It’s enough to spark fear into the hearts of asset-rich cash-poor middle class Londoners. Yes, it’s the Mansion Tax – the ultimate penalty for those who’ve benefited from soaring London property prices and whose houses (or flats) have been pushed up into the millions. Plans have been floated by the Labour Chancellor Ed Balls – and they’ve been backed by Liberal Democrat leader Nick Clegg. The idea is that properties worth more than £2 million will be subject to the levy, with estimates stating that home owners hit by the tax will have to pay more than £23,000 per year on top of income tax, VAT etc.
However, analysis has shown that for the tax to raise £2 billion as Labour claims, it will actually have to be levied on properties valued at £1.25 million. This is concerning for many homeowners, as the tax could end up like the inheritance tax – with fiscal drag pulling more and more houses into the net as time passes – and of course we all know that politicians tend not to get rid of taxes once they’ve been introduced. As well as this, recent research has shown that a quarter of all London homes that would be hit by the tax are in Labour constituencies; with some of the party’s most marginal seats among the worst-hit by potential new levies. Therefore lots of MPs and local councillors have expressed their concerns that some 100,000 people may be deterred from voting Labour if the Mansion Tax is introduced. That’s politics for you; it’s all about the votes!
There are also worries that the Mansion Tax could wipe some £1 billion off of government revenues and deter rich international investors from buying property in London. Prime areas of the capital have been shored up in terms of prices thanks to foreign money and a property group has warned that there could be a reduction in government income from stamp duty, inheritance tax and Capital Gains Tax (CGT). This is because if the value of property is not linked to the income of the owners, the burden of the tax will probably be funded by borrowing, ensuring the rolled up debt and interest will be eventually offset against the value of the assets charged. On the other hand, some argue that foreign buyers won’t be deterred as many of them won’t even notice the tax and that in fact, it’ll be locals who will suffer as they are more likely to be cash-poor asset-rich. As it goes, owners of large houses contributed some £870 million in stamp duty during the 2012-13 financial year – so the question could be asked as to why they should be punished further?
Toxic for Labour?
Unfortunately for Labour, the Mansion Tax could convince the electorate that they are once more pursuing the ‘politics of envy’ and that the tax is a punishment for those who ‘aspire’ to get on in life. At least this is the message the Tories want to push – in order to persuade the middle classes to view Labour as veering back to the post-Blair era, when Clause Four was still fully intact. Indeed, members of the cabinet have been quoted as claiming that the tax is “unbelievably toxic” for their image. After all, Ed Balls has referred to the tax as “broadly fair” and has stated that all properties worth between £2 and £5 million will pay some £5,000 per year and that those between £5 and £10 million will pay £7,500 a year and those over £10 million will be charged £10,000.
Despite the fact that Labour have claimed that they will provide relief for those who are on low incomes, but whom have expensive houses – and the possibility to roll the payments forward – for many people this will look like an attack on aspiration and on a factor that no one can control. After all, it could be claimed that Quantitative Easing has played a large role in pushing prices up and that property owners, through no fault of their own; have benefited from this.
We’ll have to wait and see as to how things play out. The Scottish referendum result means that everything is up in the air. If a new deal for an English parliament goes through and Labour do get a majority next year, it’ll be hard for them to push bills through as 40 of their Scottish MPs won’t be able to vote. At the moment it’s not predictable as to where things are headed. Whereas just a couple of months ago Labour seemed to be likely to get in by default, the situation is no longer so certain. Only time will tell!