It’s interesting how many wealthy people have strong views on the Mansion Tax but have no recorded views about the Bedroom Tax. We’re in this together? Well no we are not.
Over the past few days the news from Oxfam that 1% of the world’s population own as much as everyone else put together shocked a lot of people. It’s patently wrong and in terms of economic development, totally counter-productive. In the UK the earnings and wealth of the richest 1% continue to grow at a rapid rate whilst the earnings of ordinary wage earners have grown less that inflation – ie been cut in real terms – for the last four years.
We expect Tories and minor celebrities to bleat when taxes are increased on the rich. Rather more surprising are the interventions by Peter ‘intensely relaxed about people getting filthy rich’ Mandelson and Diane Abbott – who apparently thinks it’s a hoot that she and Mandelson agree about something.
What they had to say and how they said it was unhelpful and gives the Tories ammunition, particularly Abbott’s bleating about some of the money raised being spent in Scotland and Mandelson agreeing with the LibDem alternative of additional council tax bands. National taxes, which the Mansion Tax will be, have different impacts on different regions. Taxes on oil were mainly generated in Scotland but were of benefit to the whole country – it is the SNP’s line, and not the Labour Party’s, that the money should benefit Scotland alone. Lots of other taxes produce more from London, but only because relative to the rest of the country it has a lot of wealthy people and hugely valuable property.
My complaint about Mandelson’s interview was that it is not the first time he has spoken out in a way that undermines Ed Balls and Ed Miliband (especially talk about ‘clobbering people’), having insisted on total loyalty when he was in charge. He is long enough in the tooth to know what impact his interview would have. At least he did appear to accept that it is right in principle to tax very valuable property, wealth that has not been earned but is effectively a windfall due to the property bubble.
It is fair enough to argue that the council tax option is the better one. But there are specific problems with it, which is why the Labour approach is the right one at present. First, Mansion Tax is easier to introduce and will start generating income far more quickly. To produce a fair result, introducing additional council tax bands would involve a revaluation of the national housing stock, which has not been done since 1991. This would be a very expensive and drawn out process, which the Tories would whip up into a national storm, and it might not produce revenue in the next Parliament. Secondly, council tax is collected locally and the additional income would not go into the national coffers to be redistributed to the National Health Service – which is now the purpose of raising the tax. I have no interest in boosting the income of Westminster and Kensington and Chelsea, which have far too many advantages in the local government finance system already, and a complex arrangement would be necessary to ‘nationalise’ the income. This would be heavily resisted by local politicians. And thirdly, as a graded system, additional council tax bands would be likely to penalise a much wider range of people whose homes lie in between the current top council tax band and the proposed £2m Mansion Tax minimum.
Disinformation about the Mansion Tax is being widely spread. My local Tories are running a scare campaign that Labour plans to tax everyone more for their homes, sending out letters without a Tory logo on top, designed to look like an official communication.
Ed Balls has done his best to deal with the concerns about the Mansion Tax, although a hostile media (made up of quite a lot of people who will have to pay it) doesn’t help. The ‘poor grannies’ (as Myleene Class called them), asset rich but income poor, have been exempted so the tax will roll up until their bubble-boosted capital asset is sold. The administration of a banded system doesn’t involve valuation for most people. He has promised that the £2m threshold will rise with the inflation of these types of property, so there will not be tax creep to catch more people. And the money will go to the NHS.
Polly Toynbee wrote a good column recently about how the national discourse on wealth is controlled by a tiny number of super-rich people who are clueless about the lives of the majority. On Mansion Tax, she argued:
But what inflames inhabitants of the 0.5% of properties affected is the idea of paying at all. No one likes taxes, especially new ones. But every rational review of the UK tax system concludes that failure to tax assets is a disastrous distortion. The sweat of our brow is taxed but not the unearned, undeserved windfalls from damaging property bubbles. Homes often earn more than their occupants do at work. That makes neither economic nor social sense. Even in America most states tax homes at around 1% a year.
Labour would do well to say that it will review property taxation thoroughly when it comes into Government, so that Mansion Tax could be a stop gap to a more thorough reform of property and land taxation. A new system should seek to moderate rapid rises in value which benefit a small number of people to the disbenefit of many more. Taxation of landlords as well as home owners should be reviewed, as should the taxation of foreign investors in land and property.
Ed Balls knows the Mansion Tax is popular in the country but that some of the people who will have to pay it are powerful with easy access to the media, so it will have a rough ride. It will be difficult for some Labour Candidates in areas with high property values, but its impact is no greater than some Tory tax increases – for example VAT, removal of child benefit for high rate tax payers, and increased stamp duty on valuable properties. Mayoral Candidates in particular should be very careful what they say because trying to be populist with this issue is more likely than not to lose them support within the Party.