Home Property Clegg will cause property market "meltdown", warn experts

Clegg will cause property market "meltdown", warn experts

by Asa
26th Sep 12 6:21 am

Businesses in outrage over LibDem “London-focused blitz”

The mansion tax is back from the dead.

After the wily shadow chancellor Ed Balls dangled it as an idea to tempt business secretary Vince Cable, the vitriol from the property sector should have blasted it to smithereens.

But now with the LibDem conference in full swing, the tax is back with a vengeance.

Chief secretary to the Treasury Danny Alexander made this clear when he told the wealthy that “we are coming to get you”. Meanwhile, deputy prime minister Nick Clegg has been dusting off the idea of a mansion tax, aimed at properties worth more than £2 million. The LibDems have also passed a motion at their conference saying that a new tax on wealth is “at the heart of Liberal Democrat thinking”.

He claimed there was an “increasing number of Conservatives” who back it, and that there was a “very good chance that we can make the top pay more tax”. (The FT’s Janan Ganesh has also argued that greater tax on the rich is “true to Tory principles”)

There have even been suggestions that Clegg wants to go after the “top 10%” in society, hitting those earning more than £50,500 with more taxes.

After the initial hubbub died down, Clegg has suggested a seemingly different policy – increasing council tax for those living in properties worth more than £1 million.

Clegg has insisted that these extra taxes could be easy to implement, saying “The Office of Valuation can identify in five seconds flat the properties which are worth £2 million or more in this country”.

So what could be the impact of ideas like this from Clegg? Conservative sources already warn that they will “hit asset rich, cash poor families”, and may be a new version of the widely unpopular “granny tax”.

Also, when it comes down to it, how would a ‘mansion tax’ be substantively different from jacking up council tax on higher value properties? Both would work for the same ends, so Clegg looks to be planning to get a “mansion tax” by the back door. Will Clegg’s “fairer taxes” be any better?

We know already that Savills and Knight Frank estate agents aren’t great fans of a “mansion tax”, warning that it would be “very damaging” and a “double whammy” for London.

Professor Philip Booth, from Cass Business School, rails at Clegg’s “vindictiveness”.  

“Britain’s problem is not that it is taxing some people insufficiently, but that the government is trying to take too much in tax from everybody. Currently, the top 1 per cent of earners pay nearly 30 per cent of all income tax. The 14,000 highest earners pay the same amount of income tax as the 14,000,000 lowest earners.”

“There are some anomalies in our system of property taxation which could reasonably be addressed in a general review and radical reform. However, to simply introduce a series of ad hoc and incoherent measures to tax a small number of people more smacks of vindictiveness. It is the sort of vindictiveness that is likely to drive tax receipts down in the long run as people decide to live in countries where the level of tax is more conducive to business.”

Lisa Wilson, tax partner at HURST accountants, is similarly scathing as she accuses him of “grabbing headlines but not offering solutions”.

 “Making members of society who earn more, pay more hasn’t worked before, so why should it now? Making those who earn £50,000 plus, pay more tax will act as a disincentive to the already squeezed middle. We should be encouraging our working population to work more not less, encourage entrepreneurs to strive for growth by taking risks not disillusioning them with a punitive tax regime.”

“Clegg’s proposal has no substance as he has failed to explain how he would introduce such a measure and what the benefits of doing so to our economy would be.”

Hudsons Property MD Jonathan Hudson warns that Clegg’s idea will lead to a “London-focused blitz”, as “the majority of the people targeted being middle class tax-abiding families exposed by the inflation in property prices.”

Clegg’s renewed idea of the mansion tax doesn’t cut much ice with estate agent James Wyatt either. He warns it could bring about “meltdown” in the London property market.

“This proposed tax is jealousy tax, designed to raise very little cash in return for politicians hoping to improve their non-existent ‘approval’ ratings with the public.”

“With the Paris property market in meltdown, caused by the left wing Government threatening to impose huge tax rises, London could see the same. By taxing at ever higher levels, higher rate tax payers will find alternative ways to protect their income and assets.”

Banda Property’s Edo Mapelli Mozzi previously told us the mansion tax idea would be “disastrous”, is he any happier with the idea now?

“The problem is that the LibDems are trying to win votes rather than resolve the issues.   This may be cynical but wealth taxes have not assisted economic growth elsewhere so it does not necessarily stand that they will work in the UK. There is also an element of hypocrisy given the reduction of income tax rate from 50% to 45% in a draw to win support from those higher-level taxpayers”.

“Surely alienating those who already live in London, and discouragi
ng others from moving to the city, will create greater hardship and economic disruption?”

Meanwhile, property guru Ed Mead is not pleased with the flexing of “left wing muscle” against a “relative minority of people who mostly have worked and used already taxed income to buy a house”.

“This is a guaranteed way to put those wealthy foreigners who sustain and help build our economy off coming to this country. My clear experience is that many considering bringing their spending power to London are now not doing so as they fear a mansion tax is the thin end of the wedge.

“At a time when most Euro Governments need votes this is an increasingly, and cynically, viewed way of getting them whilst losing the fewest votes” he adds

So that is the feeling from the markets Clegg, don’t be surprised if the Treasury isn’t too keen on your idea…!

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