Mark Ferguson (yes, left) and Nick Carn (no, right)
Labour’s “mansion tax”—an annual tax that could be levied on properties worth more than £2m—has, I believe, a small part to play in tackling the structural inequalities of British society. We live in a country where wealth inequality is increasingly Dickensian in nature, and the expansion of unearned wealth (of which house prices are a major part) has a deeply pernicious impact. This is exacerbated by a warped housing market where foreign oligarchs buy homes at stratospheric prices in central London, forcing up house prices across the country in general, and in the capital in particular. A mansion tax could have a small impact in limiting the deeply destructive house price boom—although a sustained house-building programme would be far more effective.
Yet a better case for the mansion tax is one of reciprocity and solidarity at a time of scarcity. Even the most modest home is now worth far more than it was a matter of years ago. It is only right at a time of extreme public spending restraint that those who benefitted most from the housing boom should contribute more to the public purse. And while those who are asset rich but cash poor must be protected from a tax they cannot pay (Ed Balls, the Shadow Chancellor, has indicated Labour would do this) the vast majority of those living in multi-million pound properties can and should be contributing more—not just from their income, but also from their assets which have ballooned in value. If a property has increased in value by 10 per cent in a single year, that’s not due to any skill or judgement on the part of the homeowner. Instead, it’s luck and a broken housing market that have caused such a dividend for the lucky few.
A mansion tax alone is not the answer to these problems—but it is surely a part of it.
Your case for a mansion tax is that it would address inequalities of wealth and cool the housing boom, but how effective would it be in achieving those aims? Would taxing expensive houses help to ease the housing shortage? Would a mansion tax be an effective and fair form of wealth tax? I think that the answer to both questions is No. First, I need to declare an interest. I am lucky; 20 years ago, I bought a house in central London. By most people’s standards that makes me rich. Although after paying income tax and taking care of children and elderly parents I don’t have much left over, mine is no hard luck story. I could choose to spend my savings on staying put until my children have left school and then move.
One of my neighbours, the elderly widow of a pianist, is very frightened that she will be forced out of her home of over 50 years. She rents most of the rooms to young musicians, to whom she dispenses tea, counsel and occasional financial assistance. You may feel that this is a poor use of an expensive asset which would be better used to increase tax revenue, but it’s hard not to feel sorry for her. Perhaps, as you suggested, she would end up being “protected” from the tax. Maybe I would, too. How my immediate neighbours, both of whom work long hours at opposite ends of London and who last year stretched themselves to afford the house (plus hundreds of thousands of pounds in stamp duty) in order to have some kind of family life would feel about that I don’t know—but I can guess.
You might reply that this is not about individual circumstances but about broader issues of equity. The difficulty with this is that a mansion tax is not an equitable form of wealth tax; it’s not even an equitable form of property tax. If you want to tax wealth, tax all forms of it. Given a housing shortage, isn’t it owning more than one home which is antisocial? And how equitable is a tax that falls almost entirely on a single region?
I do think that a mansion tax would have an impact on our overheated housing market. That is an inevitable impact of any increase in the day-to-day running costs of purchasing a home. But I hope we can both agree that the best long-term approach to dealing with the housing bubble is to build more affordable homes. But let’s move onto questions of fairness. You don’t believe that a mansion tax would be an effective and fair form of wealth tax—but a tax system that focuses overwhelmingly on income rather than assets is problematic at a time when many homeowners accrue more wealth each year through their home than their work due to spiralling house prices. In such a situation, taxation on assets is not only legitimate but rational.
It’s understandable and natural that you’re concerned about the impact of the tax on yourself and your neighbours. As I’ve outlined already, the tax (at least in the way proposed by Labour) would protect those who can’t pay it, at least until they sell their home. But with around 100,000 homes valued at over £2m, I do find it hard to believe that those who are genuinely squeezed are anything but a minority of that number. Individual circumstances should be considered, but a couple who can stretch to buying a £2m home (to quote one of your examples) are clearly far more wealthy than all but a tiny few in Britain can ever aspire to be. The minority who genuinely can’t pay must be protected—but the majority who can afford to pay should do so for the reasons of solidarity and disproportionate asset-growth that I’ve outlined already. While you’re correct in saying that the tax falls almost entirely on one region (London and the southeast), the accumulated assets of London’s housing bubble are dangerously inequitable—increasing the focus of wealth and assets within the confines of the M25, and accelerating London’s demise towards being a city in which lifelong residents can’t afford to live. The broken London housing market—and the farce of most multi-million pound homes being located in one region—is a reason for action such as (but not limited to) a mansion tax, not a reason to avoid such a measure.
I am interested to know why you think that a mansion tax would cool the housing market. It would obviously reduce the price, but not the affordability, of houses over £2m relative to what they would otherwise have been, but what of the vast majority of houses? Even if the tax established an effective ceiling of £2m this is irrelevant when the average house costs £188,000.
I note your support for a house-building programme (bitterly opposed by those who live near new developments, of course) but am struck by your silence on the proposal of a tax on second homes. Whereas the mansion tax would simply replace some owners, including many “lifelong London residents,” with others, a steep levy on second homes would reduce the number of properties left empty part of the time and would actually increase the supply of housing. You don’t by any chance have an interest to declare?
Right at the centre of any debate on taxation, and seen in particularly sharp relief in respect of a mansion tax, is that it would be neither cheap nor efficient to collect, nor would it be “equitable” like a broadly based wealth tax. First and foremost its electoral appeal is that it is a tax that the vast majority can be absolutely confident will be paid by someone else. A wealth tax (that pension pot, the apartment in Spain) on the other hand could be the thin end of a very thick wedge. I’m not claiming any sort of ethical high ground but it’s not obvious that supporting a tax which I won’t pay (while enjoying the benefits) is a moral position either. Any citizen who feels taxes are too low can simply send a cheque to the Inland Revenue. This does occasionally happen—last year someone left a legacy to the government to spend on public services—but it is exceedingly rare.
Even if persuasive, arguments for redistributive tax policies in general or for wealth taxes in particular do not amount to arguments for a mansion tax. You are quite right in saying that anyone who can buy a £2m house is well off. They might not be “rich,” however, but instead have high incomes, already subject to 45 per cent income tax, and a big mortgage.
That is the problem with the mansion tax. It appears to fall on those who are somehow “not paying their fair share” but is in fact extremely arbitrary. It is not a “farce” that houses are expensive in London. They are expensive because the London economy is successful and supports a lot of high-paying jobs. These jobs involve long hours, putting a premium on houses and flats within easy commuting distance of work, particularly for people with young families. You are clearly concerned about inequality. Perhaps it is time for a proper debate about wealth taxes. But to portray a mansion tax as targeting the undeserving rich is dishonest.
Why do I think that a mansion tax would help cool the housing market? Because the excessive prices paid for high-end properties, often in the centre of London, artificially force up house prices elsewhere. That, combined with a chronic shortage of housing, is why a tiny flat on the edge of London is an all but unaffordable luxury for so many of the capital’s residents. You note that “the average house costs £188,000,” but not in London it doesn’t.
The idea that I may be a second homeowner is, I’m afraid, laughable. I am one of the generation that finds it hard to afford living in the capital due to sky-high prices. My partner and I struggle to afford our small, edge of London home. A home big enough to raise a family (never mind a second one) may well prove permanently out of our grasp if we wish to remain in our local area. If I have “an interest to declare,” that’s it.
I’m afraid we are running short on time—so let me tackle one final point. You say, “It is not a ‘farce’ that houses are expensive in London,” but the very fact that so much wealth (and the jobs and wages needed to sustain that wealth) is so geographically focused is truly farcical, and starkly displays the flawed and imbalanced nature of our economy.
A single city (and a small set of sectors within that city) should not be propping up the Gross Domestic Product of a nation, yet that’s exactly where we are right now. This may seem tangential to discussions about a mansion tax, but it’s the climate in which London’s housing market came to pass. That housing market is why we’re even discussing such a proposal in the first place.
So let us talk about wealth taxes, by all means. But let us also accept that talking about unearned wealth without talking about housing is truly dishonest in a Britain built on the back of a housing bubble from which an ever diminishing few can benefit.
I think we probably disagree on how markets work. I can see how a tax would reduce the price (but, crucially, not the affordability) of houses that are subject to it, but don’t see why it would reduce the price of houses under the threshold. I do, of course, understand your desire for a nicer house, but in the absence of new supply this can only be satisfied at the expense of someone else.
The mansion tax is a bad tax and a cynical bit of electioneering. Since it would do nothing to increase the supply of housing it would not improve “affordability”—the two are directly connected. As a wealth tax it’s inequitable: while some wealthy people would pay it, others would not. It is not even an equitable property tax. Why should someone with a £2m house pay the tax while another with two properties each worth nearly £2m be exempt? And it’s a bad tax because it would be expensive to administer and collect.
When Labour last raised the marginal rate of income tax, the tax take fell. Perhaps the ability to raise money from higher income taxes is close to exhausted and revenue-hungry governments will now look to the money already in its citizens’ hands. If Labour is intending to introduce wealth taxes it should conduct an honest debate, invite the electorate to ponder the wider consequences and not let this poorly-conceived idea stand in its place.
