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Merryn's Blog

The latest coalition property tax proposal is just as stupid as the last one

Nick Clegg's 'mansion tax' was roundly dismissed as a stupid idea. But now it's back. And the new version has all the same problems as the original.

I just don't get the mansion tax. It didn't survive the last round of coalition negotiations for good reason.

First it wouldn't have raised much money. The idea was not to charge it on the whole value of a house (as is the case with the deeply unsatisfactory stamp duty), just on the bit over £2m. So while it would have affected something in the region of about 80,000 houses, the average bill wouldn't have been particularly high.

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The idea was also seen as vindictive, in much the same way as the 50% tax now is. Not much money is raised (let's not forget that preliminary research from the Institute for Fiscal Studies (IFS) suggested that the net revenue from the 50% rate would be "zero"). But it hurts a few people a great deal and acts as a symbol of the effort to make the rich pay their 'fair share', something that politicians seem to think makes it worth it, even as the rest of us think it to be absurd.

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So I'm irritated to see that Nick Clegg (who regular readers will know I have more time for than most people appear to) won't let the whole mansion tax thing drop. Now he wants it to replace the 50% rate and is suggesting that owners of expensive houses should, if they don't actually get hit with an annual property tax, have to pay more in stamp duty or get a new special band of council tax instead.

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I can see what he is trying to do here if you can't find a way to tax the rich via their income (they are a slippery lot) it makes sense to go after their property. People and cash can avoid taxes by moving abroad. Houses can't.

But taxing high-end property like this comes with all the same problems as the original mansion tax. It is difficult and expensive to organise (who values the houses?). It will further distort our already grotesquely dysfunctional property market. It is bound to be subject to fiscal drag first it will hit very, very top-end houses, then top-end houses and finally just houses.

And it adds yet another layer of double/triple taxation to the UK system. George Osborne said in the budget that he wanted to be sure that "owners of high-value property cannot avoid paying their fair share". But the owners of expensive houses have mostly already paid their 'fair share' out of their incomes or inheritance, so going for them again seems at best spiteful.

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And if it is the case that some big house owners haven't paid their way, it is surely better to deal with this by making the non-dom tax rules tougher or equalising the way that savings, dividends and earned income are taxed, rather than by forcing old ladies in Chelsea to turn their pensions over to the council?

However, whatever the effect of all these possible taxes, the main objection to them is the same as it is to most new micro-managing tax suggestions: it adds complication without doing much for revenue. What we want in the UK is a much-simplified tax system in which everyone pays their way but no one is overly penalised. If the 50% tax rate is considered to be so much a disincentive to people creating wealth in the UK that it must go, what's the point in getting rid of it just to replace it with something that, in just the same way, is about symbolism rather then sensible policy? Clegg and Osborne should do themselves a rare favour and let the rich be for a bit.

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