Vince pushes the ‘mansion tax’ – could the Tories yet be persuaded to take tax reform seriously?

Shock! Horror! Lib Dem business secretary Vince Cable advocates Lib Dem manifesto policy!

The Telegraph today reports that Vince’s policy — which would levy a 1% annual charge on all properties valued above £2 million — is still on the table as the Coalition writes its second budget:

Vince Cable, the Liberal Democrat Business Secretary, is pushing for a mansion tax to be introduced on properties worth more than £2million in this year’s Budget. While the policy is likely to be opposed by George Osborne, the Chancellor, Mr Cable said that he had spoken to Conservative MPs who backed the plan.

“A mansion tax is still very much on the agenda – it is a very good idea,” Mr Cable told The Sunday Telegraph. “It is good for two reasons,’’ he said. ”It would constitute a tax on wealth rather than income, which we believe to be right, and also in economic terms it creates the right sort of incentives for the property market.”

Mr Cable added that it was “perverse” that rich “foreigners” could buy expensive properties in Britain and contribute just £1,000 a year in council tax towards the public finances.

3 ways of reading Vince’s comments

There are a couple of ways of interpreting this fresh pitch. First, it may simply be a case of ‘differentiation’, reminding voters that the Lib Dems and Tories have different views, different priorities, different ambitions. Just because we are in Coalition does not mean we have merged.

Secondly, it could be tactical, with Vince pushing the mansion tax as a negotiating position with his Tory colleagues — ‘Okay, I’ll drop the mansion tax, but only if you guys drop [select Tory policy which seeks to entrench further privilege among its core constituency]’.

But there is a third possibility: that there is a genuine chance the Coalition could opt for a more radical tax package in this budget, one which genuinely seeks to shift the tax-burden from income to wealth (while leaving the overall tax-take neutral).

A Lib Dem / Tory tax compact: could it happen?

It may be an absurd flight of fancy. After, all Tory tax preoccupations tend to revolve around inheritance tax and the top rate of income tax. It has normally been left to the Lib Dems to push for tax-cuts for low-earners and polluter taxes.

Yet only a few months ago, Tory MP Mark Reckless advocated a version of Vince’s mansion tax on ConservativeHome:

Conservatives should not rule out a ‘mansion tax’ or similar proposal in the context of a package which cuts unjustifiably high forty to fifty pence income tax rates. Perhaps the threshold could be set nearer £5million than the £1million or £2million that Vince Cable has floated.

Such a tax would be far harder to avoid than high income tax rates. UK housing, unlike the talents of the highest earners, cannot be taken offshore. A mansion tax targeted at the very wealthy would depress spending by less than the current high taxes on income and, unlike those, would not harm work incentives. It could therefore be pro-growth.

We should also recognise that UK property taxation is almost uniquely generous to owners of high value property. The international norm is for property tax to be levied as a percentage of capital value. In the UK the council tax regime means that property tax is capped at what, for very high value properties, is internationally an extraordinarily low rate. For instance, the owner of a £20million property in prime central London would pay only £1,375 of council tax annually if in Westminster, or £2-3thousand in other boroughs.

And ConservativeHome’s editor Tim Montgomerie has also advocated the underlying principle:

… [we should] rebalance the tax system in a way that will be less comfortable for some Conservatives. Britain taxes income quite highly and wealth hardly at all. In other words we are taxing job creation more heavily than we are taxing inequality. … on taxation of “mansions” I believe the Lib Dems are correct. We shouldn’t, however, be increasing taxes on high-value properties in order to increase the overall tax burden. Britain’s tax burden is one of the reasons why so many parents are working long hours outside of the home. We should be increasing taxes on wealth and pollution in order to afford cuts in taxes on families and employers.

There are Tories prepared to think outside their traditional preoccupations of ensuring the well-to-do do a little more well, and instead start to tackle the inequalities that underpin many of society’s deep-rooted problems.

The ‘mansion tax’ is no silver bullet, but if Vince can shape the debate so the Coalition gets serious about taxing wealth rather than income there could be far-reaching consequences. It would offer the Coalition a radical, and shared cause. It would also leave Labour bewildered: it’s decades since the party thought seriously about the distribution of wealth as opposed to knee-jerk high-income taxation as a panacea for all ills.

* Stephen was Editor (and Co-Editor) of Liberal Democrat Voice from 2007 to 2015, and writes at The Collected Stephen Tall.

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18 Comments

  • I’m guessing most on this site would agree with a mansion tax (some may vary on threshold I’ve seen both higher and lower championed) however I dont see the Tories being convinced of it so won’t be holding my breath.

    However, if pushing this can lead to some more movement on tax thresholds as a compromise then I also guess most would see this as a victory, I would.

  • Keith Browning 22nd Jan '12 - 4:40pm

    The consequence of this will see a big sell off of ‘listed’ homes where the present owners have inherited the ‘family pile’ and no cash to go with it. The large number of ‘Restoration’ programs on the TV explains the problem.

    So the Englishman who is desperately trying to retain our history will be forced to sell to some of Cameron’s mates who can turn it into another weekend club for the bankers. Perhaps the Chinese would buy them up??

  • @keith, if it stops them rotting in place and gets people actually using them then great. It may not be a perfect state of affairs but it’s clearly an improvement.

  • This is good stuff, but it’s disappointing that our Ministers aren’t used their time in the spotlight to make the case against council tax and for land value tax.

    It also seems like it would be better to tax the value of properties above a threshold/allowance, say 1% of the value *above* £1m so there’s no ridiculous distortion of prices.

  • andrew purches 23rd Jan '12 - 9:42am

    What is the problem with bringing in the much delayed revaluation of all properties to bring some degree of fairness and rationality to the payment of Council Tax ? Add to this a graded surcharge for any property worth, say, more than £ 750.000, then this would resolve many anomalies. Further to this, what has come of the promise by the coalition to transfer the income from Business rates directly back to local authorities? This will help open up the Localism agenda which will wither and die without a wider source of funding from the tax payer.

  • Fine, providing the tax is tailored to ability to pay. Dumping a huge tax burden on people with low incomes just because they happen to live in a large house is not fair. It is all very well talking about a ‘wealth’ tax, but when it comes down to it there are only two choices – you can either afford to pay the tax out of your income, or you can’t and will then be forced to sell the house to pay the tax. The Lib Dems should not be in favour of driving people on low incomes out of their homes. All the claims that such people ‘ought’ to sell up to make way for someone richer who can afford to pay the tax are just intolerably thoughtless and cruel. We are talking about people’s homes – a tax should never drive someone out of their home.

    Ultimately all taxes are going to be paid from income so if they aren’t related to income they will be unfair. If the mansion tax is only applied to people with homes over a certain threshold who are also higher tax rate payers then most of the objections related to inherited homes and widows etc will melt away. Then you might indeed get the Tories onside. But a simple flat ‘mansion’ tax is unfair and cruel and will be fought tooth and nail.

  • Norman Tebbit was a fan of raising the Personal Tax Allowance, and from those I’ve spoken to the majority of Conservatives support the more radical idea of scrapping National Insurance and replacing it with a higher income tax rate, so the idea that Tories are only concerned with tax cuts for the rich is plain wrong.

    As it happens plenty of Conservatives are also happy with a shift in the burden of taxation from income to wealth since it rewards aspiration. What we dislike is talk about (re)distribution of wealth, which is a heinous concept. A sensible taxation policy in order to raise funds for public services and a benefit safety net is one thing, but taking money from one person in order to give it to someone else who has less, for no other reason than one had more than the other is entirely different.

  • toryboysnevergrowup 24th Jan '12 - 1:21pm

    Perhaps a little more attention should be given to actaully collecting stamp duty on property purchases before introducing another opportunity for tax avoidance. The Tories will only support this as a political means for reducing higher rate income tax and the overall tax burdens of the wealthy – this is not about economic efficiency or efficiency in collecting tax for them I’m afraid, and I’m afraid Vince will be deceived again if he is daft enough to believe that it is so.

  • toryboysnevergrowup 24th Jan '12 - 1:27pm

    The recent announcements by Romney/Gingrich in respect of their tax payments – do suggest one way that transparency might push the wealthy towards paying their fair share of taxation. Just imagine if all members of the House of Commons and Lords had to publish the effective tax rates on their total income – and what effect that might have on this debate?

  • @Simon Shaw
    the “mansion tax” due can be rolled up for those who are “asset-rich, income-poor”. With interest charged, it would then only be payable when the (highly valuable) house is ultimately sold.

    So those who are rich enough to pay as they go along pay less than those on low incomes? How is that progressive?

    If you want to tax the asset when it is sold, look at capital gains tax reform. if you want to tax the ‘wealthy’ then define them by their income, not their assets, and look to income tax reform, because anything else is unfair.

    The whole idea of a mansion tax seems to be driven by a desire to get round tax avoidance rather than a sensible assessment of how to tax people in a fair and affordable fashion. We should be looking at ways to tighten the loopholes that allow the rich to avoid tax, not making guesses at who is and is not actually rich based on property values.

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