Chris Dillow’s take: exemptions from the tax threaten to undermine its “allocative” efficiency – the extent to which the tax might encourage those who value high value properties to buy them, and those who don’t – silly old people who can’t afford the tax – to move out.

Paul on Bad Conscience (and also on Liberal Conspiracy shorter) likes it for spelling out a progressive vision against Tory inheritance tax cutting.  Lib Dems were wrong-footed when abandoning the 50p higher rate just when it was about to become popular and actually enacted.

Louise Baldock thinks the legal quibbles will effectively exempt many of them close to £1m.  Why quibble if the tax were just £500 for a £1.1m house?

Jock Coates thinks it undermines the better campaign for a Land Tax. He must have been present at that ALTER event I chaired.  I have more sympathy with this view.  Remember that Vince mentioned the Land Tax as well.

My mate’s take (private email, typical of City view): this is clobbering a middle class who are already clobbered by stamp duty bands not rising properly.

My take: it encourages people to own several <£1m properties instead of their >£1m property.  For example, Chris points out how few houses exchanging hands were worth more than £1m – about 0.57%.  But HMRC data from 2003 had about 1% of estates indicating property wealth of >£1m, and since then we have had some price rise.  This is probably because these people own greater than one house each. Better to have lower thresholds, localised design and possibly delivery with help of central database.  And try to raise more.  See posts passim.

Chris is being faux naif, I think, in supposing that our politicians – even the economist Vince – wanted to achieve allocative efficiency.  Politically, of course not, as he recognises: no politician would like to introduce some tax that forced people to move.  I doubt they give a monkeys about this particular scarce resource* being well used.  They would like a wealth tax but property feels to them like the only wealth that won’t slip between their fingers and run to Switzerland.

I see the ALTER point – but some of this is about raising MONEY for the deficit.  Reforming the Council tax system, hated though it is, may be smoother and more quickly accepted, than radical innovations.  And choosing £1m was a silly idea – based on a rhetorical need to bash millionaires.  Again, I say: better what we proposed in A balancing act.

* are  £1m houses ‘scarce resources’?  Well, land is (artificially) scarce, I suppose: the govt should get on with that.  But I think the constraint that defines the number of £1m houses is on the buying side.  If more people could afford £1m houses, there would be more, including sometimes creating them from scratch.   In fact, this tax will reduce the number of £1m houses, because the market ought to discount their value for the future stream of payments that come with having one – or the risk that you will have to have such payments to make.

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4 thoughts on “Practical problems with the Mansion tax

  1. “My mate’s take (private email, typical of City view): this is clobbering a middle class who are already clobbered by stamp duty bands not rising properly.”

    I must say, I find the notion that middle class people live in million pound houses quite hilarious.

    Obviously, the term “middle class” is vague and appeals in large measure to now largely irrelevant distinctions between a working “proletariat” and a landed aristocratic “upper class”, but in a country where the median yearly income hovers around the £20,000-£22,000 mark, the idea that the middle class live in million pound+ homes is self-serving nonesense* (self-serving, because it allows one to paint objections to the “mansion tax” as hurting “ordinary hardworking families” as oppose to a privileged elite at the top end of society, which is likely to curry considerably more favour).

    * with the exception of the tiny minority of cases where people bought a large, dilapidated property 40 years ago for peanuts and, through renovations and asset inflation, the property has increased in value to over £1million. But these people are very much a minority exception, and we shouldn’t laud them as the paradigm example in the socio-distributive aspects of questions to do with tax progressivity.

  2. Paul – yeah, I thought his comment needed no criticism. But you are right that the damage done to public policy by this misperception is profound. It even had an effect in 1992.

    The TUC piece on this was good work, I reckon.

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