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'My home is worth more than 5million – and I want to pay more tax on it': A surprising view from a Tory MP – and ally of George Osborne – as mansion tax row rages
The MP for Straford-Upon-Avon says we must ensure 'those with the broadest shoulders carry the biggest burden'Already, the richest in the country will be paying a greater share of tax
But, one area of system does not adhere to that principle – council tax
16:33 GMT, 25 November 2012
While it should be applauded that we’ve reduced the deficit by a quarter in just two-and-a-half years, we have to remember that we’re still borrowing almost 400 million a day.
The Government has always been clear that the deficit will be eliminated by a mixture of spending cuts and tax rises. In fact, in the emergency Budget the Chancellor even put a number on that mix – 77 per cent from spending reductions and 23 per cent from increased taxation.
To get anywhere near the spending reductions we need, the Government has to look again at welfare and consider freezing working-age benefits. But alongside further spending reductions must come proof that we are doing all we can to ensure those with the broadest shoulders carry the biggest burden.
Exclusive: Nadhim Zahawi owns a 5million home in an exclusive London neighbourhood
Already, thanks to the closure of tax loopholes, the richest in this country will be paying a greater share of tax in every year of this Parliament than in any year of the last Labour Government.
However, there’s one area of our tax system that isn’t adhering to that principle: council tax. The highest council tax band in England is Band H – which includes any property that in 1991 would have been worth more than 320,000. Today, such a property in London would be worth at least 1.2million and in the West Midlands around 880,000. As a result, someone who has worked hard and saved their whole life to buy an admittedly very comfortable Band H home in Stratford-upon-Avon pays 3,000 a year in council tax.
Yet the billionaire oligarch in his 25 million Band H pad in Chelsea pays just 2,150 a year – thanks to Kensington and Chelsea’s low council-tax rates. Resolving this isn’t the politics of envy as some claim, it’s about ensuring there is simple fairness in our existing tax system.
The majority of Conservative members even agree – in a survey by the Conservative Home website almost 60 per cent say they support the introduction of higher council-tax bands. I speak as the owner of a 5 million home.
Appeal: MP Nadhim Zawahi says it's important to remember that we're still borrowing almost 400million a day
Fixing this anomaly needn’t be expensive or involve revaluing every single home in Britain. After all, the last thing the Government wants is to increase bills for hard-working families and undo the good work of the council tax freeze.
A much simpler approach would be to simply use the 1991 values of the 132,000 English homes in Band H and reallocate them to a vamped-up Band H or one of two new bands, I or J.
There are those who argue that increased taxes on wealth are immoral and somehow un-Conservative, but I have to disagree. While we are the party of property ownership, Conservatives also believe that it’s a good thing to let people keep more of their earned wealth.
That’s why I not only supported the lowering of the 50p tax rate to 45p but would have liked to have seen it go further. We’re a party that believes in work and being rewarded for it, so we should support the lowering of tax on earned wealth – but also the increased taxation of unearned wealth.
The Chancellor has made it clear that the deficit will be eliminated by spending cuts and tax rises
This isn’t just an ideological argument, it’s also an economic one. In a recent paper the Organisation for Economic Co-operation and Development stated the evidence shows that to encourage growth, countries should cut their highest income tax rates and increase property taxes. They argue that this changes behaviour – not just giving people more money to spend but shifting investment towards wealth creation.
The Lib Dems will claim this is why we need their version of a mansion tax, which is a centrally imposed levy on the value of the entire property.
Yet such a tax does nothing to encourage aspiration or growth. With this kind of mansion tax on the books, a Chancellor looking for ways to prove that their Budget soaks the rich – or simply needing to raise more cash – will be too tempted to fiddle. It would be all too easy for them to increase the rate or charge it on lower-priced homes.
In contrast, council-tax charges are determined at a local level and set as a proportion of a Band D property, not at an arbitrary rate. A desperate Chancellor would have far more difficulty manipulating council tax bands than a mansion tax.
There are also the usual voices who say that higher charges will lead to the super-rich fleeing London but this, of course, is nonsense. Even if the new Band J worked out at 10,000 a year, it would still be only 0.1 per cent of the current value of a 10 million home. In comparison, a Band D property pays about 0.6 per cent.
Given that it is a rare tax rise that is actually good for economic growth, we should do the right thing and introduce higher council-tax bands.
Only by winning the argument that the richest are paying their fair share will we be able to make the case to freeze benefits and further reduce our crippling deficit.