Mansion tax: a terrible, unworkable idea

The Mansion Tax is a splendid idea, especially if it goes hand in hand with scrapping the 50p tax rate. The whole valuations thing is a doddle, even Fattie Pickles admitted that HM Land Reg could revalue every single house in the whole country for about £5 or £10 each, they got all the info they need and more on their databases.

Even better, forget having a special Mansion Tax and just have council tax bands A to Z, where Band A is £100 a year and Band Z is £10,000. This is all a tenny tiny shift towards proper Land Value Tax, which is NOT a tax on "wealth", far from it, it is a user charge, it is no more a tax on "wealth" than the £4 cost of admission to your local municipal swimming baths or £1 to use the local bus.

It is a bad idea...

Assess these obvious problems....

1. Who is wealthier?

A. Person with £5m house with a £4m mortgage = £1m net wealth

Or

B. Person with £2m house with no mortgage = £2m net wealth

A pays the tax, not B…

2. Who is wealthier?

A. Person owns London house £2m and Country House £2m

Or

B. Person owns London house £4m

B pays tax not A.

3. Who is wealthier?

A. House worth £5m, paid £2m,10 years ago

B. House worth £5m, paid £6m last year

4. What is wealth?

£5m cash

£5m shares

£5m house

5. What happens if a £4m house is in 2 names (partners) as opposed to 1 name? Neither partner is 'wealthy' iro of £2m 'benchmark but 'together' they are? Contrast this with one individual who owns his/her £2m property in a sole name. They are identical but in the joint ownership version, the mansion tax is paid.

6. What happens if the house is also a place of business eg B&B?

7. What if the house is worth £0.5m - hardly a mansion - but the land is worth £4m?

8. Finally, no sane homeowner with a property value of £2m would spend anything which might improve its value and thereby create a future tax for themselves at the next valuation. And anyone with a house valued >£2m will engineer a deterioration in their current house to reduce the value. People will turn lofts into attics, basements into storage rooms etc.

Unfortunately for Linton & Graham, the 99.9% of voters in this country who don't have a £2m house couldn't give a stuff for your arguemtns which is why Cable won't drop it. This would be a fairly popular tax on only the very wealthy.

GW, sure, which is why a complete rebanding of all houses for Council Tax would be much better, to show there are no hard feelings we could get rid of a poll tax (TV licence) and two jealousy surcharges (IHT and SDLT), each of which only raises £3 billion-odd, chickenfeed compared to Council Tax (£25 billion-odd).

I'm waiting with bated breath for somebody to play the Poor Widow Bogey In The Family Home Full Of Treasured Memories Which Has Been In The Family For Generations.

@Graham

Thanks for introducing some sanity to this insane proposition and I hope the polititians will be prepared to listen.

@Mark

Perhaps you can lobby for closing the loopholes on existing fair taxes, before devising new ill thought self serving ones. Stamp duty not payable by wealthy people who use offshore companies might be a start.

Rebanding all houses for Council tax is best especially as now a house whose value is say £600,000 is just one band short of houses with values over millions.

Mark-your aguments such as "which is NOT a tax on "wealth", far from it, it is a user charge, it is no more a tax on "wealth" than the £4 cost of admission to your local municipal swimming baths or £1 to use the local bus." does not cut the mustard.

So, as a "user charge" what does it cover? Does the owner of a more valuable property get better services from the Council than a large family living in a low band house? Do those living in large properties pay more for swimming or the bus?

Abolish council tax and resurrect the "poll" tax so that everyone pays a fair and equal share for council services, police, education, libraries, parks and leisure and so on. OK, so the wealthy may not use these services as much as the rest, but I am sure that they would be happy to pay the same.

And Mark - following your argument you would have to tax other assets - why stop at houses? In this way we could clobber those who save and invest and reward the spenders who have negative assets and who played a large part in getting us into the current mess by becoming toxic assets for our banks.

Cable Tax You Say - is a very bad idea littered with many difficulties when it comes to implementation overall.

Mr. GW, what would happen to property registered in off trusts as with this equation difficulties would automatically rise when it comes to defining ownership Vs 50 % ownership of Husband and Wife let alone dependants.

Somehow this reminds me of the destruction of the country house/estate which forever will be a loss to the heritage of this wonderful country.

A wealth tax you say bare in mind the employment implication in relation to services - no one wants to extend their holding due to tax implications.

I say ill thought after all.........!!!

UG - get real!

GW - red herrings all. People and their companies whether onshore or off, own assets as investments, primarily and often also for enjoyment, full stop. A target for taxation, simples!

MW - assett taxes and income taxes - entirely different but both tax those who are wealthy but in different ways.

At the end of the day the ethic on which all taxes are based is:

"From those who have, to those who need."

[Some, who object to the foregoing, will now jump on the benefit cheat bandwagon, and I will agree with them that the system needs significant sharpening up, with more onus of proof of entitlement being placed on the claimants.]

More pandering to the unbelievable idleness of the British non-working classes. More tax to finance them in their iidleness!! What this country needs is more enterprise and less tax. Lets get enterprise and business on to the educational curriculum, and at the same time lets remove political studies to the dustbin where it belongs, together with a few other less than useful subjects. Lets try and give young people some direction of where they should be going if we are to prevent the steady creep of poverty throughout the land.

Never mind the Mansion Tax, let's alter the Council Tax with a revaluation of all properties. An earlier writer commented on this and suggested a Council Tax with an A - Z basis, I agree. Why should I in a four bedroomed, one bathroom house, be paying the same as some of those on my estate who inhabit mansions, oophs sorry, houses with six bedrooms, six bathrooms, indoor swimming pools, orangeries, home cinemas etc., etc. Its time the Council Tax is given a good going over.

Suggest an alternative then Linton - then we can rip that to shreds using extreme assumptions and outlier anomalies.

This is straightfoward spite and envy. (and no I don't have anywhere near 2 million.)

It's just penalising success, and wil inevitablycost far more to administer than it can possibly pull in.

The overal amount raised may sound a lot to the rest of us, but it's trivial. - We'd do far better by stopping aid to countries that are better off than we are. - Inida , China and Brazil, for example.

Or in repealing some of the 200,000 new Nulab laws and regulations brought in at a rate of one every 20 minutes 24/7/365 for 13 years: Or maybe some of the 20,000 new criminal offences.

This entire hair brained scheme is to distract from things that are important. (Not unlike spending more perlaimentary time discussin Foz hunting, than taking us to war. )

Or even making the high income peoplr (like Blair) pay their fair share.

Sounds very spiteful. The government has too many taxes already. If they can't get you on income, they'll get you on what you have left through VAT. If you have anything left after that they'll tax you assets when you die. If you add it all up they already have the lion's share. It's crude politics and it strikes me that Cable is beyond his level of competence.

I really don't see a problem with the tax. Property taxes actually work pretty well in places like the US and Canada. You mean we don't get people challenging council tax bands in the UK? Where have you been?

The next stage will probably be to apply the tax at 1 per cent to the whole property value and then to all properties reducing the subsidy from Central Government towards local authority expenditure and giving scope for reductions in other taxes such as income tax. Do you then spend your money on a swanky house with high taxes or spend it on other things creating more demand in the economy or save it? An interesting one for the economists.

Mr Wadsworth has long debated this matter see LVT (Land Value Tax) under http://markwadsworth.blogspot.com/

I agree about adjusting Council Tax rates, but arn`t all these arguments academic? Dave and his cronies will never permit a mansion tax, and Cable should instead be devoting his time to trying to save the NHS and the welfare state from abolition, but he, and the rest of those judases in the coalition only care about their few short years of glory.

It does not follow that people who live in two million pound houses and above have the necessary income to match Take the case of a widow, Husband had a very good job, He dies Widow is left with very large house which she can not sell at present or she may be of at an age where she does not want to move anyway and why should she or perhaps she has be left to look after five or six children. How does she pay the tax, mortgage the property perhaps, she would not get one at present. So how does she pay the tax?

Hooray for the mansion tax! Any move to taxing the rich more is wholly welcome. I just wish there could be an annual tax on all wealth, but at least it is a start.

Why it should be assumed that one's ability to pay taxes is solely a function of one's income has always been one of the great mysteries of the popular perception of economics. One of the easiest ways of avoiding tax on income is to squirrel away one's accumulated wealth in untaxed (or inadequately taxed) assets: buy a bigger house! Then your accumulated wealth does not generate income and attract tax, but it does (history indicates) appreciate in value. That is but one reason why the mansion tax is justified.

I wouldn't stop there though. To my mind a 1% per annum tax on an individual's entire wealth is an extremely modest demand. Taxing only realized capital gains is far too limp-wristed.

All of you who are joyously embracing the politics of envy should beware! It will not stop here - eventually we will all be taxed into the ground. And for what? So the recipients of Housing Benefit can live in £2M mansions?

UG: "Perhaps you can lobby for closing the loopholes on existing fair taxes, before devising new ill thought self serving ones. Stamp duty not payable by wealthy people who use offshore companies might be a start."

None of our taxes are fair, not income tax, not VAT, not council tax, nothing. SDLT is, taken in isolation, an absolutely terrible tax. There's no point closing loopholes, let's all just re-read Adam Smith, read up on Queen Elizabeth I's Poor Rates and brush up on the logic and history of all this, eh?

David R, oh I'm glad that the Poor Widow has made an appearance, no thread on LVT is complete without the Poor Widow, it's been a tradition for over a century.

Allen Williams - Taxing the increase in value already happens via stamp duty.

Mansion tax? This is nothing more than a pandering to those people, the living dead, who see this tax as a way to benefit from the life's work of another person.

Maybe they feel an unfair world treated them unfairly, kind of "is it cos I is zombie".

In case anyone is wondering, I am, by a huge margin, at no risk of paying mansion tax.

Vince's cunning plan is just another example of robbing Peter to bribe Paul - all talk of "fairness" is just aircover for an indefensible tax.

It's a typical piece of fatuity from Mr Cable and has been amply dissected in earlier commentary. Presumably Mr Cable thinks to show himsef punishing the notional rich - and win plaudits from the others - by penalising them through their overt assets, in which case why stop at houses, why not the possession of Porsches, Rolls Royces, big yachts and other blatantly obvious items. Anyhow I daresay any such people will argue that all such things including mansions are assets of business; Mr Cable's notion is a minefield of loopholes for the official assessor I reckon and will cost to run more than it will gain, but then that is not Mr Cable's objective most probably.

As a matter of interest perhaps, I possess none of those things. The joke about all this is that much of the apparent excessive wealth is probably stuff purchased on the knock, which is why we're in a mess today

And why argue to make this an extension of council tax bands, local goverment management overpays itself and thus wastes enough already they do not need further encouragement..

Jon: "So, as a "user charge" what does it cover? Does the owner of a more valuable property get better services from the Council than a large family living in a low band house? Do those living in large properties pay more for swimming or the bus?"

Look, all the Home-Owner-Ists rub their hands in glee and shout "Location, location, location" and talking about how they can make money by buying in an up-and-coming area, or how much being in the catchment area of a good school or near a park adds to the value of their houses.

So clearly, all that value is generated by the community, or society as a whole, or whatever you want to call it. So yes, the owner or occupier of more valuable land is getting much more in value than people who live in a back to back in Burnley.

Now, if society as a whole generates value, why is it so terrible for some of that value to be recycled back to the community via the tax system? It is surely a far better way of raising the money to cover public expenditure than taxing individual, private efforts (labour, business, enterprise, call it what you will).

Jon: "And Mark - following your argument you would have to tax other assets - why stop at houses? In this way we could clobber those who save and invest and reward the spenders who have negative assets and who played a large part in getting us into the current mess by becoming toxic assets for our banks."

I didn't say tax assets, you said that. I said levy user charges on the value of benefits received by landowners. So clearly that does to people's savings, does it? The value of people's savings is dictated by their personal efforts or frugality.

If anything, it's the current Home-Owner-ist system of constantly bailing out land owners, mortgagees, banks etc which are eating in to the value of people's scrimped together savings, so for you to pretend that cash savers and land owners are in the same boat is nonsense - their interests are diametrically opposed.

The clue in the name "Land Value Tax" is that it is a tax on "land values". So clearly it does not apply to cash, shares, paintings, cars, lawnmowers or television sets.

Oops typo, that should say:

"So clearly that does NOT APPLY to people's savings, does it?"

Seems a bit unfair to make wealthy people pay more for their council tax. After all they probably don't send their kids to state schools (thereby having to pay twice), they probably don't need the help of Social Services or the Police, they probably use their own swimming pools, buy their own books so don't need the local library and the only interaction with local government is having their bins emptied.

Sounds a raw deal to me.

PS Oh and if they lose their jobs they can't claim job seekers allowance either. Perhaps they should pay less tax..........

When you rob Peter to pay Paul, you will rarely find Paul objecting! Who is the greedier? Peter who has worked long and hard and paid exorbitant levels of tax to buy his £2m home or Paul who has achieved bugger all and wants to extract ever more tax out of Peter to finance him for continuing to achieve bugger all!

Philmo - the problem with your dictum " From those who have to those who need", is that desires can so easily be interpreted as needs.

The best type of tax if there is one is: it encourages people to increase wealth, it is fair, it is easy to implement and collect, it can't be avoided, it does not have too much of an effect on growth/inflation. This is not a good idea.

A better one is to have a luxury/unhealthy VAT tax. This would be on new cars above say £30k, boats, airplanes, perfume, chocolates, sweets, champagne etc. The rate could be as high as 30%

Not too many healthy, hard working, working class people would be disadvantage!

Excellent idea.

It could be brought in for new purchases instead of stamp duty.

Valuation would increase along with a relevant index each year.

Mark - so I presume that you will give a tax credit as the value of "mansions" falls with the present crisis?

If it is a land value tax, then the value of any property erected on it is not taken into account.

But in principle, if people decide to save to buy a house rather than squander their money and other people's money on consumables, holidays, handbags, ipods and the like then the savers should not be taxed again. Generally they are not the ones who created the financial hole, and to single them out to plug it is just envy.

And Mark, you may not have noticed that savers are already being taxed on their wealth. First they cannot earn interest to offset inflation, and then they are taxed on the interest as though it is income.

Quite simply we spent too miuch on "welfare" in its widest sense, created too many non-jobs and so on. And now the beneficiaries of this over spending look for someone else to pay for it to continue.

And now some food for thought. Most people in this column use Sterling to value everything. But as Sterling has fallen some 25% against many major currencies over the last few years, then in "REAL" terms all of these houses have lost significant value. In other words we are all being heavily taxed on wealth so that our Government can more easily repay our debts and we can, over a period, increase exports (EU permitting) to recover from the overspending of other people's money. All savers are being whacked.

I will never have to pay "mansion" tax, but realise that it is just an emotional subject with no proper rationale. But it may be a vote winner for all of the envious plebs who think that anyone better off than they should be clobbered.

Far far better to change our economy to a sustainable model - which will be painful as those whi have jobs which cannot be economically justifed lose them and have to wait for real jobs to develop, and those with excessive pay and pensions have to take some cuts.

Chris

Extra tax on chocolate? Don't you know that plain chocolate (along with red wine) is supposed to be good for you! It should be on the NHS. Whatever next?

Cable has small close set eyes and a mealy looking mouth and is green with envy.

An elder one has made a valid point about the tax because the next step will be to tax any item of value, starting with costly cars and then reducing the thresholds, if only by not adjusting them and letting inflation do the trick, something that govts do all the time to inflate away their debt.

Then it will be jewellery, engagement rings, wedding rings, paintings, fancy sound equipment, TVs and then they will cast their greedy eyes to farms, shops, factories, office buildings and the list goes on, tax for the sake of paying to those that do/will not work, whilst we have to pay for keeping more and more foreign illegal immigrants, foreign criminals and undesirables of foreign origin seeking to impose their questionable values on us but alien to our tenets.

Now a fairer tax would be on pensions that are out of the ordinary, eg MPs/civil servants. And then tax the subsidised benefits available to MPs, whether or not they use them.

As has been said there are too many taxes and the govts have been abusing their power to tax, why because many of them are incompetent and couldn't be trusted to run a whelk stand, never mind a piss up in a brewery. Are they so charged so as to be compelled to make recompense. NO.

Perhaps it should be renamed 'Lets tax the SouthEast even more heavily'. Using house values on their own, with no measure of affordability relative to average household income is bound to hit mainly the SouthEast. No doubt that's what the supporters of this want, as they can't/won't accept people in other regions of the country have a better standard of living even though their house is valued at a lower amount.

(And, no, I don't live in a mansion, in fact don't own a property, so it's not a case of 'protect myself').

Second flaw - government already takes WAY too much money from us and just p*sses it away. Anything that encourages them to take more, just because it's popular with the 'heh, it doesn't affect me, so I'm in favour of it' brigade, should be fiercely resisted (e.g. Allen Williams 'Any move to taxing the rich more is wholly welcome' )

Rich - and I'm definitely not one of them - already pay WAY more tax than the rest of us. Imo, the argument that they can afford to pay (ever) more is simply a case of selfishness.

Here's a statistic for you - top 1% pay 25% of all income tax. (So that's a ratio of 25:1, whereas the other 99% of us pay 74%, a ratio of 0.74:1)

http://www.telegraph.co.uk/finance/personalfinance/consumertips/tax/8321369/Top-1-of-workers-pay-quarter-of-all-income-tax.html

Quite how people can say the rich don't pay their way is beyond me. They're simply because selfish, wanting the rich to pay ever more so they don't have to.

What if you own a block of flats worth £10m+?

So you get hit with a tax bill

And then you pass it onto the leaseholders and tenants as higher service charges and rents to cover the extra tax

WHOOPS!!!!!!!!!!!

Govts always forget who it is who will end up paying these dumb taxes...

Notice how Cable pushed this by constantly referring to "foreigners" who owned houses worth over £2m only paying the same council tax as people with modest family houses. So presumbly there will be an exemption from the mansion tax for anyone with a Britsh passport? .... hmm thought not ....

Still well done Vince for targeting those naughty foreigners who want to pay large sums of their own money to give them somewhere to live in this country, as opposed to those foreigners who want to come here and have taxpayers fund their homes through the outrageous housing benefit scam, sorry scheme. The same people his chum Paddy Ashdown was "standing up for" along with the mad bishops this week.

It is obvious that cable wants to chase everyone except the poor out of our country.

...or just get around it by buying 10 x £1m houses....

It is a proposal simply to appeal to those who are jealous and to gain popular support.

Landlord X, do you know anything about economics?

Do you know anything about supply-demand curves and price elasticity of supply and demand?

Do you not know that basic economic theory, as borne out by the facts, says that any tax is borne by whatever is less price-elastic, supply or demand?

Do you not know that demand for housing is price elastic?

Do you not know that the supply of housing or land are more or less fixed, i.e. price inelastic?

Do you not know that it is impossible for a landlord to pass on any costs whatsoever?

The rent or selling price is dictated solely by demand, and the landlord just gets to keep whatever is left over after taxes and costs?

Do you not know that all these effects are easily observable in practice and show up time and time again?

No, I thought not, or else you wouldn't be making such glib comments.

Jon: "Mark - so I presume that you will give a tax credit as the value of "mansions" falls with the present crisis? If it is a land value tax, then the value of any property erected on it is not taken into account."

Correct, a proper LVT is based on the rental value of the site alone (i.e. the rental value of the whole house where it is minus the notional interest cost and repair costs of the bricks and mortar. As we know, capital values go up and down like a yo-yo, but rental values are very stable indeed, so if all house prices fall or increase in tandem, this has no impact on the tax base.

"But in principle, if people decide to save to buy a house rather than squander their money and other people's money on consumables, holidays, handbags, ipods and the like then the savers should not be taxed again. Generally they are not the ones who created the financial hole, and to single them out to plug it is just envy."

People how buy consumables are good for the economy, they pay tax on their income and then they spend it and that generates income for somebody else etc. These people are overtaxed already.

I don't know why you think that the interests of savers and land owners are aligned - as I pointed out already - they are diametrically opposed!! Savers are being robbed to prop up land owners, whether over-mortgaged or otherwise.

"I will never have to pay "mansion" tax, but realise that it is just an emotional subject with no proper rationale. "

DId I not mention above that Adam Smith was the first to explain that taxing incomes was an act of madness, and that not only was there was a good moral justification for taxing land values that it did not have any detrimental economic effects, it has no dead weight costs? That's the proper rationale, end of, we can elaborate this to death but LVT is the oldest tax of all with the best rationale.

eems a bit unfair to make wealthy people pay more for their council tax. After all they probably don't send their kids to state schools (thereby having to pay twice), they probably don't need the help of Social Services or the Police, they probably use their own swimming pools, buy their own books so don't need the local library and the only interaction with local government is having their bins emptied.

Yeah whatever Mark Wadsworth

You stay in your ivory tower and keep taking the pills

What do I know about economics? Loads....as I run a property business

Where do you get YOUR money from...the taxpayer???

Dennis: "Seems a bit unfair to make wealthy people pay more for their council tax. After all they probably don't send their kids to state schools (thereby having to pay twice), they probably don't need the help of Social Services or the Police, they probably use their own swimming pools, buy their own books so don't need the local library and the only interaction with local government is having their bins emptied."

I covered this above Jan 25, 17.05.

LVT is not a tax on people, wealthy or otherwise, it is a tax on additional benefits which accrue to the owners of land in favourable locations. If somebody in an expensive house does benefit from a good job locally, or use the park or the train station, or send his kids to the local school or visit the local library, then he clearly is not making best use of all those things and he can happily move somewhere much cheaper. What's the problem?

It's like me complaining about how much a night at the Ritz Hotel costs, if I don't want to stay there I won't ever have to pay it.

Landlord X, I get my money from Home-Owner-Ism, same as you, I've made money from being a BTL and so on, it's money for old rope, it's embarrassingly easy and taxed at very low rates, provided you're aware of the economics. I take it from your comment that you aren't?

Can you reply to any of my questions with a clear "Yes" or "No"?

Sounds like a good idea to me. But why scrap the 50% tax rate?

Can you imagine it, Mr Cable was employed by some business once; Shell, was it? Were they glad to see the back of him one wonders! as would we.

It is a good tax. You forget that most of the £2m houses are registered in tax haven company names so no stamp duty / capital gains tax is paid as the companies are sold.

The owners of these tax sheltered properties need to pay a fair tax. The people who are making ALL the financial sacrifices are the poor and middle classes.

Yes the top 1% now pay a higher proportion of the total UK tax as they have got so much richer and this solely reflects the massively increasing gap between the over inflated salaries of the rich compared with the poor in this country. The average income for the poorest 10% has barely risen.

In spite of this the richest 1% pay a smaller proportion of their income in tax than the poorest 10%. Is this a fair system? - It is the Warren Buffet comment that he pays a lower rate of tax than his secretary.

Nemesis - you are wrong, wrong and wrong that most of the £2m houses are registered in tax havens. You must have no idea of property prices in the south east. Quite modest family homes are £1m and they do not have to be mansions to be worth £2m.

Mark - you seem to want to preach to us, but then let your argument down with poorly thought out suggestions.

For example you support spending on the basis that it creates jobs - but neglect to correct this old adage for a Global economy when a significant portion of the spending leaves the Country and therefore makes us poorer.

You suggest that if someone does not want to pay for "social benefits" they go somewhere where they do not exist. I have yet to find anywhere in the UK with no leisure facilities, no schools, police, fire services, traffic wardens, etc such that I do not have to pay for them. The point is that your argument to charge people (it is people who pay taxes, not land, and people who receive services, not land) more for these services if their land is deemed to be worth more in rent is inane. You will be suggesting window tax next.

Someone has to own the land, and land costs capital. Therefore taxing land is taxing capital. The idea that those who own land are intrinsically taking anything from society is a fabricated and twisted view of basic economics, and is in the same league as wormholes. OK at present interest rates are low, so savers are subsidising mortgagees and reducing the scale of foreclosures. They are also suffering to keep the UK interest bill down, and to keep up consumer spending so the the GDP does not crash (a measure of spending, NOT prosperity). But that can be sorted just by increasing interest rates, not taxing capital.

Like any other asset the owner is free to enjoy it, or use it to generate an income. Somehow you seem to think that all landowners are raking it in because a particular area becomes fashionable - bit like collecting classic cars !! ( supply pretty inelastic for you to note). But this aspect of landowning is transient and limited to a very small proportion of land and therefore cannot be used to justify a wealth tax.You forget that land values can fall as well - look at the North East. If you tax the gain and allow any loss against tax then OK, but to tax any asset year on year irrspective of whether or not it is going up or down in value is just taxing capital. Full stop.

The fairest thing to tax is income. Council tax in particular should be abolished. Mansion Tax is ridiculous.

"Seems a bit unfair to make wealthy people pay more for their council tax."

Plenty of non wealthy are already paying more for their council tax, which is more than a bit unfair.

Street of identical houses: one side pays twice as much council tax as the other, due to falling into different local council boundaries.

If they can't even sort this out, what hope for deeming what constitutes a mansion?

Will there be a team of valuers, employed by the tax payer, having to enter all the border line mansions to see if the view from the lounge will increase the property's value to the extent that - in their opinion - it should be subject to the mansion tax? How much will the valuers be paid?

I agree with Anon 1 (08.10), combined with a rise in the personal allowance at the earliest opportunity. (The mechanics of the rise in personal allowance would cost very little to implement.)

@MW

Re: Questions on econonics....

Do you know that economics is known as "the dismal science" ? What is the relevance of textbook economics to this debate ?

I conclude from your questions that you could not have made serious money applying simplistic supply/demand considerations to your property investment decisions. You have left credit out altogether from your reasoning....

If you and landlord X run funds, I'd put my money with him.

i think all of us realise the unworkability of such a tax . However here's a mad idea . What about a foreign ownership tax . After all masses of high value houses are being bought by Russians, Greeks, Chinese, Arabs etc. which distorts the pricing in London.

So it would be beneficial to get a spin off into UK PLC's coffers

This is perfectly workable and fair.

Bring it in gradually on change of ownership instead of stamp duty.

That's interesting, derek.

Well the easy way around this is to structure one's property assets so that each individual unit falls well below the £2m threshold

So it would mean buying up fleets of smaller properties (look out FTBs!!!) to hold rather than one big one

These taxes are so childishly simple to avoid...and so easy to pass onto others

It seems as though our tax policies are dreamed up by 10-year olds...

@Derek

You are right, it is a mad idea. We must stop thinking of London as UK. London is a black hole for international capital inflows and that's beneficial to the UK economy. Foreign owned property is bought with cash. This is as welcome as foreigners buying sterling or gilts. What next ? impose capital controls ?

Unfortunate Greek .......

but it would be nice to be able to skim off a little of the cream from these huge prices .

Jon: "Mark... For example you support spending on the basis that it creates jobs - but neglect to correct this old adage for a Global economy when a significant portion of the spending leaves the Country and therefore makes us poorer."

I neither support nor oppose spending, but spending is the flipside of other people working and earning (and paying tax). When you say "significant", surely you mean "insignificant"? For every £1 you spend on services 99p stays in the country, and for every £1 you spend on goods, around 80p - 90p stays in the country.

"You suggest that if someone does not want to pay for "social benefits" they go somewhere where they do not exist. I have yet to find anywhere in the UK with no leisure facilities, no schools, police, fire services, traffic wardens, etc such that I do not have to pay for them. "

Clearly, the social benefits of living in a penthouse overlooking the park or the river in a nice part of town vastly outweigh the social benefits of living in a back to back in Burnley. The former are worth £10,000s or £100,000s a year, the latter are worth £100s or £1,000s at most.

"The point is that your argument to charge people (it is people who pay taxes, not land, and people who receive services, not land) more for these services if their land is deemed to be worth more in rent is inane."

Where does "deemed" come from? Some land is much higher value than other land, there is a market for land and nigh perfect records of selling/buying prices and reasonably good records of local rent levels.

"You will be suggesting window tax next."

No, why would I? A window is no more land than the rest of the bricks and mortar? Clue: land value tax is tax on land (rental) values. It is not tax on bricks, cars, cash savings, shares, yachts or pencils. it is a tax on land values. I'm not sure how much clearly we can express that.

"Someone has to own the land, and land costs capital."

Yes, it is quite true that people are prepared to pay money to own or occupy land, and that costs money. From the point of view of a first time buyer, whether he pays a lot in income tax and then a high mortgage payment or less in income tax, less in mortgage payment and more in LVT is neither here nor there.

And so on. Have you read up on Adam Smith, Milton Friedman, Queen Elizabeth yet?

The Euro appointed Greek Govt have already introduced a property Tax with disastrous results. One old Lady interviewed on the BBC was having to pay 2/3rds of her Pension income on Property Tax as she had inherited the Family House from her deceased Husband. This draconian unfair Tax is being heaped on the House in which you live, with very little chance of selling it. This is a typical Cable Tax steeped in his Communist views inspite of his denials. This man is now supporting Footballers Tax avoiding Salaries whilst condemning hard working City people who earn a bonus.,and pay massive 50% Tax on it. The utterances of this man leads me to believe he is certainly not up to the Job, and if I were Cameron I would get rid of him toute suite.

There are some strange notions among this lot, even with my own poor knowledge of the nature of economics; much of it is thoroughly disjointed being as it is concentrated on particulate factors and fails to go into a broad model which is what economics is about, I think. Some talk about money leaving the country never to be seen again as it were, whereas the purpose of money is to keep moving (cash flow is a good thing) to work at profit; money moves in the course of trade and money leaving the country comes back through the export of its goods and commodities producing a trade balance, and so on. Have I misread something?

Of course spendng creates jobs; it seems fatuous to suggest otherwise. The problem the UK suffers today is that we don't export enough - and if we did then the global marketplace is a bit 'on its uppers' - to bring the money in to enable our wealth to truly grow; money spent inhouse don't achieve that very far and likely brings about more personal borrowing due to lack of sufficient income.

@Derek

I hope you are not underestimating the ability of UK PLC to look after its economic interests, which are a lot more than just a bit of cream and which most certainly do not coincide with your personal interests.

To use the well known analogy, your interest may be for a British player to win Wimbledon, whereas UK PLC only cares for Wimbledon to take place in the UK and maintain the top spot in international tennis.

To understand what drives government policies, influenced by corporate lobbying, one must be willing to look at the bigger picture, to the extend they are able to.

The problem we have today is that people have over-borrowed in order to spend on things they could not justifiably afford had they stopped to think and the market has saturated, thus slows down towards stop. We now have spare industrial capacity for inhouse trade through a resultant loss of custom and since there is spare capacity there is lesser manpower requirement so people lose their jobs causing even less custom.

Too much of our export endeavour is in finance where the fairies are and has been remarked earlier this largely exists in London and the SE distorting any notion of UK wide asset valuations; not all those who live in the SE work in the City.

A fair and progressive manner of taxation - what 's wrong with that ?

Edward, to answer one sweeping unqualified statement with another, it's muddled, arbitrary and unworkable.

@Unfortunate Greek

Of course i don't underestimate the ability of UK PLC to look after it's economic interests, which the coalition seem to be doing as well as they can in the current financial climate .

However it seems that everywhere any sort of audit has been done , financial mismanagement and waste have been discovered together with tax avoidance on a large scale.

So while financial holes are being plugged and tax loopholes are being hopefully overcome , there is still a place for innovative taxes to be collected.

If such taxes can be levied with little pain for us UK citizens , my take on it is 'why not'

Derek Farman, you indulge in syllogisms, what have your so-called innovative taxes to do with financial mismanagement and tax avoidance; are you trying to correct your notional wrong with a right; or are you just a financial masochist, the pain is unwelcome for most people, aren't we taxed enough. The tax avoiders at least do what they are enabled legally to do - address that - the problem we endure today has as much to do with greedy people borrowing too much as it has to do with greedy people lending too much; better education for all might be a better solution but will take time but I doubt people will want to learn.

The people have discovered something of the nature of finance in the present troubles and for politicians such as Mr Cable seem mad with envy, for him to exploit.

@elder one

Well said. In a previous comment I suggested we close the loophole on an existing tax, the stamp duty, which everyone should pay. Wealthy people, locals and foreigners, buy and sell offshore companies that own the property, avoiding the duty. This is an obvious loophole that should be closed before we start dreaming of new taxes and making the tax rule book even thicker than it is

Which is why Dave is shutting so many public libraries.

I suspect Mr Cable knows his proposal is unworkable, unnecessary and will never come to pass, but whilst it continues to afford political profit he will persist with it.

Graham Barlow, I wonder how it can be justified that that Greek lady can be lumbered with such a huge tax bill if there is no market for her house; whatever happened to the law of supply and demand. Clearly if the house can't sell then it is hugely overvalued, which just shows up the potential iniquities lying at the root of this Cable notion. It is common of people to think that if something looks big and ostentatious, then its owner is flaunting wealth and is a target of envy; a terrible thing to be in the present social climate.

There are some on this blog who suggest that stamp duty should be enforced more. Stamp duty is worse than window tax. It does not recognise ability to pay, it has draconian increments, but above all it reduces mobility and discourages people from changing house for other reasons too. It is an archaic hangover and is worse in degree than all of the slices bankers take from us each time they handle our finances.

Mark - I rather think that you are guessing widely on the amount of spending of other peoples' money which leaves the UK, and wonder at the source of your figures. Just take the "average" family budget. OK you can deduct some % for UK distribution, but how much does it spend on energy, fuel, clothes, imported food, white goods, electronics, wood, foreign holidays, foreign cars, imported kitchens and bathrooms...... the list goes on.Just do some sums and work it out as a % of your income. And, of course, for every service job created then that wage earner does it again and so on. The amount of extra spending which leaves this country is therefore significant and must be allowed for in the equation, especially as we have a shocking imbalance in our trade which prevents us from a proper recovery. Our trade balance is the findamental factor in our demise, and whilst it stays in the red we will continue to have a growing financial deficit in the real long term, which will continue to drive down our living standards. The GDP might rise in terms of Sterling, but if we have high inflation and falling Sterling then our real prosperity is falling.

I remember the last time we had to recover from a government of reckless spending, and it was done by inflation which hit some very very hard indeed. In those days companies had to produce inflation adjusted accounts, and many which thought they had done very well turned out to be making losses. So in all these debates we should not just talk about Sterling values but recognise what that means in the Global Village.

To try to think up extra taxes to plug the hole and possibly gain popular support from the envious is taking more and more from a smaller Globally valued cake, quite apart from being unworkable as so many have pointed out. Taxing the rich more, whilst being the plebs nirvana, will not solve our problems, (although a single graduated tax - on income - is a necessity). Just like the benefit system, where complicated and many benefits trap the unemployed, multiple means tested taxes will create an inverted tax trap which will destroy investment.

Rather than raise taxes we have to rebalance our infrastructure, reduce production costs across the board including service industries and including all those run from our taxes to make us more competitive. In this way we can start to pay our way in the world and true economic recovery will come. Otherwise we will just spiral down the plughole.

And let us all realise that the GDP is primariy a measure of spending - NOT prosperity. It was interesting to note that a large factor in the recent 0.2% reduction was our lower consumption of energy with the mild weather. That was positive news, and it is a great shame that it was not stuffed down the throat of the BBC and other self important critics.

Absolutely, especially the last sentence.

In connection with reducing production costs, perhaps (in contrast to the daily "initiatives" of the Brown era) the current government should aim to remove one soppy piece of red tape per day. (Dreaming ...)

Politics aside, isn't it just the case that Britain has lost its backbone? its will to fight, its will to survive? haven't we just gone too far down the road of being beaten into submission about issues that we can no longer say "no" too for being branded politically incorrect, predudice, racist , discriminative or whatever?

We seem to pick on the easy targets ie the people that are tied into society with a job, working/middle class with mortgage/house etc. then addressing the serious drain on government funds... I know so many monied people who have thrown the towel in and taken their wealth overseas (along with themselves) only to leave this country to fester is its own self pity.

Hasn't anyone ever thought about helping, motivating, teaching, training people to climb the 'wealth' ladder? to grow with society and contribute with that growth? All it seems to be about now is how well can a claim be constructed to screw some ££ out of the system "because my neighbour does".

Our motivation/focus/direction is all wrong - and focusing on triva like 'mansion tax' just proves how out of touch with what is really happened these dummies are.

Jon: " rather think that you are guessing widely on the amount of spending of other peoples' money which leaves the UK, and wonder at the source of your figures.... OK you can deduct some % for UK distribution, but how much does it spend on energy, fuel, clothes, imported food, white goods, electronics, wood, foreign holidays, foreign cars, imported kitchens and bathrooms...... "

Again you insult me unnecessarily without having done any workings whatsoever to back up your statements. As it happens, I HAVE done the workings, and the answer is, if I spend £400 on a Chinese-made TV, no more than £80 ends up in China, the rest is VAT, Curry's profits, business rates, Curry's salaries, cost of transport, insurance etcetera. That's 20% in round figures.

Or put it another way, the UK's trade deficit in manufactured goods is £30 - £50 billion a year or something, which is 2% - 3% of GDP (a crying shame I grant you) and we break even on services. Facts, figures.

Plus, what on earth does this have to do with the Mansion Tax?

If you think that we can protect our economy with trade tariffs, then by all means call for import tariffs (I oppose this as well, but at least it is worth debating).

You have not suggested a single argument why taxing incomes is less damaging to the economy than taxing the rental value of land. And referring to the WIndow Tax (which is not LVT) or weeping about Poor Widows Forced To Leave The Family Mansion does not cut any ice - if they trade down, this is GOOD for the economy, not BAD for it.

Mark - my apologies if I insulted you, but your figures appear to be amazingly small. In gross figures I reckon spend on imported goods by an average family with full employement is

Energy £1,250

Petrol £1,000

Foreign car £1,000 pa based on 50% imported cars bought every 10 years and with an average cost of £20k

Foreign Holidays £1,000

Imported food £500

Imported white goods £250

Imported electronics incl phones, cameras £500

Clothes and similar £500

and there are many other items in a typical family budget which are imported

So the total of these is £6,000 which is way way above the sort of figures you note. And I do not believe that only £80 of a £400 TV ends up in the far east. A far higher proportion of this cost, even after VAT, will leave the country.

What this has to do with Mansion Tax is that you raised the point that it was good for people to spend as it improved the economy.That is also what Gordon Brown thought. My point is that it improves the GDP, but that is not what really matters. The balance of trade is the fundamental issue.

I have never mentioned trade tariffs, but simply suggest that, like Greece, as a nation we have paid ourselves too much and spent the unearned surplus, much of it on imports. If we reduce our ability to spend, then this will reduce our imports of consumer items.

I have never mentioned poor widows etc. In fact I have noted that stamp duty works against downsizing and mobility.

These Citywire commentaries seem increasingly to attract people bent on scoring points off others without regard for relevance; implying how many books on economics they have read (as though that substantiated their argument) name dropping and other impertinent things; all together an unedifying spectacle. There is clearly much anger and envy about and some politicians and the media are doing their best to engender it to make profit; ugly! is the word.

Jono, OK, you say that an average household spends £6,000 a year on imported goods, but it is still the case that half or three quarters of this stays in the UK.

So let's call it half, 25 million households @ £3,000 = £75 billion, but we then export (say) half as many goods by value as we import, which gets the deficit in manufactures down to £40 billion or so, which as I pointed out above is three per cent or so of GDP.

Perhaps the balance of trade is the fundamental issue - but assuming it is, what we need is people working more and working harder. The way to motivate people to do this is to reduce the taxes on working and earning, and - assuming some sort of fiscal neutrality - to increase the taxes on just sitting there and doing nothing, which is all land ownership entails (if you want to reduce benefits for the same reason, then feel free to suggest it, that is not central to this debate)

As to Gordon Brown, you are being very underhand. Gordon Brown's whole economic miracle was based on the illusion of wealth created by ever rising house prices - so people felt less need to work, they could borrow against rising home values and spend the unearned income on goods from abroad. At the peak of the lending madness, mortgage equity withdrawal added about six per cent to people's disposable incomes.

So the example of Gordon Brown illustrates why subsidising house prices and increasing taxes on profits and employment is A Very Bad Thing Indeed.

What I am proposing is the opposite of what Gordon Brown did, not the same!!!

I think Mansion tax is a terrible idea, conceived more by the socialist politics of spite and envy than logic. I thought we had left all that when old Labour and the communists disappeared in the 1980s.

It will mostly hit south east england of course and in its simple form applied to first properties must be one of the most unfair taxes devised because of its regional bias and no relation to most peoples actual income.

It would make little difference to the so-called rich, but like all bad taxes once started will slowly be extended.

I have a problem with the whole issue of taxing assets as it depends entirely on how you choose to use what money you have - do you consume it and pay no further tax or do you buy something then get taxed again just because you have it!

David,

Agreed, another of the many reasons why mansion tax is so bad.

But those who persue envy politics and the associate theories really love it just for that reason!

Another unfair tax is CGT in the form it is now applied. Now a complete disincentive to long-term saving, in effect a tax on tax by bad government on the inflation they have created.

"...one of the most unfair taxes devised because of its regional bias and no relation to most peoples actual income. It would make little difference to the so-called rich..."

We are not taxing people's income here, we are taxing their wealth. Two things make it fair to tax people more, one is, they have a higher income than others, the other is, they have more wealth. We have too long concentrated on people with a high income.This is a step in the right direction towards taxes on wealth, too. The tax burden is too much on the well-paid, and not enough on the rich.It is the rich who sit on their wealth and do nothing with it except watch it grow who are perhaps the most deserving of tax, after all.

Regional bias against the south-east (of England, I presume), forsooth! Cobblers. We up north 'ave no truck wi'this. We have been short-changed by rulers located in the south east for decades. High incomes and wealth are concentrated in the south east of England, and that is where the overwhelming burden of tax should lie, too.

Rich equals wealthy. High income earners are well-paid, not necessarily rich. They may well become rich over time if they have so much income they are unable to spend it all on consumption, but the concepts are quite different. The "so-called" rich are "so-called" because they are rich and they should pay more tax. If the tax would make little difference to the rich, set it at a higher level! Mansion tax is just a small step on the right road to a proper wealth tax and a balance on tax as between.wealth and income.

Allen,

You are NOT taxing peoples wealth with this dreadful tax.

You are only taxing the paper value (subject to numerous disputes and daily variations) of the home over their heads which they have already paid tax on tax on tax on.

re. your Comments on Regional Bias. They just demonstrate the point I was making, that this tax just comes from the politics of envy.

Is taxing (often poor) people with amounts that bear no relation to their income just because they happen to live in a particular area through no fault of their own fair?

Surely you can dream up wonderful ways of soaking the the bankers and really wealthy without resorting to this kind of spiteful way of "getting your own back".

This thread is morphing into a discussion about whether 'wealth' should be taxed and how you define wealth. We had a discussion with friends over dinner the other day - we have a boat (an old and not very valuable one I might add, but a classic) and we get a lot of pleasure from it. Are we more wealthy than our friends whose interest is going to the theatre and who spend far more on tickets, travel and supper than it costs to run our boat, but have little 'wealth' left over to tax.

The issue over wealth is how it was acquired in the first place - If you inherited it, then you would have only received a proportion of its value - the balance going to the government. If you earned it you would have been taxed when you received it and if you didn't spend it on consumables it's sitting there somewhere. If it is an asset (which can only have been acquired by one of those two ways in the first place), what right has the government to force you to liquidate it to give them a share and deprive you of that asset. If it is an appreciating asset - it is only wealth by virtue of its nominal monetary value at the time, but it is still only an asset - as Estate Agents say, 'a house is worth a house' and nothing to do with £. I would be very reluctant to be deprived of my house and downsize to contribute yet more to government coffers (and a large sum to Estate Agents, Stamp Duty to the government again and moving costs for the privilege, reducing my 'wealth' still further). Unless I borrow more, I can't even swap like for like.

I like my house, I put more into acquiring it than others might have done and had a more modest lifestyle that I might otherwise have done, but that was my choice. And over the 30 years we have lived in it, the local market has changed (for the better I might add). But it doesn't therefore follow that I have more resources available to contribute to an additional tax.

It is a splendid idea Mr Chickenwed, but I am not surprised if Turkeys say Christmas is a rotten custom.

Allen, the rich do not just sit on their money and watch it grow, it is in the market place one way or another working in manifold ways, whether being in share holdings of industry or lending to others via the banks; that which sits in their mansions or on their land is their home, of a life style they can afford, in the case of farming of course the land is working asset. It all looks a lot and is evidently a source of envy, but the money residing therein don't sit there doing nothing else it won't grow. The mansion (a tendentious expression used in Cable's argument to promote envy) or house, is a home to live in that is all, and of fluctuating valuation; why, other than for reasons of the envy of others should bigger houses attract additional tax, the house by itself is doing nothing profitable; such a tax is simply a pre-deceased capital gains tax. Generally, capital should be and is largely, one way and another, put to profitable use with the judgement of its possessors; in a sense, Cable's plan is to steal some of it away - where he can find public support - so as to spend according to government economic agendas; and look where that got us during the Brown/Balls era.

The fact of apparent greater wealth in the SE is the natural result of obvious market conditions, not because the SE has something against the North, wherever; this has been anabled by the freedom of the individual to move at will with their relevant skills; much of it nowadays financial in nature and overblown. I would contend that our government should be doing something - I nearly said more - to promote manufacturing in all its forms a thing that the North once excelled in.

Just in case you might wonder, I don't live in a mansion - or anywhere near - I'm a retired chartered engineer who once lived in the Midlands now in the SE and have watched manufacturing progressively diminished by lack of attention by our Governments of both colours providing poor national education that panders to much to the feelings of those otherwise lacking self esteem and precious little in the way of challenging subjects that is needed in the manufacturing industry. The last time Britain was rich was during the Industrial Revolution, which bears thinking about.

I meant to add I've don't envy people with pots of money, in contemplation it could be a burden; as I pointed out it has to be managed and providence takes a hand in such matters; people go broke from time to time, despite all the recourse they are legally enabled to employ.

I meant pre-deceased inheritance tax not capital gains, obviously.

I guess the one thing thats sits around doing nothing is gold, one cannot live in it, it is boring to look at except as modest ornamentation - one cannot hang an ingot around the neck - it does nothing lying there, but sits there as insurance against the peril of potential financial armaggedon; but how much does anyone wish to pay for that insurance, though admittedly in the current financial climate it is generating capital gain. So how long before we see a tax on gold holdings or even its sequestration.

Instead of all this scrabbling around by some of a coalition government trying to appear to make a notionally fairer share-out of a diminished and still diminishing national cake, don't they bring their minds to bear on finding the means to bake a bigger cake to benefit everyone. A mansion tax will bring about no such thing and will only disincentivise those with the energy to put into it. There will always be those who resent capitalism because it is so demanding on the individual but it is the only way the wealth of a country can grow; in a discrete sense it demands the freedom of the individual to do their best.

Can we get back to the core of this debate - what is a "mansion"?

I won't waste my or your time to try to find a definition apart from the fact that it is "valued" at £2 million plus. "Mansion" is a Daily Mail word. I have seen "slums" in London worth more than £ 2 million in my capacity as an architect. Eg. workers cottages in Chelsea or Hampstead. Pump in a new kitchen, some tiling from Fired Earth and some idiot with a Range Rover and green wellies will pay 2.5 million.

The French have a wealth tax and even the past leader of their socialist party had her ways of avoiding paying.

As @Derek said earlier:-

"You are right, it is a mad idea. We must stop thinking of London as UK. London is a black hole for international capital inflows and that's beneficial to the UK economy." Really? ask a central London nurse or bus driver.

Our Government should concentrate on raising taxes from the off-shore tax haven known as the City of London. That is where the real bucks are hidden.

Why do you think our PM walked out of the Brussels talks - because he and his cabinet are terrified of the City. Even the Queen has to stop at the boundary and ask the Mayor of the City for permission to enter.

UK - a modern country?

The idea would be acceptable to the majority of the people but its application could become controversial if not handled fairly. One of the simplest and cheapest way to adminster it is through the existing council tax system. All that needs be done is create a council tax band J or more (up to M for mansion!) and make it twice or three times what top band H is at the moment. Valuation of properties should be taken back to 1991 to accord with the original basis of council tax rating. This process may even not require to be voted through by Parliment and the Lords etc. I t should be a straightforward re-adjustent and completion of the system created in 1991, which left a few anomalies.

If it really is necessary, then the idea of a new council tax band is far better than setting up a new central government department to administer a new kind of tax. Administrative costs MUST be kept down (and some administrative tasks such as monitoring the colour of people's shoes should go altogether.) I made that up but you know what I mean ...!

Ramsey J, that's just arbitrary waffle! "make it twice or three times what top band H is at the moment" why stop there, four or five times or more would probably not satisfy your majority in the present politically engendered embitterment aided and abetted by some of the media.

The property Mansion Tax is another example of Grievance Politics. It is the oldest trick in the book when events and Politics go seriously wrong through the Politician's own folly. Quite clearly the bulk of the burden would fall on the South of England and London where property prices are very much higher. Just like Merkel and the Euro cock - up , blame the Greeks Britain et al whilst she does nothing but suggest that Euro Countries are run by incompetents and people not to be trusted. Diversionary crisis are an invention of Politicians to enhance their own position, and this is one of them. Clegg is an out and out Euro fanatic who would sacrifice his own GrandMother in order to curry favour ,and do Europe's and Merkels bidding.

I've recently read a piece on autism, which is apparently a spectrum of human nature that ranges in a continuum from the behaviour of the extreme so-called systemiser at one end only concerned with how things will work efficiently and small interest in socialising, to the superficial socialiser possessing little regard for how things work and a preoccupation with human interaction at the other; it would appear that towards the latter are the political fraternity to be found. In between I guess are people who care about system and human relationship to a degree, thus will grope for realistic compromise in material matters. It seems that the current state of European affairs is exemplification of this concept, run as it is by a political elite with small regard for democracy; question is will there ever be found a cure.

Mansion tax, the real threat

So far there seems to have been little comment on the effect of the Mansion Tax on property values. Well, if owning a £5million ‘mansion’ carries an annual penalty of £30,000 there is certain to be some effect and it isn’t going to be upwards!

Quantifying the fall in values is tricky and we can only theorise until we see how the market responds, but a purchaser with £5million today would have to invest £750,000million for a £22,500 return and spend only £4.25million on the same property to compensate for the tax (at 1% on the excess of £4.25million over £2million). For a £4million mansion the fall in value on this basis would be to £3.5million and a £3million mansion would drop to £2.75million. And if the tax gives rise to more sellers than buyers, as is likely until the market levels out, the falls in values could be much greater.

Fair?

Quite a bit has already been written about the unfairness of such a tax in singling out home owners rather than those who hold other assets and also about the plight of someone who is forced to sell his home because he doesn’t have spare income - like the owner who has used his savings in doing up a house and boosting its value above the £2million threshold, but left himself with income only sufficient to match his expenditure with nothing left for the tax. It has already been pointed out by others that being forced out of his home would be unfair. But it’s far worse that that. He would be forced to realise a whopping loss in the process!

Not a fair result, a pernicious one.

The economic effect

What about the economic consequences? Owners will not want to realise such losses. They will prefer, if they can, to hang on and hope the tax will be scrapped when its effects are realised. But how do they do this? For many it will be a case of scrapping all building maintenance and improvements. Those with gardeners or cleaners will sack them rather than be forced into selling. So who will be the real losers (apart from Mr Cable when his scheme comes to be seen for what it is)? They will be jobbing builders and decorators, gardeners and cleaners. (Some commentators have suggested that estate agents will be the losers. It is more likely that they will be busy with extra sales and masses of valuation work on disputed valuations).

The nation’s stock of houses over about £1.5million will deteriorate. Those whose houses are security for business loans will find it harder to raise finance and if wealth creators want to live somewhere nice it will not be in the UK.

The fiscal effect

So how much tax will actually be collected? Well supported estimates that take all the consequences into account are conspicuous by their absence.

The Sunday Telegraph reports that there are 40,000 to 50,000 homes above the £2million threshold and that the Institute of Fiscal Studies thinks that revenue of £1.7billion is a reasonable estimate. These numbers do not add up. To raise 1.7billion from say 50,000 homes means £34,000 each (ignoring the costs of collection). That is equivalent to1% on 50,000 homes worth on average of £5.4million (£3.4million over the threshold). It cannot be the case that the average home in the UK of those above £2m is worth £5.4m. Someone has their sums wrong here.

What do Mr Cable’s sums show? Has he taken account of the knock on effect of the economic consequences? On the face of it a £5million mansion yields £30,000 per annum. But after revaluation in the example above it yields only £22,500. Sacking the builder, gardener and cleaner saves the owner £22,500. It costs Mr Cable 20% of that amount in income tax or more in benefits. And more still when the builder etc doesn’t spend the money he now doesn’t have on vatable goods and services.

There’s more. The owner of a mansion above the threshold is likely to be middle aged or older. When the owner of a £5million mansion (reduced to £4.25million) dies Mr Cable loses 40% of £750,000 in inheritance tax. That’s £300,000 or 13 years worth of mansion tax.

Mr Cable suggests that this would be a simple tax to collect. Far from it. There will be all sorts of problems over mansions that are also business premises, farms etc (thinking of buying a few sheep?) and plenty of valuation problems, not least over the effects described above.

All in all it cannot be worth setting up all the extensive machinery needed to collect another new tax when the fiscal gain is dubious and likely to be offset by economic damage at a time when growth is needed.

Why we should worry

Because Mr Cable seems to believe his rhetoric. Because Mr Milliband has echoed him. And because there is no certainty that the present coalition will not be replaced by a different one in a matter of weeks. Time to wake up and spread the word. Starting with the gardener tomorrow morning.

In my recent comment 'Mansion tax, the real threat' I omitted to mention that Mr Cable's sums also need to take into account a reduction in Stamp Duty revenue.

I personally will not be effected by this tax, I would suggest we follow the luxury tax system of the Netherlands, anything classed as a luxury incurs a tax charge.