Some difficult facts about implementing a Mansion Tax

John Moss, Conservative candidate for the City & East London Assembly seat, says that introducing higher Council Tax bands would be a mistake.

There have been calls, not least from Tim, to implement wealth taxes in the form of higher Council Tax bands as a way of generating revenue to fund cuts in income and business profits taxes. There are a number of reasons why this is morally wrong – double taxation, reducing the inheritance one can pass to one’s children, the impact on asset wealthy income poor households and the idea that Council Tax is to fund Council services, so should not be based on “ability to pay” – but there are also practical difficulties.

The first is identifying homes of sufficient value to merit greater taxation. If the tax is to be applied as higher Council Tax bands, this would have to be based on the existing Council Tax valuations or it would break the Conservative’s pledge not to stage a revaluation of properties contained in their 2010 manifesto. One cannot set aside the politics of running a £200m exercise to revalue all properties for Council Tax. The Daily Mail stories about the Council snoopers and the database they built up will be well remembered. However, at a practical level, that database has been destroyed in a demonstration of our commitment to that manifesto pledge, so that rather appears to be ruled out.

So present day values would have to be “de-indexed” back to 1991 values before a property can be put in the appropriate band. The current highest band is “H”, which levies the highest Council Tax on those properties valued – in 1991 – at £320,000 or higher.

But de-indexing isn’t straightforward. Across England and Wales, the Land Registry has records of actual house prices paid, going back to January 1995, so we can’t even start from the correct base. Even assuming that values in 1995 were the same as they were in 1991 and using that base, this throws up an interesting quandary, at what level will you apply this “higher band” and which properties will then be caught? The England and Wales figures show an average increase of 257% to December 2011. That would mean that existing Band H properties would have an equivalent value today of around £825,000. So any higher band would have to be set even higher than this. But different regions have seen different house price changes.

London has seen 375% increases, so here, the equivalent figure would be £1.2m. Even within London, there are differences between boroughs. Tower Hamlets is bang on the London average, Barking & Dagenham is at 302%, Hammersmith & Fulham at 446%. So you could be living in a £1.4m house and still not be in Band H in Hammersmith & Fulham, but in Barking & Dagenham, you would be in band H if your property was worth only £966,000.

This perverse impact means that the higher bands would be applied first to properties in the regions of a lower value, before hitting higher value properties in expensive areas of the South East. So if the new higher bands were set at 1991 values of, say £500,000, that would hit “average” properties valued today around £1.3m, but only hit properties in London valued at £1.875m and only hit those in Hammersmith & Fulham valued at £2.25m. The second practical difficulty that this throws up is just how many properties would be caught by these higher bands? Given the problems outlined above, the answer is probably very few. As such, one has to question whether such an exercise is worth it?