Home truths as Rachel Reeves considers her next move
The chancellor is therefore turning to stale, failed ideas out of desperation to balance the public finances. According to one possible reform, owners of high-value properties would lose their exemption from capital gains tax when selling their primary residence. The measure could see high and additional rate taxpayers face new capital gains levies at a rate of 24 per cent at the point of sale; this would drop to 18 per cent for those paying tax at the basic rate. A separate reform, also being contemplated, would see all properties worth more than £500,000 subject to an annual levy.
Whatever fresh political dressing Ms Reeves may give to the latter proposals, they are in spirit the very same 'mansion tax' initiatives abortively championed by Ed Miliband under his disastrous tenure as Labour leader. Ten years on, their flaws remain unchanged. Though these tax hikes would likely be branded as a justified raid on Britain's asset-rich, the fact remains that the UK's property taxes are not lenient by international standards: they are twice as high as the OECD average.
Worse is that capital gains taxes distort economic behaviour, by producing a financial disincentive to sell. Such measures would discourage pensioners in large homes from downsizing and introduce further prohibitive barriers to those wishing to move for work or to start a family. It is the last change the UK's dysfunctional housing market needs. Levies tethered to property value, too, would hit just the very 'working people' Labour claims to want to protect from further taxes: the millions of middle-income earners and pensioners, the value of whose homes have been buoyed by asset bubbles, concentrated in the southeast, beyond their control.
When it comes to reforming property tax there is a strong case for abolishing stamp duty, which similarly distorts market behaviour by depressing the volume of house sales and discouraging mobility. Unfortunately, such an obviously productive measure does not suit Ms Reeves's short-term agenda of plugging the hole in her government's finances. Though it would be a colossal political undertaking, there is a principled case for overhauling Britain's council tax system, whose eight bands have not been re-evaluated since 1991. Under the present, arguably regressive, system, a modest home in Blackpool may contribute as much to Treasury coffers as a pile in Kensington.
What such fine-grained policy comparison ignores is that instead of inefficiently squeezing home-owners, and those attempting against the odds to get a foothold on the property ladder, Labour should have the political courage to show fiscal rectitude on spending. It could start with tackling the near £100 billion projected to be spent on health-related benefits by the end of the decade. The property-owning public should not be made to foot the bill for Labour's deficit in courage.
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