A tax on London

Houses Primrose Hill

A mansion tax is a good idea in principle. But in practice it raises a number of policy challenges. So shadow chancellor Ed Balls is correct to say that it should be done in a fair way.

One challenging fact about a mansion tax is that it is, in effect, a tax on London. A recent survey by a property listings website appears to show that an annual tax on owners of property over £2m would affect 82,000 owners and 90 per cent of them would be in London. Homeowners in London would pay over £1bn of the total £1.2bn a mansion tax would raise. Many of those people will not actually be domiciled in the country. But the London-specific nature of the tax should be enough to set alarm bells ringing.

It is a sad, but undeniably true, fact that the nature of the national media means that anything that happens in London gets wholly disproportionate attention. Half the Guardian newsroom appears to live in Hackney alone. The London-centric nature of national media is regrettable. But it does make it important that a mansion tax is introduced with care.

And the turbo-charged nature of the London property market means that anyone who bought a family house in a, previously unfashionable, part of London decades ago could easily now be living in a house worth over £1m. And, although the mansion tax will not affect properties at that level, I suspect that those voters will be jumpy about a mansion tax anyway. Cuts in inheritance tax are wildly popular with voters who are nowhere near being eligible to pay it, but somehow imagine that they might be one day. In the same way a mansion tax would excite alarm in homeowners who might imagine that, with a sky-rocketing London housing market, it might apply one day to them. And the Tory press will not be backward in stoking those fears.

Ed Balls has set out a number of criteria for a mansion tax: it should only apply to properties worth over £2m; the limit should rise every year in line with house prices; there should be protections in place for people who do not have a high income but happen to live in an expensive property and the tax must be progressive so that those in properties worth tens of millions of pounds make a significantly bigger contribution than those living in houses which are worth just over the limit. Ed’s criteria are correct. I also think that London assembly member Tom Copley’s suggestion, that the tax should be based on the last sale price of the property rather than the current market value, is worth looking at.

A mansion tax should be part of a package that makes London’s dysfunctional property market work for those of us who actually live there. More needs to be done about the non-domiciled homeowners who buy property in central London at increasingly extortionate prices, often as an investment. They are forcing London’s middle classes into, hitherto unfashionable, parts of the capital and driving up prices generally in a ripple effect inside the M25. Increasing supply alone will not solve this problem, because there is an almost infinite supply of the super wealthy willing to purchase in central London. So the London housing market is not a classically functioning market, which responds to increases in supply. And although more garden cities are a good idea they do not solve the problem either. Councils also need to be set free to borrow and build genuinely affordable council housing. The Labour party is moving in the right direction in its policies for the private rented sector. But we need to look very hard at how rent controls could be made to work.

So a mansion tax should be implemented carefully, as part of a package of measures on housing. But introduced in the right way, a mansion tax will not just raise revenue, but help take the steam out of London’s dysfunctional and distorted housing market.

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Diane Abbott is member of parliament for Hackney North and Stoke Newington

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Photo: grismarengo

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  • Anonymous

    We could make a start by cutting demand. An open-door immigration policy, adding hundreds of thousands to the waiting lists, is negligent and uncaring to the point of wickedness if you’re struggling, not just to get on to the bottom rung but to get within sight of the ladder itself.

    • Roy Steele

      Seeing the ‘big picture’ and having a ‘vision for the future’ I leave to our leaders – an instinctive hatred of all things foreign only leads to war and extermination of the so-called unter-menschen and we don’t want that — again.
      Ask any tunnel-visioned, myopic fascist with delusions of grandeur how they plan to house the disabled, or ill. Christian charity wasn’t half bad y’know, while it lasted.

      Religious values may be guffawed at these days, and its the ‘in-thing’ to be an Atheist [viz Ed and current Deputy PM] but the Christian Bible forms the basis of many of our Laws on planet Earth.
      Get rid of or belittle these Laws at your peril, or go put a deposit on that des-res-2-man- cave in Wales or the Highlands.

  • Roy Steele

    Marx and Engels made life so simple (not) with their thoughts and theories on Dialectical Materialism – read up on those two bright sparks with a glass [or two] of wine handy for sustenance as you will need it. Following any communist template on housing solutions for the masses and the poor (sic) may not be the way forward and may not progress the Labour movement in UK very far – especially with an GE next May. Marx ended up skint and on the bones of his bum in London with a broken liver taboot and died of cirrhosis, so maybe his Ways-and Means-Committees’ potifications were somewhat skew.
    The Chinese Yuan is buying up half of Moscow-on-Tems[London] as part of their 150 year Plan.
    Too much money can breed a pagan jealousy. PS: kindly define ‘money’ as you see it, Diane?

  • afd

    Mansion tax will be an excellent way of clearing out the last of the life long Londoners in favour of hedge funds and wealth overseas investors. All those hardworking taxpaying pensioners – gone from the community. All those doctors and teachers who managed to claw onto the ladder 10-20 years ago – gone. In fact, anyone who can’t afford £20-50k per year on extra tax will just leave. Mansion tax is a form of ethnic cleansing against the middle classes. The poor can stay in state housing, private housing for the super rich. Everyone else can just leave. Did I get that right?