Miliband’s mansion tax leaves unfair council tax unreformed

Professor Mark Stephens
Professor Mark Stephens

Ed Miliband’s proposal to raise £1.2 billion by levying a ‘mansion tax’ on properties worth in excess of £2 million provides a solution neither to the unresolved issue of property taxation, nor to the sustainable funding for the NHS.

Taxing the London properties of Russian oligarchs undoubtedly holds populist appeal. But it would leave the grotesquely unfair system of Council Tax unreformed.

The Council Tax is unfair by design. It systematically taxes cheaper properties more heavily than expensive ones. It unashamedly taxes the north more heavily than the south-east. Quite absurdly, it uses valuations made almost 25 years ago.

It need not be like this.

We could raise the same revenue much more fairly. A system of progressive property tax, as analysed in our recent report for the Joseph Rowntree Foundation, would reduce bills for two-thirds of English households. Bills for the poorest tenth of households would fall by £200. Those of the richest tenth would rise by £184.

In practice, London would need to be treated differently. Its high house prices mean that there would be low income losers as well as rich ones. Income should be taken into account as well as property value – creating a hybrid income and property tax. And any such scheme would need to be phased in.

Reactions to Miliband’s proposal highlight the difficulties in reforming property tax. In addition to the ‘usual suspects’ in the press and property industry queuing up to denounce it, Christian Wolmar – reputedly Labour’s most radical candidate aspiring to become London Mayor – believes the measure should apply only to those people whose homes were worth more than £2 million at the point of purchase. Conversely, it seems that those people ‘cursed’ with the good fortune of greatly enhanced personal wealth should be exempted.

Yet radical tax reform is possible.

In the 1980s tax relief on homeowners’ mortgage interest payments cost billions, but was regarded as being untouchable. By 2000 it had gone, having been withdrawn in stages. The magic ingredients underpinning this remarkable success were political consensus and leadership.

Mark Stephens is professor of public policy at I-SPHERE, Heriot-Watt University

An earlier version of this blog appeared in the Evening Standard.