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LibDems “mansion tax” folly or what?

Our first reaction to the Liberal Democrat Shadow Chancellor, Vince Cable’s proposal for a “Mansion Tax” worth over £1 million, was that he had severely damaged his credibility and upset his party colleagues. He had claimed that the money could be used to raise the income tax threshold to £10,000. The proposal had been savaged within hours of its announcement, though some journalists were praising it as a move towards a tax on land. It is, of course, nothing of the kind. However, a few days later, on 24 September in an article in the Financial Times, the respected commentator Martin Wolf,  used Cable’s proposal as a peg to hang a perfectly good exposition of the LVT case. So perhaps less harm was done than we originally thought.

Cable’s scheme, announced at the start of the party’s annual conference, is not a tax on land, it is a tax on land and buildings. Opponents were quick to point out that it is arbitrary, would require a revaluation and yield a tiny fraction of the amount needed to raise the income tax threshold to £10,000. It is based on no principle whatsoever and is a million miles from LVT. If politicians and journalists don’t know the difference between land and buildings they should keep quiet on the whole subject as they are playing with fire. Even if the proposal were for a tax on land, it would be a recipe for disaster to base such a tax on selling prices, which of their nature are volatile. It is also disastrous to have a threshold for the tax.

If the LibDems had proposed converting both Council Tax and Business Rates to a land value tax based on annual rental values, then the measure would have made sense. It is perfectly possible to do annual rental valuations of sites alone; the Business Rate is based on rental values. The Valuation Office Agency values land and buildings separately and adds the two together so a change to site-only taxation would cut down the work they had to do, as well as allowing them to bring vacant and agricultural land into the tax base. The land value tax can be local or national or a combination of the two. And some kind of arrangement – probably a general increase in the state pension – would be needed so that people on low fixed incomes were not forced out of from places which had become desirably valuable long after they had moved there.

The LibDems have known about land value taxation for over a century. Vince Cable himself knows about it and even facilitated the holding of at a meeting at the House of Commons which explained how it would work. He has is the one the MP who has given strong and consistent support for the promotion of LVT. This makes it particularly unfortunate for the progress of the broader land value taxation campaign that he came up with this proposal. It has seriously damaged his previous good reputation as an incisive economic analyst.

The ability of politicians to get things wrong is amazing. Now that a couple of days have passed, the snags have become so obvious that the proposal is a non-starter. It sounds as if the scheme was cooked up by some economics graduates straight out of college and working in the LibDems’ policy office. They should be told to clean the office and go. Nevertheless, Cable ought to have been perceptive enough to realise that this was a lame horse from the start. And journalists such the Guardian’s Ashley Seager who wrote in support of the proposal and is also supposed to know about land value taxation should get themselves up-to-speed on the subject.