Land and property taxes (Supplementary) [2]

Session date: 
June 5, 2013
Question By: 
Murad Qureshi
Organisation: 
Labour Group
Asked Of: 
Professor Tony Travers (Chair, London Finance Commission)

Question

Murad Qureshi (AM): Can I be bold enough, Tony, to ask you things that you have not really touched on in your report? The first is mansion taxes. Our sister city New York has a 0.5% mansion tax for properties over $2 million. Do you see a place for something similar if it was hypothecated to build social housing, for example?

Supplementary To: 

Answer

Answer for Land and property taxes (Supplementary) [2]

Answer for Land and property taxes (Supplementary) [2]

Answered By: 
Professor Tony Travers (Chair, London Finance Commission)

Professor Tony Travers (London Finance Commission): If the Finance Commission proposals were implemented and the Mayor and the boroughs decided to reform council tax somewhat and stamp duty, it would be possible to mimic all the effects of a mansion tax without introducing a mansion tax. A mansion tax if it is introduced in Britain will just be another central Government tax and I am very strongly of the view that it would be much better if all property taxes were captured within London by London, not having successive Chancellors introducing, as they have done, much higher levels of stamp duty and possibly a mansion tax. In fact, they have introduced other taxes on company-owned, high-value properties which are very like mansion tax or council tax but only apply to high-value properties and are collected by central Government. I would hope if this reform took place that London government would decide to adjust and reform council tax and stamp duty land tax so that a mansion tax would no longer be considered necessary.

The point about New York is a very interesting one. We did not research this in detail but taxes on New York domestic property are based on the assessed value, i.e. a kind of capital value of the home. On a like-for-like basis, they are much higher on high-value properties than they are here. I am not saying I am in favour of higher taxes. I am just saying that if you compare a Fifth Avenue mansion with your Knightsbridge mansion, there will be a substantial difference in the taxes paid. It does not stop people buying them.

Murad Qureshi (AM): What I am suggesting, Tony, is that there is a case for a London mansion tax but let us put that aside. I am glad you mentioned Barbara Castle. There was another Labour great, Herbert Morrison [former Deputy Prime Minister], who when he was at the London County Council, set up a system of land value taxation in a bill in 1939. It was later incorporated in the Attlee Government's Town and Country Planning Act 1947 and was repealed by the Conservative victory in 1951. What historical lessons are there to learn about land valuation taxation in London?

Professor Tony Travers (London Finance Commission): The historical value to learn from that and indeed from the community charge/poll tax reform is that reform of local taxation should be approached with caution. Even if everybody thought land value taxation was a good thing and wanted to do it, which they do not but even if they did, the move from here to there would inevitably produce losers and gainers. Losers react, gainers do not. Lots of things did for the poll tax but that is one of the things that did for it.

One of the benefits of the kinds of proposals we have made in the report is that on day one nothing would change. If anything changed it would float away from the starting point. I am not against considering reforms to the tax base but you just have to be careful what you wish for. Even if there were a revaluation of council tax in London (and this is not in the report and is my personal estimate), many homes in inner London would pay more and many homes in outer London would pay less. That sounds OK if you say it, but actually it is quite divisive between inner and outer London.

Murad Qureshi (AM): Would you accept that if we had land valuation taxation we would not have as many empty sites lying idle at the moment with the potential of building 170,000-odd homes straight away?

Professor Tony Travers (London Finance Commission): That has always been the implication of land value taxation. Whether it would produce some unintended consequence that none of us can know until it is tried, I do not know. There will be other consequences and I do not know what they will be, but it might well have the effect you are suggesting.

Murad Qureshi (AM): Thank you. That is the biggest argument for it.