The so-called mansion tax is a big issue and will continue to be so in London for the next 44 days, in the run-up to the general election. It is not enough for those of us who are against what is proposed simply to oppose it. We—mainly Conservative Members—need to be on the front foot and have our own proposals for a property tax. That is what I want to put forward in this short debate.
As the new year dawned, the right hon. Member for East Renfrewshire (Mr Murphy) announced that the Labour party would
“tax houses in London and the South East to pay for 1,000 new nurses in the Scottish NHS.”
Although he later clarified that he was referring only to Scotland’s share of any new mansion tax, the coupling of Labour’s mansion tax policy to its battle to the death with the Scottish National party, north of the border, over NHS staffing was doubtless deliberate. The Scottish Labour leader knew only too well that his focus on two targets of Scottish resentment, notionally London and the well-off, would play wonderfully with his audience.
Alas, such messages resonate south of the border, as well. The notion of London and Londoners as some sort of cash cow able to fund all manner of policy promises has gained widespread traction in recent years. The capital city apparently sparkles with success and is brimful of confidence at a time when other parts of our kingdom are struggling. Increasingly people speak of London’s alienation from the rest of the UK, as the metropolis gobbles talent and makes a compelling case for its ever-increasing infrastructure budgets.
Meanwhile, the issue of housing in London itself has become toxic. Boosted by the weakness of sterling and the perception of the UK as a safe haven, foreign money has flooded into England’s prime housing market. As the international enclave expands in the central London boroughs, prices are driven up in the outer suburbs. Meanwhile, rapid population growth, a lack of housing supply and the difficulty of saving for a vast deposit, alongside boosted prices that were already artificially affected by low interest rates and Government programmes, have made it tough even for professionals to enter the property market in our capital city.
As a result, a passionate debate now rages about the possible imposition of a mansion tax, as a means of addressing the resentment felt both by the rest of the country towards its capital and by those Londoners excluded from the apparent property bonanza. Both the Labour party and the Liberal Democrats have made it clear that they wish to push ahead with such a levy on all properties valued at over £2 million. I appreciate that in a globally mobile world it is increasingly difficult to raise tax income, and so fixed assets such as real estate will inevitably tend to attract higher rates of taxation. But in spite of those parties’ apparent concern for fairness, as they would put it, neither has been receptive to the genuine worries of many of those hit hardest by their plans: people who happen to reside in homes whose value has inflated in recent decades to a level that bears no relation to the household’s ability to stump up large annual cash sums in a mansion-tax type levy—in other words, the asset rich but cash poor.
I suspect a hefty annual mansion tax would drive greater numbers of Londoners from their homes, vacating even more prime central property for the global super-rich. As such, it should be vigorously opposed. Undeniably, however, my own Conservative party risks being left behind in the public debate on the issue if it fails adequately to address the resentments behind the mansion tax’s apparent popularity. The Chancellor has already rapidly raised rates of stamp duty, particularly for homes purchased by companies, non-doms and offshore vehicles. Local authorities in London have also been given the power to remove most exemptions from council tax for empty homes and second homes via the Local Government Finance Act 2012. But the coalition is yet to grasp the nettle on council tax, and it is that prospect that I will raise with the Minister today.
As the Minister will know, council tax was introduced in April 1993 as the primary source of collecting income from local residents by local authorities, as a hybrid personal and property imposition. It came hot on the heels of the ill-fated and short-lived community charge—better known as the poll tax—which had itself replaced domestic rates in England in the spring of 1990. As we know, the levy for councils in England is calculated by allocating a dwelling to one of eight bands, A to H. The allocation is made on the basis of a property’s assumed capital value. But that assumption is based on prices as they stood on 1 April 1991—almost a quarter of a century ago. Newly constructed properties are also assigned a nominal 1991 value, albeit one reflecting national rather than localised variations in value over the past 24 years.
The tax is not even particularly proportionate to property values, as the same amount is levied on all homes valued at over £320,000 at 1991 prices, which is the national band H. That means that about half of all houses in the capital are now placed in the same council tax band, even though their size, location and value are vastly different. A Knightsbridge oligarch, for instance, is paying £1,353.48 in council tax on a £60 million home, exactly the same amount as that levied on properties worth one thirtieth of that sum—properties that would fall within the mansion tax band.
If the current outdated system of valuation seems ludicrous, it can be explained by a concern among politicians that the process and time taken for revaluation would be contentious, difficult and potentially costly to voters. However, there is a solution that is neither overly complex nor anything like as painful as a mansion tax. More important still, it could have a big upside when it comes to the provision of affordable housing.
My central London constituency has one of the highest concentrations of high-value properties anywhere in the country, so my constituents would be particularly vulnerable to the imposition of a new blanket mansion tax along the lines proposed. Indeed, over the past six or seven months I have been bombarded with letters telling me that, in spite of my vigorous opposition to a mansion tax, I should be doing more to stop my political opponents from even talking about one. Many of my constituents simply do not have the thousands of pounds in cash needed each year to pay a mansion tax levied in addition to council tax. They are also concerned that any additional income would go straight to central Government
and be distributed elsewhere, along the lines of the promise of the right hon. Member for East Renfrewshire to pay for Scottish nurses with Londoners’ money.