Shadow Chancellor Ed Balls wrote in today’s Evening Standard about his alarming Mansion Tax plan. So, Mr Balls, can you answer these nine questions:
1. What bands and how much?
You said that those in homes valued between £2m and £3m will have to pay an extra £3,000 a year. But what would the other bands be, and how much would be payable in each band?
2. How many homes will drop out?
Having to pay a Mansion Tax will mean buyers won’t pay as much for a home as they would have done. Have you estimated the impact on prices of the Mansion Tax, and how many homes would fall a band or fall out entirely because of the tax?
3. How much less from Stamp Duty etc?
A Mansion Tax will reduce house prices, which means the Treasury won’t collect as much in taxes such as Stamp Duty and Inheritance Tax . Have you estimated the impact that lower prices will have on overall revenues from Stamp Duty, Inheritance Tax and other taxes?
4. How many widows will defer?
Have you estimated the impact on revenues from allowing low-income homeowners such as widows to defer payment, also known as the “death tax”?
5. How will the “death tax” trap affect the housing market?
Some low income homeowners will avoid moving so they don’t have to pay their deferred Mansion Tax when they sell. Have you estimated the impact on the housing market from the “death tax” trap of deferred tax bills building up, keeping larger homes out of the market and restricting associated economic activity?
6. Will it really raise £1.2 billion?
Even without modelling for deferment, the impact on prices reducing the numbers and the loss of other revenues such as Stamp Duty and Inheritance Tax, our estimates assuming charges ranging from £3,000 to £30,000 a year would yield only £830 million. How have you calculated your estimates?
Using estimates from Knight Frank last year on the number of homes in each of the bands below, we guessed some charges you might introduce for bands over £3 million. These charges range from the £3,000 a year you mentioned for homes in the £2m-£3m to £30,000 for homes over £10 million. As you’ll see, the total revenues add up to £415 million. Since then, Knight Frank have confirmed that the total number has risen from 55,000 to 110,000. Even if you assume the revenues double, too, this only yields £830 million, well short of your £1.2 billion target.
|Band||Monthly charge||Annual charge||No. of properties||Revenues, £m|
7. How will you avoid massive cliff-edges?
Our estimates suggest an annual Mansion Tax of £14,400 for a home valued at £9.9 million but a £30,000 bill for a home valued at £10 million. That creates a huge cliff edge with a substantial distortionary impact. These amounts will have to be even bigger if the tax is to raise the £1.2 billion you claim, meaning even bigger cliff edges. How will you avoid these cliff edges?
8. What if a future Chancellor freezes thresholds?
So many taxes, like Stamp Duty, Inheritance Tax and Income Tax started out as taxes only for the rich. You say that this time it’s different. But how will people be sure that a future Chancellor won’t freeze the thresholds?
9. Why not add Council Tax bands instead?
We don’t need higher taxes, we need to cut waste and cut taxes. People who have bought expensive homes will typically have paid vast sums in Stamp Duty to buy them and Income Tax, Capital Gains Tax or Inheritance Tax to raise the money to buy them. But if you really must tax these people more, couldn’t you have chosen a simpler way that wouldn’t make our tax code even more complicated than it already is? Why have you chosen to campaign for a whole new tax with new thresholds, valuations, rates, bands and rules instead of simply adding new bands to Council Tax?