The latest coalition property tax proposal is just as stupid as the last one

Mar 29, 2011, 01:09

Merryn Somerset Webb

Posted byMerryn Somerset Webb

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I just don't get the mansion tax. It didn't survive the last round of coalition negotiations for good reason.

First it wouldn't have raised much money. The idea was not to charge it on the whole value of a house (as is the case with the deeply unsatisfactory stamp duty), just on the bit over £2m. So while it would have affected something in the region of about 80,000 houses, the average bill wouldn't have been particularly high.

The idea was also seen as vindictive, in much the same way as the 50% tax now is. Not much money is raised (let's not forget that preliminary research from the Institute for Fiscal Studies (IFS) suggested that the net revenue from the 50% rate would be "zero"). But it hurts a few people a great deal and acts as a symbol of the effort to make the rich pay their 'fair share', something that politicians seem to think makes it worth it, even as the rest of us think it to be absurd.

So I'm irritated to see that Nick Clegg (who regular readers will know I have more time for than most people appear to) won't let the whole mansion tax thing drop. Now he wants it to replace the 50% rate and is suggesting that owners of expensive houses should, if they don't actually get hit with an annual property tax, have to pay more in stamp duty or get a new special band of council tax instead.

I can see what he is trying to do here – if you can't find a way to tax the rich via their income (they are a slippery lot) it makes sense to go after their property. People and cash can avoid taxes by moving abroad. Houses can't.

But taxing high-end property like this comes with all the same problems as the original mansion tax. It is difficult and expensive to organise (who values the houses?). It will further distort our already grotesquely dysfunctional property market. It is bound to be subject to fiscal drag – first it will hit very, very top-end houses, then top-end houses and finally just houses.

And it adds yet another layer of double/triple taxation to the UK system. George Osborne said in the budget that he wanted to be sure that "owners of high-value property cannot avoid paying their fair share". But the owners of expensive houses have mostly already paid their 'fair share' out of their incomes or inheritance, so going for them again seems at best spiteful.

And if it is the case that some big house owners haven't paid their way, it is surely better to deal with this by making the non-dom tax rules tougher or equalising the way that savings, dividends and earned income are taxed, rather than by forcing old ladies in Chelsea to turn their pensions over to the council?
 
However, whatever the effect of all these possible taxes, the main objection to them is the same as it is to most new micro-managing tax suggestions: it adds complication without doing much for revenue. What we want in the UK is a much-simplified tax system in which everyone pays their way but no one is overly penalised. If the 50% tax rate is considered to be so much a disincentive to people creating wealth in the UK that it must go, what's the point in getting rid of it just to replace it with something that, in just the same way, is about symbolism rather then sensible policy? Clegg and Osborne should do themselves a rare favour and let the rich be for a bit.

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  • 1. Mombers

    (29 March 2011, 02:34PM)  Complain about this comment

    Merryn, I have to say I'm disappointed with your article. I enjoy your journalism greatly, but I'm sure you must be aware of the basic economic argument here. Property is not movable, but income and capital are. You tax income, people don't work, work less or immigrate. If you tax property, asset rich but cash poor people get a job, work more, or sell up. The proceeds of this tax can be used to lift more people out of income tax altogether. My wife might be able to work then, because she could pay for childcare and still have some money left over. Because her career doesn't make a lot of money, very little is left over after childcare on a gross basis. Income tax and NI are more than what is left, so she would have to pay to work. Although I'm well into the higher rate tax bracket, we simply do not have enough money to pay this tax bill. Own goal for the economy - skilled labour idle.

  • 2. Jimbob

    (29 March 2011, 02:35PM)  Complain about this comment

    Want to get more tax and sort the property market out all in one go? END TAX RELIEF ON BUY-TO-LET..... Think of all that CGT when people puke out of their 2nd/3rd homes... mmmm.

  • 3. RichB

    (29 March 2011, 02:46PM)  Complain about this comment

    I'm afraid you're rather missing the point.

    Sure, the tax code needs to be written to ensure that revenue brought in actually justifies the cost of administration, but it's just as crucially important that the system be seen as fair or it will simply discourage compliance, making the system even less effective. The fact that council taxes are in all sense a property tax that is capped for expensive properties is nothing but grotesquely unfair. Middle earners pay a multiple more of the value of a property than those in mansions, despite being less able to afford the burden.

  • 4. Barry

    (29 March 2011, 02:54PM)  Complain about this comment

    I agree that the Mansion Tax in its proposed form isn't great, but it's a step in the right direction.

    Levying taxes on property rather than income (on capital rather than labour) encourages productivity, and is likely to curb property speculation and tame the destructive, constant boom-bust cycles we have in property in the UK.

    If you use property taxes to replace a whole load of other taxes, and to reduce income taxes, this would, in my opinion,lead to a fairer system and more productive economy.

    The Mansion tax is a bit half-hearted, and doesn't go far enough, but it is at least a tiny step in the right direction.

  • 5. CM

    (29 March 2011, 03:02PM)  Complain about this comment

    I think it's good practice for any writer to declare any personal interest in the subject matter of a piece if calling for specific policy action: http://www.ft.com/cms/s/2/da5c3a24-6a7e-11df-b282-00144feab49a.html#axzz1HzbISJnl

  • 6. RJ

    (29 March 2011, 03:10PM)  Complain about this comment

    Not sure I agree with you on this one Merryn. Makes a change for me!
    Property Tax, or more a Land Value Tax, is a good move forward in sharing the burden of tax. After all that old lady in Chelsea, that you quote, has done very nicely indeed out of a rise in home values.
    A Mansion Tax isn't a perfect solution in any way but taxing land makes this country a fairer place.

    Whether we have too many taxes, and what tax can be replaced by this, may well be a different discussion.

  • 7. Alex

    (29 March 2011, 03:20PM)  Complain about this comment

    Here's a radical idea for the coalition....why not focus on reducing some of the £80bn per annum that the UK Government wastes according to the OECD, rather than try to bankrupt the population with ever higher taxes. At this rate any one with half a brain will be making plans to leave the UK permanently.

  • 8. Merryn

    (29 March 2011, 03:24PM)  Complain about this comment

    CM, I don't think it is any secret that we live in a house we own...

  • 9. Ralph Corderoy

    (29 March 2011, 03:28PM)  Complain about this comment

    Hi RichB, wanting council tax to morph into an uncapped property wealth tax would cause issues for those retired folks who still live in the house they bought thirty or forty years ago.

    They're too old to move, the strain would kill them, and it's not their fault that the housing market has bubbled but not yet crashed. They don't have the ready cash to match their house value.

    The state will get its mitts on their cash when they peg out, until then, leave them with a capped council tax; they will already be overpaying for the services they use anyway.

  • 10. Len

    (29 March 2011, 03:50PM)  Complain about this comment

    Merryn's article is fine. I'm working class and it seems to me that 'rich bashing' and 50% taxing is not the thing to do. Fairer council tax - yes. The working/middle classes have been squeezed dry in the last few years and spite toward rich homes is just that - spite. The emphasis should be on the businesses of the very very rich. Make sure corporations are taxed properly, provide serious tax breaks for corporations located away from the south east. There's also an urgent need for 10% salary reduction for all council staff earning >55K and 25 - 30% reduction for those on >150K
    Bring public pension contributions and awards in line with private pensions - and teach people to live and have children according to their means. Skilled labour idle is a major issue - can it be right that only 15% of jobs have gone to people born here?
    The investment banks should have been allowed to fail.

  • 11. Ed

    (29 March 2011, 03:56PM)  Complain about this comment

    |A very disappointing article showing a complete lack of intellectual rigour. It's the very definition of poor journalism when the very first poster explains the issue more clearly than the article.

  • 12. Clare

    (29 March 2011, 04:24PM)  Complain about this comment

    Ralph Corderoy, as far as asset rich retirees goes, the state can only get its hands on their cash by taxing them while they are alive. When they are dead it is no longer their cash, because they are dead. It's the usual giveaway that people can't get their heads round the fact that they are going to die. Inheritance tax isn't paid by the deceased, it's paid by their inheritors.

    The dead have no money and they don't pay any taxes.

    What is certainly true is that asset rich, cash poor older people, especially given that there are so many more of them, are denying many younger parents the possibility of buying a home for their kids. Given limitations on land and housing stock the present situation is grossly unfair, and at minimum a rebanding of council tax would be a start.

  • 13. ontheotherhand

    (29 March 2011, 04:26PM)  Complain about this comment

    Ah Merryn, the old lady argument. Winston Churchill sighed about that old "Poor Widow Bogey" chesnut 100 years ago in this essay on how property owners gain from every bit of public and private enterprise around them. http://homepage.ntlworld.com/janusg/chrchl.htm

    Have a read and remember that according to the government Generalised Land Use Database, 1% of England is domestic buildings against 87% 'Greenspace' and 7% water and gardens.
    http://data.gov.uk/dataset/land_use_statistics_generalised_land_use_database

  • 14. Nev

    (29 March 2011, 04:40PM)  Complain about this comment

    Am I missing something? Its just an extra band of Council Tax.
    Who values it? - the District Valuer, obviously
    Not exactly controversial.
    We are due a Revaluation sometime soon anyway. Nick is having us on pretending this is ground breaking stuff.

  • 15. Robin

    (29 March 2011, 06:00PM)  Complain about this comment

    Couldn't agree more. The heart of this policy is to placate the plebeians by punishing the rich. Us plebs aren't fooled you know. You can't multiply wealth by dividing it. The rich should be encouraged to get paid to take risks, rather than to just pay. In this way entrepeneurship guarantees effective jobs for all and better goods and services. Also any particular rules that are subjective will distort house prices anyway. What we should be talking about is ending anti-competitive practices. This is what lead us to high house prices and crazy bank loans in the first place. Lets be done with planning permission. The city has a will of its own, let it free.

  • 16. Romford Dave

    (30 March 2011, 09:11AM)  Complain about this comment

    I'll be glad when the rich have all f****d off and taken their wealth and entrepreneurial skills with them so I can finally stop reading ridiculous solutions from people who don't know any better on how to bring them down to the same level of unthinking dullards.

    Tax, tax and more tax seems to be the the new final solution to save the masses.

    Forgeting that all the masses are good for is praying and that cut and burn is the method of choice for the growing of anything new, including society!

  • 17. Alex

    (30 March 2011, 09:14AM)  Complain about this comment

    @Clare, I totally agree and sympathise, sadly we live in the time we live in, demographically the baby boomers are dominant, and they tend to vote, IIRC about 60% of those who vote were aged over 55 at the last election, that's forecast to rise to further. You can't blame politicians for chasing the votes, even if the policies the Baby Boomers en masse vote for will ruin there childrens & grand childrens life prospects.

    But ever more taxes isn't the way to improve anyones prospects!

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