Why George Osborne can't afford to bring in higher council tax bands
By Paul Goodman
Follow Paul on Twitter
The Mail on Sunday claimed yesterday that George Osborne and Nick Clegg are drawing up "secret plans" for new council tax bands on homes worth more than £1 million.
I should add at the start that senior Treasury sources told me yesterday that the story is wrong - though it's all not quite that simple, as we will see.
I want to take readers through the pledges, practicalities and politics affecting any new council tax band changes - ending with a reflection on the position of Mr Osborne himself.
- Eric Pickles and David Gauke, on behalf of CLG and the Treasury respectively, have pledged that "the Government will not carry out a council tax revaluation in England during the lifetime of this Parliament".
- The last Conservative manifesto promised to "scrap Labour’s plans for an expensive and intrusive council tax revaluation", and it presumably follows that a Conservative Government would not have introduced a revaluation.
- George Osborne told the Mail on Sunday on October 6 that new council tax bands would be a "tax snoopers charter...‘You would have to send inspectors out and it wouldn’t raise much money. I’m not going to let the tax inspectors get their foot in the door."
- The Mail on Sunday claimed that Band H, which currently applies to all properties worth £320,000 or more, could apply after a revaluation to all properties worth £1 million or more. It also reported that two new council tax bands could be created for more expensive properties within this band - Band I, for houses worth £1.2 million or more, and Band J (plus a special levy), for houses worth £2 million or more. Vince Cable's beloved mansion tax was proposed by the Liberal Democrats at the last election for houses worth £2 million or more, so a new council tax band set at this level would allow him to claim that his dream has been realised. The move has been labelled Mansion Tax Lite.
- CLG insist that such moves would not be possible without a general revaluation. Treasury sources told me yesterday that "the top band or two" could "probably" be revalued alone.
- Whoever's right, what's certain is that Mr Pickles has helpfullly scrapped the revaluation database bequeathed to him by Labour.
- Any revaluation would therefore have to start from scratch. CLG claim that it would cost some £260 million.
- CLG also say that it would take some three years to complete - meaning that council tax bills set at the new rates could land on doormats in 2015, election year, or just after.
- My impression is that this timing disjuncture is a big problem for the Treasury. Welfare budget reductions would happen now, or soon. 2015, however, is some way off.
- Houses in the proposed new H, I and J bands wouldn't necessarily be those from the present H band - because of the effect of home improvements and other factors on home values. In Labour's Welsh revaluation during the last Parliament, 375,000 households moved up by a band, 55,000 by two bands and some eight thousand by three. If these figures were scaled up for England, they would come in at over six million, almost a million and over 100,000. I'm curious to know whether the revaluation of homes in some bands rather than all, which the Treasury seems to believe may be possible, would be open to legal challenge from angry owners of Band H, G and (who knows?) other band properties.
- Losers from the introduction of Mansion Tax Lite would be concentrated in London and the south-east. In other words, they would largely be richer voters, a large proportion of whom vote Conservative.
- Not many of them would be easily presentable in the media as the victims of unjustice. None the less, all of them have votes, and a significant proportion of those who live in London will live in marginal seats.
- Though not many of them would easily presentable as victims, some of them would. Pensioners who live on modest incomes living in their long-standing family home are the classic example.
- Broadcast time and newspaper space will fill with comparisons of one family's council tax bill against another, and tales from indignant homeowners about instrusive inspectors (even, arguably, if the measure doesn't come in until after the next election).
- One rationale for the introduction of new bands is that the Liberal Democrats will accept their quid for a Tory welfare reductions quo - though the welfare savings the Treasury's looking for £10 billion, would raise four times more than the reported new bands, £2 billion.
- The other main rationale has nothing to do with the Liberal Democrats, and is internal to the Conservative family. It is that if taxes have to rise further, they should fall on property, not income and be concentrated in London and the south, not the midlands and the north.
- This is the broadly the position of Tim Montgomerie and Peter Hoskin, both of whom also point out that polls of Tory party members find new and higher council bands to be increasingly acceptable.
- I would rather look for further spending cuts than more tax rises, though if some of the latter must come I believe that better-off people must pay their share - first, because it's right, and second because of the party's vulnerability to the charge of being "for the rich".
- However, I am dubious of the claim that midlands and northern voters are more likely to vote Tory if bigger properties are taxed more, rather than if they themselves and their families feel they've gained from Government policies (and that the Opposition is worse).
- Furthermore, polls showing that people approve of tax rises for better-off people are unreliable. This is because people don't think of themselves as better-off, even if they are, and because they'll say one thing before negative reports of tax rises and another after.
...And George Osborne
- On the one hand, the Chancellor will want to counter the impression that the Conservatives are the party of the rich. He must surely feel that the 50p top rate cut, whatever one thinks of its economic consequences (and for what it's worth, I believe that it was right), has had nothing but damaging ones for his party, and for him personally. Before the budget, he could say: "We're all in it together" and get a hearing. Now, he cannot, even though the Treasury insists that the distributional effect of its policies are fair. Nadine Dorries's "two posh boys charge", the Andrew Mitchell saga, his own first-class train ticket twitter brouhaha - all have taken their toll. No wonder David Cameron complained in his conference speech last month about those who "twist our ideas and distort who we are".
- On the other, the Chancellor will want to be - and to be seen to be - a man who keeps his promises. Mr Cameron is reportedly terrified of a "split screen" moment - the instant when, were he to renege on his pledge not to maintain pensioner "universal benefits", footage of him making that promise on the election stump would be set against footage of him explaining why the pledge has been junked. Mr Osborne will not want to have his own split screen moment over a Mansion Tax Lite. Sure, his words to the Mail on Sunday in October weren't made in the heat of an election campaign on TV. But Labour - and, worse, his critics in his own party and the media - would swoop were he to cheat on them. (And talking of the effects in London, what would its Mayor have to say?)
I repeat that senior Treasury sources insisted yesterday that although a revaluation of some properties rather than all is technically possible (which is very much not the DCLG line), it has ruled out a Mansion Tax Lite - a revaluation of even just Band G and Band H properties.
None the less, the story that the Chancellor is willing to consider one simply won't go away. Tim wrote about it on this site earlier this month. Janan Ganesh, Mr Osborne's biographer, was reported yesterday to have said that in his view the plan will happen. Vince Cable is pushing.
It may well be the Chancellor wants maximum room for manoevre before his autumn statement and wishes to keep everyone guessing. But I have said enough to explain what the consequences would be for him of the Coalition reneging on its position.
So how else could he keep the Liberal Democrats happy? Perhaps the New Statesman's Rafael Behur has it right: some form of property-based "tax clampdown on rich foreign tax dodgers" - a variant of the one announced in his last budget.