STEPHEN GLOVER: Ed's mansion tax isn't just vindictive, it's wildly impractical - and he knows it
09-26-2014
By Stephen Glover
'The class war is stirring. It’s all down to Red Ed, who evidently thinks we are living in the Seventies'
The politics of envy are back. So is soaking the rich. And the class war is stirring. It’s all down to Red Ed, who evidently thinks we are living in the Seventies — or should be.
God knows, Tony Blair had multiple faults, but he did at least change Labour from being the party that wanted to ‘squeeze the rich until the pips squeaked’ into a party that realised persecuting the better-off with ever higher taxes has the effect of depressing economic growth and making everyone poorer.
Red Ed’s windy and mostly vacuous conference speech on Tuesday, and his championing of a mansion tax on houses worth more than £2 million, marked the final breach with New Labour.
There are said to be 108,000 homes in Britain in this bracket, 88 per cent of them in London. Labour and Red Ed hope to raise £1.2 billion from the mansion tax, which implies an average extra bill per household of at least £11,000 a year.
Proceeds will supposedly be directed towards the NHS, as part of an annual top-up of £2.5 billion promised by the Labour leader. The trouble is that there are good reasons for doubting that £1.2 billion, or anything like it, will ever be raised.
This is a crowd-pleasing measure (though how pleased the crowd really is I have my doubts) which aims to whip up envy in a good cause — the NHS — and yet has barely been thought out. It is morally wrong and wildly impractical, a deadly combination.
The first canard is that owners of houses worth more than £2 million are all mega-rich. Miliband used the phrases ‘elite’, ‘tiny minority’ and ‘one of the privileged few’ in his speech in relation to an imagined social group that he felt had benefited from a Tory-led government. And he would plainly like to include owners of houses worth more than £2 million in this category.
It’s not true. Of course, there are some absurdly wealthy oligarchs or multi-millionaire Chinese businessmen or overpaid bankers living in opulent flats or huge houses in the capital who could afford to pay a new property tax without noticing.
But there are many other people in valuable homes who are only moderately well-off. They may have bought them 30 or 40 years ago in then-unfashionable parts of London which have soared in value in recent times.
'There are many other people in valuable homes who are only moderately well-off. They may have bought them 40 years ago in then-unfashionable parts of London which have soared in value in recent times.' File picture
In the street where I live in Oxford, several houses exceed the £2 million threshold. One is occupied by an elderly lady who has lived in it for many years. Another is owned by a couple, almost as old, who let out rooms to get by. Yet another belongs to a retired school teacher who bought his house for a relatively small sum decades ago.
None of them has much of an income, and so they couldn’t conceivably pay the £10,000 or £15,000 a year Mr Miliband is demanding. If they are forced to move out, their houses will be bought by rich foreigners who could easily pay the mansion tax — and our street will change.
According to figures produced by the Conservatives, based on the ONS wealth and assets survey, a quarter of people living in homes worth more than £2 million earn less than £55,000 a year. Even if you had an annual income of £100,000 (about £65,000 after tax), it would be painful to find an extra £10,000 or so a year.
Labour says that those who are not cash rich will be able to obtain some relief from the tax, though no details have been spelled out, and we don’t know who would qualify. The Tories claim that such relief would cost an annual £350 million. If that’s true, Labour’s take from the mansion tax would fall below £1 billion.
It might plummet even further once effects on the housing market are taken into account.
'Self-valuation would probably be even more unsatisfactory than an official valuation and would further reduce Red Ed’s already depleted NHS fighting fund.' File picture
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'Self-valuation would probably be even more unsatisfactory than an official valuation and would further reduce Red Ed’s already depleted NHS fighting fund.' File picture
Lucian Cook, director of research at Savills estate agents, estimates a hypothetical 10 per cent decline in values, which would cut £200 million off annual stamp duty receipts, and £300 million off inheritance tax receipts. In that case, Red Ed would have less than £500 million in extra revenue as opposed to the £1.2 billion on which he has set his heart.
But would he raise even that and, if he did, how long would he take to secure the money? The only way to establish which houses are worth more than £2 million would be to undertake a new valuation, which would be costly and protracted.
Yesterday, Mr Miliband implausibly denied on the BBC that a general re-valuation would be necessary, saying idiotically that ‘you get assessors to do it’. What’s the difference? However the process is described, it would be a complex one.
Some homeowners on or near the threshold would inevitably challenge the valuation. How is a government valuer to differentiate between two apparently identical houses side by side, one of which is merely in good repair and the other expensively refurbished? The scope for disputes is endless.
This is a crowd-pleasing measure (though how pleased the crowd really is I have my doubts) which aims to whip up envy in a good cause - the NHS - and yet has barely been thought out.
It is morally wrong and wildly impractical, a deadly combination
One alternative approach reportedly under consideration by Labour is self-valuation, with homeowners being invited to tell the taxman the estimated value of their homes. This sounds batty.
There would be an awful lot of houses supposedly worth £1,999,000.
Take Red Ed’s own pleasant abode in North London, bought for £1.6 million only five years ago.
According to the property website Zoopla, it is now worth £2.6 million, potentially landing Ed and his wife, Justine Thornton, with an annual mansion tax bill for £6,000, on the basis that anything above £2 million would be taxed at 1 per cent.
But might Ed and Justine be tempted to estimate that, once they take into account that their house needs a new roof and its bathrooms are really pretty manky, their home is only worth £2.2 million, and so their annual mansion tax liability should be a mere £2,000?
Similar ruses might be employed by property owners all over the country. Self-valuation would probably be even more unsatisfactory than an official valuation and would further reduce Red Ed’s already depleted NHS fighting fund.
On which subject, it’s worth mentioning that the £2.5 billion a year increase he has in mind represents less than the annual rise in expenditure on the Health Service (adjusted for inflation) during the supposedly benighted Thatcher years, as the BBC’s Nick Robinson pointed out yesterday morning.
Moreover, as Health Secretary Jeremy Hunt tweeted yesterday, spending on the Health Service went up by £2.7 billion last year. Mr Miliband is promising only what the Coalition is doing. If he’s relying on the mansion tax to fund his injection of extra cash, he had better look elsewhere.
But he knows that a tax targeted at the ‘nasty rich’ in order to shore up the NHS will be embraced by the party faithful. Despite the best efforts of New Labour, there are lots of people in the ranks who yearn to soak the supposedly wealthy.
Let’s hope, though, that the wider electorate will see through the Labour leader’s cheap populism. His arithmetic simply does not add up. It would take him years — in the unhappy event of his being our next Prime Minister — to find a fraction of the revenue he wants from a mansion tax.
In his heart he probably knows that. It doesn’t really matter to him whether he raises £500 million or £1.2 billion. What counts is dusting off the tired old rhetoric of class war and being cheered by the faithful for attacking the rich — even if they’re not rich at all.
How depressing that, after the modernising of the New Labour years, Ed Miliband should be reviving the politics of envy and that the Labour Party should be lapping up his every word.