the party; this also would make sense when combined with a regionalisation of housing benefit and the control over the powers involved in the ‘bedroom tax’.
These powers could be exercised by groupings of local authorities, much like the old police boards.
Cara
Do please have a look at the Scottish perspective on council tax, detailed on the above website.
@malc – income tax applies to income, not wealth. We have much greater wealth inequality than income inequality in the UK.
As for the elderly couple in a London house that is now worth £2million (and worth £50K forty years ago, not an insignificant sum), tell the elderly couple struggling on a state pension in social housing up the road from me why we should ignore wealth inequalities in a fair society.
If that wealth is all tied up in the property they live in then they are not rich, it’s just that many years ago they bought a home that now happens to be in a fashionable area. Do the LibDems really want to be known as the party that drives pensioners out of their homes? Why do we need to introduce a wealth tax – do you really think a mansion tax of say £20 grand a year will affect the real rich and wealth inequality in this country ? As I said previously we already have income tax and capital gains tax – at higher rates for the wealthy – we also have higher rates of council tax and death duties which are a tax on wealth. This is just the politics of envy that the LibDems hope will be popular with voters because they don’t have any other headline policies.
@malc
“at higher rates for the wealthy – we also have higher rates of council tax and death duties which are a tax on wealth.”
‘Death duties’ are not a tax on wealth they, are a tax on unearned income. Either you believe that a better society and economy derives from income flowing to those that create wealth by working or you believe that people should be allowed to inherit. Similarly, a Land Value Tax is a tax on unearned wealth and is not an envy tax, however the crazy idea of a mansion tax just undermines LVT because it only apply to ‘mansions’. We need to distinguish between the deserving and the undeserving wealthy. Currently, most of the wealthy in the UK are undeserving as they derived their wealth from property value gains in excess of inflation. This occurred because of our lax taxation of land values.
@Psi
“High prices are not due to a lack of a mansion tax, houses were most affordable in 1996, there was not a mansion tax in place then.”
High prices are due to a lack of a proper taxation of land values. If we had LVT then house prices would be similar to the mid 90s when they were sensible. All that’s happened since then is that a cycle of speculation has driven prices higher than their economic value.
If you own a £2m home then by definition you are rich regardless of your income. You could if you chose at any time sell up and buy a house in a much cheaper area or use an equity release scheme etc etc. People who do not own houses at all do not have this option and if they are on low incomes are actually poor.
Why target peoples with valuable homes? Why not their bank accounts? Why not their antiques? Why not their land? Why not their stocks and shares? Why not their art collection? Why not their jewels? Why not their yachts?
Why should the pensioner in a £2 million house in London pay a tax when the billionaire who lives in a suite at the Ritz pays nothing. It’s a silly idea that makes no sense.
@malc
“Why target peoples with valuable homes? ”
I presume you’re responding to me. Sorry if I didn’t make it clear – I don’t think singling people out with expensive houses is a good idea. Taxing land values at a rate proportional to the land value is, however, a good idea. Why target land? Because it’s a monopoly and, as such, those that don’t work but happen to have owned it for a while profit from the hard work and enterprise of other people who were responsible for that increase in value. It would be better for society and the economy if wealth flowed to the people that produce it.
In principle a tax on wealth is fairer than a tax on earned income.
People earning £100,000 pa may have no accumulated wealth. People with much wealth but little income can still afford top pay a wealth tax by selling some assets, borrowing against their assets or deferring payment until death.
The difficulty in practice is measuring how much wealth someone has. Realistically this can only be done on death and inheritance tax is already established (if subject to avoidance techniques).
Steve
Similarly, a Land Value Tax is a tax on unearned wealth and is not an envy tax, however the crazy idea of a mansion tax just undermines LVT because it only apply to ‘mansions’.
The problem with LVT and anything else like it is that the sob stories about the little old lady living in a house who would be faced by a tax bill she couldn’t possibly afford ALWAYS drowns out any argument put for it. It’s quite obvious that the “mansion tax” label was invented to try and persuade people to accept at least some form of land or property taxation by putting it as something which would only affect owners of properties way above what could reasonably be counted as need.
We really do need to bring house prices down, and so long as owning a house is a more profitable investment than anything else, the old line “build more houses to meet need” won’t work, because people who don’t need the houses but buy them or hold on to then as an investment will always outbid those who actually need them. LVT accompanied by some sort of needs-based allowance, so that one only pays it on land occupied beyond one’s reasonable need, is the best answer, but then how is “need” to be calculated? Possibly some sort of residency conditions could be used, so that if one has lived in a particular area for some length of time, “need” is the average cost of the land that would be taken up by an average house in that area with the number of bedrooms needed for one’s family. One can see how it quickly becomes quickly complex with the dangers of bureaucracy and trying to counter loopholes – but, after all, haven’t we already got something similar in housing benefits that has acquired the informal name “bedroom tax”?
Rolling up payment until death always strikes me as sensible, but I’ve generally found most people get very emotional about this, and still think it’s very unfair. Somehow the sob stories of those living in misery because they cannot afford the housing they and their family need never seem to be heard as much as those of the little old lady, and the children to whom she will pass on the house in inheritance. We have a nation of people hanging on to houses they don’t really need, or resisting the idea of anything that would stop them being passed untaxed to their children, while at the same time their children lead miserable lives because the high house prices and high income tax this leads to make it impossible to buy the housing they need now.
Conservatives always claim they are against high taxes because they see them as disincentives to hard work and enterprise, but in reality they fight tooth and nail any suggestion that taxes should be shifted from income gained from work. The line that anyone who calls for any form of increased taxation or a shift of taxation is doing so out of envy is also a popular one that goes down well.
That is why we need an honest politics which talks straight about such things, which we don’t have now. Such an honest politics wouldn’t just do things like make “pledges” about not raising tuition fees or about maintaining the standards of state-supplied health care. It would also give an assessment of how much that is likely to cost and state how that could be paid for through taxation. ALL parties in this country, by playing the game of making pledges about expenditure or not raising taxation, while hiding the balance factor between the two, are pandering to the political right, because that enables the right to get away with the notion that tax is just something nasty politicians demand out of envy and that bringing it down regardless of consequences in service reduction is a good thing.
At the moment there seems to be no-one working with the younger people of this country to push the idea that land value taxation accompanied by lower income taxes will open up availability of home ownership to them which is now being closed off. There is no-one working with the younger people to push the idea that the only way this sort of thing is going to happen is if the politicians we have vote for it, and the only way that is going to happen if if we have politicians who are willing to vote for it, and the only way that is is going to happen is if they get active in actual electoral politics.
Steve
“If we had LVT”
But an mansion tax is not a LVT it is a cliff edge tax which causes all sorts of unintended consequences.
I am in favor of an LVT but vehemently opposed to this stupid idea of a mansion tax. It would cause lots of silly outcomes not raise any money, and discredit LVT by association. It would kill of nay chance of a LVT.
I think some of your other assumptions are off too but the important point is that a “mansion tax” would irreparably damage the cause of LVT in the future.
To paraphrase the OP title: Making capital taxes more efficient:
http://www.telegraph.co.uk/finance/personalfinance/tax/10954502/Cut-Capital-Gains-Tax-everyone-avoids-paying-it-anyway.html
Interesting read.
Matthew
Your concern about not needing to build more is relatively well addressed in the FT (£):
http://www.ft.com/cms/s/0/8d5c6ed8-0c0a-11e4-a096-00144feabdc0.html#axzz37f6gvIQn