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.
Diane Abbott is member of parliament for Hackney North and Stoke Newington
Progressive centre-ground Labour politics does not come for free.
Our work depends on you.