It looks like at the Budget we’ll have the announcement of new property taxes. Reports suggest there will be a higher stamp duty rate for high value properties. That would be a repeat of the same approach taken by Gordon Brown more than once. Some commentators are applauding it as an economically rational move to tax property rather than income, but is that actually what is happening?
No. The revenue from new taxes on very high value properties will likely be underwhelming. Taxes on labour income – Income Tax and National Insurance contributions – raise over £250 billion each year. Capital Economics have estimated the new Stamp Duty rate could raise £400 million a year, just 0.1 per cent of the amount raised by those labour income taxes. Maybe George Osborne will find a way of extracting more than that. But even if he raised ten times as much it would still not be enough to cut a penny off the basic rate of income tax.
This just won’t be the rerun of the switch from taxing income to taxing consumption in the 1980s that helped finance substantial cuts in marginal income tax rates, though those lower rates actually largely financed themselves. There aren’t enough very high value properties for a tax on them to raise a lot of money.
If politicians try to tax property more broadly they will find it is extremely unpopular. It is no accident that our grassroots campaign has always been focused on Council Tax more than any other tax. First time buyers find it incredibly hard to pay Stamp Duty. In the United States, tax revolts have often responded to high property taxes and academic research suggests those taxes are particularly salient. Britain already raises more in property taxes than any other developed country, taking a fiscal windfall from the high prices many families struggle to pay a mortgage on, and if politicians try to raise even more from property they’ll be voted out of office.
Higher taxes on a small number of very high value properties might be a useful political gesture for George Osborne. It is no substitute for the grander vision for the tax system that Allister Heath rightly argues he needs to set out today.