Our party at times, is rather like the French wine industry, a purveyor of great things, sometimes the best in the world, but rather loathe to change our traditional bad habits.
The mansion tax in many forms is now vintage bad policy about which we have written previously. The party in principle supports simple fair taxes, we have a history of supporting land taxation. The mansion tax is neither.
Annual percentile taxes on estimated property values are hard to calculate, distort markets, have no sensible ‘fair’ threshold. They would be widely avoided.
That Nick Clegg is now talking (£) about ditching the vintage for something bubbly is cheering, but his options so far are rather flat, and abstinance from token tax innovation might be better.
The worst option is ‘reforming’ i.e. increasing stamp duty.
Stamp Duty on main homes has got to go. Whilst it is reasonable to tax individuals and businesses for capital gain, consistent with other assets; taxing the full value of the property on the buyer, not the seller is entirely unfair, and a huge market distortion.
Reforming Stamp Duty would involve replacing it with a 5-10% level of Capital Gains Tax across the board, zero-rated at the same level Stamp Duty is zero-rated. There is no need to have multiple progressive bands. There is certainly no need to introduce some super rate on very high property values. That very rich people want to live and spend their money in Britian is a good thing not a social problem.
CGT is already applied to second homes and business transactions. Ditching Stamp Duty would then be a tax simplification.
Introducing new Council Tax bands is an old idea of unclear purpose. I happen to like Council Tax. It’s the nearest thing we’ve got to a fair land tax. I might even concede new bands could be helpful in some areas. But this should be a local decision and introduced slowly, or part of a wider land tax reform.
The problem I have with it is that there is no obvious reason why larger houses should pay dramatically more than they already do for the same local services as smaller houses. Nick appears to be suggesting a local tax reform could be used to pay for a national tax deficit. I’m not sure that sits at all well with the party and coalition’s localism agenda.
If the issue is taxing monopoly ownership of land, then let’s start calling Council Tax, local land tax and apply it evenly to different land classes through one simple integrated system with busines rates. Let local areas compete with each other to attract residents and businesses through the rates they set. Too much national interference and redistribution encourages waste and entrenches poverty through public sector crowding out.
The general problem however is the positioning of this policy as a way of paying for ending the 50p income tax rate. That policy is being reviewed on the basis of complexity and revenue. If it damages growth, penalising entrepreneurship and encouraging avoidance, it will fall on its own merits.
It does not need a plan B to appease the left.