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Will Vince Cable’s “Mansion Tax” pitch work?


4:28 am - September 22nd 2009

by Paul Sagar    


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So Vince Cable has announced Lib Dem policy to introduce a “Mansion Tax” targeting the very wealthiest. The tax would be paid at a rate of 0.5% on the value of properties over £1m, and would affect around 250,000 people who would pay an average of £4,000 a year.

Cable – unlike the Tories – has apparently been reading his Adam Smith, who said:

The luxuries and vanities of life occasion the principle expense of the rich; and a magnificent house establishes and sets off to the best advantage all the other luxuries and vanities which they possess. A tax upon house-rents, therefore, would in general fall heaviest upon the rich; and in this sort of inequality there would not, perhaps, be any thing very unreasonable. It is not very unreasonable that the rich should contribute to the public expence, not only in proportion to their revenue, but something more than in proportion” (The Wealth of Nations, Book V, Ch II, Pt II, Art 1).

But it’s also a shot across Tory bows: “You want to give millionaires a tax break? We want to reel them in and help ordinary people”. Not only is this the right thing to be saying in a country where inequality has increased – it is likely to be electorally wise.

Whilst south-east Lib Dems like Susan Cramer (facing millionaire Tory opponent Zac Goldsmith in Richmond Park) may well suffer, the Lib Dem leadership has likely calculated that in the rest of the country, taxing the rich will play well. After all, Labour have got more seats to lose than the Tories and disillusioned Labour voters are likely to be highly responsive to a “Mansion Tax”.

But the financial crisis has pushed the Lib Dems into a corner because, just 3 years after the fanfare over dropping a commitment to the 50% top rate, they switched to supporting it again.

Yet the ‘Mansion Tax’ could be a shrewd move indeed. On the one hand it puts clear blue water between them and the Tories.

On the other, it adds substance to recent Lib Dem claims that they are the natural home for British “progressives” and are ready to supplant Labour. Of course, one policy alone won’t be enough to “break the mould” of British politics – but more like this, and who knows?

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About the author
Paul Sagar is a post-graduate student at the University of London and blogs at Bad Conscience.
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Reader comments


1. Helene Davidson

Any tax not based on ability to pay is simply a ridiculous concept. Many people (myself included) bought houses when they were cheap, and find themselves with property that, many years later, falls into Vince’s category. Yet I am a charity worker and my partner is unemployed. So hardly rich.

The equivalent situation is that held by the elderly and retired, many of whom would be forced to sell up (perhaps that is the intention?). This is not a tax on the rich who are generally pretty mobile. It is a tax on people who live in London, many of whom are neither rich, nor mobile, nor want to leave their family home of many years.

It wouldn’t surprise me if it wasn’t in the manifesto – came across as a somewhat “spontaneous” announcement.

Though I would support tax rises for higher earners if it did get that threshold raised. (Higher *earners* that is.)

I enjoyed Brillo’s interview with Vince. Turns out he was just as lost as everyone else when the shit hit the fan last year.

http://order-order.com/2009/09/18/cable-admits-he-got-crisis-wrong/

(No worse than anyone else, obviously; just not the genius as which he is now lauded.)

Helene,

We’re talking about a 0.5% tax on houses of a value over £1million

Just how much did your house manage to appreciate in value – and how long have you been living there – for it to come about that somebody who’s a “charity worker” [though some very high-up charity workers make in excess of £100,000 a year, let’s remember] with an unemployed partner suddenly finds themselves threatened by this tax?

If course, you may just be very unlucky to be affected by this – but if so, I suspect you are highly likely to be in a tiny minority. This is a tax which predominantly affects those who are very, very wealthy. I mean, even in London, you have to be doing rather well for your house to be worth over a million. And then, it’s only a 0.5% tax on every pound over the million mark – so really it only starts to become significant for people with multi £million houses.

cjcjc,

you may be right about the manifesto. from what I know of internal lib-dem politics and structure, the mansion tax will have to be voted into the manifesto by members. It’s an open secret that Vince is to the left of the party, and many – e.g. those who voted to repeal the 50% tax – may decide not to follow him on this one. Have to wait and see.

Re Vince and the crisis, well when the shit hit the fan, no doubt he was lost. I mean, events moved so quickly and were so dramatic that who wouldn’t be?

Point is, he consistently warned of the coming crisis months in advance, and post-crisis was also on the money about what needed to be done. Note that he’s been a consistent advocate of breaking up the banks and stopping them being “too big to fail”, which is exactly right, as many on the right also agree, but Vince is basically the only one of the major mainstream politicians saying this.

In answer to your question ‘will this work?’, it’s a resounding ‘no’.

From the Guardian: “But within hours of the policy being announced, Lib Dem aides admitted they did not know whether the new tax would be based on house sales or Land Registry figures, or a complete revaluation of properties across the country. The shelf life of the new policy was immediately in doubt as it would be administered through the current system of council tax, which would be abolished should the party form part of the next government and be able to bring in its commitment to replace that tax with a local income tax.”

Ouch.

Gah. I find myself agreeing with LFAT. In principle, all wealth should be taxed. But when the proceeds are so small (1bn according to the Lib Dems themselves) and collecting it would be an expensive affair (we can’t say how much, we don’t know, but we are at the least talking about a multi-million deal to contract out surveying any home which might come close to £1m in value, and repeating the exercise continuously), it seems like a gimmick.

“Whilst south-east Lib Dems like Susan Cramer (facing millionaire Tory opponent Zac Goldsmith in Richmond Park) may well suffer”

This is a daft fallacy. Even in Richmond Park, does anyone seriously think that a majority of electors live in houses worth over a million pounds. This policy will only do Susan Kramer good – especially if Zack Goldsmith comes out against it. In fact, it may be her best chance. A lesson there, I think.

@1 Helene “Any tax not based on ability to pay is simply a ridiculous concept.”

Helene, if you live in a house worth over a million pounds, you can afford to pay. And you won’t have to sell up to be able to do so. Simple as that. So shut up and pay up.

I think the author slightly misses the point. This is not about “taxing the rich”, though I can see why this would leap out to a left winger. It’s about taxing economically unproductive assets as opposed to economically productive earnings (as Tim F implies). “The rich” can, of course, belong in either category.

Whether, having established the principle of property tax, the rate gets upped to a more meaningful level remains to be seen.

@4 and 5

Yes, there are serious concerns about gimmicks

But it’s not like gimmicks haven’t been known to work.

And maybe – in time – it will end up being substantiated and worked out into a coherent policy.

I think time is what’s required here. And to remember that “lib dem aides” could be tactically briefing against Vince; there’s a lot of division within the LDs about tax.

It would be useful to see some polling on the tax. The media are going for it, as are the right, but the debate could well change (as happened on the 50p rate).

The ability of the LibDems to frame it as about £1m+ and about the gap between band H homes and the Abramovichs will be part of that.

The annual tax on a house worth £1.25m would be £1250

It would also be very useful to try and get an informed discussion to try to gather information on
– the socioeconomic profile of those who do own houses worth £1m … we are hearing a lot about income poor widowers (who could finance any tax against the estate as an asset, or move and get a windfall), and the hard pressed middle-classes
– the history of house prices, and how this connects to the average asset wealth by different age profiles.

re 1 & 3 – if you are very unlucky in being caught by this, because you bought a house for not much which is now worth £1m, that is on the whole quite a good piece of bad luck to have (compared to, for example, somebody 20 years younger who would find it unimaginable they could do the same). Moving to a house worth £900,000 and getting a large windfall in the process would be one way out of that trap.

guido fawkes thinks it will lead to negative equity by reducing the value of a £2m house to £1.9m. You might be really unlucky if you bought a £1.5m house on a 100% mortgage at the top of the market having never been involved in the property market. Most middle-aged property owners in such properties would have benefitted a great deal from the rise in house prices.

10. the a&e charge nurse

[3] “Just how much did your house manage to appreciate in value – and how long have you been living there”.

Fucking hell, this is starting to sound a bit like the gestapo?

Strategist,

“does anyone seriously think that a majority of electors live in houses worth over a million pounds”

Thats not the point.It is the politics of envy vs the politics of asperation. The question you have not considered is: How many electors in (say) Richmond would like to live in a house valued at over £1m? Even if many of thoose who do have no realistic prospect of it, then they still will be unsympathetic to a tax that affects the lifestyle to which they aspire.

After all that was the political thinking that made council house sales so popular with working class voters. (not many of them in Richmond I’ll grant).

This seems to be a policy aimed at disaffected labour voters. Certianly not aimed at waivering Tories.

12. Helene Davidson

Yes it does sound a bit Gestapo like, a&e charge nurse.

Look, some economic realism. If you bought a house that was well south of £100K many years ago (OK, hands up, probably not the youngest commentator here), saved and paid off a modest mortgage it is indeed possible to end up in a house worth a hell of lot more than you paid for it…26 years ago to be precise.

And no, am not one of those high flying charity workers who are largely funded by public resources. Most of my time is given on a voluntary basis as the charity is poor and I have a very small pension. But enough to get by.

I didn’t want to play the pensioner card, but am happy to do so to make the point. It is possible, if you live in London, to be resident in a very valuable house that is also a much loved family home that you bought for peanuts when the area was unfashionable. It happened, back in the days…

13. douglas clark

I was aware of two elderly sisters living in a Georgian Terrace in Edinburgh whose pensions were all that they had. As you might imagine the building was falling apart, despite being said to be worth well over a million..

Would it not simpler simply to have higher bands to Council Tax, up to Band Z if need be? If the name of the game is to get more money for the Treasury that could be achieved by reducing the central subsidy to Local Government?

No?

I am sure Zac Goldsmith will be able to personally cover the mansion tax for everyone in Richmond Park, so there is little need to worry there.

“the politics of envy” is used to close down debates, and the point about aspiration was relevant to eg Labour’s 1992 shadow budget and the misrepresentation of it … but those who argued that would apply to the 50p over £150k

There is a good deal of ‘angry middle’ sentiment, which feels hat those at the top are getting a free ride. which is rather more within the Daily Mail and Daily Telegraph than the Daily Mirror demographic, where hostility to city bonus culture is especially strong.

It may well depend on the framing battle to

1. characterise the public perception of who owns a £1m+ property

“even in some of the scruffier suburbs £1 million only buys you a semi’ says Richard Littlejohn, speaking out for hard-pressed middle income millionaires http://tiny.cc/sm8dX

2. get the debate to address whether the sorts of amount (£2500/year on properties of £1.5m and £5000 on £2m are a reasonable contribution when something has to come from somewhere, or whether this is hyper-punitive. I doubt the latter argument will carry but some people are going to try very hard.

12 – Helene

If you have made an asset gain of £900,000+ then the alternative to moving is to borrow against the value of the asset to finance the levy … you would then lose a small proportion of that asset gain, still ending up many hundreds of thousands up on the investment. Is that terribly unreasonable?

It is both good and bad luck, at least. And the argument for/against that does need to be set against what the social benefit might be – in this proposal it is to help take the low paid out of income tax; an alternative approach for example could have been to offer some small stakes to those with little or no chance to get any foothold on the property market if their circumstances were similar to yours 26 years ago.

LFAT has the real problem with this tax: it’s utterly incoherent as to how it would be administered. The only way for it to be properly adjudged would be for every house in the country to be valued every year – which I suspect would cost significantly more than the new tax would bring in.

17. the a&e charge nurse

[15] Is that terribly unreasonable?

No, advice to take out a loan that cannot be repaid (due to x2 living on a modest income) sounds like a great idea, a real vote winner in fact.

What sort of borrowing figure do you suggest, Sunder, or perhaps it would just be easier if middle class voters simply sold off a few assets, like the family car? – don’t want to disappoint the tax-man, do we?

17 – it’s OK though, because if, as they implied, the Lib Dems intend to use the Land Registry information on what houses are worth, Helene’s house will only be registered as worth £100,000 and so no tax need be paid at all.

Blenheim Palace? No tax payable. Longleat? No tax payable. A four bed house on Wandsworth Bridge Road bought in 2006? Ah, tax will be payable on that. Equitable stuff.

Also, why a million? How was this figure arrived at?

@Dontmindme:

“Thats not the point.It is the politics of envy vs the politics of asperation. ”

Could you read my previous post again please? I mean, fair enough, if you want to conclude that it’s envy politics, that’s your prerogative, but you should at least acknowledge that that’s not how others see it.

Strategist: comment 6

“So shut up and pay up”

Why bother contributing to a discussion if you are so sure you are right?

@16 TimJ is spinning out of control. The oldest lie in the book is that it’s difficult or slow or complicated to value land and property. An absurd fiction to claim that this tax could ever cost more to collect than it was worth.

@11 Don’t mind me. It is of course nothing to do with that old saw the “politics of envy”. Taxes need to be raised. By choosing not to ask people who live in million pound houses to pay their fair share, you are asking people who don’t live in million pound houses to pay their share for them. For example, in the case of the Tories, by making everyone in society, even those on the very lowest incomes pay 20% or more VAT. The beauty of this tax that it doesn’t burden the productive economy – in fact it liberates money that is doing nothing and puts it into circulation in the productive economy. So its effect is to make the economy work better.

@12 Helene. Nobody’s asking you to move out of your house. Do you intend to leave this house to someone upon your death? Then perhaps they can pay the tax for you – after all, you will be gifting them something worth over a million pounds at that time. Or perhaps you could speak to one of our wonderfully creative workers in the independent financial advice industry about liberating cash from the value of your house. You have a wonderful asset. That is good for credit, and nobody is asking you to move out until you are good and ready.

Finally, as a pensioner, then you more than younger more foolish people should know what an obscene comparison it is to compare any taxman to the Gestapo. We live in a secure and free society, and that comes at a price – taxes. Better they are fair and efficient, as this one is, than unfair and inefficient, as so much of our tax system currently is.

23. the a&e charge nurse

[22] “Do you intend to leave this house to someone upon your death?”.

Just give your name, rank and serial-number, Helen.

Sunder: comment 15

Just listen to yourself!

Your solution is that OAPs should BORROW money against the value of their property in order to pax taxes.

Given that unwise borrowing has brought financial disaster on people as they lead their working lives you suggest this should be extended to people after they retire.

Homer Simpson himself couldn’t come up with a more inane idea.

22 – every house in the country, every year? Given that the policy is that each home will be taxed on its exact value, you’ll need individual valuations done, otherwise it’ll be open to abuse and appeal – ‘the formula says this house is worth one and a half million – but it sold yesterday for 600,000!’.

This is a back of an envelope policy, delivered so much off the cuff that the first that the Lib Dem spokesman for local Government and communities heard about it was on the radio. Cable has no idea how many such properties there are – is it 250,000 or 200,000? He has no idea what method of valuation he would use – he suggested the Land Registry, which registers the price that the house was bought for – even if that was in 1890. It’s a transparent piece of gesture politics.

But who cares? No-one needs to work out the logistics of this, because not only is it never going to happen, but everybody involved in it knows that it will never happen. The Lib Dems can stand up and suggest a tax on posh accents and floppy hair, and everyone will applaud their progressive sentiments and ignore the fact that it is an inherently impractical suggestion.

I can’t believe the practical problems are insurmountable here, though it is quite funny that they are proposing to administer this through the council tax system which they want to abolish, and quite frustrating that they don’t seem to have thought it through.

But just on the point of principle and pensioners in homes that they bought many years ago. I take the point that a few people don’t want to be faced with the choice between paying a tax which they would find difficult and moving home.

But the Lib Dems have specifically set out policies designed to help people in this situation (e.g. not charging people while they are living there and instead adding the amount to the inheritance tax bill).

And there are actually a lot of people who are faced with the situation where they have to pay much higher costs or move out – whether because they’ve lost their job, their pay has been cut or frozen, their landlord has sold up or gone bust or whatever.

So a low paid public sector worker facing an indefinite pay freeze and a pensioner who bought their home many years ago in some parts of London will both be affected by Vince Cable’s economic policies.

The difference is that people who are asset rich and income poor can buy, say, a six bedroom house in Richmond or central Ealing or any of the most affluent parts of suburban London for less than £1 million. So anyone who would be affected by this tax can have their pick of more or less anywhere in the UK to live, plus a six figure cash lump sum to help with the cost of moving.

I wonder why millionaire journalists and newspaper owners are more concerned about the plight of the pensioner in the two million pound house than the nurse or teaching assistant?

““the politics of envy” is used to close down debates, ”

Yes, thanks Sunder.

Another way of closing down debates is accusing somebody of being a Nazi for asking a reasonable question about how somebody who claims to be not well off manages to live in a million pound house.

I mean, Gestapo…come on!

24 – “Your solution is that OAPs should BORROW money against the value of their property in order to pax taxes.

Given that unwise borrowing has brought financial disaster on people as they lead their working lives you suggest this should be extended to people after they retire.”

If only there were some kind of scheme which would enable older people to generate readily accessible capital from their home…

http://www.saga.co.uk/money-shop/equity-release/

@23 a&e charge nurse, you’re trying to have it both ways.

My opening position to Helene was to say, despite your protests to the contrary, you are rich, so shut up and pay up. In what way could this be described as intruding into her privacy? I don’t want personal information, I want the money that is her fair share of the costs of running a free society.

But this was thought too harsh, so I explained how she might be able to pay without having to do what she fears, having to sell her house, which through no fault of her own (and no effort on her part, one might add), has appreciated over the past decades to a value of over a million pounds.

We know that the richest and greediest people in society want all the benefits of a free society, but want to duck their fair share and let all the little people to pay for it for them. If you want to run around after them doing their dirty work for them like a creepy little lackey, that’s your choice. But it’s an obscenity to start going on about the Gestapo, so keep that out of it or you will get the flaming you deserve.

@paul sagar – the house I’m sitting in right now (as far as I know – I haven’t tried to sell it) doubled in value in the space of seven years. I did nothing much to affect this change beyond paying the mortgage.

Can you see the problem yet? One million might seem like a nice, round, rich-person number today, but tomorrow… Who knows?

@25 TimJ. My suggestion: one valuation needed only. We think your house has a market value today of over a million pounds. Tell us what you think it is worth. Multiply it by 0.5% and send us a cheque. If you deliberately lie to us, we will fine you. If you are very old or whatever, tell us and we will value it for you.

Show me a millionaire who isn’t well aware of the value of their house on a monthly, never mind annual basis.

It’s easy peasy stuff. Why not admit that the purpose of your comment is in fact utterly unrelated to whether the tax is easy to collect or not, it’s to find some angle, any angle, towards letting the rich get away without paying their fair share.

Tim J, no. Same argument as for why LVT wouldn’t work and that’s dumb too. Plenty of houses change hands in every postcode every year so calculating an average price rise in successive years is dead easy. If you want to quibble with the value your house is given then paying £50 to an estate agent – who, let’s remember, normally come and value your house for free – seems like a small price to pay…

… when your net worth is MORE THAN A MILLION FRICKIN POUNDS.

I really don’t understand this whining about a tiny tax on assets over £1m, same as with inheritance tax. “Oooh, I have to pay a tax of £500 because my house is worth £1.1m!” Well boo fucking hoo, you own more than a million pounds. You can afford it.

@30 Neil. “Can you see the problem yet?”

Why don’t you do a bit of thinking yourself? The threshold can be adjusted any time in the Chancellor’s annual budget statement.

Here’s a threshold that you should think about a bit more. The threshold for income tax of 20% is an *annual* income of £6,475. That’s £125 a week. That’s the obscenity, when non-doms are living in multimillion pound mansions, enjoying our public realm, and not contributing a penny.

@ 30

Neil,

but surely, if house prices rapidly increased in value – say, because of a housing bubble – then surely it would be entirely possible to move the threshold up, accordingly, to ensure that it remained in place to target the wealthy?

£1 million need not be the definitive figure for all eternity.

I have to say that I rather suspect that this is a recent development and idea that seems to fail the ‘smell’ test.

A problem, identified by others, is that there is no link to ability to pay – which I suspect would not be considered ‘progressive’ by some. The other is that the sums raised by way of this tax are relatively speaking rather small and the method for calculating the value of property rather complex – and potentially rather expensive, involving potentially costly litigation.

A problem for the Liberal Democrats is that they say that they favour taxation that is based on an ability to pay as almost their raison d’etre for proposiong local income taxes to replace council tax. The inconsistency in their fervour for that and their current proposal is obvious.

Another problem is that this would be a tax on aspiration – something that experience suggests is not ‘popular’.

A further problem is that people who have owned their properties for many years – especially those that bought them prior to the 1980’s have seen their properties appreciate in value enormously (disproportionately) while their incomes may not have increased at the same rate – so they appear rich (in terms of the current value of their home), but in fact are, relatively speaking, cash poor. The best method for dealing with the anomaly of the asset appreciation is, it seems to me, changing the system for exemptions from CGT – so, for example, imposing a limit on the amount of gain you can obtain, even on your primary residence, and eliminating the total examption from CGT that is given to primary residences.

Another problem is that it appears that the proposal is for this to be calculated by local authorities, but the tax to be raised centrally – giving rise to interesting potential arguments in court. It also raises concerns about the costs of implementing this proposal – further diminishing the return in terms of the potential for sums raised. Further it is clear that this could not apply to Scotland – raising interesting arguments about the extent of the devolved settlement and arguments about ‘fairness’.

Simply saying, as Sunder does, that you can sell up, borrow or otherwise raise the money required answers none of the problems that have been identified. Someone else has suggested that people should simply ‘stop complaining and pay up’ – well that is democratic isn’t it. I wonder what their view of the poll tax and poll tax protesters was?

The reality is, in my view, that the taxation system is too complicated as it is. in the time that I have been in practice (since 1997) the tax handbook (the yellow one produced by LexisNexis) has gone from 2 volumes to 4 and the paper thickness has been reduced and the font size appears reduced too! Has much of this legislation actually assisted?

Examples of waste include the fact that the administration of tax benefits by HMRC has been difficult to implement, costly to administer and ignored the fact that HMRC had no experience of administering benefits – whereas the benefits agency, and similar bodies, had the relevant experience and skills. Proposals were implemented because the were thought to be politically beneficial, without thought as to the costs and benefits.

The reality is that, as with other legislation, we need to have a good look at the tax system, review it, simplify it and make it work more efficiently.

“Can be adjusted” – well, quite – just like the Income Tax thresholds “can be adjusted”…

Also paul sagar, you have also fallen for the same wishful thinking.

37. the a&e charge nurse

[29] “I want the money that is her fair share of the costs of running a free society”.

I see – you demand Helen’s money – so we can call ourselves a ‘free’ society … nice.

We think your house has a market value today of over a million pounds

Fine, but based on what? The Lib Dems haven’t a clue how many houses fit this description, and no idea of how to find out. And ‘over a million pounds’ isn’t good enough when you’re charging 0.5% for every £1 over a million. Exactly how much over a million pounds? ‘We think your house is worth 1,256,000’. Who’s making that calculation? Based on what? Remember that compulsory registration of land has been extremely patchily introduced in the UK – not fully implemented until 2002.

Plenty of houses change hands in every postcode every year so calculating an average price rise in successive years is dead easy.

Same problem as above. You can probably get a rough idea of how much prices have been affected, but it’s still not a precise guide. Given that a large proportion of these 200,000 (or 250,000 – whatever, details huh, who needs them?) million pound houses will be worth, more or less, a million pounds, you’re raising chicken feed. Remember, this really rich million pound house owning person you’re shouting about won’t be paying any tax under Vince’s new scheme.

LVT is a nice idea, but a serious political party can’t expect to come up with a nice sounding policy off the cuff and expect it not to be scrutinised. It’s not whining – I’m not going to have to pay this tax (note to everyone: nor is anybody! It’s Liberal Democrat policy!). It’s just an astonishingly slapdash way to announce tax policy. If you want to tax the rich, do it in a way that’s cheap to administer, hard to avoid and actually raises revenue. And it’s a good idea to work out the details before you announce it.

@37, This may be old ground for others here, for which I apologise, but just as a matter of interest, why do you call yourself an a&e charge nurse, when you are not one?

@35 there is no link to ability to pay

Of course there is! If you have an asset worth more than a million pounds, you have the ability to pay a tiny fraction of a million pounds. Because YOU HAVE A MILLION POUNDS. This. Is. Not. Complicated.

This. Is. Not. Complicated.

There speaks a man with no experience of tax law.

@38 TimJ. re-read my post @31, then re-post. You clearly haven’t understood what I was saying, which was, self-assessment, with a fine for lying too outrageously. Any local estate agent would give you a valuation good enough for the purposes of this tax within 5 minutes.

Now here’s my question to you again, and don’t duck it this time: why not admit that the purpose of your comment is in fact utterly unrelated to whether the tax is easy to collect or not, it’s to find some angle, any angle, towards letting the rich get away without paying their fair share?

29. Those people who decide to spend their life on welfare when they could work , contribute no tax to society.

Taxes drafted on the hoof tend to cause problems. If there is tax to be levied on property it may be more sensible just to introduce another band or two to the community charge. The goverment has allowed far more civil servants to enter peoples homes which is a worrying trend. The allowing of civil servants into peoples homes is another increase in the surveillance state. Knowledge is power and power corrupts.Politicians and civil servants are just as capable of being corrupted as anyone else.

If we are going to have valuations, then they will need to be done according to changes in house prices. As this is not predictable sending a valuer to a property every few months seems absurd. Property prices can be very subjective ,so what happens if the owner receives another valuation below the £1M mark. I can see many properties suddenly being worth £999,999 and perhaps the contents and/or a garage being sold as separate lots. One aspect may be to allow a property to deteriorate on the outside to reduce the value or not spend so much on restoration/rennovation which would reduce income to builders and bulder’s merchants. IN the UK , how many money has been earnt by builders and builder’s merchants on properties worth more than £900,000-£1,000,000 over the last 10 years; would this tax put this expenditure at risk and if so how much?

The dilapidated exteriors of many French homes used to be due to various property taxes.

The cost of raising any tax plus any adverse side effects must be considered against the money raised; the Poll Tax being a classic example of a government getting it wrong.

@40 – shouting at me does not answer the point.

The problem with the place where you live is that it is a cost rather than an asset that renders an income. Yes, you may be able to borrow money against its value, but that borrowing will usually be assessed against your ability to pay, which will either be assessed against your income or against your estate.

With respect, someone living in their home (assuming that it is valued at a million pounds) does not ‘have a million pounds’, they have a home that at current market prices is assumed to be worth a million pounds and which to them costs money – in terms of maintenance, upkeep and other associated costs, including existing capital and other taxes.

In my view, the assumption that your home is an asset, rather than a cost, is one of the reasons that we are in the financial mess we are in …

@38 It’s a lot harder to hide a £1,000,000 mansion in Hampshire than £1,000,000 in Switzerland 🙂

Seriously, valuing houses is something easy that we know how to do, and have been doing for quite some time now – you might even say it’s something of a national obsession. If a house’s notional value is too low, then the owner won’t complain, therefore, no revaluation needed. If the notional value is too high then the owner can spend a small amount of money to fix the value again. I really don’t understand what’s so complicated about it.

46. Helene Davidson

I meant the Gestapo comment on the tone of some of the first reactions, and accept there were some helpful suggestions made.

We have four (adult) children, and for sure after we have popped our clogs they will have to pay a substantial amount of tax which means that the house will have to be sold at that point. In the meantime, it is the usual haven/home/family gathering spot etc. To the extent we can manage, like anyone we would want to keep it as that and not move. It is HOME, not a house to us and to our family.

As a taxpayer all my life, I have paid up without (too much) complaint to both national and local government, for what I consume, and what pretty small sums I earn on the savings I made through my own hard efforts. For 40 years now, because I am lucky to still have a job and be employable. So I have certainly paid my share. I was not responsible for the boom in house prices, I think you have to look elsewhere for that.

The unpalatable truth is that many pensioners, or near-pensioners, feel challenged by change — but also get angry at what is seen as yet another call on our income. Many have no such luck or options. The state pension, like the unemployment benefit, is a small and sour fruit for those who have paid into the system.

Am I asset rich? Sure. Do I want to incur debt to stay where I am? No, but if forced to I will. But in return, I would like to see how it is assessed, collected and spent on subject to the same iron discipline we are being called on to adopt to get through this crisis.

“Any local estate agent would give you a valuation good enough for the purposes of this tax within 5 minutes.”

I doubt it. What’s in it for them, given that (a) you’re not intending to sell and (b) you’d probably want them to undervalue the place?

@42, you say “You clearly haven’t understood what I was saying, which was, self-assessment, with a fine for lying too outrageously. Any local estate agent would give you a valuation good enough for the purposes of this tax within 5 minutes.”

Apologies, but an estate agent valuation is simply for the purpose of estimating what the market might bear – it is not a valuation that can be relied upon for legal work.

That would involve a surveyor, comparables and, if there was a dispute, competing surveyors and comparables. In cirucmstances where valuations might be important for future taxation purposes, it may well be worth spending quite a lot of such evidence.

As someone who litigates both tax and property disputes, I have to say that I believe that your suggestion is too simplistic.

Some posters here seem to be unaware of the shenanigans that surround the Stamp Duty bands.

On which point, why not just increase stamp duty on million pound homes? Virtually zero bureaucracy required and the purchaser explicitly has the means to pay.

@47 “What’s in it for them?” Say £50? I can’t think of an estate agent on the planet who wouldn’t do it.

@46 Helene. “Am I asset rich? Sure. Do I want to incur debt to stay where I am? No, but if forced to I will. But in return, I would like to see how it is assessed, collected and spent on subject to the same iron discipline we are being called on to adopt to get through this crisis.”

I absolutely agree with all your comment and especially like this last part. This is exactly what you are entitled to.

And by the way, you will also benefit from the income tax threshold being raised from the present disgusting £6,500 to something more like £10,000 (and it should go way higher as soon as possible, as soon as the tax dodges of companies and the rich get closed down).

Yes – on balance surely it would be better to increase stamp duty and inheritance tax than this muddle of an idea. It might not sound as shiny and new, but it’s easier to do, and more equitable.

If this was possible to do at low cost, surely we’d already be doing it for council tax, instead of relying on the banding system.

48 – a comparison might be how houses are valued for probate. You are strongly advised to get a professional valuation done (ie: surveyors and solicitors) as HMRC will ask for authority regarding the valuation. That costs quite a lot of money (searches for title, encumbrances etc by the solicitor, site visits etc from the surveyor).

The idea that you could just rustle up a figure out of thin air and expect that to be good enough is a touch naive.

Again, this is not a dig at the philosophical underpinnings of a modern society. It’s just a dig at a tax policy that the Lib Dems didn’t have the decency to think about before launching.

“If you have an asset worth more than a million pounds, you have the ability to pay a tiny fraction of a million pounds. Because YOU HAVE A MILLION POUNDS. This. Is. Not. Complicated.”

And how do you release that money without selling the property?

“Say £50? I can’t think of an estate agent on the planet who wouldn’t do it.”

Conflict-of-interest-tastic! Paying estate agents to undervalue your house – that’s the same people who are supposed to be selling the damn things, btw – well, what could possibly go wrong with that?

Besides that, why on earth do you want to be devising sops to the estate agents? Aren’t they, like, enemy #1?

Since the 50% band may (will) leave receipts lower than they were before – every law firm in the City is currently working on avoidance vehicles since it is the partners of these firms who will be directly affected, vehicles which will probably end up reducing the bill on the amount up to 150k as well as the amont above – we will have to look elsewhere to fill the hole.

That will be the usual suspects – VAT and fiscal drag on everyone.
There aren’t enough “rich”, and some will of them move.
(Good riddance, you may say, but that doesn’t solve the problem.)

It was/is a wholly counterproductive political gesture which I am prepared to bet (along with my climate change bet!) will result in lower receipts.

But that’s Gordon Brown all over.

This LibDem idea will be forgotten within a month or so.

52 – as someone who has been involved in litigation over the value of assets for probate, tax and property disputes (it is what I do for a living) I couldn’t agree more!

The idea that valuing properties is ‘simple’ ignores the fact of the numerous cases that are reported each month where the value of an asset is disputed.

@48 “As someone who litigates both tax and property disputes, I have to say that I believe that your suggestion is too simplistic.”

Ha! Spoken like a true lawyer. What you can’t seem to grasp is that exact precision is completely unnecessary. One objective of this tax: nothing in it for you and your profession.

Here’s a suggestion. Let’s say that the tax is payable at thresholds of £50k over £1m. If your house is guesstimated/valued at £1,276,000, you pay 0.5% on £1,250,000. If your house is guesstimated/valued at £1,305,000, you bung down £1,299,000 on your self-assessment form and you get away with it. If it is valued at £1,425,000 and you self-assess at £1,299,000, an alarm bell rings at the tax office (against the initial rough evaluation made at the outset and adjusted annually for house price inflation every year) and an investigator has a look at your case. If you lose at the tribunal you pay a fine that hurts.

By the way – though not the LibDem proposal at it presently stands, I believe – I am with those who would levy the tax on the value of the site on which the house stands, so that if you put a new roof on the house last year, your liability is unchanged.
.

The idea that an estate agent is in any position to legally define the value of an asset for taxation purposes, is the most laughable aspect of the above debate.

@53 Richard: “how do you release that money without selling the property?”

Don @28: http://www.saga.co.uk/money-shop/equity-release/

Try to keep up.

Ha! Spoken like a true lawyer. What you can’t seem to grasp is that exact precision is completely unnecessary. One objective of this tax: nothing in it for you and your profession.

Funnily enough, your description of how this tax would work in practice (and to give you credit, that’s more than the Lib Dems have managed) sounds remarkably like the way that SDLT is calculated. Guess what? Lots and lots of work for lawyers!

Lawyers thrive in the fuzzy grey areas at the edge of laws – which your idea has up there as an advantage.

By the way – though not the LibDem proposal at it presently stands, I believe – I am with those who would levy the tax on the value of the site on which the house stands, so that if you put a new roof on the house last year, your liability is unchanged.

But if your neighbour puts a new roof on his, your liability will go up, as your area becomes more desirable to live in.

57 – I think your suggestion is fine – but if you think that will answer the problems relating to valuation think again.

The experience in relation to stamp duty suggest that even with banded valuations, there is considerable room for legal argument – and the more that is involved, the more the potential for lawyers to get involved!

I realise that lawyers are another bugbear, but it is interesting that where there is potential for legal argument, people do run to us to see if we can help!

The simplest solution would be to amend the laws in relation to CGT and IHT – no additional costs would arise and you could structure one of both of the amendments to those taxes to raise a similar sum without the complications. In addition, you could amend further the land transaction tax (SDLT) to raise additional revenues – but then that is also a wierdly unfair tax as it is raised on the entire sum and the percentages apply to the whole price once a threshhold has been reached.

@58 Self-assessment. The legal obligation is your own. If you want to pay for a surveyor, then go right ahead. But the taxman won’t risk the cost of an investigation/tribunal unless you’re really taking the piss. And if you’re caught lying outrageously, you get a fine.

The reason why stamp duty causes so much trouble of course is that once you cross a threshold the higher rate is payable on *the whole lot*, not just on the marginal value above the threshold.

It’s dumb.

The silliness of all of this is that I am personally very much in favour of people paying their fair share of what is required. As a lawyer, I find it appalling that the system encourages richer people to look for ways to legitimately avoid paying tax on certain assets and income … the way to overcome this is not to add new layers of taxation or new complications to existing taxes, but to simplify them and put in effective anti-avoidance methods.

At the same time, we must accept, it seems to me, that there is tax competition between countries and unless we can persuade others countries that it is not in their interests to adopt regimes that are substantially less expensive than ours, we will need to understand that there are practical threshholds which we cannot exceed.

“Try to keep up.”

Equity release? So you want to throw a sop to the mortgage industry, too?

This is real WTF territory we’re in now.

@60 “But if your neighbour puts a new roof on his, your liability will go up, as your area becomes more desirable to live in.”

Congratulations, you’ve finally cracked it! Taxing unearned windfalls rather than economically & socially productive activity.

62 – my experience suggests otherwise … amusing as this is, I’d better get back to work!

66 – Property prices in my street are higher than a couple of streets along, because I’m in a low tax council and they’re in Camden. Should I pay higher taxes because my land is more valuable because of its lower tax incidence?

66

You don’t have an ‘unearned windfall’ until you sell.

50 – “And by the way, you will also benefit from the income tax threshold being raised from the present disgusting £6,500 to something more like £10,000”

Sadly, no. The mansion tax will raise about £1.1 bn.

This would be enough to raise the income tax threshold by £200 from £6,500 to £6,700.

http://www.hmrc.gov.uk/stats/tax_expenditures/table1-6.pdf

Raising the personal allowance to £10,000 costs about £20 billion.

My next door neighbour here in Camden bought her house 33 years ago and it is now probably worth £1m. She’s a pensioner who does a bit of part time hairdressing.

I think that forcing her to borrow money to pay a tax, or move home after all these years is obscene.

@69 Your stupidest for a little while.

I thought you were paying lower taxes compared to your neighbour a mere few streets away. So should that be levelled up a bit to take account of the windfall you are getting? Yes.

By the way, do you live in an above £1m house?

Thats not the point.It is the politics of envy vs the politics of asperation.

Heh. Gotta love right-wingers who keep trotting this out (even despite the bad spelling). They said the same abotu the 50p tax. Most of the public agreed with that too.

73 – no I don’t. Is it any business of yours?

I thought you were paying lower taxes compared to your neighbour a mere few streets away. So should that be levelled up a bit to take account of the windfall you are getting? Yes.

Paying less tax is an unearned windfall? And where does this leave localism?

Look, we can go round in circles forever on this. I broadly agree with Evan Price that adding a new layer of complications onto tax is not a particularly good idea. I think that the Lib Dems (or rather, Vince Cable without consulting his colleagues) have rushed out a ‘we tax millionaires, not like those nasty Tories’ policy without thinking about it for more than a minute. I also think that the idea that you can calculate taxable assets on the basis of unaccredited self-assessment is naive at best.

And all for a tax that will raise, optimistically, £1bn.

Heh. Gotta love right-wingers who keep trotting this out (even despite the bad spelling). They said the same abotu the 50p tax. Most of the public agreed with that too.

Hurrah! Muphry’s law in action!

@70, @72. I’ll repeat my comment at 22, building on Alix’s @7:

Taxes need to be raised. By choosing not to ask people who live in million pound houses to pay their fair share, you are asking people who don’t live in million pound houses to pay their share for them. For example, in the case of the Tories, by making everyone in society, even those on the very lowest incomes pay 20% or more VAT. The beauty of this tax that it doesn’t burden the productive economy – in fact it liberates money that is doing nothing and puts it into circulation in the productive economy. So its effect is to make the economy work better.

Helene @46

Thanks for this response to the comments. I don’t think a wealth property tax would be unworkable and, spent in the right way, I think it could be an important pro-fairness move overall.

But these are all reasonable questions which would need to be answered. The argument about something being a home not a house is obviously important. I didn’t intend my comments about those who would face this problem because they are asset rich to be unsympathetic to that.

I personally also thought the gestapo point was a bit much – though I appreciate you didn’t introduce that first. So I think it is good if it is possible to have a discussion and disagreeement which people might well feel strongly about without it spiralling off in that direction.

Dear Helene Davidson,

If you live in a house worth over £1 million, you will pay more tax. However you are benefiting from a key service provided by the state: protection of property. At present, this service is funded via income tax payers like me, although the value of this service is less to me (as the owner of a much less valuable property) than to you. I don’t see why I should pay on your behalf.

The legal and police system that protects the value of your property is a service provided by society. When Roman Abramovich bought his £30M house in the UK, he did so because he knows his investment is safe from arbitrary confiscation in the UK due to our system of government and law. This is a service which benefits him, to an extent that is clearly proportional to the value of his property. He should pay for this service, proportionally to the benefit he receives.

I’m sure you have paid UK income tax in the past (although rather less sure whether Mr Abamovich has). So have I. But that was to fund past costs. The police that enforce our property laws, the army that protects our land, the judiciary that arbitrate on property disputes, and the government that makes the laws, all need funding on a continual basis. Is their some rule that says that, once you own land, you are absolved forever from contributing to the costs that its protection imposes on society ?

I don’t know your circumstances, but if you are a pensioner on low income then I understand the tax may become a charge on the property payable when you or your heirs sell it. It may disappoint your heirs to receive less than the full value of the property, but I personally I don’t see why other taxpayers should subsidise your heirs.

Right now, the UK taxpayer is providing a service which helps property owners look after their wealth. Nothing wrong with that. But it’s crazy not to be charging them for this valuable service. Mr Abramovich is using UK property rather like a very safe bank, with the UK taxpayer as the banker. I understand bankers normally charge for their services.

As a member of the Liberal Democrat Action on Land Taxation and Economic Reform group (ALTER), I am delighted by this excellent start.

20. I was not addressing your comment, but Strategists comment 6. Given his moniker, I was addressing the dubious strategic value of this tax in winning over the voters or (say) Richmond. It seems far more likely to be a sort of dog whistle policy designed to attack labour in their urban seats

I readily accept that there are several ways of looking at it, and that the arguments for property taxes are very powerful. However since most of the lib dem marginals are Lib Dem-Tory marginals, it seems a strange play to make. Anyone who has a scintila or familiarity with the resentment of council tax increases in recent years will I think understand that piling more tax on top of the large amounts of money people are not happy paying now, is not necessarily great political move.

Given the confused message that came out yesterday, question how much St Vince had thought this through, and if he had, did he tell his collegues about it?

@76 you could use the same logic to say that by not choosing to tax blond people others bear their burden – using the value of ones house is just as arbitrary and irrelevant to the ability to actually pay up.

@75 “Is it any business of yours?”

Yes, to the extent that your comment implied that you would be affected by this tax.

“Look, we can go round in circles forever on this.”

Agreed, and I’ll sign off with this one. You have consistently ducked out of acknowledging that you have no genuine interest in whether this tax is easy to collect or not, your purpose is to find some angle, any angle, towards letting the rich get away without paying their fair share.

It is obvious – the facts are so glaring that they are incontrovertible – that the poor are grossly overtaxed and the rich grossly undertaxed. We know that the richest and greediest people in society want all the benefits of a free society, but want to duck their fair share and let all the little people to pay for it for them. For some reason there are odd folk who like to run around for them doing their dirty work to keep the status quo. I can explain the former, but the latter always puzzles me.

81 – what the bit where I said “I’m not going to have to pay this tax”?

You have consistently ducked out of acknowledging that you have no genuine interest in whether this tax is easy to collect or not, your purpose is to find some angle, any angle, towards letting the rich get away without paying their fair share.

I’ve ducked out of ‘acknowledging’ that because it isn’t true. If the Lib Dems had pledged to raise the top rate of income tax I wouldn’t have bothered commenting on it at all. I might disagree with the principles of it, but that’s my business not theirs. You can impute dastardly motives to me all you like, but that really is your problem and not mine.

The reasons I’ve focused on the practical unworkability of this tax are the same as those of every serious political and economic commentator who has done the same: it’s a muddled, fuzzy, ill-thought-through idea that Vince came up with on his walk to the podium and thought he’d try out on conference.

@79 dont mind me.

Ok, another final comment. It’s a strange play for marginal Tory/LibDem voters living in above £1m properties, but why is it odd for those who don’t? It might actually make non-rich Tory voters stop and think for a minute – does David Cameron stand for me or for a rich elite? (except for those who read the Daily Mail stuff about the politics of envy and the politics of aspiration and actually believe it). And if it plays well to Labour voters also, that’s probably Susan Kramer’s best shot – she needs to squeeze the Labour vote down to the bone and deeper if she’s going to hang on in there.

Finally. My moniker Strategist is an accident of history from a different site a long way away, a long time ago. I’m not claiming any special strategic skills.

BTW I think it’s highly likely that Vince felt pressured into this by the growing legion of Land Value Taxers in the Lib Dems – he’s produced something that looks very much like a land value tax, purely for the rich, which, if implemented could be extended in a way that could (could!) replace or supplement income tax in a significant manner. I really hope the measure stays in and that it is used as a springboard for a policy of first replacing council tax with LVT and then maybe income tax too 🙂

This tax is fundamentally flawed, it is not a tax on income, or necessarily on wealth and as said before does not take into account ability to pay. Many hard-working and high-tax (soon 50%) paying people with familes anywhere near London have paid well over £1m to get a family home in a reasonable area and had to take out a large mortgage in order to do so. They will be taxed not on their income, not on their net wealth (after deducting mortage) but instead on one spurious measure – the gross value of their property.

Also don’t forget that the drop in property values (residential and commercial) and consequence damage to mortgage backed security products is the biggest cause of bank losses in the UK (and not the ‘casino’ of investment banking trading that the guardian and BBC harp on about). Take a look through the books or RBS or HBOS if you dont believe me – I have. I am not sure that stinging the housing market with taxes is now the most sensible place to start raising taxes.

“politics of envy”. Makes me want to hit something.
Take a look at where we live. 3 of us in a 1-bedroomed flat. 15 year old got nowhere to study unless we turn the tv off or she sits on our bed. She sleeps in a cupboard. 3rd floor, no garden. Don’t get me wrong, it’s not a slum, it’s actually quite a nice estate. No chance of a 2 bedroomed, not when there’s families with 3 kids in one-bed flats. Can’t afford a mortgage, not round here and as daughter’s in a great school we don’t want to move.
But IF I was envious (and I’m not saying I am) just tell me I’m wrong to be envious.
So why are we in this position? Read Pete May’s “Rent Boy”.

Actually, I’m not so much envious as spitting with rage at the number of 2 bed flats in my area which are not available to us because they’re now privately owned, or worse, privately let at exorbitant prices, charging in a week what we pay in a month for the same property type.

“even in some of the scruffier suburbs £1 million only buys you a semi’ says Richard Littlejohn.”
I did a quick bit of checking, and a million can’t seem to buy much in the London suburbs, the most expensive I could find was a 5-bed in Golders Green for just under a million. Not a semi to be found for more than half a million, though that was just a quick check. Still, no need to let the facts get in the way.

87. David Cooper

@84 sanbikinoraion
I can’t say that there is a “legion” of Land Value Taxers in the libdems. But do feel free to join us! See:
http://www.libdemsalter.org.uk/

Of course, technically this is a property tax, not a land value tax, but its a good start in the right direction.

88. the a&e charge nurse

[39] well if you are vaguely interested in the ramblings of the A&E C/N you might start here, strategist
http://nhsblogdoc.blogspot.com/2009/03/gladiators.html

Perhaps it merely demonstrates that I know even less about intracranial bleeding than I do about the endless pursuit of those who might have done OK for themselves, all in the name of ‘fairness’, certainly a rather loaded term in the present thread?

Forcing people to take out loans (to pay exciting new taxes) doesn’t sound very fair to me while complaining about paying an extra 50p in tax to protect properties acquired by wealthy Russians [78] seems a very bizarre argument, indeed.

For those who have taken umbrage at references to the gestapo I am prepared to substitute the term Stasi instead.

Oh dear, and he didn’t consult his colleagues about it beforehand

http://www.bbc.co.uk/blogs/dailypolitics/andrewneil/2009/09/this_counts_as_a_real_row.html

Lolitafatjo

Fair point, envy doesn’t quite describe your issues.

91. Stuart White

I think Vince Cable is to be congratulated for opening up a discussion on fair tax treatment of wealth. I very much support the proposed tax.

But I’m interested in how this squares with the Lib Dem argument for income tax over a property tax at the local level. One of the rationales for the local income tax over a property tax is that it avoids the alleged injustice of property-based tax bills falling on those with low incomes – precisely the objection that many on this thread have voiced against Vince Cable’s proposal. I assume this objection is no longer seen as decisive? If so, will the local income tax policy be revised?

Lolitafatjo

According to Findaproperty.com, there are 7,441 for sale on their website at £1m+ within 30 miles of Richmond Surrey. Just fulfilling your need for facts

93. Donut Hinge Party

@78 Ooh, I like that.

Flat cap on protection. If burglars break into your house or car thieves steal your car, police will only seek to retrieve goods to the value of, say, £20,000. If you pass this limit, then you have to pay a top-up fee.

It’s where the Tories are trying to take us with health and education, so why not apply it to the police and fire brigade as well?

Although in practice the fire brigade basically get people out of the house and let the sucker burn to the ground – that’s what insurance is for.

94. Donut Hinge Party

@93. I did a similar check. The vast majority are executive flats or five plus bedroom houses with huge driveways and gates rather than little old lady houses. To which I say – get a lodger.

Actually, I’m not so much envious as spitting with rage at the number of 2 bed flats in my area which are not available to us because they’re now privately owned, or worse, privately let at exorbitant prices, charging in a week what we pay in a month for the same property type.

Um… you’re cross because other people are paying much more than you for the same sort of property?

Lolitafatjo

Guess what, life is hard. It’s not nice that some people are wealthier than us but get used to it and stop moaning. There are plenty of places in the UK where you can live in a big house on a McDonalds salary so maybe you should bugger off there.

Good luck mate

97. David Cooper

@92 Dear Stuart White,

LimDem ALTER (Action on Land Taxation and Economic Reform) opposes local income tax. We are favour of shifting the tax burden off production and enterprise and onto consumption and resource utilization. Land is a finite resource, and Land Value Tax among other things encourages its efficient use. Developers will find it very expensive to maintain vacant lots in town centres.

The “Mansion Tax” is not, strictly speaking, a land value tax (it taxes improvements and developments on land, which is not desirable) but is a step in the right direction. Local income tax goes in the wrong direction.

ALTER cannot speak for the Liberal Democratic party. But we can hope.

@94 Dear Donut Hinge Party: don’t be silly.

80 – “you could use the same logic to say that by not choosing to tax blond people others bear their burden – using the value of ones house is just as arbitrary and irrelevant to the ability to actually pay up.”

For pity’s sake.

There is a strong correlation between “income”, “wealth” and “value of your house”. People who are rich tend to live in bigger and more expensive houses than people who are poor.

In contrast, there is no correlation between “income” and “hair colour”.

@70 “You don’t have an ‘unearned windfall’ until you sell.”

This is an important fallacy to put right. If the community invests tax revenue in improving local amenities and services, whether it be schools, parks, transport links, policing whatever, you as a landowner derive benefit from that. That will be reflected amazingly accurately in the value of the plot your house is on. You get that benefit whether you sell up and realise the enhanced value of your land or whether you stay put and enjoy the amenities.

If you’re not paying your fair share of tax to pay for those improvements, either way it can be described as an ‘unearned windfall’.

Because you can borrow against the value of your land without having to sell up, then there can be no claiming of inability to pay because you don’t have the income and don’t want to sell. The debt will be paid off by your estate when you die or when you do in the end sell. If you don’t want to borrow against the value of your land, then take in a lodger, as the man says @95.

@100 – well the whole policy has already collapsed, but if it is the *income* you want to tax then don’t tax something which is “correlated” with it, tax it directly – which is what I thought the LibDem local tax policy was

(as did all the LD frontbench until Vince sprung this on them!)

“well the whole policy has already collapsed”

Probably best not to believe everything you are fed by the Murdoch media (see Fox News post for why).

This is a good strong step towards a better deficit reduction and tax policy debate in general and a clearer policy choice going before the electorate at the next election.

We need to start taxing vast accumulations of wealth if we want a fair system.

Well if it’s a “good strong step” I’m sure it will be in their manifesto.

Care for a small wager?

103 – it’s in the Guardian and the BBC as well you know. Are they sufficiently credible?

102 – “well the whole policy has already collapsed, but if it is the *income* you want to tax then don’t tax something which is “correlated” with it, tax it directly”

But then you end up taxing someone who earns £25,000 per year and has no assets more heavily than someone who earns £20,000 per year and has £2 million in assets. Do you think this should be a policy aim?

@102 couldn’t put it better myself

@100 there is a strong correlation between being “taller” and succesful in business, thereby having more income. Notwithstanding the fact that people in such circumstances are likely to have a big house anyway, should “Taller” people be taxed more than shorter people?

What happened to your wealth/income correlation?!

#108

It’s pretty clear by now that this policy has given taxing millionaires a bad name. Getting an unreconstructed socialist like me to oppose extra taxes on the wealthy is no mean feat.

However, to go from that to claiming that wealth shouldn’t be taxed, only income, is an entirely different matter. Personally, I happen to think inheritance tax is a better way of taxing wealth than this ham-fisted proposal, but not taxing wealth at all is a recipe for entrenching inequality and yes, class privilege. Unearned wealth should be taxed – there can be no argument that taxing unearned income disincentives hard work or entrepreneurship, either. It’s arguably fairer to tax unearned wealth than earned income, as unearned wealth is self-evidently the result of good fortune rather than any concerted effort on the part of the recipient.

110. the a&e charge nurse

[110] Millionaires ARE taxed – in fact they pay far more tax compared to median wage earners although the amount coughed up may be a lower proportion of overall wealth (even amongst certain bearded entrepreneurs who know how to exploit legal loopholes via the murky Cayman Islands banking system).

But I have never understood why I should be entitled to claim for myself the fruit of other peoples labour/success, providing we have a safety net (paid for by all) for those who really are in need.

And how are we to define ‘unearned wealth’ – for example suppose a house is purchased 20-30 years ago then rises 10-fold in value – this rise in value has not been ‘earned’ it is merely a facet of the property market so should extra tax be levied in these circumstances?

As others commentators have already pointed out, why set the property value arbitrarily at £1 million, surely somebody living in £500k or even £250k house is reasonably well off (in the great scheme of things) so why shouldn’t they be paying higher contributions as well?

The whole thing seems like a minefield to me?

“As others commentators have already pointed out, why set the property value arbitrarily at £1 million, surely somebody living in £500k or even £250k house is reasonably well off (in the great scheme of things) so why shouldn’t they be paying higher contributions as well?”

Why indeed?

Except, you present this point as though it’s an argument against taxing millionaire homes.

Have you considered that it might also be an argument for taxing more widely, and not necessarily for taxing less?

tim f.as unearned wealth is self-evidently the result of good fortune rather than any concerted effort on the part of the recipient.

or they bought a home within their means, improved it and decided to stay, rather than using it to speculate in the property market. By treating a home as an asset they have not risked the equity by continually buing new property.The increase in value of homes in many areas came about because certain areas had becom to expensive so people moved to the most suitable district they could afford. Fulham or Notting Hill, much of which was then a working class area, 30 years ago could, easily own a property worth more than £1M. If that family did such a good job of restoring a dilapidated house such that it encourage other people to do likewise, then the early movers have increased the value of the property through their actions. When regenerating an area, often the first sign is artists moving in to use the large spaces afforded by warehouses- the loft conversion in New York. In many areas it is the developer which raises the value of property and increases the income to councils through higher community charge and section 106 payments. A council will earn little from an empty warehouse but when a developer builds large numbers of dwellings receipts, increase.

It would interesting to hear the views of companies involved with inner city regeneration as to whether they thought this tax was a good idea.

Looking at taxes on the equity when property is sold seems far more sensible but the revenue will be cyclic.

@78

Aren’t you forgetting that the protection of private property is a public good? Others benefit from the fact that the widget factory owner is able to make and supply widgets (which benefits widget consumers) which wouldn’t happen if his factory was pillaged every night.

It is also suggested that people pay an amount for a service proportional to the benefit they get from it. You have not explained why this should be. If the government is providing a service why not charge people the amount that it costs the government to provide this service?

114. David Cooper

@114 Dear Jimmy Hill,
The protection of private property is indeed a public good. However why should it be paid for almost exclusively from taxes on income and enterprise? Part of the burden should be bourne by taxes on resource usage, and especially taxes on the use of the property in question.

As Vince Cable points out in his report “tackling the fiscal crisis”, corporate taxes are the most harmful for growth, followed by personal income taxes, then consumption taxes with recurrent taxes on immovable property having the least impact.

Regarding your point that government should charge no more than it costs to deliver its services, I agree that the overall tax burden should reflect the cost of government. But the distribution between individual taxpayers can be based on many factors, all of which are open to criticism. For example, using the assessed wealth or income of the individual taxpayer could be labled “the politics of envy”. Compared with this, charging individuals for “fiscal value delivered” seems quite sensible and accords with common business practice.

Mr. Abramovich and other large foreign landholders do not buy mansions in the UK out of love. They buy them here because we respect the rule of law and their property is safe from arbitrary confiscation. In allowing them to buy in the UK, we provide an extremely valuable service; they must take us for fools not to charge for this! They can sell out and move overseas whenever they please, so there will be clear market signals that limit the rate at which property can be taxed.

Hi David, thanks for responding.

On the first point, I was under the impression that you were suggesting protection of private property should be paid for exclusively by the user. Thanks for clearing this up.

On the second point, is it your position that the incidence of land tax would fall heavier on those with land assets of a greater value to ensure that everyone, even those with low valued land assets, can enjoy protection of their property?

However, the Ambramovich example makes me a little uneasy. I’m sure it is true that he has bought property in the UK because there is a respect for private property and little chance of arbitrary confiscation. Nevertheless I don’t see that it is morally legitimate to impose a charge on people for the service of not confiscating their property. By the same measure, could the state impose a tax on those that choose to live in the UK for not arbitrarily taking their lives, given that this happens in some parts of the world?

By all means charge Abramovich for the services he uses and a bit more on top so that everyone, regardless of the value of their assets or income, can enjoy the protection of their property. But to charge him for the privilege of the state not doing something morally dubious appears a little off.

NB: For the purposes of this post I’m assuming all Abramovich’s wealth has been acquired legitimately. I realise that this is a rather large assumption.

116. David Cooper

@116 Hi Jimmy,

Yes it is my position that land tax would fall heavier on those with land assets of a greater value.

There are a number of reasons why this makes excellent econonomic sense, as explained by Adam Smith onwards. For a good overview see http://www.landvaluetax.org/. This site also explains why the “mansion tax” is not a true land tax.

However you suggest that my moral position is that society should “charge for not doing bad”. That is not so. Take the analogy of banker who who manages and guards your wealth. It is moral and normal for him to charge a commission related to the amount of wealth protected and any increase achieved. Of course the banker could run off with your money, and even take your life in the process, but that would immoral (and bad for business). He is charging you for the benefit he provides; moral behaviour is assumed. My position is that it is moral for society to charge for the private benefit conferred by private property.

Private property is a pubic benefit for all, but also confers a much larger private benefit for some. A person who owns no property whatsoever benefits from the possibility of owning property. However the owner of a £30M mansion accrues a rather larger benefit. It is legitimate for society to charge him more in taxation.

@117, a problem with your suggestion is that with land values appreciating disproportionately, even the poorest farmers who live on hill farms in Wales, to take one example, are sitting on land worth very large sums indeed but have no sufficient income to pay substantial additional taxes.

If you are suggesting, as I think you may be, that existing taxes on income are replaced with taxes on the value of real property, would you advocate different rates for someone who is a farmer producing food that we need from the rate charged by someone sitting on a house of similar value. If so, what about the pensioner who has bought the property as a home many years ago and has brought up a family who have now ‘flown the coop’? Or the person who has inherited their home, but uses their skills and knowledge serving their community?

Should society really be dictating, through the tax system, where people live?

The problem with any tax system is that it will, at the margins, be objectively ‘unfair’. That we try to make it ‘fairer’ though allowances, banding and other such measures, it not in dispute. Most commentators believe that a rating system that raises large sums by way of tax is probable one of the least ‘fair’ systems as it, essentially ignores the ‘ability to pay’. That the public appear to believe this is reflected by the campaign against both rates and the poll tax. Introducing a tax system that the Mail or Mirror could campaign against with easy examples of ‘unfairness’ would be politically suicidal. So I suspect that the campaign for a land value tax, regardless of the economic arguments of its benefits and costs, would not be part of any Government program in the near future – the poll tax fiasco being the lesson most closely learned by political parties on this recently.

Hi David,

Thanks for the clarification.

As for the bank example, it is an interesting one. The service the bank provides is that it guards one’s wealth against theft by others. It doesn’t charge a fee for the bank not stealing the cash. No one would pay it as the bank is already constrained by the law. If the bank did make off with an individuals wealth there would be mechanisms to potentially recover the assets and bring those responsible to justice through the courts.

As long as the state only taxes to the end of protecting property from potential aggressors I don’t see a problem. In this instance the state would act much like a bank. The problem with the state is that whilst it fulfils the role of protector of property it is also able to abuse this position as it is responsible for upholding the law. If the state charges more than it costs to protect people’s property from potential aggressors on the basis that the state could also be an aggressor if it wished the state is no longer acting like a bank but a protection racket.

Its all academic now. Evan Harris is now saying “it is not our policy yet”. Anyone hear the soft rustle of long grass being briefly disturbed?

120. David Cooper

Hi Jimmy,

A perfectly respectable position. Best expressed by the excellent Q&A webpage produced by Mark Wadsworth, a UKIP member (so unlike me, unlikely to be motivated by any redistributive social justice agenda!):

http://markwadsworth.blogspot.com/2008/02/rebutting-tory-arguments-against-land.html

@118 I refer you to the above blog for the answer to your points.

Hi David,

Thanks for the link.


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