I’ve made no secret of my personal preference for altering the mix between taxes on wealth – on those who have – and taxes on income – on those who accrue. I recognise the technical impediments to wealth taxes – but don’t see them as insuperable. I tend to think a better balance might offer Governments a bulwark against the defining fiscal (indeed economic) problem of our time – that of competition between nations. And I would counter the political challenges by introducing wealth taxes as part of a package which cut income taxes.
I have grey hair enough to recognise this, today at least, as a pipe dream. Labour’s first faltering step in this direction – the mansion tax – has met widespread opposition.
But one aspect of the debate has puzzled me. We have heard much of the elderly widow – that unfortunate beneficiary of a rising property market – who now lives in a £2m London property but without the means to meet a tax bill. What of her?
The outrage that changes in tax regimes might precipitate changes in behaviour I find puzzling. The world I inhabit is one where the ability of tax to influence behaviour is regarded as a helpful orthodoxy. Why, otherwise, increase the personal allowance rather than increasing benefits? Is there not something to be said for increasing the costs of holding a scare resource?
Anyway. I said there was a question. Let’s assume – merely for the sake of argument – that it would be a bad thing that those who could not afford higher property taxes should be compelled to downsize. I have seen no modelling of the number of those who would be driven from their homes. If one was to assume (for example, for the details of the mansion tax are not yet known) a rate of 1% per annum of values over £2m, how many are there in £2.5m homes who could not find £5,000 per annum? How many in £5m homes who could not find £30,000 per annum? (For scale, if the target of £1.2b per annum is to be hit, the average annual bill for those owning a house worth more than £2m is estimated to be £11,000 – but obviously this burden will be skewed towards those owning more valuable homes.)
For if our tax policy is to be designed around the interests of the few, I’d like to see (numerically at least) the whites of their eyes. Just how many people are we talking about?
Three quick points from Ed Balls’– just hours after I posted the above – on the Mansion Tax.
First, he says that liability for the tax will be banded. And for those owning properties between £2m-£3m per annum the tax will amount to £3,000 per annum. This will create a precipice effect – either your property is worth over £2m (in which case you will have a liability to £3k per annum) or it isn’t (in which case you won’t). But it will be a modest effect – because the precipice isn’t terribly high.
Second, he says there will be a right to defer the liability if your taxable income is less than £42,000 per annum. This is a measure designed to tackle the ‘Granny’ issue (see the foregoing and the helpful discussion in the comments section) and will carry a price in terms of delaying tax receipts. The quantum and period of delay will need to be modelled – and will be a function (in large part) of the age and income profile of the ‘Grannies’ in question. My gut says the delays will be very modest indeed in terms of quantity but (and this is the question I posed this morning) until we model it (and I’m not aware that anyone has) we can’t know.
Third, Ed Balls says the £2m threshold will rise with property price inflation. But what happens in the event of falls in the property market? If the threshold is subject to a £2m floor, then a falling property market will lead to disappearing tax revenues all of which have been politically hypothecated to fund fixed costs (i.e. the NHS).