I wrote these thoughts on my Facebook page yesterday, and I have taken a few elements out and added others. Anyway, let me know what you think:
The State’s share of the total economy continues to rise, putting even more pressure on those who are still here, working, building business, etc. There are one or two decent elements in it (stamp duty suspended on new share listings in London) but the general direction is bad. Unfortunately, given the reluctance of backbench Labour MPs to accept any meaningful welfare reforms, the total public spending bill will continue to rise. So next year we could have more of the same. That means more emigration of young, ambitious people to lower-tax places such as Dubai, Australia (relatively), etc. The tax base will contract.
One element in particular – the so-called “mansion tax” levy on high-value properties – bothers me not just because of the specifics (it will gum up the real estate market, and thresholds are bound to be frozen, drawing in more over time), but because of a principle.
If I own something that is valuable, why should I pay tax on it purely for that reason? Does the imposition of such a levy equate to the State acting as a landlord, demanding a rent? I can understand the point that a property that is valuable partly because of state action should therefore bear some tax (this is the argument for land value taxes or even council taxes, although LVT is problematic); there is also some sense in taxing property owners to pay for local services (back in the 19th C, only freeholders could vote in elections, which meant they had a vested interest in frugal government).
But taxing something that is worth X, and purely for that reason, is punitive. It also means that the asset-rich/cash-poor issue arises. Some people will need to sell, or at least downsize earlier than they perhaps wanted. Some folk might rent out a room to a tenant, or take out a second mortgage to find the cash. That could have a cascade impact on property prices, perhaps undermining the point of the tax. But maybe that is the point of this tax: it is designed to push property values down. And ironically, that will mean that on death of the owner (s), the haul in inheritance tax will be lower than otherwise.
If you own your home – you have paid for it fair and square, then it is yours. Period. A tax puts the State in the position of a sort of supreme landlord.
I realise that some people will say that there is a generational wealth injustice issue here, because lots of younger adults cannot afford to buy or even rent a decent place. That’s a genuine issue. The solution, broadly, is to free up the planning system, and control net immigration. Another factor is that we must stop artificially holding down interest rates, which has enriched some people with large homes, particularly if they are leveraged.
In some ways, the situation today is the long-drawn out consequence of the 2008 financial bust and a decade-plus of very low interest rates.
I saw a few people on other social media forums saying that objectors should stop bellyaching and pay up. Apart from the oafishness of this sort of response (“do what you are told!”), it ignores the principle of absolute property ownership. Another objection I’ve seen is that lots of people have to downsize, so those affected can do so. However, this is not that easy. Who’s going to buy, particularly when stamp duties are high and taxes in general are crimping growth? Underlying liquidity in the UK housing market is weak and unlikely to improve fast, although it might pick up a bit. Some owners might rent out part of their home to make a bit of cash to cover the tax, but not all such homes are easily changeable for that purpose, and rental income is now taxed anyway. Even so, I would expect some of this to happen in the years before the measure is hopefully repealed. The new tax will not come in immediately – and might get snarled up as the general election nears (it must be held by July 2029).
Of course, people downsize their property for various reasons: their children flee the nest; people want a smaller place to look after, unlock value and buy a holiday home, travel, invest in a business or hobby, etc. it’s natural and normal. But it’s not the State’s role to force the pace on this, to create a sense of duress.
The levy on high-value homes is a form of wealth tax. Even someone who is generally favourable towards the UK government, Dan Neidle, says they are a really bad idea.
Of course, I don’t need to spell it out to the sensible Samizdata regulars that what is wanted are taxes that are as low, flat and simple as possible.
Final random thought: property taxes could be defended in the past when only freeholders could vote in elections, and they tended to have an incentive to vote for stuff that would protect the value of what they had, such as sewage, water supply, electrification, parks, amenities, law enforcement of various kinds, and so on. I sometimes hope, however, naively, that we could bring such an approach back. Voting ought to involve some beneficial ownership “buy-in” to one’s neighbourhood.
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