Government may introduce mansion tax

ONE of the main arguments in the run-up to the Budget is over the possible creation of a mansion tax on properties worth £2 million or more.

Lib Dem Business Secretary Vince Cable suggested his party would accept dropping the 50p income tax rate if a mansion tax was introduced.

He said: “If that [the 50p rate] were to go, it should be replaced by taxation of wealth, because the wealthy people in the country have got to pay their share, particularly at a time of economic difficulty.”

It is believed the tax would hit homes in the south-east of England hardest – property there is more expensive than the rest of the UK.

Tory back-benchers argue it would hit people, particularly pensioners, who are asset rich but not cash rich. It was also pointed out Mr Cable raised the proposed mansion tax level from £1m, which would have affected ordinary people in his Twickenham constituency, to £2m, which would affect far fewer of them.

It is also unclear how much a mansion tax would raise or how it could be done. There has been speculation it could come in the form of new council tax upper bands, which means Scotland would be exempt because local taxation is devolved.

With the income tax threshold raised to £10,000 and the 50p rate scrapped, the Chancellor would be looking to raise up to £18bn to balance the Budget on Wednesday.

However, the options appear limited. Mr Osborne could bring in more cuts, but this would put growth at risk even more. With Britain’s triple-A credit rating at risk, Mr Osborne is also unable to borrow more. However, he has ruled out that option anyway, claiming the current problems are a debt crisis caused by the last Labour government.

He can look to raise taxes by reducing the level at which the higher 40p rate is paid to cover an increase in the threshold where no tax is paid.

He has done this in his two previous budgets and the move, while it would hit many earners who would also be losing thousands of pounds in child benefit, would plug the £11bn gap left by raising the threshold.

The Lib Dems have also proposed a tycoon tax on the super rich, but this has been criticised as being easily avoided and likely to drive the wealthy abroad.