Ed Balls: A mansion tax will make the housing market fair for all

A premature rise in interest rates to rein in the housing market in some parts of the country will have an impact on millions of families and businesses across the UK. The Chancellor’s aides have told the newspapers he is “relaxed” about the prospect, but millions of homeowners already struggling to make ends meet won’t be quite so laid-back.

The second challenge faced by London in particular is that so many people are buying properties solely as an investment and not as homes to live in. Overseas buyers who are snapping up property in the capital are not only pushing up prices but I believe are also failing to make a proper tax contribution in this country.

This unfairness needs to be put right. That is why Labour’s shadow housing minister Emma Reynolds has set out plans to tackle the number of empty homes, including ensuring properties are always advertised in this country first.

And it is also why we have proposed a tax on properties worth more than £2 million. How can it be right that the foreign buyer last month of a £140 million flat in Westminster will pay just £26 a week in council tax — the same as the average-value property in that council area?

We would put the revenues from a tax on ultra-high-value properties to cutting income tax for 24 million working people on middle and lower incomes — including more than six million across London and the South-East — with a lower 10p starting rate of tax. This is part of our wider plan to tackle the cost-of-living crisis and balance the books more fairly in the next Parliament.

But I am clear that the mansion tax must be done in a fair way and follow three principles.

First, the tax must only apply on properties worth over £2 million and that limit must be raised each year. Instead of simply raising it in line with the overall rate of inflation it should be raised in line with average rises in house prices to ensure that more modest properties are not brought into the scope of the tax.

Second, there must be protections in place for people who do not have a high income but happen to live in an expensive property — for example because they are long-standing residents in areas that have seen dramatic rises in property values. We will look at a relief scheme or allowing those on modest incomes to defer payment until the property is sold. Labour will only support a mansion tax that is fair to those who are asset rich but cash poor.

Third, the tax must be progressive so that those with properties worth tens of millions of pounds make a significantly bigger contribution than those in houses just above the limit.

But it must also be administratively simple. The original proposal by the Liberal Democrats for a one per cent annual charge on the value of the house above £2 million would require detailed valuations each year and fails that test.

I believe a better way would be to use a banded system, which avoids the need for detailed annual valuations. A banded system — £2-£5 million, £5-10 million, £10-20 million and over £20 million — already applies to the Government’s new tax on properties bought through companies.

In fact, we know the Government has done detailed work on how a mansion tax would work. Ministers should publish it now so that we can have a proper debate on how to do this in a fair and proportionate way.

Getting more houses built, cutting income tax for working people through a new 10p starting rate and making sure foreign buyers make a proper tax contribution to this country. This is how we tackle the housing crisis, back millions of Londoners and get the deficit down in a fairer way.