Forget about mansion tax and look to growth instead

Labour would be better off replacing its imminent tax plans with centrist policies to boost growth

- Sean O'Grady

Why is the Labour government so unpopular? Books could, and one day will, be written about the curious collapse in its popular support as witnessed in opinion polls, by-elections and local elections, and a sort of media chorus of gloom.

It’s complicated, obviously, but if one word had to suffice to explain this multifaceted political phenomenon, it would be a short one indeed: “tax”. If Sir Keir Starmer’s administration is to survive, let alone win a (currently highly improbable) second term, that must change.

Sadly, that doesn’t seem likely in the short term. As the chancellor approaches her Budget in a month’s time, there are plainly no good options facing her, and some very bad ones appear to be circulating in government circles.

The so-called mansion tax, for example. Superficially, this seems an attractive idea. In the version that has leaked into the public domain, it targets people with homes worth £2m or more, with a levy of 1 per cent to be paid on the excess over that threshold. So someone with a property valued at £3m would be assessed on the basis of 1 per cent of the £1m over the threshold - so £10,000. Sounds great, you might think. Yet it doesn’t frankly feel quite right and fails on a number of grounds, including fairness, as it happens.

Most glaringly, it assumes that the £3m valuation has no debt attached to it. In some cases, the lucky occupants may have inherited the place, but in others it will have a hefty mortgage attached, and the actual net wealth held in equity in the house may be relatively small, and below the notional threshold. But if you made the tax liability net of the mortgage, you merely incentivise people to take out more debt to neutralise the tax or otherwise keep the mortgage artificially high.