A mansion tax is not a good idea!
So often in politics we go for the easy, popular option — the idea guaranteed to deliver a few good headlines — rather than the right option, which may well be a tougher sell, but delivers a better outcome. I prefer the old-fashioned route, of doing first what we believe is right, and then explaining why we did it. Too often we adopt populist policies for purely presentational purposes — and then wonder why things go wrong.
A perfect current example is the Coalition’s (and the Conservative Party’s) pusillanimous position on the 50% income tax rate. George Osborne knows perfectly well that it delivers no additional revenue, and may actually reduce it. He knows that it makes the UK a less attractive place to do business, it deters investment, it invites avoidance, and therefore it militates against growth and jobs.
This is the key insight. The 50% tax rate is a bad thing not only (in a boring and obvious way) for high earners and wealth-creators. It’s also bad for the guy on the dole, because it increases unemployment and reduces job opportunities. It’s bad for the nurse in the operating theatre, because it reduces the funds available to the Treasury for the NHS. Bad for the single mother on benefit, because there’s less money for welfare.
Of course Osborne understands the Laffer curve perfectly well. He knows that beyond a certain level, increases in tax rates actually reduce revenues. In that respect he’s better, at least, than some of the pundits on the Today Programme. When asked how we avoid welfare cuts, they reply “Tax the rich instead”.
There is overwhelming evidence from dozens of countries over decades that low and flat taxes deliver faster growth and higher revenues than a high tax economy. Counter-intuitive, but true. We know it, but somehow we dare not say it, because Ed Miliband will declare that the Conservative Party is the party of the wealthy, and doesn’t care for the poor.
And this is exactly the error that Vince Cable makes with his “Mansion Tax”, which he assures us is “a very good thing”. No it’s not, Vince. It’s a disaster.
Of course there are all kinds of practical problems. Who does the valuation? Who pays for it? How do we respond to changes in pricing in the market, when a £2.1 million house is re-assessed at £1.9 million? Are we happy with what amounts to a tax on London and the South-East? Do we really want more taxes on those wealth-creators and investors (that we’re already hitting with 60% Income Tax & NI)?
The list of deliberate policies likely to drive business and jobs and investment out of the UK is already fearsome. Travel infrastructure and London airport capacity. High energy prices and the prospect of power shortages this decade. Onerous EU regulation. High taxes generally, and now Vince’s proposed Mansion Tax. And Osborne talks about “Making the UK an attractive place to do business”.
I appreciate that there is a problem of rich foreigners buying property in London (the Greeks are at it ahead of the looming €uro débäcle) and paying no tax in the UK. But I have to believe that those clever mandarins at the Treasury can come up with a more targeted solution. We must also close the loophole that enables foreigners to avoid stamp duty on investment properties. But no Mansion Tax, please.
We’ve had enough of the Lib-Dem tail wagging the Tory dog. I shall expect Conservative back-benchers to oppose the Mansion Tax with everything they’ve got, until the unctuous Vince Cable retires hurt.
Declaration of interest (or lack of interest): For the avoidance of doubt, I should point out that neither of these measures affects me personally. An MEP’s salary is well below the 50% income-tax level, and while I own quite a nice house, it comes nowhere near the threshold for Vince’s proposed Mansion Tax.