Andrew Fisher, author of The Failed Experiment ... and how to build an economy that works, explains why he backs the Mansion Tax
Now that the Mylene Klass saga has died down (#klasswar), it's time for a rational assessment of the tax. Though just to put that '£2 million garage' in London in perspective, West End property specialists LDG told the Evening Standard:
"purchasers can still pick up a three or four-bedroom mansion flat for under £2million in Bloomsbury and Fitzrovia"
The Mansion Tax would only affect people who own properties worth £2 million or more who would pay £250 a month (based on a £2-3 million property) if they're a higher rate taxpayer, earning £42,000 a year or more.
For those earning less, the tax is rolled up and paid off when the property changes hands (i.e. is sold on or it effectively becomes a form of inheritance tax if the owner dies).
According to property website Zoopla, 110,000 properties will be eligible (less than 0.5% of total UK housing) of which around 80% will be in London.
I favour wealth taxes for the reasons set out by Thomas Piketty - they are the only way to address the gaping inequality that destabilises our economy. In the UK inequality has widened in part because our taxation system has stopped being progressive. Since some point in the 1980s the poorest started paying a higher proportion of their incomes in tax than the richest.
(tables from my book, The Failed Experiment - using ONS data)
This regressive change in personal taxation, alongside other processes, has meant income inequalities have built into substantial inequalities in wealth over the 31 years of Thatcherite government.
But are there better options? Tax campaigner Richard Murphy seems to think so ...
If you ask me if the Mansion Tax is a good idea I'd have to say no. Reforming Council Tax or Land Value Tax both better options
— Richard Murphy (@RichardJMurphy) November 19, 2014
Reluctant though I am to ever disagree with Richard Murphy - especially on a question of tax - I do. Well, sort of. Like Murphy, I back a Land Value Tax - I advocated introducing one in The Failed Experiment. The question for me isn't an either / or (and I suspect it may not be for Murphy).
Council Tax is indeed a regressive wealth tax with those with the most valuable properties only paying around 3 times as much as those living in the cheapest. So despite the fact a central London mansion could easily be worth 10 or 20 times a central London bedsit, the tax is effectively capped at 3 times.
Wealth taxes especially on land or property are hard to avoid. It's hard to claim your property is actually in the Cayman Islands when it's visibly on a London street. So the mansion tax should be an efficient and effective tax targeted on a tiny elite - and that is the truly sharp divide: the 99% vs the 1% as the Occupy movement coined it.
A reformed council tax system might be too arbitrary - which would lend a Mylene Klass-style argument much more weight. A higher tax rate on those with £400,000 or even £600,000 houses would really include those who bought relatively average homes a couple of decades ago, but due to house price inflation in London and the South East now have high value homes. The average London house price is now £514,000, compared with UK average of £272,000.
So if the Mansion Tax is effectively an appropriate high value surcharge additional to council tax, then what role for a Land Value Tax (LVT)?
LVT is useful because it taxes land - not property and as such is a spur to bring disused on unused sites into use. It incentivises the owner to make use of the land in order to generate rent or create value in order to pay LVT. The practice of 'land-banking' could have a significant financial cost if a LVT was applied.
So I would argue that LVT could be applied in addition to Council Tax and Mansion Tax by city councils (or the Greater London Assembly in the case of London). This could include some offset against National Non-Domestic Rates (NNDR) or be a replacement for it, or could only be introduced only (in full or at all) on undeveloped land and commercial property.
Does the Mansion Tax tackle the housing crisis - a crisis of both supply and affordability? No, but it does begin to redress another flaw in our economy: the gross inequality in wealth. And for that it should be commended.
- See also Labour's six things you need to know about the mansion tax
- For more information on Land Value Tax, see the Labour Land Campaign