Ed Milliband seems to have forgotten that crime doesn’t pay: his choice of which Lib Dem electoral pledge to steal – imposing a “mansion tax” on homes worth over £2million – will ultimately come back to haunt him. Doing so is unlikely to fully offset the cost of reintroducing the 10p tax rate (a 10% tax on the first portion of taxable earnings, currently taxed at a basic rate of 20%). It is, however, likely to lose him critical votes in the South East, which Labour sorely need if they intend to win the 2015 General Election and form the next government (and implement the 10p tax in the first place).
I’m not saying the 10p tax is a bad idea; on the contrary, I fully support it. Current projections all seem to agree in their estimations that the economy will not fully recover for several years yet (see table). All three of the major rating agencies (Fitch, Standard & Poor’s and Moody’s) list the UK’s outlook as negative. If Britain’s least well-off families were ever in more need of this reduction in their tax burden, it’s now.
I’m also not averse to the idea of imposing a tax on the properties of the super-rich. When a multi-million pound home is just one of many in someone’s property portfolio, in which that person is unlikely to spend the majority of their time, he or she is unlikely to feel the pinch of a mansion tax anywhere nearly as an ordinary family in need of more space. But as Boris Johnson astutely remarked in the Evening Standard on February 6th, just 10 London boroughs account for more real-estate value than the entirety of Scotland, Wales and Northern Ireland combined. It stands to reason, therefore, that imposing an arbitrary price tag, above which this tax would come into effect, will unfairly hit London and the South East – and, more crucially, will be interpreted as deliberately hitting the South East.
With London house prices currently rising at an average annual rate of 9.7% (17.02.13), the mean value of a property in the capital is set to hit £500,000 by the end of the decade. A total of 8 boroughs (including the City of London) have already exceeded the half-a-million mark; in two, Kensington & Chelsea and City of Westminster, average house prices are already well above £1m and climbing quickly – a whopping annual rise of 35.6% in Westminster. It’s not all champagne, caviar and frivolous spending there, either: According to the Smith Institute, the average house in the Royal Borough (at £1.25m as of July 2012) was 31 times the average annual salary – and in half a year it’s jumped by nearly another ¼ mil.
With this in mind, possibly even before the election, this arbitrary £2m price tag would hit a large swathe of the capital and cut into the swing voters that Ed needs to woo. It is worrying that, over two years into his leadership, Ed’s knee-jerk reaction to a glaring policy gap is to fall back on the largely unpopular Brownite politics that contributed to Labour losing the election in the first place. Continuing down this path of pseudo-Marxist reverse elitism will do nothing to warm the middle ground to him and only make him more enemies. Taxing those who have money is not necessarily a terrible idea, but he can’t be seen to deliberately target “the rich”. Besides, when George Osborne targeted £2m-and-above properties with his 7% stamp duty last year (and failed spectacularly) Labour cried pointlessness as “only 1,500 £2 million homes are sold each year.” How is this idea any different?
A fairer way of taxing the property market would be to tie this mansion tax threshold to average house prices in each borough or unitary authority; say, on all homes worth more than two or three times the local average. Another idea, given that over 60% of new homes in London are now being bought by overseas investors, would be to impose a tax on homes over a certain threshold (which could even be lower than £2million) that lie unoccupied for most of the year.
This would end up raising a larger amount of revenue to divert to those on lower incomes, as well as help Ed avoid generating any more of an image of a Rik Mayall-esque deluded first-year politics student brandishing a sword and charging blindly at anyone with a bank account.