Keir Starmer is being asked to stand to the left of his party as a furious battle rages in government over the introduction of a mansion tax in next month’s budget – which some fear will hit the housing market hard.
Rachel Reeves is said to be seriously considering the proposal for her November 26 statement as she tries not only to plug a £40bn hole in her finances but also to find more than £10bn to deal with future shocks.
But he and the Prime Minister are being warned that the move will have disastrous effects, with millionaires fleeing the UK, which has already hit the economy.
Ministers are urging Sir Kiir, with one source saying: “It’s patriotism versus bigotry. What’s good for the country versus hatred of success and wealth.”
previously, Independent It revealed that cabinet ministers were already unhappy about the “anti-aspirational” VAT levy on independent school fees and the abolition of non-domiciled status.
The impact on London has been particularly severe, and there are real concerns among senior cabinet ministers that capital may be fleeing the UK.
But now there is a fight over a new tax to punish the rich and wealthy – the mansion tax.
The proposal, brought forward by Chancellor of the Exchequer Thorsten Bell’s Settlement Foundation, would see owners of properties worth at least £2m face an annual charge of 1% of the amount over that value.
It follows revelations that Ms Reeves is also under pressure to change the top 45p rate of income tax for those earning more than £125,000 to raise more money and possibly get more people to pay it.
The mansion tax is backed by an increasingly left-leaning Labor parliamentary party, which scrapped efforts to reduce out-of-control welfare before the summer.
But it is understood that the majority of cabinet heavyweights, including Chancellor of the Duchy of Lancaster and former Chancellor of the Exchequer Darren Jones, Deputy Prime Minister David Lammy, Communities Secretary Steve Reid and Home Secretary Shabana Mahmoud, are among those opposed to the new taxes.
However, with trade union calls for wealth taxes, including a bank levy, and Labor’s vote for left-wing deputy Lucy Powell, there are concerns that the prime minister is no longer qualified to stand up to the left.
Former Prime Minister and Conservative Chancellor Rishi Sunak has added to the pain with his first column Sunday Times, It warns that raising taxes does not lead to economic growth.
He wrote: “Tax rises would be a disaster for the UK – and especially if the increases are focused on a narrow base, as Reeves tries to technically comply with manifesto commitments. Such tax rises would be particularly distortive and growth-damaging.”
Meanwhile, real estate experts warn that the proposed mansion tax would hit the top end of the market and dampen its devaluation effect, leaving many people in negative equity.
There are also concerns that it will harm Londoners and the South East, whose assets are far more valuable.
Simon Gammon, founder and managing partner of Knight Frank Finance, warned: “The government needs to get the property market moving again and stamp duty, talk of capital gains tax on primary homes and now the potential mansion tax are all slowing down transactions further.”
Their effort to build 1.5 million homes requires people to be willing to buy, and developers don’t want to build homes if there isn’t demand for them, and even if a mansion tax is imposed at the top of the market, we need all areas of the market to work to have a healthy property market.
He also warned that with the estate tax, Ms. Reeves “will not see her money that way quickly because it involves a lot of valuation, which causes significant delays and potential disputes.”
He added: Therefore, this is another negative impact on the real estate market if there are delayed revenues.
Timothy Douglas, head of policy and campaigns at Propertymark, which represents estate agents, said: “By focusing efforts on higher-value properties, it disproportionately affects people in London and the south-east of England, does not encourage people to improve or upgrade property, and does not encourage older homeowners, who often have larger and more expensive homes. Second steppers
“With all the talk of changes to stamp duty and capital gains tax, ultimately, this could change behavior and rely on people wanting to sell their properties. The worry is that if many people now decide to stay put, the Treasury is unlikely to get the tax receipts they are anticipating.”
Economic and tax experts have also given a similar warning.
Professor Stephen Millard, Deputy Director of Macroeconomics at the National Institute for Economic and Social Research (NIESR), said: Independent: “It acts as a disincentive for people to increase the value or upgrade their housing. When you want to move from an apartment to a house, you are more likely to incur taxes, and therefore it becomes more expensive, especially if you pay the taxes every year.”
He added: “This is basically the big problem of London and the South East, where house prices are much higher than that.”
Isaac Delster, senior research fellow on taxation at the Institute for Fiscal Studies (IFS), suggested that adding more council tax bands might be a better solution.
He said: “The problem is that all the bands are based on house values in 1991. So unless you do a revaluation, which the government absolutely should do, it’s not going to be a targeted tax. There are fewer properties in London, in the south-east, in the top bands than there are up-to-date values. So it will be a very good tool.”
Meanwhile, tax policy expert Dan Needle has warned that more fundamental reforms to property tax are needed with the introduction of land value tax and the scrapping of council tax.
He has calculated that an extra £3.6 billion could be raised if the top band of council tax was worth 12 times the amount of the bottom A band instead of its current double A band. However, this goes to the councils, not the Treasury.
He also pointed out that imposing a one per cent property tax on those worth £2m or more when there had been no new assessment for 34 years would “require regular assessments”.
In a policy paper, he said: “My view is that there is a strong case for adding multiple-based council tax bands. I am less convinced that a percentage tax makes sense given the administrative/valuation issues and the problem of horizontal fairness.
The balance shifts when we consider wholesale reforms: replacing land value tax, business rates and stamp duty. In my opinion, the boost that such a reform gives to growth and home building outweighs the negative aspects. But using a miniature version of such a tax as a net revenue raiser seems less attractive.
