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Last updated: February 14, 2013 7:51 pm
Ed Miliband on Thursday put the wealthy on notice that a future Labour government would squeeze the rich with a £2bn tax on expensive homes to fund a revival of the 10p starting rate of income tax, axed by Gordon Brown.
In his boldest policy move since becoming Labour leader, Mr Miliband said a “trickle down” approach to wealth distribution had failed and that he would impose a mansion tax on some 70,000 homes worth more than £2m. “We would use the money to cut the taxes for working people,” he announced, vowing to partially reverse Mr Brown’s controversial abolition of the 10p income tax band in his final Budget as chancellor in 2007.
“We would put right a mistake made by Gordon Brown and the last Labour government,” Mr Miliband added, claiming that both he and shadow chancellor Ed Balls pleaded with Mr Brown not to abolish the starter rate.
David Cameron’s aides said the policy was “an astonishing admission of economic incompetence”, arguing that the coalition was already helping those on low incomes by raising the tax-free allowance to almost £10,000.
Mr Miliband has been criticised by Tories and some Labour MPs for failing to flesh out his vision with specific policies. With Thursday’s announcement, he has begun to map out the specific contours of Labour’s election battleplan.
The Labour leader’s speech represented a pre-emptive strike against the Conservatives, whom he suspected were about to revive the idea of a 10p starter rate of tax in their own election manifesto.
Mr Miliband also recognises that the economy could be recovering by the time of the 2015 election and that he needs to move Labour’s attack beyond just a blunt assault on the coalition’s alleged economic failure.
The Labour leader, whose chosen terrain is now one of falling living standards, delivered his speech in Bedford to deliberately echo Harold Macmillan’s “never had it so good” speech in the town in 1957.
He said: “Far from feeling they have never had it so good, millions across Britain fear they will never have it so good again . . . The squeezed middle has never been so squeezed.”
The decision to copy the Liberal Democrats’ mansion tax plan will be seen in some quarters as an overture to its architect, Vince Cable, who is known to favour closer relations with Labour.
But Mr Miliband’s main objective is to target the low and middle income voters who will determine the next election, and for whom rising bills and falling real incomes have become a fact of life.
Although Mr Miliband said the mansion tax was not yet a manifesto commitment, it seems unlikely it will be dropped. Labour, however, has not worked out how exactly its mansion tax would operate or how – as Mr Miliband promised – “asset rich and cash poor” elderly people living in expensive homes would be protected.
Concerns about overseas investors
The UK’s luxury property industry warned that Ed Miliband risked deterring international investors from the UK capital with his plan for a mansion tax on homes worth more than £2m, write Ed Hammond and Jim Pickard.
The concerns of developers and estate agents specialising in so-called “prime property” echo those raised last year when George Osborne, the chancellor, raised stamp duty land tax from 5 to 7 per cent on sales of the most expensive homes.
Mr Miliband, the Labour leader, said on Thursday that an annual levy of 1 per cent on homes worth over £2m would raise £2bn a year. This was disputed by industry experts, who argued the tax would raise only half that figure and would be disproportionately felt in London.
Research from Savills, the estate agency, suggests 91 per cent of the country’s houses worth more than £2m were in London and the southeast.
“It would be costly to administer given the potential for valuation disputes and would risk adversely affecting the income-poor asset-rich. At the extreme, the burden of additional property taxes could become an effective tax on our built heritage if it is applied to large listed houses,” said Lucian Cook, a director of residential research at Savills.
Liam Bailey, head of residential research at Knight Frank, the property consultancy, said it was hard to assess the impact on the market. But he warned that “the experience of the recent stamp duty hike is that initial uncertainty led to sharply reduced transaction volumes until partial certainty was belatedly provided by the draft finance bill in December.
“Politicians need to begin to understand that investment in development and construction is a long-term process and is best served by relative stability in the tax and legislative environment,” he added.
Tory strategists noted wryly that the £2m mansion tax band would not quite apply to Ed Miliband’s house – but would apply to his brother David’s – in an attempt to remind voters that both Milibands are more than comfortably off.
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