Osborne has a mini-mansion tax already up his sleeve

Coalition negotiations over the Autumn Statement are fraught but there is one wheeze that could help the Chancellor.

After November’s rash of mini-elections, the next big item on the political calendar is the Chancellor’s Autumn Statement on the economy – on 5 December. (Yes, it is autumn. Winter formally begins with the solstice, but that’s a debate for a different blog.)

The weak performance of the economy means new devices are required if George Obsorne is to show sufficient progress towards his key fiscal targets. That obligation has forced the coalition into another tricky round of tax and cut negotiations. Broadly speaking, the Chancellor wants the lion’s share of the savings to come from the welfare budget. The Lib Dems accept that the benefits bill is too big to be spared but they insist on some form of wealth tax to spread the burden of pain. Their preferred device is the “mansion tax” – a levy on posh real estate.

There are a number of obstacles to this. For one thing, the Chancellor appeared to rule it out before his party’s annual conference. But I’m told by a number of sources that the Prime Minister is the bigger obstacle to wealth taxes of any kind. Perhaps the Chancellor was stung by his misreading of the politics around the 50p income tax rate into recognising the public appetite for conspicuous contributions from those at the very top. David Cameron, by contrast, is said to be stubbornly hostile – something which is causing the Lib Dems considerable frustration.

Usually, people around Nick Clegg are careful not to criticise the Prime Minister too much, saving their darkest whispers for moans about Tory backbenchers who are perceived to be sabotaging the coalition project. The tone now seems to be changing as top Lib Dems mutter about Cameron’s “Shire Tory” instincts and impulse to protect “his rich friends”. In the last couple of weeks I have heard language from people very close to Clegg that echoes the Labour charge that Cameron is out of touch, doesn’t understand how much ordinary people are suffering and is the product of a rarefied, gilded world where his priorities have been warped. As coalition mood music, this is new.

Cameron is also steadfastly refusing to consider any cut in pensioner benefits, having made a “read my lips”-style pledge to protect them in the election campaign. As one government strategist puts it, the PM is terrified of a “split-screen moment” in 2015, with the sequence where he flatly denied he would raid pensioner entitlements in 2010 run alongside some mealy-mouthed U-turn. He will do anything to avoid that hazard.

That doesn’t leave much room for manoeuvre. A freeze in the overall level at which benefits are paid (experienced as a cut when inflation is rising) is likely to do a fair amount of the fiscal work. Another idea floating around is to limit the number of children for whom families can claim child benefit. Iain Duncan Smith has floated a cap of two. The Lib Dems seem divided on this. Some hate the whole idea, thinking it redolent of Victorian-era horror at the idea of poor people breeding. Others think it might be necessary but resist the IDS level. One figure close to Clegg describes a two children-per-family benefit rule as “a bit Chinese” – a reference to Beijing’s one-child-per-family rule.

There’s much more of this kind of argument (and briefing) to come in the weeks ahead. I’m told by someone intimately involved in the negotiations that they will “go to the wire”. So I’ll save some more observations for another blog.

One final thought. Someone in Westminster who spends a lot of time looking at fiscal policy, among other things, yesterday drew my attention to a little-advertised consultation the Treasury carried out over the summer.

It stems from a line in the 2012 Budget, in which the Chancellor promised to raise some money by taxing property transactions carried out by “non natural persons”. That means, roughly speaking, companies, investment schemes and “non dom” individuals who are resident abroad for tax purposes. The relevant section of the Budget speech is as follows:

A major source of abuse – and one that rouses the anger of many of our citizens – is the way some people avoid the stamp duty that the rest of the population pays, including by using companies to buy expensive residential property. I have given plenty of public warnings that this abuse should stop.

Now I'm taking action. I am increasing the Stamp Duty Land Tax charge applied to residential properties over £2 million bought into a corporate envelope.

The charge will be 15%. And it will take effect today.

We will also consult on the introduction of a large annual charge on those £2 million residential properties which are already contained in corporate envelopes. And to ensure that wealthy non-residents are also caught by these changes, we will be introducing capital gains tax on residential property held in overseas envelopes.

Then go to section 2.12 of the consultation document and you get some more detail on the “annual charge” on properties worth more than £2m owned by “non natural persons”, due to be introduced next year. The idea is to make it less attractive for the owners of high value residencies to hold them in corporate vehicles. That in turn should make it easier to charge the new 15 per cent stamp duty rate and capital gains tax on any transactions involving those properties.

I can’t begin to speculate about how much money the Treasury would realistically expect to make from this device. I would, however, hazard a guess that it can be spun quite heavily as a tax clampdown on rich foreign tax dodgers and a kind of mansion tax. That would, of course, mean essentially re-announcing something that has already been signaled, but this government is as good at serially re-announcing things as the last one was. Better even.

To form part of a credible “wealth taxes” story it will have to be packaged up with something much more substantial, but it has Osborne wheeze written all over it. The consultation has been done, it hits “foreign millionaires” and “mansions” and it’s been flagged up already so can be squared with the PM. From the Chancellor’s point of view, as headline-nabbing political tactic, what’s not to like?

Chancellor George Osborne speaks at the Conservative conference in Manchester last month. Photograph: Getty Images.

Rafael Behr is political columnist at the Guardian and former political editor of the New Statesman

Getty
Show Hide image

John Major's double warning for Theresa May

The former Tory Prime Minister broke his silence with a very loud rebuke. 

A month after the Prime Minister stood in Chatham House to set out plans for free trading, independent Britain, her predecessor John Major took the floor to puncture what he called "cheap rhetoric".

Standing to attention like a weather forecaster, the former Tory Prime Minister warned of political gales ahead that could break up the union, rattle Brexit negotiations and rot the bonds of trust between politicians and the public even further.

Major said that as he had been on the losing side of the referendum, he had kept silent since June:

“This evening I don't wish to argue that the European Union is perfect, plainly it isn't. Nor do I deny the economy has been more tranquil than expected since the decision to leave was taken. 

“But I do observe that we haven't yet left the European Union. And I watch with growing concern  that the British people have been led to expect a future that seems to be unreal and over-optimistic.”

A seasoned EU negotiator himself, he warned that achieving a trade deal within two years after triggering Article 50 was highly unlikely. Meanwhile, in foreign policy, a UK that abandoned the EU would have to become more dependent on an unpalatable Trumpian United States.

Like Tony Blair, another previous Prime Minister turned Brexit commentator, Major reminded the current occupant of No.10 that 48 per cent of the country voted Remain, and that opinion might “evolve” as the reality of Brexit became clear.

Unlike Blair, he did not call for a second referendum, stressing instead the role of Parliament. But neither did he rule it out.

That was the first warning. 

But it may be Major's second warning that turns out to be the most prescient. Major praised Theresa May's social policy, which he likened to his dream of a “classless society”. He focused his ire instead on those Brexiteers whose promises “are inflated beyond any reasonable expectation of delivery”. 

The Prime Minister understood this, he claimed, but at some point in the Brexit negotiations she will have to confront those who wish for total disengagement from Europe.

“Although today they be allies of the Prime Minister, the risk is tomorrow they may not,” he warned.

For these Brexiteers, the outcome of the Article 50 negotiations did not matter, he suggested, because they were already ideologically committed to an uncompromising version of free trade:

“Some of the most committed Brexit supporters wish to have a clean break and trade only under World Trade Organisation rules. This would include tariffs on goods with nothing to help services. This would not be a panacea for the UK  - it would be the worst possible outcome. 

“But to those who wish to see us go back to a deregulated low cost enterprise economy, it is an attractive option, and wholly consistent with their philosophy.”

There was, he argued, a choice to be made about the foundations of the economic model: “We cannot move to a radical enterprise economy without moving away from a welfare state. 

“Such a direction of policy, once understood by the public, would never command support.”

Major's view of Brexit seems to be a slow-motion car crash, but one where zealous free marketeers like Daniel Hannan are screaming “faster, faster”, on speaker phone. At the end of the day, it is the mainstream Tory party that will bear the brunt of the collision. 

Asked at the end of his speech whether he, like Margaret Thatcher during his premiership, was being a backseat driver, he cracked a smile. 

“I would have been very happy for Margaret to make one speech every eight months,” he said. As for today? No doubt Theresa May will be pleased to hear he is planning another speech on Scotland soon. 

Julia Rampen is the editor of The Staggers, The New Statesman's online rolling politics blog. She was previously deputy editor at Mirror Money Online and has worked as a financial journalist for several trade magazines.