Mansion wealth tax wouldn’t fill Budget black hole, economists warn Reeves

Rachel Reeves has been warned that mansion tax plans will not fill the £50 billion Budget black hole and that UK property taxes need a much wider overhaul.

The Chancellor is said to be considering a tax on property owners worth at least £2 million; this tax will be subject to an annual fee of 1 percent of the amount exceeding this threshold; This means an annual fee of £10,000 for homes worth £3 million.

But Ms. Reeves now faces calls to go further; Economists and MPs are calling for sweeping reform of property taxes in Britain.

It comes after housing minister Steve Reed repeatedly refused to rule out a mansion tax ahead of the Budget.

Former Institute for Fiscal Studies (IFS) director Paul Johnson said: Independent The government needs to reform taxes to ensure that council tax is proportionate to the current value of a property and also abolish stamp duty.

Former Treasury economist Jonathan Portes agreed, saying replacing council tax with such a proposal was “neither radical nor rocket science”.

But both warned that the mansion tax proposal would not rise enough to fill a significant part of the black hole facing the Chancellor, estimated to be as much as £50bn.

Chris Curtis, co-chair of the MPs’ Workforce Development Group, said: Independent “There has been a clear breach of the way we tax property in the UK”.

“Council tax is still based on 1991 values ​​and is capped at the top band, so a small family home could pay well below the £50 million a Mayfair mansion pays each year,” he said.

“Then when those mansions are sold, stamp duty hits hard and freezes the market. It becomes topsy-turvy, it gets worse day by day, and it becomes punitive at the point of moving, so it turns the whole housing system upside down.”

“It’s not easy to fix, but it’s right for a progressive Labor government to look at how this can be improved.”

Mr Johnson said a mansion tax on properties worth more than £2 million made “some sense” but warned it would “not be enough of an increase to fill a significant gap”.

“These types of homes are definitely undertaxed right now,” he said. “I would be much happier if there was a comprehensive reform of property taxes that made council tax proportionate to existing value and abolished stamp duty.”

The Chancellor is expected to use the Budget to raise taxes once again; The IFS estimates it needs to find £22 billion through tax rises or spending cuts to comply with its self-imposed fiscal rules.

Meanwhile, the National Institute for Economic and Social Research has suggested the black hole could be as large as £50bn due to stagnant productivity, government U-turns and higher-than-expected interest payments.

Mr Portes said the reported manor tax policy was “a start” but encouraged the chancellor to introduce the tax with a lower threshold.

“I would simply abolish the council tax and replace it with a percentage tax. This is neither radical nor rocket science; it is just doing what most other developed economies have done in one way or another,” he said.

“Of course they won’t do that because it’s a huge change from where we are now, but they can and should say that’s the long-term goal.”

He added: “I certainly don’t think a mansion tax would make a huge increase compared to the general requirement.”

There are also fears that a mansion tax would turn the economy into a “stagnant swamp” and freeze London’s property market.

Becky Fatemi, managing partner of Sotheby’s, said: Telegram High net worth individuals now feel that “there is no incentive to be here.”

He warned that the government was “shrinking the economy quite dramatically and creating a stagnant quagmire.”

Meanwhile, the Liberal Democrats accused the government of “tax grabs” without reform.

Daisy Cooper, the party’s treasury spokesperson and deputy leader, said: Independent There is “no doubt” that the way homes are currently taxed is “not fair”, pointing to council tax rates and stamp duty costs.

He added: “It’s right to look at whether there are ways to overhaul the system and make it fairer, but so far Labour’s aim on taxes has been to try to get more cash in the short term, rather than properly reforming taxes for the future.”

Asked about the mansion tax at LBC, Mr Reed said: “I’ve seen some of the speculation on that and it’s never a good idea for a minister to come in and speculate.”

Asked whether he would support such a tax in principle, he said: “Since the budget will be announced soon, you are asking me to speculate.”

Asked again, he added: “It’s best for me not to answer that question. It looks like I’m advising the chancellor on what he should or shouldn’t do, and that’s not a good idea for a minister.”

It comes after Ms Reeves’s former boss, Mervyn King, a former governor of the Bank of England, suggested on Sunday that the government did not have a “coherent” tax strategy and that problems within the system could not be solved by “just adding another wealth tax to it”.