How seductive it sounds. A tax on the great mansions of the rich to pay for more doctors and nurses in the NHS to the benefit of all. Labour leader, Ed Miliband, clearly believes he is onto a vote-winner with his so-called ‘mansion tax’ policy, confirmed in his party conference speech yesterday.
Quite aside from the fact that the £1.2 billion he hopes to raise is a mere drop in the NHS ocean, however, Mr Miliband’s mansion tax is also grossly unfair.
The politics of his plan are easy to understand. In recent years, we have witnessed an unprecedented shift in the ownership structure of central London residential housing stock. Boosted by the weakness of sterling and the perception of London as a safe haven, foreign money has flooded the capital’s prime housing market. As the international enclave expands in Central London, so prices have been driven up in less central areas.
Alongside this, problems in supply, the difficulty of saving for a vast deposit, and the boost to prices given by artificially low interest rates and government programmes, have made it tough even for domestic buyers on professional salaries to secure property. As a result, an increasing number of Londoners are feeling locked out of their own city. Meanwhile those outside the capital’s bounds are feeling more and more disconnected from London’s apparent wealth. Why not plunder the assets of its residents to redistribute to the rest of the country and fund public services? How perfectly it plays to Labour’s divisive rhetoric about the ‘rich’ and the ‘rest’.
But let us not be seduced. This envy-driven, simplistic and naive policy will cause huge damage.
For a start, let’s debunk the idea that those living in pricey properties are rich. There are many people in London who happen to reside in homes whose value has inflated to a level that bears no relation to a household’s ability to stump up large cash sums. An annual charge on properties valued at over £2 million would be ruinously expensive for many of these so-called ‘super rich’. It would also most likely drive greater numbers of traditional Londoners from their homes, vacating even more prime property for foreign buyers and heightening the sense of injustice that a mansion tax is designed in part to salve.
The ‘mansion tax’ is also a deliberate misnomer. It is shamelessly devised to conjure in voters’ minds a land of the wealthy, whose domestic palaces insulate them from reality. Truth is, there are more homes valued at over £2 million with one bedroom than ten bedrooms. In my own Central London constituency, £2 million will typically get you a two bedroom flat, three if you’re lucky – hardly property of mansion-like proportions. A mansion tax therefore draws a line not between rich and poor but between London and the rest of the country.
How would such a mansion tax work? A valuation team would need to ascertain whether a property is worth over £2 million. Yet accurate valuations are notoriously difficult to determine. Many owners would 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. All this would likely reduce substantially any sum HMRC might raise, turning the revenue into a mere rounding error in Treasury calculations.
Finally, it sends out a dangerous message about private property rights. Rather than being explicitly linked to payment of services like the council tax, a mansion tax would be nothing more than an annual penalty paid to the state for the privilege simply of owning something. For those unable to pay-up, the only option would be to sell-up.
There are very real problems in the London housing market. However a crude mansion tax is not, and never can be, the solution. Ed Miliband’s proposed new levy must be vigorously opposed.