Opinion: Why the mansion tax runs against liberal principles – but a land value tax wouldn’t

One of the more appealing characteristics and strengths of the Liberal Democrats is the room there is within the party for genuine debate, and the freedom members have to hold views which differ from those of the leadership.

There are of course certain principles which all who hold the Liberal banner aloft share however; principles around the freedom of the individual from the unreasonable constraints of the state into their personal lives, and these principles bound us together and make the party the pleasant place to be that it is.

The Liberal tradition goes back to the enlightenment, with figures such as JS Mill revered. Since the accession of Nick Clegg to the leadership of the party, Adam Smith has been placed at the centre of the Lib Dem economic discourse, thanks to the publication of the Orange Book, and the emergence of a group within the party committed to a more classically Liberal economic policy.

That’s why its strange that several of the current leadership of the Lib Dems, notably Nick Clegg and Vince Cable, who co-wrote the Orange book, should then endorse in a policy the idea of a ‘mansion’ tax, as the mansion tax works on the principal that assumes that wealth and monetary assets are the same. This is a characteristic of the mercantilist political philosophy, a philosophy which Adam Smith wrote his books in order to oppose.

Taxing wealth for the sake of taxing wealth is the politics of envy and not the politics on liberalism.  Taxing unearned income is reasonable, but the mansion tax does not address this, because the mansion tax does not deal with income when it deals with value of a family home.

A person with an expensive (which is not the same as a big) house, has more than the average amount of assets, not money.

You could have bought a house in a not very fashionable area of London, somewhere like Islington or Notting Hill. These were far from desirable areas of London at one time. But are exceedingly fashionable now, with wealthy young professionals living there.

But a young couple who bought a house in those areas at the start of their married lives in the 1950s, who still live there now, could find themselves liable to a tax it was never within their means to pay, simply because of a prevailing fashion, something which is not in their power to control.

The increase of the ceiling to £2 million has gone some ways to address the inequity at the heart of this tax, but does nothing to achieve a longer term stability and equality in the tax system.

I believe that a land value tax would achieve all of the aims which the mansion tax wishes to achieve. But also act as brake to help overheating in the housing market, and all the fundamental economic problems which that leads to.

A land value tax would aim to tax those individuals or companies which control property or land which is not being put to an economic use. This should not apply to the family home, as the family home is providing a social good, in that it’s a home for a family.

The land value tax would apply to some second homes, and particularly to derelict, or empty properties and to land which is capable of being developed but is not being because the developer wishes to hold onto the land until the housing market boosts its value.

Lands such as these contribute nothing to the economy or to society, and indeed have a negative impact on small businesses and ordinary households as the cost to them of land, whether they are purchasing in renting is higher.

A land value tax would allow the government of the day to use the tax to increase or decrease demand for land and property in the economy, which would help to end boom and bust housing markets, which are damaging the economy, a mansion tax achieves none of this and looks like a populist attempt to attract traditional Labour supporters, and Liberalism should be about more than that.

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27 Comments

  • Great article.

    However, being a pedant, I most point out that you have used “principal” where you, in fact, mean “principle”.

    In accordance with the laws of the internet, this pedantic post contains 1 (ONE) error.

  • David I agree with.I think the ‘Masion Tax’, is really only a headline grabber that joe public can easliy grasp. Land value tax is much more difficult to put across. As the third party I feel we do not get the space to put ideas like LVT . Look at problems we had 5 years ago trying to explain Local Income Tax – which IMO is a much easier one to explain.That said, another push for LVT after this election?

  • David Cooper 6th Mar '10 - 6:53pm

    Jock, David,

    Mansion tax is not an envy tax.

    Non doms can own expensive property in the UK. They need not contribute a penny in tax to the exchequer. We, the UK taxpayers, fund the system of physical and legal protection that gives this property value: the police, the army, the goverment, the fire service, the legal system, the civil service and the education system that makes this possible. We finance transport infrastructure and sanitation. The value of the property increases as a result of our, the taxpayers, efforts.

    Why on earth should we provide such a valuable service free of charge?

  • Here seems a good pont to ask – something that has worried me about LVT – which is the environmental effect. Holding land for the purpose of parks, woods, fields and gardens have importnat non-market benefits to the environment, and which contribute to quality of life. Why do we want land to be used for morer economic reasons per se? I can see disused buildings are an obvious example, but what about all the green-belt land and gardens in cities? Why would we wantt o make it harder to keep land like that – it seems to be enforcing people to ignore public goods and positive externalities in their decision making even more than at present. I can’t see how that is liberal.

    There may be a simple answer, or I may not have understood LVT. I have other issues but I will leave to this one for now.

  • Jock, thanks for the reply. Before I am absolutely convinced on LVT I’ll probably have to think through more of the consequences for myself – it’s one of those things that I want to work, but feel uneasy about it, for some reason.

  • David Thorpe 9th Mar '10 - 1:34pm

    Thanks for the response guys.
    Harry,
    I would envisage that forrestry etc would be exempt from LVT as it is providing a social good.

    I would generally see the LVT not applying to fmaily homes(they provide a social good) or farmsteads(provide an economic good, but would apply to second homes.
    The aim of the LVT is to regulate the property market, the owner of land subject to LVT is not luikley to leave it idel for long periods and pay the tax for nothing, when he can develop something on it, soemthing which creates value, either socially or economically. The government of the day can regulate this by, at periods when the housing market is overheating, and too much land is being developed for housing, reducing the tax with the aim of having people more likely to pay the tax than develop the land.
    When the market is dormant, increase the tax to spark development.
    In terms of redistribution, we must aspire to incentivise people to invest their wealth rather than hoard it, as its this which creates, economic or social goods.

  • David Thorpe 10th Mar '10 - 1:33pm

    Im more talking about the overreliance that comes with excessive development, and I do stand by the view that VRT hsould not apply to the family home, we shouldnt tax people for doing soemthing we want

  • David Thorpe 11th Mar '10 - 1:00pm

    thebfamily home is a social good in the sense that if a perosn/ dpesnt/cant have their own home privately they go onto the social or council housing lists, taking space from people in more genuine need.
    I would argue that your vision for a LVT also runs counter to liberal principals.
    If you have LVT on family homes, less people will be able to buy their own, putting them on the social housing list, which means more expense for the government, so no fiscal benefit would accruye to the government from the tax, whilst more people would rely on the state to provide their houysing and the government would be a bigger player in the porperty market, expanding the governments role in the economy for no good economic or social reason.
    Creating bigger government.
    Its for this reason I oppose LVT accruing on family homes(the first one, if they have a second home that should ahve LVT) and the mansion tax, but wouldnt oppose the lvt not applying to family homes

  • David Thorpe 11th Mar '10 - 3:15pm

    I have no doubt that mine is the aberration.
    BUt I do think that it is more socially just, it may reduce the one off costs of the property, but it increases the yearly costs..as they pay the tax and the mortgage, and homeowners(and the banks lending to them) will factor that in.
    The developer will imcrease his costs, or exit the market if there is no margin in it for him, caysuisng prices to rise.
    A family home is not unearned wealth, it requires maintence to gain or hold value, and the more you incentivise this the better

  • david thorpe 13th Mar '10 - 12:54pm

    but the value of the land rises for having houses on it?
    also I agree somehting should be done about taxing at the point where land is zoned for development……

    so you have outlined who benefits…who loses out…

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