We all know the phrase, “an Englishman’s home is his castle”. Yes, it is old fashioned and gender specific, but it reflects how sentimental people are towards their homes in this country, where the majority of people do not rent property, unlike in Europe. They are, or aspire to be, homeowners.
Given this attitude to property ownership in Britain, any attempt to tax property in new or more burdensome ways is bound to be controversial.
The news that the Treasury is looking at overhauling council tax and stamp duty and implementing “proportional” property tax should not surprise anyone. It is well known that Treasury officials have been looking at ways to tax property for decades.
Their argument runs that increases in the values of property in the last 30 years, particularly in London and the South East, have turned people into multimillionaires without any effort on their part whatsoever.
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This unearned wealth should be taxed as a legitimate source of revenue in the interests of fairness, so the argument goes. These officials will also point to countries in Europe, as well as states in America, where annual taxes on property are levied.
In France, the wealth tax on property is imposed on properties worth more than €1.3m at a rate between 0.5 per cent and 1.5 per cent, depending on your total wealth.
In New York State, the rate is about 1.5 per cent on the value of your home. It varies from county to county in that state. The important point, however, is that an annual levy calculated on the value of your home is an established principle in many jurisdictions.
However, the newly suggested property tax idea that the UK treasury are considering – a new tax on the sale of homes worth more than £500,000 – is deeply flawed. Unlike council tax, the revenues from which are predictable and can be used for planning budgets, a tax could vary considerably from year to year.
Revenue from such a tax, in years when property prices were falling, would be compressed by a lower number of transactions at lower property values. In boom years, obviously, more revenue would be harvested. Yet such a revenue stream could be highly variable from year to year.
The government looked at changing property taxes during the coalition years between 2010 and 2015. There were proposals to introduce two extra bands of council tax, based on the initial 1991 property valuations.
George Osborne’s treasury was reportedly keen on the idea. It was the Prime Minister David Cameron, who vetoed it, fearing a backlash from Middle England in general and more specifically, it was rumoured, actual donors to the Conservative Party.
Labour’s failure to pass their welfare bill earlier this summer, thereby not realising an estimated £5bn of savings, has certainly put more pressure on the chancellor Rachel Reeves.
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The argument about wealth taxes will grow more intense as the Labour Government proves unable to reduce spending.
But, such a move will be the death knell of this Labour Government. It will have given up on being a party of any kind of aspiration. It will consign itself to the role of a left-wing pressure group, with no narrative about how to grow the economy, the very thing they have pledged to do.
Such a retreat to a left-wing comfort zone would send all the wrong messages about the possibilities for wealth creation, ambition and aspiration in Britain today.
The beneficiaries of such a development would be the Tories to a lesser degree and, most worryingly for Labour, the Reform Party and Labour’s number one bogeyman of our time, Nigel Farage.
The Labour Government will suffer grave electoral consequences if it seeks to tax people in this way. The next general election will not be decided in the inner cities. It will be decided in market towns and suburban areas. These constituencies will be very sensitive to unfair and severe taxes on property.
It’s all very well pointing to France and the United States. My own belief, built on experience as an MP and government minister, is that the particular cultural context of Britain, however, makes any tinkering with property tax measures potentially lethal for a government in Westminster.
Kwasi Kwarteng is a former Conservative MP. He served as chancellor of the exchequer between September and October 2022 under Liz Truss
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