John Wall is a Hampshire County Councillor.
Every politician should be aware of the law of unintended consequences, particularly when something is primarily driven by ideology – as is the case with the “Mansion Tax”, the threshold for which will inevitably reduce if the tax is implemented.
It has been extremely disappointing to see a resurgence of the politics of envy, since what matters most is the total size of the cake: a debate should then follow about how much of it the state should take, how it should extract its share and then how it should divide it up. I once attended a meeting addressed by Daniel Hannan, the MEP and writer, who compared the tax system to Swiss cheese, full of (loop)holes occupied by the wealthy. He proposed that these be progressively eliminated, enabling the overall rate to be reduced, and when there are some 17,000 pages of rules and regulations it’s difficult not to agree with him.
There is nothing fundamentally flawed in taxing property: a major problem with the Community Charge (which is still missed by some) was that people could move around to avoid paying. However, if there isn’t a law to the effect that any new tax rarely raises as much as expected, then there ought to be (it could be Wall’s First Law!), and the results of a Mansion Tax are easy to predict.
Some, grudgingly, will pay up, since they’ll have little alternative – although I am sure tax specialists who have already mastered those 17,000 pages will be to hand.
There are some very large properties around – some occupied by senior citizens who have lived in them for a long time, having bought them before property prices took off. They might be retired teachers, nurses, civil servants, and so on – few of whom could fairly be described as “fat cats”. Those living in large houses don’t necessarily have a large disposable income, and a Mansion Tax will thus inevitably force some to sell up with, the consequential likelihood that properties will be subdivided, thus reducing the number eligible. Ironically, this would benefit local government, albeit slightly, since the Council Tax base would then increase.
This brings us to an important point: we already have a system for taxing property – Council Tax. So why not just add an extra band (though see Wall’s Second Law below)? There is a collection cost for any tax, so making use of an existing and established system would minimise that. Extra money for local government would be extremely welcome, since it has suffered severe funding reductions; my own authority, Hampshire, has lost over half of its government grant and difficult decisions have had to be made.
Unfortunately, there are no political Brownie Points (i.e., General Election votes) in putting money into local government as it isn’t “sexy” (Ed Balls has even claimed to have identified a further £500 million in cuts to local government), but if the streets aren’t cleaned, the verges aren’t cut, the potholes aren’t repaired, the litter isn’t picked, the bins aren’t emptied, etc, etc, etc the complaints will rapidly start rolling in. As someone who has been in local government, at both Borough and County level, for a long time I know the contribution that it can make to individual quality of life.
The heart of the matter, taxing the (supposedly) English wealthy to provide (as Jim Murphy has admitted) for more nurses in Scotland, requires that the money goes to national, not local, government. The Mansion Tax is part of the plan (not a very cunning one) to “weaponise” the NHS – meaning that the most cost-effective method of raising the money, Council Tax, is being sidestepped. It can be contrasted with George Osborne’s masterly, and long overdue, reform of stamp duty in the last year’s Autumn Statement which used an existing collection infrastructure, can easily be factored into property transactions that would have happened anyway and has resulted in a receipt for central government.
Labour might seek to make up the inevitable shortfall by increasing the rate (which has repeatedly been shown to be counterproductive, although they’re still committed to a 50 per cent income tax rate), but this would invoke Wall’s First Law and just force more to sell, resulting in even more subdivided properties. The base would then have to be widened by reducing the threshold to £1.75 million, £1.5 million, £1.25 million. This could reach family homes in some areas. I don’t know how far it would have to be reduced to realise £2 billion, since there are a lot of unknown unknowns, but taxes, once introduced, tend to be extended, not reduced (Wall’s Second Law!).
There are a number of traditional “targets” for Chancellors, and many will remember dashing out to fill up with petrol on Budget Day before the price went up. The Left are against home ownership, since it eliminates the dependency culture of social housing, which is why they opposed transformational policies such as Right to Buy. Establishing a Mansion Tax, the threshold for which would have to be reduced below £2m to raise what they’re after, would make owners of large homes into a “cash cow” for a Labour Chancellor, which would be progressively exploited.
Be afraid, be very afraid; Labour is coming after your home.