Why George Osborne is forced to ignore Cable on homes tax

Nov 20, 2012
Richard Ehrman

A council tax revaluation could hit seven million homes just before the next election. Bad idea

VINCE CABLE'S determination to impose a mansion tax is beginning to resemble a quixotic personal crusade. As every Budget or Autumn Statement approaches, the press is filled with reports that the Lib Dem Business Secretary is about to get his way, and that George Osborne is considering raising the council tax on homes worth more than £1 million.

It might seem small beer compared to the high stakes balancing act David Cameron is going to have to perform over the EU budget this week. But an awful lot of houses in London and the South East are worth more than £1 million these days, as are many in the rest of the country.

If you are fortunate enough to own one, stories of this sort are always liable to spoil your breakfast. You are also quite likely to vote Conservative and be represented by a Tory MP.

Upsetting the Tories is, of course, part of Cable's game, but it does make one wonder why Osborne, who is supposed to be the Conservatives' main strategist as well as Chancellor of the Exchequer, doesn't stamp on such reports earlier.

Yesterday "Mr Osborne's aides" belatedly assured the Financial Times that he is poised to ward Cable off once again. But while he may oppose raising the council tax on expensive homes, the fact that he has massively raised stamp duty when you buy one shows that he is not against taxing property as such.

Since the coalition took office, the stamp duty on a £2 million house has nearly doubled from four per cent to seven per cent (and 15 per cent if the purchase is in a company or trust's name).

The bottom line is that, like governments elsewhere, the coalition needs money. And when it comes to finding it, the great advantage of slapping a bit more tax on property is that buildings – unlike, say, the profits of American multinationals – can't quietly slip away to some accommodating tax haven overseas.

If Osborne thought he could get away with hiking council tax on upmarket homes, one suspects that he might well do it. The reason he doesn't is that the practical and political problems would be much more difficult than those involved in raising stamp duty.

With the latter, the amount due depends on the price being paid. For the taxman, that keeps the whole transaction nice and simple. Even clamping down on avoidance, as Osborne did in his last Budget, is not particularly difficult.

By contrast, in order to increase the amount of council tax payable on houses worth above a certain figure the government would first have to identify them. At the very least that would involve revaluing all properties currently covered by the two top bands, G and H. Given the scope for legal appeals and challenge, it might mean revaluing all the homes in the whole of England.

Some of that could probably be done as a desk exercise, but there would have to be tens of thousands of actual inspections as well, perhaps even hundreds of thousands. It would, as Osborne himself said in a newspaper interview last month, be "a tax snoopers' charter". That was one reason the Tories promised in their last manifesto to scrap the revaluation Labour was planning, and for once they were as good as their word.

Trying to go back on that now, in mid-term, would give any government pause for thought. But an even bigger political problem is that a council tax revaluation would be likely to produce far more losers than winners.

When one was done in Wales in 2005, 375,000 households were moved up a band thanks to home improvements and other factors, 55,000 found themselves going up two bands, and 8,000 leapt three bands. According to the influential website Conservative Home, if an English revaluation were to produce the same result pro-rata, seven million households would find themselves in a higher band and paying more council tax, probably just in time for the next election in 2015.

Polls show that the idea of a mansion tax is popular, but the devil, as Cable said himself at the weekend, is in the detail and a revaluation could be very devilish indeed. When it comes to taxing the roof over people's heads, the wise politician treads warily. If the Welsh example is not enough to put him off, perhaps Osborne should remind him what happened to Mrs Thatcher with the poll tax.

Little wonder the FT is reporting that Osborne is now looking at a tax raid on the pension contributions of richer voters, rather than the value of their homes.

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Perfectly easy to organise a revaluation that, initially at least, only applies to properties (a) not owner-occupied or (b) change hands after a particular date. As usual, it's a question of political will.

The last intended revaluation was abandoned due to it not being 'politically timely'.

At what point are those running this country going to tell it straight; that we cannot simply be avoiding increasing taxes when we are simultaneously refusing to accept service cuts, and then running the country based solely on their re-election chances ?

As far as "losers" of a revaluation are concerned, an alternative way of presenting this is that "people who's home has been systematically under-taxed for up to the past 20 years will now be brought into line with what they should be paying" ?

Tax increments on houses affects the struggling youths that most of whom don't own a home and cannot afford them. People at the 10 Downing Street should construct more apartments to house the increasing number of youth graduates in Britain. Taxes can be add on Football league players that earn the most in smaller proportions over a number of items.

The problem in economic terms is the rotten banking system. The taxt system is by comparison a dwarf. Politically there probably are more points to be gained in property tax which explains this otherwise pointless analysis.

Another piece of inspired nonsense from Vince Cable - he is not a student of the principle of "cause and effect" - unless, of course, the intended outcome is to permanently alienate hard working and hard up homeowners in the Tory voting constituencies - could this be Cable's "scorched earth" policy - me thinks not - he is not that astute.

"people who's home has been systematically under-taxed for up to the past 20 years"

Why should people pay taxes on their homes? How does owning a home give rise to costs/resource comsumption beyond the cost of the home and maintenance?

People who have been systematically under taxed are those who pay less than they would under a fair poll tax, paying for what they get.

Alternatively we could all eat warm ice cream, place buckets on our heads and sing Rule Britannia in F flat.