Why a mansion tax won’t work25 September 2014
So, as expected, Ed Miliband announced his ‘plan’ to boost the economy – and as everyone predicted, it involved a ‘mansion tax’ – for properties worth over two million, supposedly to fund the NHS.
This policy has so many fallacies, it’s laughable. Even many members of Ed Miliband’s party have expressed doubt as to how it would work. Here at Garton Jones we can qualify that we view this tax as nothing more than a levy on those who have the temerity to live in London, work hard and who, through no fault of their own; have seen their properties boom inexorably in price over the last decade or so.
It’s not simply that the tax is about appealing to people’s worst instincts – the “politics of envy” to use a cliché if you like – but also that such a policy is bad economics. For one thing, when it comes to valuing assets, there’s only one thing that can determine price: how much is someone willing to pay? This can vary to say the least and would inevitably lead to a deluge of appeals piling in – costing a fortune for the taxpayers. For a tax to actually work and be easy to implement, it must be clear, straight-forward and comprehensible. As well as this, it cannot be based on something that is open to interpretation in terms of value – such as property. Income taxes, as much as many people complain, work. This is because people know what they’re being paid – at least under PAYE – and they can easily be taxed.
Think about things from this point of view: there must be a multitude of properties in the UK worth £1.8 million to £2.2 million. Whose value do we go with? Taxmen are not property valuers. Everyone who owns property knows how much price varies in terms of valuation – depending on the estate agent. What the tax will lead to is a backlog of tribunal cases and ambiguity as to how much property is worth.
Experts have claimed that the tax will lead to some 100,000 homeowners across the country facing an average bill of £15,000 a year due to the tax. And there will also be a lot of asset-rich, cash-poor pensioners who could be forced out of their homes. Although Labour claim they’ll be exceptions made for these people, this adds another layer of complication to the whole issue. The tax could well lead to a lot of people being exempted – and of course people letting their homes fall into dilapidation so they aren’t worth above the threshold. As well as this, it could have further effects on the economy in terms of interior designers, architects etc. There are always hidden costs!
Finally of course there’s the question as to whether the tax would end up affecting lower-priced properties. As we all know, governments have an aversion to changing taxes once they’re introduced – and as with inheritance tax – a mansion tax could end up not being adjusted to inflation and pulling more modest properties into the net.
All in all, this would be a disaster if it were to be introduced. However, the good news is that whereas Labour is traditionally a London stronghold, they’ll be a lot of people who won’t vote for the party on the back of this. Plus, it’ll be so hard to implement, it’ll likely be end up being scrapped. And of course there are always ways around taxes – firmly within the rule book – as history has proven!