Property Taxes in London

Debate between Mark Field and Stephen Hammond

Tuesday 24th March 2015 Westminster Hall

[Mark Field (Cities of London and Westminster) (Con)]

The so-called mansion tax is a big issue and will continue to be so in London for the next 44 days, in the run-up to the general election. It is not enough for those of us who are against what is proposed simply to oppose it. We—mainly Conservative Members—need to be on the front foot and have our own proposals for a property tax. That is what I want to put forward in this short debate.

As the new year dawned, the right hon. Member for East Renfrewshire (Mr Murphy) announced that the Labour party would

“tax houses in London and the South East to pay for 1,000 new nurses in the Scottish NHS.”

Although he later clarified that he was referring only to Scotland’s share of any new mansion tax, the coupling of Labour’s mansion tax policy to its battle to the death with the Scottish National party, north of the border, over NHS staffing was doubtless deliberate. The Scottish Labour leader knew only too well that his focus on two targets of Scottish resentment, notionally London and the well-off, would play wonderfully with his audience.

Alas, such messages resonate south of the border, as well. The notion of London and Londoners as some sort of cash cow able to fund all manner of policy promises has gained widespread traction in recent years. The capital city apparently sparkles with success and is brimful of confidence at a time when other parts of our kingdom are struggling. Increasingly people speak of London’s alienation from the rest of the UK, as the metropolis gobbles talent and makes a compelling case for its ever-increasing infrastructure budgets.

Meanwhile, the issue of housing in London itself has become toxic. Boosted by the weakness of sterling and the perception of the UK as a safe haven, foreign money has flooded into England’s prime housing market. As the international enclave expands in the central London boroughs, prices are driven up in the outer suburbs. Meanwhile, rapid population growth, a lack of housing supply and the difficulty of saving for a vast deposit, alongside boosted prices that were already artificially affected by low interest rates and Government programmes, have made it tough even for professionals to enter the property market in our capital city.

As a result, a passionate debate now rages about the possible imposition of a mansion tax, as a means of addressing the resentment felt both by the rest of the country towards its capital and by those Londoners excluded from the apparent property bonanza. Both the Labour party and the Liberal Democrats have made it clear that they wish to push ahead with such a levy on all properties valued at over £2 million. I appreciate that in a globally mobile world it is increasingly difficult to raise tax income, and so fixed assets such as real estate will inevitably tend to attract higher rates of taxation. But in spite of those parties’ apparent concern for fairness, as they would put it, neither has been receptive to the genuine worries of many of those hit hardest by their plans: people who happen to reside in homes whose value has inflated in recent decades to a level that bears no relation to the household’s ability to stump up large annual cash sums in a mansion-tax type levy—in other words, the asset rich but cash poor.

I suspect a hefty annual mansion tax would drive greater numbers of Londoners from their homes, vacating even more prime central property for the global super-rich. As such, it should be vigorously opposed. Undeniably, however, my own Conservative party risks being left behind in the public debate on the issue if it fails adequately to address the resentments behind the mansion tax’s apparent popularity. The Chancellor has already rapidly raised rates of stamp duty, particularly for homes purchased by companies, non-doms and offshore vehicles. Local authorities in London have also been given the power to remove most exemptions from council tax for empty homes and second homes via the Local Government Finance Act 2012. But the coalition is yet to grasp the nettle on council tax, and it is that prospect that I will raise with the Minister today.

As the Minister will know, council tax was introduced in April 1993 as the primary source of collecting income from local residents by local authorities, as a hybrid personal and property imposition. It came hot on the heels of the ill-fated and short-lived community charge—better known as the poll tax—which had itself replaced domestic rates in England in the spring of 1990. As we know, the levy for councils in England is calculated by allocating a dwelling to one of eight bands, A to H. The allocation is made on the basis of a property’s assumed capital value. But that assumption is based on prices as they stood on 1 April 1991—almost a quarter of a century ago. Newly constructed properties are also assigned a nominal 1991 value, albeit one reflecting national rather than localised variations in value over the past 24 years.

The tax is not even particularly proportionate to property values, as the same amount is levied on all homes valued at over £320,000 at 1991 prices, which is the national band H. That means that about half of all houses in the capital are now placed in the same council tax band, even though their size, location and value are vastly different. A Knightsbridge oligarch, for instance, is paying £1,353.48 in council tax on a £60 million home, exactly the same amount as that levied on properties worth one thirtieth of that sum—properties that would fall within the mansion tax band.

If the current outdated system of valuation seems ludicrous, it can be explained by a concern among politicians that the process and time taken for revaluation would be contentious, difficult and potentially costly to voters. However, there is a solution that is neither overly complex nor anything like as painful as a mansion tax. More important still, it could have a big upside when it comes to the provision of affordable housing.

My central London constituency has one of the highest concentrations of high-value properties anywhere in the country, so my constituents would be particularly vulnerable to the imposition of a new blanket mansion tax along the lines proposed. Indeed, over the past six or seven months I have been bombarded with letters telling me that, in spite of my vigorous opposition to a mansion tax, I should be doing more to stop my political opponents from even talking about one. Many of my constituents simply do not have the thousands of pounds in cash needed each year to pay a mansion tax levied in addition to council tax. They are also concerned that any additional income would go straight to central Government and be distributed elsewhere, along the lines of the promise of the right hon. Member for East Renfrewshire to pay for Scottish nurses with Londoners’ money.

[Stephen Hammond (Wimbledon) (Con)]

Like me, my right hon. Friend has received letters from people who have lived in their houses for very many years, many of whom are now widowed, who face the prospect of being forced out of their homes by this relatively iniquitous tax. It takes no account of ability to pay; it works from a snapshot. Its unfairness is regional and also generational.

[Mark Field]

My hon. Friend is absolutely right. We have all had heartfelt letters from elderly folk in particular who are worried sick about the prospect. As I say, the perverse impact would be that they would be driven out of their homes and those homes would be more likely to end up in the hands of the very oligarchs that the mansion tax is supposed to prevent from monopolising the London property market.

Many of my correspondents recognise that the current structure of council tax requires urgent updating and would be receptive to the imposition of additional bands to recognise differential property values—something that would, again, disproportionately penalise London. Currently, all banding ratios are set down in statute, but the Government could allow local authorities to set their own for band H and above, with bands A to G remaining at their existing statutory ratios. A ceiling could be set so that council tax would always be limited to, for example, a band J of three times the existing band H charge, to ensure that it would not become a mansion tax by the back door.

The City of Westminster might not be the most typical of local authorities, but obviously it is close to my heart. In that central London borough, a band H property is now likely to be worth more than £2 million; there are just under 15,000 of such homes. However, there is a vast difference between a £2 million flat in Pimlico and a home valued at £60 million in One Hyde Park in Knightsbridge.

Local authorities could be empowered to impose additional bands—for example, a band H for prime properties worth between £2 million and £5 million, a band I for intermediate prime properties worth between £5 million and £15 million and a band J for super-prime properties worth more than £15 million. Crucially, the Government ought to ensure that all additional council tax or prime property tax income over and above the existing band structure is retained by the local authority on the proviso that it is earmarked exclusively for affordable housing in the area. That positive and highly localised proposal could be a far more eye-catching and exciting way of countering the envy-driven mansion tax and tackling perceived housing inequality. It would also chime perfectly with the spirit of the age. As I mentioned earlier, the Government have moved towards a system that gives local authorities discretion over empty property taxes, so we are already empowering local authorities to apply local circumstances to the levying elements of council tax.

Strong currents are pushing us towards a further devolution of central powers. London, in particular, would surely be able to make a compelling case for localised revenue raising—particularly if Scotland becomes ever more autonomous. Meanwhile, the enormous and growing pressure on London’s housing supply will lead to an ever stronger case being made for the money raised in the capital from its prime housing stock to be retained in the city for the provision of affordable housing.

Politically, there is a compelling case to make. Residents in prime central houses are paying about a third of what they were paying in rates, compared with even the 1980s, while the burden for those further down the scale has increased proportionally. Reformers should take up this opportunity with relish. However, the proposal will work only if the additional ring-fenced income is disregarded by central Government when determining a local authority’s funding stream, to prevent councils from being financially disadvantaged by the use of the proposed new bands. That could be achieved through a relatively minor revision to the Government’s annual tax base return—CTB1—to show that each local authority’s tax base calculation for bands H, I and J are along the lines I have proposed and are based on the existing 18/9 band H ratio. That would ensure that the local authority funding streams calculated using the CTB1 tax base data remain unaffected. It would be a relatively straightforward change, as far as the Minister’s Department is concerned.

Although my proposal avoids the complexity of a fully fledged revaluation, it should nevertheless be noted that such complexity is fast reducing with the rise of online property sites, which are able to provide pretty accurate historical and current market assessments. Would it really be that difficult to establish a system of self-assessment, such as the one in France, where there is a wealth tax whereby the worth of the equity of a property is submitted on an annual basis and can be challenged by the town hall if it is thought not to be an accurate assessment of market value?

My party must never give in to the politics of envy and to class war rhetoric, but the wide support for a mansion tax among some fair-minded people is, in part, a reflection of a collective failure to grasp the nettle by comprehensively reviewing property taxes. However, the mansion tax, as proposed by the other two main political parties in England, must not go ahead. It is mooted as fair—whatever that really means—but the real, practical concerns of people in my constituency are simply disregarded as the bleating of the cosseted rich, despite its threatening to ruin many. That applies to Wimbledon as much as it does to the Cities of London and Westminster. My hon. Friend the Member for Wimbledon (Stephen Hammond) and I are used to heartfelt pleas from elderly constituents, many of whom are sickened with worry about this matter.

The time is ripe to tackle the outdated system of council tax in a way that is fairer and allows for genuine local discretion. Incremental targeting of the highest-value properties could be accompanied by a new localised council tax support scheme that would allow specific instances of individual hardship to be addressed.

It is widely reported that our capital city may just have equalled its peak population, and it is anticipated that 100,000 people per year will be added to this great metropolis. The capital urgently needs more housing of all types, but particularly more affordable housing. If the money from London’s additional council tax bands were to be reinvested directly into the communities whence it came, we could begin to provide the homes that the next generation of Londoners desperately needs. I implore the Minister to look in detail at these issues so the electorate can be presented with a real choice on these matters on 7 May.

Taxis and Private Hire Vehicles

Debate between Mark Field and Stephen Hammond

Tuesday 29th April 2014 Westminster Hall

[Stephen Hammond]

I expect the Law Commission to come up with a lot of positive suggestions and a lot of recommendations on removing some of the more archaic aspects of the existing legislation. I do not expect any of what is being proposed to contradict in any way that report. We have had to weigh up the case for finding a suitable opportunity to look at pragmatic changes in the immediacy rather than looking at the possibility of waiting until everything is reviewed. The Government have chosen to operate and act pragmatically, and to introduce limited measures at this point, because it is clear that the care we are taking to introduce the amendments will make life easier for small businesses and allow them to remove some restrictions that are completely unnecessary. That opportunity has been presented by the Deregulation Bill. It allows us to make immediate progress to assist both taxi and private hire businesses.

[Mark Field]

My hon. Friend the Minister is absolutely right. This issue is a frustration for us all. As I mentioned in my earlier intervention, I would like pedicabs to be brought within the scope of regulation and the Law Commission is quite keen that they be regulated. But clearly, once the Law Commission reports, it will take some time before a Bill gets on to the statute books. I say to all Opposition Members that it surely makes sense that elements of deregulation that apply to all small businesses, whether in the private hire vehicle industry or elsewhere, should become apparent sooner rather than later, given that it will probably be, I fear, the next Parliament before we can get the fruit of the Law Commission’s work into a Bill that, I hope, all of us will be able to support in Parliament going forward.

[Stephen Hammond]

I thank my hon. Friend for that intervention. He is absolutely right. The measures that we are introducing via the Deregulation Bill will apply in England outside London and Wales. They represent the first part of a longer journey towards a deregulated trade. As I said, my hon. Friend is right. I remember in the last Parliament arguing in this very Chamber that pedicabs should be regulated and the member of the Government saying that they should not be. Perhaps there has been a change of view on regulation. I see this as the first part of a journey that my hon. Friend is right to say is likely to take longer than the lifetime of this Parliament, because of the necessary review of the Law Commission report. Let me just state this on the record. I do expect there to be more comprehensive reforms. We have asked the Law Commission to undertake extensive consultation, and it has done that. I referred earlier to the more than 3,000 responses that there have been already. It is worth stating on the record that each of the measures that we propose we have already discussed in detail with the Law Commission.

Amendment of the Law

Debate between Mark Field and Stephen Hammond

Thursday 24th March 2011 Commons Chamber

[Stephen Hammond (Wimbledon) (Con)]

Before I start, let me refer the House to the register. I give advice on transport matters to the Confederation of Passenger Transport, and economic advice to the Professional Contractors Group.

I am delighted to follow the hon. Member for West Bromwich West (Mr Bailey), the Chairman of the Business, Innovation and Skills Committee, who welcomed a number of the measures in the Budget. Some will clearly be helpful, so it was perhaps disappointing that the shadow Chancellor did not acknowledge them. He will probably be relieved to learn that I have little in common with him, apart from the fact that we were both economics undergraduates—I suspect that he was rather more distinguished than I was. I remember one of the first tutorials given by Maurice Peston, now Lord Peston, a former Labour adviser who taught us about economic debate. I just wonder whether the shadow Chancellor needs to reflect on how his proposition that the cuts are being made too fast and too deep is equally a subject of economic debate, and whether, as could be argued, he is being just as ideological and dogmatic as he claims the Government are.

For there are some economic facts—some economic truths—even if the shadow Chancellor did not want to accept them this afternoon. Whatever he says, this Government were left with the biggest peacetime deficit—a deficit that was 11% of GDP, twice that of Germany and Italy, while France had 8.6%. Borrowing is costing £120 million, and let us be clear: the total stock of debt tripled over the lifetime of the Labour Government. Those are facts.

[Mr Mark Field]

Does my hon. Friend also accept that the brutal truth is that for many years we have collectively lived well beyond our means? Only our near-zero interest rates are disguising just how damaging that is.

[Stephen Hammond]

My hon. Friend makes a correct point, and those are true facts. The causes of those facts may be in dispute. There is a clamour from the Labour party about the financial crisis. No one is suggesting that it did not happen, but equally the Labour party cannot escape the fact that this country had a structural deficit before the financial crisis or that Labour contributed at least partly to that crisis, because the regulatory regime that the previous Government put in place made no estimation of systemic risk.

There are risks to the Budget strategy—although I should say from the outset that I support it wholeheartedly. Those risks concern the lack of growth in places such as Brazil, India and China—which are slowing dramatically compared with previous levels—global inflation and the eurozone crisis, which the Prime Minister is talking about today. There are risks to the Budget strategy; it is just that the risks that the Opposition are talking about are not the risks that are real. Their strategy relies on their comment about the cuts being “too fast, too deep”. This is not just about the fact that no international economic body agrees with them, or about their plan to halve the deficit over the lifetime of this Parliament—which the shadow Chancellor reiterated again this afternoon, albeit without giving any detail. That deficit might or might not halve, but the total stock of debt would still rise, as would the cost of servicing it, even at this level.

The shadow Chancellor was wrong blindly to dismiss what is happening in the gilt markets. I read the yield curve this morning, just as he did, and it is clear that 10-year gilts yields are low at the moment. If the market believed that the Government’s debt reduction plan was going to change, those yields would undoubtedly rise and the cost of borrowing would rise substantially from £120 million a day, ruling out any prospect of more of the things that we really want to spend public money on. Labour Members shouted out, “Too fast, too deep,” yesterday, but they should remember that there are risks involved, and that theirs is an equally dogmatic strategy.

It has been interesting to observe the movement in the past year from the Opposition Benches to the Government Benches. Year after year, as we sat on the Opposition Benches, we listened to Chancellors changing their forecasts and changing the length of economic cycles. I would gently say to the Opposition that we have growth in the economy, and that there is growth for the next four years. Its overall level might be tinkered with slightly, but the forecasts often change—

[Stephen Hammond]

No, far from it. The hon. Gentleman was not in the last Parliament, when the Chancellor consistently got it all wrong. The Opposition say that the Government’s position is dogmatic, but my contention is that theirs is equally dogmatic.

[Mr Mark Field]

Does my hon. Friend also recognise the massive distinction, in the context of forecasts on growth and throughout the economic sphere, between what happened before the election and what has happened since May 2010? In the past the Chancellor of the Exchequer made the forecasts in his own interests. We have instituted the independent Office for Budget Responsibility, and it is a sign of the robustness of its independence that it has issued the downgrades in the forecasts to reflect changing circumstances.

[Stephen Hammond]

Indeed; I am grateful to my hon. Friend.

The shadow Chancellor, in contending today that the changes were too fast and too deep, once again relied on the Keynesian multiplier. He is an eminent economist, and he should know better than to rely too heavily on that mechanism. It has traditionally held out the prospect that public sector investment has an impact on the private sector, so there could be an element of crowding out and of limiting of growth potential. If the right hon. Gentleman has read the recent academic research, however, he will also know that the size of the multiplier in the growth phase of an economy is about a third of the size of the multiplier when an economy is going into recession. To rely on that thesis is therefore to rely on a very weak economic mechanism.

But let us leave the world of deficit denial behind, and welcome a Budget that does not bow to pressure. It is hugely important that the Government should stick to their policy of deficit reduction, as that is the only way to achieve long-term growth in the economy. Market rates clearly indicate that there is confidence in what the Government are doing, and to be blown off course would result in a loss of confidence. The cost of borrowing and the yields on 10-year gilts, which are important for the cost of industry borrowing and UK Government borrowing, would change. Domestic inflation would rise in those circumstances, and any indication of making a special case for one would result in having to make a special case for another. The Government are therefore to be congratulated on sticking to their policy.