Brian Monteith: Wealth taxes can have consequences

The cunning plan of Ed Miliband to force a vote at Westminster on a “mansion tax” is already looking too clever by half. Excuses for not supporting the proposal, originally backed by the Liberal Democrats, are already being put forward by Deputy Prime Minister Nick Clegg while Vince Cable’s evasiveness makes excruciating television.

While Miliband’s ruse to sow division in the coalition government is likely to fail, it has at least had the benefit of forcing a debate on the value of such wealth taxes in the London-based UK media where, after all, the vast majority of the £2 million-plus properties are based.

That may seem irrelevant to the political debate in Scotland, but for the fact that decisions taken on tax policy do have an impact on the Scottish economy, and will continue to do so even if the Scottish people choose independence from the UK. The discussion about the pros and cons of a “mansion tax” also coincides with the beginnings of a debate initiated amongst Scotland’s left-of-centre politicians and commentators about what social justice should mean in Scotland and the role of redistributing wealth as a means of reducing inequality.

The “mansion tax”, as conceived originally by the Liberal Democrats, was to be applied to properties worth over £1m, and as now designed by Labour would be for properties over £2m. According to property specialists Savils, this higher threshold would still catch some 74,000 homes in the UK, but these would mostly be in London or its immediate environs. As a UK tax it would raise an expected £1.48 billion but the Scottish contribution would surely be paltry. A review of houses for sale in Scotland reveals only a handful with asking prices of over £2m.

This suggests there would be little point in applying such a tax in an independent Scotland. It would probably cost more to administer than it could collect. So would the SNP foresee any such tax being continued following independence were a British government to introduce it before hand, or would it introduce a similar tax of its own if the UK had decided against one?

A clue to the party’s thinking might be given by how the SNP MPs at Westminster choose to vote on Ed Miliband’s motion when it is put to the Commons, although it would not surprise me to find they choose to abstain altogether, for the SNP has been especially coy over the issue.

Scotland’s relationship with the rest of the UK needs to be considered; it is no accident that London is the sixth largest French city in the world, in terms of French people living there, with France’s tax system contributing to so many high-earners relocating. The same pattern could be repeated in an independent Scotland with London becoming a magnet for industrious and wealthy Scots wishing to escape the clutches of redistributive social justice meted out by green-eyed Scottish politicians.

To be at all practicable in Scotland, the threshold of property values at which a “mansion tax” could work would have to be far lower than the £2m being proposed by Ed Miliband, probably as low as £1m or even £750,000. Whatever the threshold chosen the chief difficulties of the tax would remain: that it does not reflect ability to pay, that valuing only a house does not necessarily reflect someone’s wealth and that it would be open to widespread tax avoidance.

As property values can move quite dramatically even within the space of a tax year there would need to be an assessment, not just of those houses above the threshold of say, £2m, but those immediately below it too, as they could move into liability once property markets improve. In other words, the administrative cost of any “mansion tax” must include valuations of properties that are not going to be taxed – a highly inefficient way to tax people.

Similarly, in a depressed market, such as we have had for the last five years, the tax base could sink considerably with dramatically declining revenues reflecting the number of properties falling below the threshold. Reducing the threshold to maintain revenues would be especially iniquitous, as it would in effect be punishing people whose wealth was declining.

Likewise a very wealthy individual could have three houses across the country: a £1.5m penthouse flat in the city centre, a £1.8m house in the country and a £1.3m holiday home in the Highlands – a total value of £4.6m that were it one house would attract a liability of £26,000 a year – and not pay the mansion tax at all. All of this points to how clumsy a “mansion tax” is as a wealth tax, for it does not take account of possessions like expensive jewellery, works of art, rare antique collections, all of which can be worth more than a house of £2m.

Only when such details are presented do the hazardous consequences of taxing wealth come to light. Are valuations of other assets to be gathered and included to ensure a wealth tax truly reflects someone’s wealth or is it simply a blunt instrument to beat up the rich, no matter how imprecise it is, and with no care for how it must distort peoples’ behaviour as they switch their wealth away from property into untaxable items?

When the Scottish Left start discussing redistribution of wealth, do they believe in having a “mansion tax” or any other wealth tax in Scotland? There are lots of fine words said and written about sociological theory but rarely do these come together to actually spell out what policies would deliver the redistribution they say is necessary.

Certainly Labour’s Scottish MPs will be voting for a “mansion tax” at Westminster, but are their political principles so pure that they would want such a tax in an independent Scotland, or introduced at Holyrood under devolved powers? Or are their principles just rank opportunism of the type that has scunnered the public’s attitude towards politicians?

Add to this the SNP’s support for freezing the council tax, from which the main beneficiaries have been those on the highest property band, and it is no wonder the stench of hypocrisy surrounding any discussion of social justice and the redistribution of wealth is nauseating.