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 would have thought that the other good reason for the Coalition Government to introduce a “Mansion Tax” is that it is the easiest way to deal with the expanding loophole whereby the legal ownership of very expensive houses is transferred to offshore companies. This is a way of avoiding the 5% Stamp Duty on subsequent sales of the property.
Introduce an annual “Mansion Tax”. Reduce the highest rates of Stamp Duty on house sales. Tax loophole closed!
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.
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.
As a conservative liberalI really hope that the Conservatives do support some form of Mansion Tax. Switching tax from work to wealth is a no brainer purely on grounds of economic efficiency. Other changes outlined into the Mirrless Review by the IFS (http://www.ifs.org.uk/mirrleesReview/design) should also be introduced. We can increase economic efficiency while raising the same quantity in tax. That should be something every Conservative can support.
We shouldn’t increase the tax take, but bringing in a Mansion tax and using the money to pay for further increases in the lower tax threshold would be popular, efficient and right.
I would only say that it would be better to put in place new upper bands of council tax, rather than introducing an entirely separate new tax. The money could be recouped by central government by altering the Grant, and then used to raise the income tax threshold. This would also be a good localist measure, as it would mean a further increase in the proportion of a council’s income that they raise themselves.
Either that or introduce a mansion tax with a lower threshold and rate. 0.5% on values over £1 million would be far better than 1% on values over £2 million. The principle with taxes should always be to have a wide base and a low rate (within reason).
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.
Good to see the mansion tax idea is being pushed. As part of the whole “responsible capitalism” debate, it’s probably the best and most meaningful response any of the parties has come up with. You can blather on about “responsible capitalism”, but the tax system is also there to make our society fairer and more equal. So, even if the Lib Dems in Cabinet might not get agreement for the mansion tax, we need to be pushing this and – if necessary – add it to the list of “fairer things” that the Tories blocked.
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.
@L Edwards
“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.”
No, there’s a third choice: 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.
“Charles”
I agree with you so far as wealth which people already own, legally acquired by their own efforts.
But redistribution of the inheirtance of wealth is taking a proportion from people who are about to receive unearned wealth in order to give a basic minimum universal inheriance of unearned wealth to all young adult UK-born UK citizens. That is not a heinous concept.
The heinous dynastic capitalist concept that needs challenging is having some in each new generation inheriting unearned billions and others inheriting nothing.
“one which genuinely seeks to shift the tax-burden from income to wealth (while leaving the overall tax-take neutral).”
I am willing to consider a mansion tax in this light, i.e. provided it is introduced as forty+ tax rates on income are ditched.
Provided:
1. It doesn’t further the tax rate against the rich (they pay quite enough already imo, and i am emphatically not among them).
2. It is not mechanism to prop overly high government revenue in the long-term, i want taxation as a proportion of GDP to fall to 35% at the height of the cycle.
“jedibeeftrix”
“Provided:
1. It doesn’t further the tax rate against the rich (they pay quite enough already imo, and i am emphatically not among them).
2. It is not mechanism to prop overly high government revenue in the long-term, i want taxation as a proportion of GDP to fall to 35% at the height of the cycle.”
1. Who do you mean by the rich? High income earners? High value capital and wealth owners? The rich by inheritance? The rich by inheritance certainly do not pay enough, thanks to the exemptions from Inheritance Tax, including unlimited amounts of early enough lifetime gifts and of agricultural land, unquoted businesses, majority shareholdings in quoted companies and businesses quoted on the Alternative Investment Market.
2. Taxation to redistribute the inheritance of wealth transfers capital directly from concentrated private ownership in one generation into wider private ownership in the next, spreading more widely the private ownership of wealth in each new generation. So that should be outside the annual tax revenue as a percentage of GDP at the height of the cycle.
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.
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
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.
“L Edwards”
“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.”
‘Wealthy’ normally relates to wealth, not to income in any one year. By all means tax annual income progressively. But also tax the cumulative lifetime increasing total of gifted and inherited wealth received by those who have not earned or created it themselves.
That is not unfair. It is even fairer if you use the proceeds for a judicious positive redistribution of such unearned capital to all young adult national-born citizens.