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Mansion Tax Nouveau

March 29th, 2011 Posted in Liberal Democrats, Tax by

Our party at times, is rather like the French wine industry, a purveyor of great things, sometimes the best in the world, but rather loathe to change our traditional bad habits.

The mansion tax in many forms is now vintage bad policy about which we have written previously. The party in principle supports simple fair taxes, we have a history of supporting land taxation. The mansion tax is neither.

Annual percentile taxes on estimated property values are hard to calculate, distort markets, have no sensible ‘fair’ threshold. They would be widely avoided.

That Nick Clegg is now talking (£) about ditching the vintage for something bubbly is cheering, but his options so far are rather flat, and abstinance from token tax innovation might be better.

The worst option is ‘reforming’ i.e. increasing stamp duty.

Stamp Duty on main homes has got to go. Whilst it is reasonable to tax individuals and businesses for capital gain, consistent with other assets; taxing the full value of the property on the buyer, not the seller is entirely unfair, and a huge market distortion.  

Reforming Stamp Duty would involve replacing it with a 5-10% level of Capital Gains Tax across the board, zero-rated at the same level Stamp Duty is zero-rated. There is no need to have multiple progressive bands. There is certainly no need to introduce some super rate on very high property values. That very rich people want to live and spend their money in Britian is a good thing not a social problem.

CGT is already applied to second homes and business transactions. Ditching Stamp Duty would then be a tax simplification.

Introducing new Council Tax bands is an old idea of unclear purpose. I happen to like Council Tax. It’s the nearest thing we’ve got to a fair land tax. I might even concede new bands could be helpful in some areas. But this should be a local decision and introduced slowly, or part of a wider land tax reform.

The problem I have with it is that there is no obvious reason why larger houses should pay dramatically more than they already do for the same local services as smaller houses. Nick appears to be suggesting a local tax reform could be used to pay for a national tax deficit. I’m not sure that sits at all well with the party and coalition’s localism agenda.

If the issue is taxing monopoly ownership of land, then let’s start calling Council Tax, local land tax and apply it evenly to different land classes through one simple integrated system with busines rates. Let local areas compete with each other to attract residents and businesses through the rates they set. Too much national interference and redistribution encourages waste and entrenches poverty through public sector crowding out.

The general problem however is the positioning of this policy as a way of paying for ending the 50p income tax rate. That policy is being reviewed on the basis of complexity and revenue. If it damages growth, penalising entrepreneurship and encouraging avoidance, it will fall on its own merits.

It does not need a plan B to appease the left.

2 Responses to “Mansion Tax Nouveau”

  1. Ed Joyce Says:

    Andy gets straight to the heart of the matter when he says

    If the issue is taxing monopoly ownership of land, then let’s start calling Council Tax, local land tax and apply it evenly to different land classes through one simple integrated system with busines rates. Let local areas compete with each other to attract residents and businesses through the rates they set.

    This is exactly the issue but it’s not an option. Let’s shift the tax burden, however, from workers to non workers. Elsewhere the author has (I believe and stand to be corrected) spoken out against local income tax on the basis that it taxed workers and allowed non workers to avoid being taxed. I notice that he does not state that he supports these moves however. Such clarity of thought would be (in the words of Sir Humphry ? ) very brave for a politician seeking election.

    The party is choosing the £2m + mansion tax because it is easy to explain. The problem is that it ends up being analysed on a left/right basis. We need to deliver a clear message to the voters not a lesson on Georgist theory.

    Let us not, however, throw the Georgist baby out with the bathwater.Lets take the policy, work with and modify it. Saying it is “vintage bad policy” plays into the hands of the Conservatives. Let us not forget that this was a commitment at the last election. We are having enough problems getting heard. This policy is popular on the doorstep and ties well into a narrative linked to raising the tax threshold, so let’s support it.

    If we can get this it will be a big win for Nick and the party. We should be positive about this happening. We should fully support him on this issue but make it clear to him that this is a litmus test for him to prove that we have some pull in the coalition. If we cannot deliver on what is a relatively minor issue financially after putting himself on the line in the FT I fear that he will sink.

    The Georgist argument is one that can form the heart of a separate identity for our party.

    Ed Joyce

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