Tale of Two Cores

Labour's 'mansion tax' has come in for a lots criticism from within its own ranks, but in this Times column Philip Collins does an intellectual demolition job on a policy that lacks ambition and simply plays to a north versus south divide.

With 80 days to go to the 100 May 2015 general election the political argument does indeed seem to have come down to 'my core is bigger than your core', but what a miserable platform on which to argue to for the leadership of UK PLC.    

The mansion tax is typical of blinkered Labour

By Philip Collins - The Times

Clobbering the rich is not the aspiration of a serious party. A more durable plan would be to adjust council tax bands

When I rebel from the tedious task of filling in a tax return, I recall the wise words of Albert Einstein: “This is too difficult for a mathematician. It takes a philosopher.”

The decision about what to tax, and at what rate, is a leading indicator of a political philosophy. The social democrat tends to see taxation as a way to restore the fairness that goes missing in a market distribution of earnings. It is more than coincidence that the left’s favourite self-description, “progressive”, is also the term applied to the regime by which the rich pay a greater proportion in tax than the poor. The conservative is more likely to see tax as a necessary evil, confiscation of property, which is to be undertaken as lightly as possible.

Labour’s proposal for a mansion tax, under which all properties above a market value of £2 million would be subject to a levy, is a third way in taxation. The financial purpose is to raise £1.2 billion, which will be earmarked to pay nurses.

The real purpose is political. This is not a tax on property so much as a tax on the southeast of England. Of the 95,000 homes in the UK that would qualify, 95 per cent of them are in London and the southeast. The whole of Britain north of, and including, Birmingham would pay little more than 2 per cent of the total.

This is taxation as pure political calculation. It is, as Lord Mandelson pointed out in a phrase that surely echoed the private view of a shadow chancellor who is giving no details, “crude”. It is the tax of a party that is not seeking a comprehensive victory.

Not that I wish to discredit the notion of an impost on property. On the contrary, the case for taxing property more heavily than we do in Britain is persuasive. Unlike income, property is hard to hide and a levy upon it correspondingly difficult to evade. It would generate a lot of money from foreign owners who are contributing little to the exchequer. Revenues would usually rise with prosperity and if the volatility of the housing cycle were flattened a little by heavier taxation, then so much the better.

The case is intellectual as well as practical. The state takes £700 billion a year in taxation and that sum should ideally be collected according to a principle that is widely agreed to be fair. Income, which is directly earned, should be taxed lightly and a party by the name of Labour ought to be the most vocal proponents of low income tax. The bonanza of house price inflation, though, is not income that I have genuinely earned. It is a reward that, in JS Mill’s arresting image, falls into my mouth as I sleep. There is a case for returning to the principle that informed Lloyd George’s “people’s budget” of 1909. This is an argument that, with enough time, can be joined and won.

Taxation in Britain has no such philosophical order. Instead, we derive the revenue according to ease of collection. Taxes on labour account for 44 per cent of revenue, taxes on business close to 20 per cent and just over 30 per cent is levied on consumption. Only 5 per cent of the tax take comes from land and buildings.

The beauty of the green and pleasant land as a taxable asset is that it retains its value because there is a fixed supply of 60 million acres and the maker has stopped making it. The windfall gains from land are often the result of public infrastructure development, which should be taxed. A levy of 1 per cent on the land would yield £50 billion. Once the deficit had been cleared, income tax could be cut by a third or corporation tax abolished.

A truly radical Labour party would have been making this case for years. It could have changed the debate about tax while starting to shed its damaging reputation as a party that thinks taxation is a species of moral virtue. The place to begin in policy terms is not a crude, cliff-edge mansion tax but a revaluation of the council tax that is still, absurdly, calculated on 1991 prices.

Since that date the average price of a London house has risen by 399 per cent. In the East Midlands, the region with the lowest inflation in the country, house prices have still risen 219 per cent. Yet every house above a value of £320,000 pays the same amount. At the moment a home-owner in the highest band pays three times as much council tax as someone whose home is in the lowest band, even though they live in a home 20 times the value. The addition of three new council tax bands would raise an additional £4.7 billion a year and anyone with a large house and little cash could defer the levy and pay it out of the estate.

Instead of this considered and durable proposal, made credible by airing the argument in opposition, Labour has proposed a clobber-the-rich tax. This is exactly the policy you might expect of a party without a single MP in Cornwall, Somerset, Dorset, Kent, Sussex, Essex, Suffolk, Norfolk, Cambridgeshire, Buckinghamshire, Hertfordshire and Gloucestershire. Labour holds only ten of the 197 seats in the south of England.

I recently found in my diaries from Downing Street a note of a story that Tony Blair told of being accosted by a vintage Labour supporter who said: “The trouble with you, Blair, is that you want Tories to vote Labour.” Well, they seem to have cured themselves of that particular eccentricity.

Labour could yet be saved by the fact that there isn’t a Conservative councillor, let alone an MP, in Manchester, Liverpool, Newcastle or Sheffield. The Conservative party no longer carries along Britain’s best motorway, the M62, into the old mill towns of the northwest, so often the bellwether seats. If the Tories had done as well in the north in 2010 as they did in 1955 or 1970, there would have been no need for a coalition. This is a nation split urban versus rural and north versus south.

There will be lots of seats that barely see an election in May. The two main parties, concentrating their meagre resources forensically, have written off much of the country. The reason that Ed Miliband toyed with one-nation rhetoric is precisely because, between them, he and David Cameron have presided over two-nation politics, even within England. May will produce a red north and a blue south.

Labour’s tax plans tell you that they’ve settled for the hope that their core is bigger than the Tory core. It’s the politics of shrunken, insular, self-regarding parties and you don’t have to be Einstein to work that out.