How the mansion tax will work, and who it will hit

If you're planning to own a mansion in the future, the tax isn't as bad as it seems…

Let's clear up one myth about the mansion tax straight away: it is not going to work the way Tim Montgomerie suggests in his Times column today. Montgomerie writes:

Last week Ed Miliband joined Nick Clegg in proposing a mansion tax so that the people who live in London’s parallel universe — many of whom come from overseas and pay little in the way of income taxes — might make a greater contribution. It was a perfectly reasonable intervention but, in a sign that the Conservative Party still hasn’t understood why it can’t win elections, many Tory MPs reacted with fury. Such a tax was, they complained, unfair on the person in a £2 million home who didn’t have the necessary £20,000 to spare.

A person with a £2m home would pay nothing in tax under any version of the mansion tax previously suggested. A £20,000 tax bill implies a house worth £4m. That's because the tax Miliband eventually produces is near certain to follow the same lines as the Lib Dems' desired tax, and be set at 1 per cent of the value of the home above £2m.

The reason why is obvious: if the tax was set at 1 per cent of the total value of any home above £2m, then there would be a huge incentive to depress, either artificially or actually, the value of the home. If your house was worth £2,010,000, it would be worth paying someone up to £10,000 to come round and do £10k worth of damage to it.

More practically, the lack of a cliff-edge at which the tax comes in is also likely to prevent it doing too much to property values. It will have a depressive effect, getting stronger as the house gets more valuable, and will likely knock quite a bit off the price of a £4m house. But the changes will be about pricing in the expected future cost of the tax to the sale price, not about avoidance. For much the same reason that no-body ever says "no thanks, I'd rather earn just £8,104 and not pay tax on my income", houses aren't going to start being sold at £1.99m in any real numbers.

But that example does reveal one of the bigger problems with the fairness of the tax. No, it's not the ridiculous example given by Toby Young of someone who finds themselves living in a £4m house without the money to pay the tax bill. If you can sell your house, buy a £2m one, and pocket the lifetime earnings of someone on the median wage as the difference, you do not really get to plead poverty.

Instead, it's that the vast majority of the incidence of the tax will be on the people who own the houses today. The depressive effect it will have on house prices will be pretty much instantaneous, and will then sit there forever. The tax will also slightly dampen the rate at which house prices above £2m increase — because every £100 increase in price imposes a £1-a-year increase in tax liability — but that is small fry compared to the initial hit.

That quirk explains why the suggestion of a tax provokes such vociferous outrage amongst those owning £2m+ houses. It really is unfair on them; but it's not a matter of unfairness against the rich, so much as unfairness against this generation of the rich. And really, for a government which has done so much to harm the cause of intergenerational fairness, that's a small hit in return.

Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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The Tories are the zombie party: with an ageing, falling membership, still they stagger on to victory

One Labour MP in Brighton spotted a baby in a red Babygro and said to me: “There’s our next [Labour] prime minister.”

All football clubs have “ultras” – and, increasingly, political parties do, too: although, in the case of political parties, their loudest and angriest supporters are mostly found on the internet. The SNP got there first: in the early days of email, journalists at the Scotsman used to receive bilious missives complaining about its coverage – or, on occasion, lack of coverage – of what the Scottish National Party was up to. The rest soon followed, with Ukip, the Labour Party and even the crushed Liberal Democrats now boasting a furious electronic horde.

The exception is the Conservative Party. Britain’s table-topping team might have its first majority in 18 years and is widely expected in Westminster to remain in power for another decade. But it doesn’t have any fans. The party’s conference in Manchester, like Labour’s in Brighton, will be full to bursting. But where the Labour shindig is chock-full of members, trade unionists and hangers-on from the charitable sector, the Conservative gathering is a more corporate affair: at the fringes I attended last year, lobbyists outnumbered members by four to one. At one, the journalist Peter Oborne demanded to know how many people in the room were party members. It was standing room only – but just four people put their hands up.

During Grant Shapps’s stint at Conservative headquarters, serious attempts were made to revive membership. Shapps, a figure who is underrated because of his online blunders, and his co-chair Andrew Feldman were able to reverse some of the decline, but they were running just to stand still. Some of the biggest increases in membership came in urban centres where the Tories are not in contention to win a seat.

All this made the 2015 election win the triumph of a husk. A party with a membership in long-term and perhaps irreversible decline, which in many seats had no activists at all, delivered crushing defeats to its opponents across England and Wales.

Like José Mourinho’s sides, which, he once boasted, won “without the ball”, the Conservatives won without members. In Cumbria the party had no ground campaign and two paper candidates. But letters written by the Defence Secretary, Michael Fallon, were posted to every household where someone was employed making Trident submarines, warning that their jobs would be under threat under a Labour government. This helped the Tories come close to taking out both Labour MPs, John Woodcock in Barrow and Furness and Jamie Reed in Copeland. It was no small feat: Labour has held Barrow since 1992 and has won Copeland at every election it has fought.

The Tories have become the zombies of British politics: still moving though dead from the neck down. And not only moving, but thriving. One Labour MP in Brighton spotted a baby in a red Babygro and said to me: “There’s our next [Labour] prime minister.” His Conservative counterparts also believe that their rivals are out of power for at least a decade.

Yet there are more threats to the zombie Tories than commonly believed. The European referendum will cause endless trouble for their whips over the coming years. And for all there’s a spring in the Conservative step at the moment, the party has a majority of only 12 in the Commons. Parliamentary defeats could easily become commonplace. But now that Labour has elected Jeremy Corbyn – either a more consensual or a more chaotic leader than his predecessors, depending on your perspective – division within parties will become a feature, rather than a quirk, at Westminster. There will be “splits” aplenty on both sides of the House.

The bigger threat to Tory hegemony is the spending cuts to come, and the still vulnerable state of the British economy. In the last parliament, George Osborne’s cuts fell predominantly on the poorest and those working in the public sector. They were accompanied by an extravagant outlay to affluent retirees. As my colleague Helen Lewis wrote last week, over the next five years, cuts will fall on the sharp-elbowed middle classes, not just the vulnerable. Reductions in tax credits, so popular among voters in the abstract, may prove just as toxic as the poll tax and the abolition of the 10p bottom income-tax rate – both of which were popular until they were actually implemented.

Added to that, the British economy has what the economist Stephen King calls “the Titanic problem”: a surplus of icebergs, a deficit of lifeboats. Many of the levers used by Gordon Brown and Mervyn King in the last recession are not available to David Cameron and the chief of the Bank of England, Mark Carney: debt-funded fiscal stimulus is off the table because the public finances are already in the red. Interest rates are already at rock bottom.

Yet against that grim backdrop, the Conservatives retain the two trump cards that allowed them to win in May: questions about Labour’s economic competence, and the personal allure of David Cameron. The public is still convinced that the cuts are the result of “the mess” left by Labour, however unfair that charge may be. If a second crisis strikes, it could still be the Tories who feel the benefit, if they can convince voters that the poor state of the finances is still the result of New Labour excess rather than Cameroon failure.

As for Cameron, in 2015 it was his lead over Ed Miliband as Britons’ preferred prime minister that helped the Conservatives over the line. This time, it is his withdrawal from politics which could hand the Tories a victory even if the economy tanks or cuts become widely unpopular. He could absorb the hatred for the failures and the U-turns, and then hand over to a fresher face. Nicky Morgan or a Sajid Javid, say, could yet repeat John Major’s trick in 1992, breathing life into a seemingly doomed Conservative project. For Labour, the Tory zombie remains frustratingly lively. 

Stephen Bush is editor of the Staggers, the New Statesman’s political blog.

This article first appeared in the 01 October 2015 issue of the New Statesman, The Tory tide