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16 October 2014

Why Labour’s London mayoral hopefuls might regret their opposition to a mansion tax

By resisting a progressive measure backed by most Londoners, they have given Sadiq Khan the chance to position himself as the radical candidate. 

By George Eaton

Of London’s likely London mayoral candidates, there are now four who oppose the party’s policy of a mansion tax. David Lammy (the only officially declared candidate bar transport expert Christian Wolmar) and Tessa Jowell have rejected the measure, which would involve a charge of 1 per cent on property values above £2m, as “a tax on London”. Margaret Hodge has declared: “The problem identified is the right one, I just think the solution is too crude to work properly.” Even Diane Abbott, a stalwart of the socialist Campaign Group, has warned: “The turbo-charged nature of the London property market means that anyone who bought a family house in a previously unfashionable part of London decades ago could easily now be living in a house worth over £1m. And, although the mansion tax will not affect properties at that level, I suspect that those voters will be jumpy.” (Andrew Adonis, who was considering standing, but is now expected to support Jowell, has also criticised the policy). 

Only Sadiq Khan, the shadow London minister and shadow justice secretary, has remained loyal to the party line. Khan, a leading figure on the left of the party and a close ally of Ed Miliband (he ran his leadership campaign), regards the tax as vital to reducing inequality in the capital. 

What explains the hostility of his rivals to a progressive and popular policy? (72 per cent of the public and 59 per cent of Londoners support it.) The primary concern expressed is that it will penalise those who are asset rich but cash poor: people on modest incomes who could struggle to afford the £5,000 bill that a £2.5m property would incur. But this issue has already been addressed by Ed Balls, who announced in June that there would be “protections in place” for this group. This would take the form of a relief scheme, or allowing low-earners to defer payment until the property is sold. The shadow chancellor also responded to the concern expressed by Abbott by pledging that the threshold for the tax would be raised annually in line with average increases in house prices, rather than general inflation. This, he said, would “ensure that more modest properties are not brought into the scope of the tax”. 

But rather than policy, it is politics that may explain the mayoral hopefuls’ stance. All are keen to avoid being seen as “party hacks”, and to be seen to defend Londoners (90 per cent of properties worth more than £2m lie in the capital), even if against their own party, following the example set by Ken Livingstone and Boris Johnson. By opposing a mansion tax they also helpfully align themselves with the position of the Evening Standard, which has long criticised the measure as “a tax on London”. 

Yet, for similarly political reasons, they could yet regret their stance. London is one of the most unequal cities in the developed world; it is home to more billionaires than any other, but one in three Londoners live in poverty, two-thirds of them in work. A recent poll found that 80 per cent of residents believe the income gap is too high and that 87 per cent believe rising inequality is unfair. Contrary to claims that “ordinary” voters would be hit, it’s estimated that only 0.4 per cent of Londoners would be affected – 80 per cent of them within the wealthy boroughs of Westminster and Kensington and Chelsea. Last year, only two properties in Jowell’s borough of Southwark, one property in Lammy’s borough of Haringey, and no properties in Hodge’s borough of Barking and Dagenham were sold for more than £2m. 

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By nonetheless opposing the policy, they have provided Khan with a potent dividing line for the Labour selection contest. Bill de Blasio won election as New York mayor last year (and defeated his centrist rivals) by campaigning on the theme of of “a tale of two cities” and vowing to radically reduce inequality. In resisting the redistributive mansion tax, Labour’s London mayoral hopefuls have given Khan the chance to similarly claim this territory for himself.