A mansion tax will make the housing market fair for all – my article in the Evening Standard

A house is, for most of us, the biggest thing we will ever buy, the most long-term investment we’ll ever make. Buy or rent, we need a place to live we can afford and which we can make our home.

So how the housing market works really matters. And it’s not currently working too well. House prices are soaring out of reach for many. And while foreign investors continue to buy up multi-million-pound properties, for everyone else the prospect of an early rise in mortgage rates is now on the cards.

What should we do? The first big problem is that the supply of housing is simply not keeping up with rising demand. For decades we have simply not built enough homes. Ed Miliband and I are determined to put that right — here in London and across the country — by getting at least 200,000 new homes built a year by the end of the next Parliament.

Getting more homes built is essential if we’re to tackle the deep-seated cost-of-living crisis and secure a strong and balanced recovery that is built to last. So we will commit to a new generation of new towns and give real Treasury guarantees to get them off the ground. We need to match a reformed Help to Buy scheme with a Help to Build scheme for small and medium-sized builders.

We should be giving towns a right to grow and ensuring land with planning permission is built on quickly. And Sir Michael Lyons’s review for Labour will soon set out more of the reforms that need to be made.

I have spent the past four years urging the Chancellor to act to get more homes built. Revenues from the 4G licence auction should have been used to build 100,000 affordable homes — creating thousands of jobs and apprenticeships too. But on his watch we’ve seen the lowest peacetime level of housebuilding since the 1920s and the number of affordable homes built has fallen year on year.

This failure to act has made it harder than ever for the aspirational majority who want to own their own home to get on the ladder. And this imbalanced housing market now poses risks to the wider economy too.

A premature rise in interest rates to rein in the housing market in some parts of the country will have an impact on millions of families and businesses across the UK. The Chancellor’s aides have told the newspapers he is “relaxed” about the prospect, but millions of homeowners already struggling to make ends meet won’t be quite so laid-back.

The second challenge faced by London in particular is that so many people are buying properties solely as an investment and not as homes to live in. Overseas buyers who are snapping up property in the capital are not only pushing up prices but I believe are also failing to make a proper tax contribution in this country.

This unfairness needs to be put right. That is why Labour’s shadow housing minister Emma Reynolds has set out plans to tackle the number of empty homes, including ensuring properties are always advertised in this country first.

And it is also why we have proposed a tax on properties worth more than £2 million. How can it be right that the foreign buyer last month of a £140 million flat in Westminster will pay just £26 a week in council tax — the same as the average-value property in that council area?

We would put the revenues from a tax on ultra-high-value properties to cutting income tax for 24 million working people on middle and lower incomes — including more than six million across London and the South-East — with a lower 10p starting rate of tax. This is part of our wider plan to tackle the cost-of-living crisis and balance the books more fairly in the next Parliament.

But I am clear that the mansion tax must be done in a fair way and follow three principles.

First, the tax must only apply on properties worth over £2 million and that limit must be raised each year. Instead of simply raising it in line with the overall rate of inflation it should be raised in line with average rises in house prices to ensure that more modest properties are not brought into the scope of the tax.

Second, there must be protections in place for people who do not have a high income but happen to live in an expensive property — for example because they are long-standing residents in areas that have seen dramatic rises in property values. We will look at a relief scheme or allowing those on modest incomes to defer payment until the property is sold. Labour will only support a mansion tax that is fair to those who are asset rich but cash poor.

Third, the tax must be progressive so that those with properties worth tens of millions of pounds make a significantly bigger contribution than those in houses just above the limit.

But it must also be administratively simple. The original proposal by the Liberal Democrats for a one per cent annual charge on the value of the house above £2 million would require detailed valuations each year and fails that test.

I believe a better way would be to use a banded system, which avoids the need for detailed annual valuations. A banded system — £2-£5 million, £5-10 million, £10-20 million and over £20 million — already applies to the Government’s new tax on properties bought through companies.

In fact, we know the Government has done detailed work on how a mansion tax would work. Ministers should publish it now so that we can have a proper debate on how to do this in a fair and proportionate way.

Getting more houses built, cutting income tax for working people through a new 10p starting rate and making sure foreign buyers make a proper tax contribution to this country. This is how we tackle the housing crisis, back millions of Londoners and get the deficit down in a fairer way.

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Posted June 23rd, 2014 by Ed

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