Furious battle over Budget inside government as Starmer urged to stop mansion tax plan
As a fierce battle rages within the government over whether to introduce a housing tax in next month’s budget, Keir Starmer is being encouraged to stand up to the left of his party; It is feared by some that this could seriously affect the housing market.
Rachel Reeves is understood to be seriously considering the November 26 budget proposal as she looks to find more than £10bn of headroom to not only plug the £40bn black hole in her finances but also deal with future shocks.
But he and the prime minister are warned that the move will have disastrous consequences, given that the flight of millionaires from Britain is already affecting the economy.
Ministers want Sir Keir to step in with one source: “This is prejudice against patriotism. It is hatred of success and wealth against what is good for the country.”
Previously, Independent It revealed that cabinet ministers were already unhappy about “anti-aspirational” VAT taxes on independent school fees and the removal of non-dom status.
The impact on London in particular has been harsh, and there are real fears among senior cabinet ministers that there could be a massive capital flight from the UK.
However, debate continues over the mansion tax, a new tax that will penalize high-earners and the rich.
The proposal, from Treasury secretary Torsten Bell’s Resolution Foundation, would see owners of properties worth at least £2 million face an annual fee of 1 per cent of the amount exceeding that value.
It follows revelations that Ms Reeves was also forced to change the top income tax rate of 45p for those earning more than £125,000 to raise more money and possibly drag more people into paying.
The mansion tax is backed by the left-leaning Labor parliamentary party, which defeated attempts to reduce runaway welfare before the summer.
But the majority of the cabinet’s top figures, including Chancellor of the Duchy of Lancaster and former Treasurer Darren Jones, Deputy Prime Minister David Lammy, Communities Secretary Steve Reid and Home Secretary Shabana Mahmood, are understood to be among those opposed to new taxes that hit aspiration.
But with unions calling for a wealth tax, including a bank tax, and Labor members voting for left-wing deputy leader Lucy Powell, there are concerns the prime minister no longer has the power to stand up to the left.
Former Tory prime minister and chancellor Rishi Sunak adds to the pain with first column Sunday Times He warned that tax increases do not provide economic growth.
He wrote: “Raising taxes would be a disaster for the UK – especially if the increases are concentrated on a narrow base while Reeves is technically trying to comply with his manifesto commitments. Such tax increases are particularly distorting and damaging to growth.”
Meanwhile, real estate experts warn that the proposed mansion tax would reach the top end of the market and have a downward devaluation effect that would leave many people in negative equity.
There are also concerns it will harm people in London and the South East, where property is much more valuable.
Simon Gammon, founder and managing partner of Knight Frank Finance, warned: “The government needs to get the property market moving again and introduce stamp duty, talk of capital gains tax for main homes and now a potential mansion tax would slow transactions even further.
“Initiatives to build 1.5 million homes require people to want to buy, and developers will not want to build homes when there is no demand for them, and although the mansion tax applies at the top end of the market, we need the market to work across the board to have a healthy property market.”
He also warned that with the estate tax, Ms Reeves “will not be able to get her money immediately as this would require a large amount of valuation, leading to significant delays and potential disputes”.
He added: “So the delay in income, if any, is another negative impact on the property market.”
Timothy Douglas, head of policy and campaigning at Propertymark, which represents estate agents, said: “The focus of efforts on higher value properties will disproportionately impact people in London and the south-east of England, discouraging people from improving or upgrading their properties and encouraging older homeowners, who often own larger, more expensive properties, to right-size, freeing up much-needed homes for families and second-steppers.” will not.
“Talk about changes to stamp duty and capital gains tax could ultimately change this behavior and be linked to people wanting to sell their property. The concern is that if many people choose to stay put, the Treasury is unlikely to get the tax receipts they expect.”
Economists and tax experts have issued a similar warning.
Professor Stephen Millard, deputy director of macroeconomics at the National Institute for Economic and Social Research (NIESR), said: Independent: “This acts as a disincentive for people to upgrade or raise the value of their home. When you want to move from a flat to a house, you’re much more likely to hit tax and therefore the tax will become more expensive, especially if you’re paying the tax every year.”
He added: “This is basically the big problem in London and the South East, where house prices are much higher.”
Isaac Delestre, senior research fellow on tax at the Institute for Fiscal Studies (IFS), suggested adding more council tax bands might be a better solution.
He said: “The problem is that the whole grouping is based on the 1991 value of houses. So unless you do a revaluation, which the government absolutely must do, then it’s not going to be a very well targeted tax. In London, in the south-east, there are fewer properties in the upper bands than current values should be. So it would be a pretty flawed tool.”
Meanwhile, tax policy expert Dan Niedle has warned that much more fundamental reforms to property tax are needed by introducing a land value tax and eliminating council tax.
It calculated that an extra £3.6bn could be raised if the top band of council tax was 12 times the value of the lower band A, rather than the current double-band A. However, this will go to the councils, not the Treasury.
He also noted that introducing a 1 per cent property tax on those valued at £2 million or more, when there has been no new valuation for 34 years, would “require regular valuations as it were”.
He said in a policy paper: “In my view, there is a strong case for adding further multiplier-based council tax ranges. “I am less convinced that a percentage tax makes sense given the administrative/valuation issues and the horizontal equity issue.
“The balance shifts when we look at wholesale reform: replacing council tax, business rates and stamp duty all with a land value tax. In my view, the boost such a reform would provide to growth and housebuilding would more than offset the downside. But bolting on a miniature version of such a tax as a pure revenue-raising tool seems less appealing.”
