Shadow chancellor Ed Balls has sought to placate London homeowners by suggesting that some could 'only' face bills of £3,000 per year if Labour's plans for a 'mansion tax' are put in place.
We're not sure there's any way to make an extra bill more palatable, but how will it actually work? Ed Balls says the tax, intended to raise £1.2bn to be spent on the NHS, would be split into four levels. The lowest band would be for homes worth between £2m and £5m and the highest would be homes over £100m. Extra property taxation was also proposed last year by Labour leader Ed Miliband to fund a 10p tax rate. Balls said in an Evening Standard article:
“It cannot be fair that the average person pays 390 times more in council tax, as a percentage of the value of their property, than the billionaire buyer of a £140m penthouse in Hyde Park – who has seen its value rise by around £6m in the past few months alone.”
As an additional sop, Balls says people earning below the higher tax rate (less than £42,000 per year) will be able to defer the charge until they sell the property. As MayorWatch points out, it's almost as if the party think it's a good idea to force asset-rich, cash-poor homeowners to sell up so that any mixed community can be taken over by the rich. Or to impose taxes on people without actually knowing if they can pay.
Labour's proposals sidestep previous promises to devolve taxes to cities — despite the vast majority of homes affected being in London, Balls plans to spend the revenue on the NHS nationwide. If fairness is Labour's aim, an overhaul of council tax and stamp duty, collected by local authorities, would go further to address the inequities in property taxation. It's long been a bone of contention, especially in London, that owners of expensive properties pay much the same as those in smaller houses in a different borough.
Overseas investors could also find themselves paying extra under the proposals. We've looked at the level of overseas investment, and it's high — 75% of inner London properties last year. In February, there were calls to ban overseas property investment but using the revenue raised by a mansion tax is unlikely to benefit the local area and increase housing stock where it's needed.
Critics have also questioned whether the tax will actually raise £1.2bn — Balls' statement that homes worth £2m-£3m will only pay a lower rate means those over £3m could end up paying £10,000 a year. BBC head of statistics Anthony Reuben said:
"If Labour gets £3,000 from 100,000 homes it will raise £300m, which is well short of the £1.2bn it aims to raise, so clearly there will have to be considerably larger amounts raised from properties in higher bands and from foreign owners with a second home in Britain."
Photo by Doilum in the Londonist Flickr pool.