A policy wonk needing to find fiscal revenues realises that there is a disconnect between citizens’ ownership or use of property, and how it is treated fiscally. In simple terms, the charge for the property doesn’t properly reflect how much of that property there is.  So he devises a top up to make the system more progressive, and raise more funds.

The objections are obvious: people’s possession of property and their ability to pay liquid funds over to the tax man do not align neatly together.  You will force people to live indigent lives.  Little old ladies will suffer.

The above could describe either the bedroom tax or the mansion tax.  In the case of the former, housing benefit is cut if the tenants have more than they need, based on a statist “this is what you need” formula.  Its defenders point to the sheer unfairness and inefficiency of allowing overconsumption of property.  A system that charged more for the excess room would encourage the tenants to shift and use the limited space more efficiently.  Forcing people to move is a feature not a bug.

For the mansion tax, similar logic applies.  Property should be taxed at its full value. If a pensioner is rattling around in 5 bedroom mansion, a more proportionate charge will encourage them to move and free up the property for a family that needs it.

However, “you will force people out of their family homes” is regarded as a fatal criticism of mansion taxes, or indeed anything resembling the sort of flat rate property tax that is quite normal in the United States.  In fact, “little old lady” worries were one of the factors behind the Conservatives’ replacement of rates with the Poll Tax – they resented how the rates charge the same for the family of five wage earners as the little old lady.

In reality, the mansion tax in its current form will have few of these “little old lady” cases. The numbers of owners of £2,500,000 homes unable to afford a £5000 charge is going to be vanishingly small; after all, if it had a 50% mortgage at 4%, that would alone cost £50k in interest.  If there is no mortgage, we are talking about people with extreme wealth. Such enormous wealth gives people a huge variety of financial options.  Buried within such wealth is enough to pay that tax for 500 years.  And there is indeed the option of moving – after all, upkeep and maintenance on properties is typically 1% or so per year, so that “£25,000 leaky gutters etc” bill will be forcing the decision anyway, long before the mansion tax.

These mitigating possibilities are nowhere near as available to the family being asked to pay the bedroom tax.  There are few of the financial resources to fall back on.  The spare room is not so easily let.  Being poorer, whatever they have to cut will be much closer to the bone.  Moving is far more expensive in relative terms – as the recent DWP evidence of none of them moving suggests.

All tax and benefits systems have their illogicalities: anyone for pasties? You can tell a political disposition from which ones get the blood boiling.  There is clearly a degree of inefficiency in allowing the same housing benefit to go to families with or without a spare room.  But these pale in comparison the regressive nature of council tax that a mansion tax was meant to alleviate.  When the bedroom tax first emerged I was astonished to hear the same arguments were used being to justify its creation as lay behind the need for a mansion tax.  Property isn’t being properly evaluated in the calculation of a fiscal imposition.  If it forces people to move, that is tough: property is scarce and it needs to be moved by market/financial incentives to those who need it more/can pay for it.

The word “hypocrisy” is being thrown at the LibDems for revisiting the bedroom tax.  This is unfair.  The policy is not doing what it was meant to do.  The real hypocrisy is that the “little old lady” reasons for not pushing the fiscal treatment of property to its rational conclusion are only applied by certain parties when that little old lady might be worth several million pounds.

 

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4 thoughts on “The real hypocrisy around the bedroom tax

  1. It beggars belief that you fail to even mention the one fundamental difference between the two situations: that one relates to houses that are the property of the resident, and the other relates to houses provided by the state, paid for by taxation.

    1. I appreciate that in terms of a political narrative that distinction can make all the difference; hence Labour’s triumph is to call this a bedroom tax.

      However, in terms of efficiency, fairness and incentives, the difference between the addition of a tax and removal of a benefit is more cosmetic than fundamental. What matters is who it effects, and how, and their behavioural reaction.

      The other point I would make is that it is easy to be naive and imagine that the tax is a new thing on someone who should be “let alone” – but the very high property value of the mansion in question is often largely because of the restrictive planning rules that the state has imposed, the quality of the infrastructure etc – all good reasons to have property taxes. Read Robin Harding http://www.ft.com/cms/s/0/8d5c6ed8-0c0a-11e4-a096-00144feabdc0.html (though easier to target the planning laws, as he says. Which would also hurt the high property owners, but in a less visible way)

      1. That is a valid point. But it feels like (at least in principle) since a home is purchased with post-tax income, the deal with the state has already been made by the time a home is bought. I pay my mortgage with my post-tax income. Or, if you like, the redistributive effect of taxation, to the extent this is in place, has already been applied. To come back for more after a house has been purchased (taxing the very position of owning something valuable) feels somewhat like the deal was broken on the government’s side.

        When you say: “the difference between the addition of a tax and removal of a benefit is more cosmetic than fundamental” – I disagree here, these are fundamentally different operations. I don’t agree that re-distribution is an end that justifies any and all means, including effectively confiscating things that are already owned outright under a previous tax regime.

        One additional point: somebody I know lost their job recently and had to take one paying significantly less. They were forced to move flats, from South Kensington to renting in outer London, and nobody gave a shit.

    2. Houses provided by the state but paid for by the tenants. Rents for council houses may be cheap compared to private rents but they have always been high enough to cover the costs of construction and maintenance in properly-run councils.

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