New tax plan for wealthy
Vince Cable calls for annual l pc levy on homes worth over £2m Tory MP'S among scheme's backers, Business Secretary insists
VINCE CABLE, the Liberal Democrat Business Secretary, is pushing for a mansion tax to be introduced on properties worth more than £2million in this year’s Budget.
While the policy is likely to be opposed by George Osborne, the Chancellor, Mr Cable said yesterday that he had spoken to Conservative MPS who backed the plan.
“A mansion tax is still very much on the agenda – it is a very good idea,” Mr Cable told The Sunday Telegraph.
“It is good for two reasons,’’ he said. ‘‘It would constitute a tax on wealth rather than income, which we believe to be right, and also in economic terms it creates the right sort of incentives for the property market.”
Mr Cable added that it was “perverse” that rich “foreigners” could buy expensive properties in Britain and contribute just £1,000 a year in council tax towards the public finances.
The Business Secretary will on Tuesday unveil new measures to curb executive pay at Britain’s biggest public companies. He is expected to propose binding votes over future pay awards.
His insistence that a mansion tax was still on the cards will surprise many of his party’s MPS and supporters, who have grown pessimistic about it becoming government policy. The proposed levy would see homeowners hit with an annual charge of 1 per cent of the property’s value above a £2million threshold.
A homeowner with a property valued at £2.5million would pay £5,000 a year, while one whose house was worth £5million would pay £30,000 a year. This would be on top of council tax.
It is estimated that there are 40,000 to 50,000 properties in Britain worth more than £2million. Most are in London and the South East.
The proposed levy could raise as much as £1.7billion a year for the beleaguered public finances, a figure said to be plausible by the Institute for Fiscal Studies.
However, critics believe the tax could prove especially cruel for elderly home owners who may be forced to sell properties that have recently risen sharply in value.
Others say it would simply be unfair to tax the income used to buy a house and then introduce a separate levy on the asset. There are also concerns that it may depress the one part of the property market that has remained buoyant during the downturn, jeopardising the livelihoods of surveyors, estate agents and thousands of others who work in the property industry.
The Lib Dems will seek to raise the issue of a mansion tax as they negotiate with Tory ministers in the run-up to the Budget on March 21.
Other tax proposals will feature in the talks, including the prospect of scrapping tax relief on pension contributions for higher rate taxpayers and a curb on stamp duty avoidance, which is believed to cost the Exchequer £750million a year.
Houses worth £1million or more are supposed to incur stamp duty of 5 per cent of the property’s value. However, by transferring ownership to a limited company it is possible to pay just 0.5 per cent. Mr Cable said this type of avoidance had become a “standard racket”, making it a “prime target” for the Budget.
Last night a Downing Street source played down the Lib Dem calls for a levy on highvalue homes.
“Any mansion tax is highly unlikely [to be brought in],” he said, adding that a move to tackle stamp duty avoidance was more likely to gain support among Tory ministers.
However, Treasury officials have stressed that stopping the tax avoidance may not be straightforward.
Any change to tax relief on pensions would be strongly opposed by the Conservatives. Mr Cable is also one of several senior figures in his party keen to raise the minimum income tax threshold to £12,000 – beyond the £10,000 proposed in the Coalition agreement.
They are concerned that the pain of the Government’s deficit reduction strategy is being felt too sharply by poorer households and believe the Coalition needs to do more to extract money from rich.
They also believe strongly that the tax system should move away from taxing income and instead tax wealth – property and other assets.
Lord Oakeshott, the Lib Dem peer who previously served in the Coalition government, said this weekend: “If we are serious about switching from taxing income to taxing wealth the mansion tax is the only game in town. “It is the one tax the superrich can’t avoid. It is also a Liberal Democrat manifesto commitment.” Þdavid Miliband, the former Labour Foreign Secretary, has taken up an advisory role with a private equity company based in Pakistan.
The South Shields MP, who was defeated by his brother Ed Miliband in the Labour leadership contest in September 2010, has joined Indus Basin Holdings, which has invested in various agricultural businesses.
In his party conference speech last year, Ed Miliband attacked private equity firms as “predators”.
Vince Cable, the Business Secretary, is nothing if not persistent. He has advocated a new property tax several times, and each time he has been rebuffed by the Prime Minister. What does he do in response? He raises the issue again. As we report today, Mr Cable proposes taxing all homes with a value of more than £2 million. The tax, which will be raised annually, will be calculated at one per cent of the value of the home above £2 million. So, for example, if a house is worth £3 million, the annual charge would be one per cent of £1 million, or £10,000.
There are good reasons to reject this proposal, just as all Mr Cable’s previous suggestions for a wealth tax have been rejected. Many of the 50,000 people who own homes with a value of more than £2 million are retired. They may not have large incomes. They probably bought their houses 30 or more years ago. Mr Cable’s tax could drive some of these people out of homes which they hoped to be able to hand on to their children. It will punish people who have done no more than work hard and been successful. David Cameron has insisted that he does not want to use the tax system to punish success. But that is exactly what this new property levy would do.
Mr Cable may think that the Tory leader’s espousal of the “fairness agenda” means there is now a chance that his new measure will be adopted. Most people do not own houses worth more than £2 million, and he may calculate that a majority of the electorate would support it. We doubt whether voters will welcome the return of punitive taxation, however. And we hope that the Prime Minister will reject a property tax whose only effect would be to make it harder for Britain to pull itself out of economic depression.