Land Value Taxation Campaign

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Mansion Tax raises its ugly head again

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Partly in the wake of the riots, Liberal Democrat leader and Deputy Prime Minister Nick Clegg, has insisted that the Liberal Democrats’ plans to cut taxes for low-paid workers must come before Tory plans for tax cuts for those at the top.

George Osborne, the Chancellor, has suggested that the 50p tax rate is “economically inefficient” . Senior Tories want to cut the higher rate as soon as next year.

However, Lib Dem ministers are arguing that if the 50p rate of tax is scrapped, another tax on owners of expensive homes must be introduced to replace the revenues the Treasury would lose. The Lib Dems have now resurrected their plan for a "mansion tax", to recover this lost revenue. Vince Cable, the Business Secretary, who floated the idea before the election, has suggested that the mansion tax could apply to all properties worth more than £2 million – a total of 50,000 properties. Mr Clegg said the Coalition was studying plans to ensure that people paid their “fair share”. “Of course we should review how the 50p tax rate works,” Mr Clegg said. “We will also review how people at the very top seek to avoid taxes and to make sure people at the very top, owners for instance of high-value property, cannot avoid paying their fair share.”

Putting the mansion tax in place, presumably as an extra Council Tax band, would require a comprehensive revaluation. Our main objection is that the Council Tax is a poor implementation of a property tax. It lacks robustness, and allows vacant and underdeveloped land to be held free of charge, it penalises improvements and distorts the property market as a whole because business premises are subject to higher taxes under a different system. It is not worth investing in the Council Tax system to keep it creaking along for a few more years.

Cable, has, in the past presented himself as an advocate of LVT. Only a couple of years ago he set up a seminar at the House of Commons to discuss the topic. Why, then, did he ever come up with the notion of a mansion tax? And, the defects having been pointed out, why has he resurrected this stupid idea? How the mansion tax would help low paid workers is a mystery, since it could not raise the revenue needed for a worthwhile increase in tax thresholds, which is presumably what the LibDems also have in mind.

Osborne's comments on the economic inefficiency of the 50p tax rate are bizarre in a different way. He is correct in his assertion that the 50p rate is economically inefficient. However, precisely the same can be said of income tax, and National Insurance contributions as well, at the very bottom of the income scale, where it acts as a powerful barrier to employment.

Confusion reigns overall. What is the matter with Britain's political leaders that makes them come up with one stupid idea after another and makes them blind to the bigger picture?

 

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