Vince’s revamped Mansion Tax gets ‘twumbs-up’ from Susan Kramer

Ever since the Lib Dems shadow chancellor Vince Cable launched his proposed Mansion Tax on an unsuspecting world in September, there has been a suspicion that neighbouring Richmond Lib Dem MP Susan Kramer – who faces a tough battle against trustafarian Tory Zac Goldsmith – was, how shall we put this?, a little less than enamoured of the proposal that those living in houses worth £1m would be taxed more.

In a BBC interview, Susan declined the opportunity to support the tax as originally proposed, while the Hounslow Chronicle summed it up bluntly, and I suspect accurately: It’s Kramer versus Cable over tax.

So I was interested to note this approving tweet from @SusanKramer today:

kramer mansion tax

That Vince’s original proposal has been modified is a simple fact: instead of a 0.5% annual levy on the value of all homes valued over £1m, there will be a 1% annual levy on all homes over £2m. Not only does this increase the revenue generated compared with the original proposal, but will be seen as fairer by those living in parts of the south where there are many more houses which pass the £1m threshold, but which have have been family homes for decades and are now occupied by asset-rich, cash-poor pensioners.

In short, the new policy is better than the old. And why is it better? Because the Lib Dems have a democratic approach to policy-making which means our shadow cabinet can propose but do not control party policy. Vince’s original proposal generated much debate and discussion in the party, with two-thirds of LDV-reading party members supporting the mansion tax, and three-quarters of the British public.

However, many were acutely aware of its potential to hit hard Lib Dem MPs defending marginal seats in the south. I’ve no doubt there was a fair deal of lobbying in the last couple of months to arrive at a policy which delivers the key principle of our new tax proposals – tax-cuts targeted at the least well-off in society – without driving currently Lib Dem seats into the hands of the Tories. This, it seems to me, has now been achieved. And that it’s been achieved is thanks to our policy-making process.

With all that said, I think we should also acknowledge Vince Cable’s contribution to ensuring the Mansion Tax has become one of the most visible policy brands the party now has. True, he’d have done well to inform colleagues of his proposal before launching it at conference … BUT it created the impact it did precisely because it was a big announcement by the party’s shadow chancellor. I very much doubt it would have gained the media attention it has done if everything had been done precisely by the policy-making rule-book.

It is, of course, right that the party has democractic processes in place to ensure the policies we fight the election on have the agreement of the Parliamentary and wider party. But it is also right that we cut our shadow cabinet some slack when the opportunity presents itself for the party to generate some positive publicity.

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21 Comments

  • Herbert Brown 30th Nov '09 - 4:11pm

    “True, he’d have done well to inform colleagues of his proposal before launching it at conference … BUT it created the impact it did precisely because it was a big announcement by the party’s shadow chancellor. I very much doubt it would have gained the media attention it has done if everything had been done precisely by the policy-making rule-book.”

    That’s all very well, but if Cable had consulted properly and got the policy right first time, the headlines today might have looked a bit more like “Lib Dems pledge to scrap income tax for four million people earning less than £10,000 a year”, rather than what we actually have:

    “Vince Cable forced to water down ‘mansion tax'” (Times)
    “Liberal Democrats to double ‘mansion tax’ rate” (Guardian)
    “Lib Dems scale back ‘mansion tax'” (Press Association)
    “Liberal Democrats double planned mansion tax threshold” (BBC)
    “Lib Dems outline revised version of ‘mansion tax'” (New Statesman)

    and so on …

  • I’m afraid it’s still a dog’s dinner that says more about internal party consensus-making than a coherent approach to tax. It is hard for example to identify the problem which this is trying to solve, other than dog-whistling left-voters whilst hopefully only alienating a small number of the wealthy who might vote for or fund us, and if the problem could be identified it is harder still to believe that this is the best solution.

    For example if the issue is the distribution of the tax base, the contestable argument that the 2% difference in share of tax paid by the top and bottom 20% is a source of great unfairness, then this is not a good solution. It is also not a solution that survives any of the arguments Vince himself used to ditch the 50p rate on income tax. Tax evasion on property for the wealthy is just as likely as on income and perhaps easier. The mansion tax would distort property values and it would be avoided.

    If the problem is that having proposed scrapping Council Tax we need a fair property tax, there is already a national property tax, Stamp Duty. It is unfair, as it penalises buyers to the benefit of sellers, only the latter of which has benefited from any gains in property value, and the bands are not incremental. Surely a very simple alternative to mansion tax, that requires very little adaptation to existing tax law and apparatus, would be to scrap stamp duty and replace with a very low level of capital gains on first homes, banded if you wish to reflect the redistributive intent of the policy, with rebates on stamp duty paid in the last 5 years to avoid dual taxation. That would be fair. Alternatively you might just simply increase the number of Council Tax bands, with high bands fixing increases relative to each additional million pounds of value… that is if we hadn’t made a fetish of scrapping Council Tax.

    If the issue if we need to signal further that we want a more ‘simple’, or efficient, or transparent tax system. This does the opposite. It is a new tax, that would be expensive and complex to assess, subject to expensive appeals through the courts, and expensive prosecution of evasion. This for a relatively trifling sum that is akin to a balancing error on the national accounts.

    If the issue if displaying our liberal credentials, the fatal flaw in this proposal is that it requires state officials to assess the amount of tax paid based on what state officials believe something is worth. Homes have no real value other than what people are prepared to pay for them at the time of sale. Mansion tax disputes this and believes your local tax official knows best. To avoid this problem today Council tax is banded with very wide bands to minimise the chance of unfair assessment. Council Tax though does not require annual revaluation, this does. Would you trust your Council to value your home to the extent of creating a precise percentile tax demand every year? I barely trust my own to create a annual service charge on services they actually own and run.

    Following on from that if our intent is to encourage greener houses or generally stimulate the economy through home improvement, this tax penalises both. Want solar panels on your mansion, pay the tax man his cut…

    And further if we sincerely believe living annual wealth taxes are fair, what is special about a home versus other asset classes. Why should pension pots, funds or shares be o.k. but bricks and mortar not? Why should home assets be special whereas business premises more commonly over £2m in value are exempt, what about home offices?

    As a final point, even if we believe the political signal element of this is more popular than not, i.e. that more marginal voters will be attracted by this than repelled, this is a tactical evaluation. Strategically this piece of gesture politics undermines four years work on improving the party’s reputation for economic competence. Vince looks now more like a populist than wise steward of national finance; and a confused one at that, this being the third outing for this tax proposal, and each adjustment looking more politically motivated and trivial than the last.

    The Tory’s attack line on this tested by Spelman today is that Cable is incoherent and the lingering LIT policy still attacks hard working families. What is our response?

  • Teek, the headlines are largely written by people who live in £2m+ mansions, many of whom may take a dim view of the notion that asking them and only them to pay a vast amount tax to give a small political bribe to the rest is not fair. But if redistribution is the aim, what is wrong with extending the Capital Gains Tax already levied on second homes?

  • David Allen 30th Nov '09 - 4:45pm

    Everything is for the best in the best of all possible worlds. Lousy headlines don’t matter because we know better. Our brilliant campaigning ability will effortlessly cope with explaining away our own muddle. Onward and ever onward to the sunlit golden uplands.

  • David Allen 30th Nov '09 - 6:24pm

    A typical top rate of council tax, band H, is around £2-3K per year, and applies to houses with current values £0.5M-£1M and upwards.

    The original mansion tax would have added another bill of £5K per year per £1M house value. That isn’t miles out of line with band H, though the cost and wasted effort of doing an annual house valuation just to bring in that £5K looks a bit silly.

    The new mansion tax lets you get away with paying only the band H rate of £2-3K per year, until your house price gets as high as £2M. Then suddently, an extra charge of £20K per year kicks in.

    So the new mansion tax has worse anomalies than the old mansion tax.

    How long before this is discovered and we have to change it yet again?

    We could have avoided all that by simply bringing in some higher council tax bands. These would have caused much less upset in leafy Richmond, would have been much easier to graduate smoothly, and would have required just a one-off valuation instead of the annual bureaucratic exercise required for mansion tax.

    The Tories say we cannot be taken seriously. Let’s stop donating them their ammunition, please!

  • David Allen 30th Nov '09 - 6:31pm

    PS, what do you do with a mansion worth £2M on which you do not want to pay tax? Easy. Give away the entire garden. Suddently, nobody wants to pay £2M for your big house if there could be total strangers camped outside the back door. Your house value plummets and your tax bill goes away. Meanwhile, your children, who now own the garden, are still refusing to dig it!

  • Paul Griffiths 30th Nov '09 - 6:45pm

    I concur with Herbert Brown’s sentiments. Note that these proposals still haven’t gone though Conference.

  • Teek: “hereas what’s being proposed is an annual levy” – yes that’s my problem with it, who decides what a home is worth when it hasn’t been sold, see all the above points about adding to the expense of assessment, appeals, etc. not to mention the civil liberties implications of kicking in someone’s door to value the quality of the granite in their kitchen, or taxing green improvements.

    As to what it is being used for, a) this tax will not raise anything like enough to raise the basic allowance to £10k and b) it’s irrelevent as to whether this is the best way of raising revenue to do that. I would suggest the novelty of it, the complexity of it, the ease of evasion, and cost of implementation and handling appeals and evasion make it a very bad way of raising revenue. You’d be better off raising the top rate of income tax or increasing an existing workable asset tax, if I stress that is your goal.

    On Vince, that is now the Tory attack line, whether it is harsh or not matters less than whether it will stick with the voting public and opinion formers.

    James: “Nowhere near as good as Land Value Tax, but its a start.”. I disagree. The Council Tax is closer to a fair land tax than this proposal. One problem is the concept of annually levying a percentile tax on assumed value as though this were anything other than a crude estimate. That is patently not workable, cost-effective, or fair.

    Another is that this is a national property tax not local adjusted to needs, which broadly means stinging the south, London and major cities, that on top of Stamp Duty which does the same. Council Tax is at least adjusted to the needs of different localities.

    It is less then a good start than a way of undermining the credibility of land taxes.

    Niklas “tax evasion on property is difficult…” O.k.. here are some ways of evading mansion tax
    – Divorce your partner and split your property into two or more dwellings under the threshold
    – Redesignate your home as a place of work or home-office
    – Sell you home to a property company in the Cayman Islands, a company of which you are the undisclosed director and major shareholder. Who pays?
    – Actively damage the property to reduce valuation
    – Hire your own valuation company that disputes the government’s assessment

    And more simply appeal every assessment of your property’s valuation every year

    ” the key is having a simple and cheap method of valuing the properties to be taxed.” – indeed what is cheaper than taxing actual value on sale through capital gains? Similarly in respect of the Economist reference to Arnold study, that tells us there is economic merit in a proper land/property tax (and thus attacks our LIT-only policy as damaging to growth), it does not though tell us whether a mansion tax would be better than CGT on property, Stamp Duty or Council Tax.

    Alix See my points in response to Teek, what this redistributive measure is designed to pay for does not make it a good way of raising that revenue against alternatives. We could for example meet child poverty targets and end much health inequality by introducing euthanasia for the over 65s, I would not though suggest that end justifies the means. The measure can and should be assessed on it’s own merits.

  • Herbert Brown 30th Nov '09 - 9:10pm

    Alix

    “However, the terms in which it was first framed IIRC were that it would “pay for” raising the personal allowance to £10,000. (I put “pay for” in inverted commas deservedly because I can’t remember the figures being as exact as all that.)”

    Well, it wouldn’t come close to paying for that. The original “mansion tax” was going to raise just over £1bn a year, and the new version is supposed to raise £1.7bn. The cost of raising the allowance is something like ten times that. The bulk of the money would come from essentially the same measures that would have funded the 4p cut in the basic rate of income tax.

    The mansion tax was only ever an add-on gimmick, but somehow it has come to dominate all the reporting of Lib Dem taxation plans.

  • Herbert – absolutely spot on with your first post, just look at the headlines.

    David Allen – actualy the tax does not suddenly kick in at £20,000, it is 1% on the value above £2M, so a house worth £2.5M would attract a tax of £5,000/yr. It still is a daft proposal though and even the Independent tears it to pieces in today’s edition.

  • The other missed opportunity in “our” tax announcement was the chance to have said clearly that we would remove the top IT band of 50%. As we have continually argued since droppping the 50% rate as our flagship tax policy, a high marginal rate serves little purpose – its easily avoided, and therefore ineffective as a revenue earner. It is far better to tackle the iniquities of our current system by the changes we have now announced – removing higher rate relief and bringing CGT back in line with IT. We could therefore have simultaneously appealed to low and middle income earners, whilst lowering the marginal rate for all. Win win I say. But I am not shadow chancellor, so what do I know? (What indeed???)

  • Niklas, Arnold analysis sounds interesting, but that level of detail is not in the Economist article could you provide some links to the relevent parts of the analysis.

    “is there any way to raise money for local government that is more efficient than LIT without being less equitable?”

    Yes, you take the decentralisation principle and apply it to a number of taxes, not just one, then allow Councils to decide which they want to tweak to suit their local and political circumstances. A basic model for example would allow decentralised levels of some form of land tax, Council Tax is not a bad approximation (better with more upper bands), some LIT, some local sales tax or LVAT, and maybe even replacing business rates with a share of local corporation tax. You might also take my proposal to replace Stamp Duty with CGT and make that CGT locally variable.

    That does not necessarily give you the same crude Lorenz-curve effect as just messing about with income tax, but it can do depending what you raise or lower and it allows a more sophisticated adjustment. It also empowers local authorities with a range of fiscal tools, whilst allowing experimentation to test which systems work best in respect of outcomes like equity and growth.

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