In this throwback to an era of envy politics and wealth-bashing, every policy pledge from our political opponents appears to be funded either by a hike in the trusty bank levy or a tax raid on stately homes and penthouses.
Passionate debate about the imposition of a ‘mansion tax’ in particular is now all the rage. Both Labour and the Lib Dems made clear at their respective conferences that they favour such a levy on any properties valued at over £2 million. The annual £2 billion that this will apparently raise is to be redirected from the ample clutches of the ‘rich’ to the innocent palms of our poorest.
Let’s deconstruct this policy. First, we need to knock squarely on the head this idea that the well-off do not already contribute significantly to the public purse. According to HMRC data released last year, the top 1% of earners pays over a quarter of all income tax. The top 10% pay well over half. Add the impact of sales tax and existing property levies and it is clear that the wealthiest Britons already pay plenty.
Now let’s look at the terminology. Just as the ‘bedroom tax’ is in fact a reduction in benefits rather than a bill from HMRC, so the ‘mansion tax’ is a deliberate misnomer. It is shamelessly devised to conjure in voters’ minds a land of the wealthy, whose domestic palaces insulate them from reality and whose bottomless bank accounts can single-handedly fund Britain’s public services.
Truth is, there are more homes valued at over £2 million with one bedroom than ten bedrooms. A quick online property search in my own Central London constituency found that £2 million will typically get you a two bedroom flat, three if you’re lucky – hardly property of mansion-like proportions. If Labour and the Lib Dems wish to play divide and rule on this, then it should be made clear that they are drawing a line not between rich and poor but between London and the Home Counties, where property values have sky-rocketed, and the rest of the country.
South Easterners already make a disproportionate contribution to the national tax take whilst living in cramped conditions, incurring ever more expensive commuting costs and generally experiencing a lesser quality of life than those living in other regions of the UK. As David Cameron has often said, we need to look to General Well Being rather than simply financial assets.
Who is going to be paying this tax? Not landlords or property developers with a clutch of properties worth £1.9 million. It will instead be applied to someone who has lived in their central London home for thirty-odd years and seen its notional value rise to astronomic levels. Many of those who live in such properties (a considerable proportion of whom are my constituents) are asset rich but income poor. Indeed for many their main – or only – asset is the property in which they live. An annual charge of 1% would be ruinously expensive for many of these so-called ‘super rich’. The envious might retort that these long-term residents should simply sell-up. Yet this would merely result in ever more of central London being hollowed out, with a stable residential community replaced by the part-time global super-rich.
How would such a mansion tax work? Before a rapacious government can extract any money, it would require a valuation team to ascertain whether a property is worth over £2 million. Yet accurate valuations are notoriously difficult to determine. Many owners will be tempted deliberately to try to suppress or even reduce the value of their property by allowing it to fall into a state of disrepair. Others would try to challenge HMRC’s valuation, tying officers up in endless, costly appeals – the huge backlog of business rates appeals at the Valuation Office Agency looks set to get even longer. A number of independent analysts suggest that the cost of administering the tax would likely reduce substantially any sum HMRC might raise, making it likelier to bring in £1.25 billion – frankly a drop in the Treasury ocean.
There are very real problems in the London housing market. Tenants are being squeezed by ever higher rates. Not even a professional salary can get you on the housing ladder. Central London is being hollowed out as prime property is hoovered up by the global superrich – those from the Middle East, China and the Mediterranean, for example, who take advantage of free capital flows to the UK as they seek a safe haven and hedge against political uncertainty. I have written at length about those issues, suggesting some potential policy prescriptions (click here to read The Deeper Discontent Behind the Mansion Tax debate).
I believe, for instance, that policymakers must now undertake an objective cost-benefit analysis of the presence of an international superrich in a bid best to distinguish between genuine foreign business people who become resident in Britain, create employment and contribute to the UK economy, and those who effectively free load on the nation’s infrastructure. That might include the levying of taxes on non-resident, non-British owners of property through the abolition of the distinction between domicility and residence. Residents would be taxed on their worldwide income and assets while non-residents would be levied with special holding taxes on passive property assets they hold. In New York, for example, apartments can incur a tax of up to $20 000 if they are left empty.
However a crude mansion tax is not, and never can be, the solution to any of the substantial problems in the South Eastern property market. As Conservatives, we must vigorously oppose Labour and Liberal Democrat plans for such a new levy by countering their politics of envy and having our own prescriptions to frame the debate in a more Conservative way.