Thursday, 15 March 2012

Nick Clegg and the many mysteries of the mansion tax

In Nick Clegg’s house, there are many mansion taxes. He’s given them more re-launches than Frank Sinatra had final tours. Yet, despite the considerable national media coverage over the last 30 months, only in the last week have they begun to ask serious questions about what, why and the practicalities.
In June 2009, he ditched the Lib Dem policy commitment to a local income tax to replace council tax.
It was a sort of trial run for his later decision to resile on the tuition fees’ promise. He took the decision without even consulting his own local government spokeswoman Julia Goldsworthy, who just hours earlier, in response to my questions, had told the House of Commons that the Liberal Democrats were totally committed to the implementation of a local income tax. Having ditched LIT, Nick Clegg had a problem. He needed to find some alternative to satisfy his activists.
Again, without consulting his local government team – although he did have the courtesy to apologise this time – he announced a mansion tax which would apply to properties valued over £1m as an additional source of local government finance to supplement council tax.
I wrote to him to ask some simple questions like “How many £1m-plus mansions are there?”, “What tax rate is proposed?” and “What is the estimated tax take for each local authority?”
Of course, I didn’t get any response. The reason was simple. He hadn’t the faintest idea, but it made a good headline.
Then, in December 2009, he suddenly announced that the mansion tax would now only apply to properties valued at more than £2m. I wrote to him with the same questions and again there was silence.Nick Clegg went into the general election campaign with a policy vacuum on local government finance, simply finessing it with the occasional reference to mansion tax. David Cameron and the Conservatives went in with promises to halt the rise in council taxes and a commitment that there would be no revaluation of domestic properties for council tax purposes. Subsequently, the 28 per cent cut being made in aggregate financial support for local government means that there will be no central government grant to councils.
Then, suddenly, in the last few weeks, Nick Clegg and Vince Cable have again started making speeches about a mansion tax. However, this time, it has absolutely nothing to do with local government finance and everything to do with being a pawn in a coalition Government negotiation about the 50p income tax rate, stamp duty avoidance, bankers’ bonuses, inheritance tax, non-dom levies, and the level of and balance between taxes on income and wealth.
Let us be clear, the only reason why this coalition Government might consider a mansion tax for national income purposes is if it was prepared to admit that it has no realistic prospect of plugging the loopholes on stamp duty and capital gains tax that wealthy individuals (especially those overseas or non-domiciled) have been able to plug for so long. The great thing about property is that it doesn’t move easily and, of all UK taxes, council tax easily has the highest collection rate. I start from a different position. Irrespective of any consideration of a mansion tax, the Chancellor should act decisively in next week’s Budget to halt stamp-duty avoidance schemes and plug the gaps in capital gains tax. He must reject the heavy lobbying of wealthy individuals, companies and right-wing pressure groups whose rallying-call is “taxes are for little people”.
But, let us return to local government finance. If the Government is serious about a localism agenda, it also has to find ways of increasing finance localism. I believe that the last Labour government was quite wrong in cancelling the five year revaluations that were determined to be an essential component of the council tax framework.
That was the same sort of conscious neglect which brought the rates into disrepute. Further, I believe that there is a strong case for extending the number of council-tax bands. If the Government wants a mansion tax – a sort of council sur-tax, a tax collected locally to go into the national coffers – there will have to be a comprehensive revaluation. Just trying to revalue those properties in Band H – those valued at in excess of £320,000 some 20 years ago – is not a runner.
This, of course, still begs the fundamental question as to whether the Government is serious about enabling local councils to raise and keep significantly more of their income locally.