Libdems' plan to surtax houses worth over £1 mn

Comment: Brilliant idea. Like Nu Labour that put a tax on non-doms that they drafted in three weeks without thinking of unintended consequences. All the folks living in London will be paying a surtax,
people who bought in the 1970s and before and who today live on less than £20,000 a year -- and there are tens of thousands such people -- will have to sell up and their houses won't be worth over £1 mn any more, will they? Son of Henry George this guy must be.
Cable outlines property tax plan By George Parker in Bournemouth Financial Times Published: September 21 2009 14:56
Vince Cable, Liberal Democrat treasury spokesman, on Monday set out plans to raise property taxes on homes worth more than £1m, as part of an attempt to set out dividing lines with David Cameron’s Conservatives.
Mr Cable said the new levy of half a penny in the pound on homes over £1m would pay for lifting 300,000 low paid workers and pensioners out of tax. This was proof, he said, that the Lib Dems were “committed to fairness”.
His proposal at the Liberal Democrat conference in Bournemouth pleased activists who had become disoriented by calls from party leader Nick Clegg for “bold and even savage” cuts to public spending.
It may also help the party to distinguish itself from the Tories, who have a totemic commitment to scrap inheritance tax for estates worth more than £1m.
Mr Cameron has attempted to woo Lib Dem voters by claiming the Tories share many of their values in areas like civil liberties and the environment.
Mr Cable’s speech included proposals for spending cuts that go much further than anything proposed by the Tories, including plans for a freeze in total public spending and possible reductions to health spending.
He insisted the Lib Dems were more honest about the scale of cuts needed than the Tories and were committed to building a fairer society once the government’s finances had been restored.
Mr Cable’s strongest attacks were reserved for George Osborne, shadow chancellor – whom he portrayed as over-privileged and callow – and the banks, which he said had “lurched from the irresponsible binge lending which caused the crisis to the equally senseless hoarding of capital that is now destroying jobs”.
http://www.ft.com/cms/s/0/22cb5388-a6b4-11de-bd14-00144feabdc0.html
Clegg proposes tax on homes worth over £1m By George Parker in Bournemouth Financial Times Published: September 20 2009 19:05 | Last updated: September 21 2009 10:00
Owners of homes worth more than £1m would have to pay an extra property tax to subsidise tax breaks for the poor, under plans announced by the Liberal Democrats on Monday.
The proposed 0.5 per cent levy, along with closing tax loopholes exploited by the wealthiest, would help fund a rise in personal allowances to free 4m low-paid workers and pensioners from paying income tax.
Nick Clegg, Liberal Democrat leader, on Monday told the BBC’s Today programme it was “a small correction, which I think would make a big difference to people who are really struggling to make ends meet”.
He said the new tax would affect just under 1 per cent of people, adding: “It’s a fair tax, if you like, that Labour should have done 10 years ago.”
Mr Clegg’s comments may be intended to avert a conference backlash over his plans for “bold and even savage” public spending cuts, with MPs rounding on his proposal to push into the long grass plans to scrap university tuition fees.
The details of the plan will be set out by Lib Dem economic affairs spokesman Vince Cable in his keynote speech to the party’s annual conference in Bournemouth.
Mr Clegg insisted on Sunday that his party was the only truly progressive force in British politics – dismissing as “absurd” suggestions by David Cameron that the party shared the same values – but his spending comments left some in his party angry and confused.
The Lib Dem leader faced accusations at his party conference in Bournemouth that the party risked blurring its identity – long associated with higher taxes to fund education.
One MP said Mr Clegg sounded “nastier than the Tories” and that he was “salivating” over the chance to cut the state. Others complained that Mr Clegg and Vince Cable, treasury spokesman, had “bounced” the party into a hairshirt strategy.
Charles Kennedy, a former leader, criticised the decision to shelve the party’s cherished plan to scrap university tuition fees and Evan Harris, MP for Oxford West, warned the leadership did “not always get its way”.
“People don’t get out of bed and campaign for gloom,” said one MP, pointing out that the strategy on cuts had not been agreed by the party’s frontbench team.
“We aren’t setting out what the sunny uplands look like on the other side.”
Mr Clegg admitted to the Financial Times that he needed to map out more clearly what the Lib Dems would do after the fiscal position had been rectified.
“We have to set out these things in stages,” he said. “If the debate was where it is now, it would be a disaster politically.”
He said the party would see that he believed in “cuts for a purpose – progressive austerity”.
Mr Cable will on Monday refuse to rule out future rises in overall taxes but will say that his priority will be to cut taxes for low and middle income families – a policy which he claims differs vastly from a Tory agenda to cut taxes on the estates of the rich.
He will argue that the country is not bankrupt but he will also say: “We have to set priorities and decide what government should and shouldn’t do. I don’t pretend that the task will be easy or popular.”
Among his proposals is a freeze on the public sector pay bill, a policy not yet cleared by the party’s high command and opposed by some.
“Vince is untouchable,” said one MP on the left of the party.
Mr Cable will also propose cutting tax credits for middle income families and scrapping Trident submarine procurement contracts.
David Cameron seized on a supposed convergence of the two parties’ agenda with his now annual pre-conference attempt to cuddle the Lib Dems to death.
Writing in the Observer, Mr Cameron claimed that Mr Clegg was “drawing dividing lines where they don’t really exist”, arguing that on civil liberties, the environment and decentralising power they were on the same side. Mr Clegg said the claims were nonsense.
Mr Cameron’s strategy is aimed at wooing voters in the Lib Dem heartlands in the south and south west, where the Tories hope to make big gains at the next election.
Meanwhile, the Lib Dems believe there is a large and soft body of Tory supporters who would come across to their party if they were confident that such a move would not let Gordon Brown back into Downing Street.
The party is setting up a group, including southern MPs such as Chris Huhne and Norman Lamb, to target the Tories.
It will hold its first meeting on Monday and aim to promote its argument that Mr Cameron represents “the status quo, masquerading as change”.
Although the mood among delegates on the sunny Bournemouth seafront was generally upbeat, some MPs and delegates believed their party should be doing better than the 18-19 points they have recorded in recent polls.
http://www.ft.com/cms/s/0/131dd48e-a61d-11de-8c92-00144feabdc0.html
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Steady on, says Cable, as big home tax unravels Lib Dem leaders face accusations of launching half-finished proposals
By Michael Savage, Political Correspondent The Independent Tuesday, 22 September 2009
A Liberal Democrat plan to hit the rich with a new tax on million- pound mansions began to unravel yesterday after it emerged that the plan would only be temporary, may not be applied across Britain and could hit some pensioners on low incomes.
The measure, revealed by The Independent, was a main plank of the keynote speech made yesterday by Vince Cable, the party's Treasury spokesman, to the Liberal Democrat conference in Bournemouth. He said that the new levy was designed to hit the likes of the Chelsea Football Club owner, Roman Abramovich, and the London-based steel magnate Lakshmi Mittal. "Under our unfair council tax, Messrs Mittal and Abramovich, in their £30m palaces, pay the same as a band H family home, though their properties may be worth 40 or 50 times as much," he said.
Introducing the levy would, the Liberal Democrats say, allow the Government to take four million low earners out of income tax altogether by raising the threshold for the tax to £10,000. About 250,000 homes would be affected by the 0.5 per cent levy on houses costing more than £1m. The average yield would be about £4,000, the party said.
But the plans began to unravel on the day. Senior party figures had to admit that the measure would only be temporary while plans for a local income tax were tested. Aides would only say that the levy would last for "several years".
It also emerged that the party would be unlikely to implement the policy in Scotland. Under devolved powers, the new tax would need to be approved by Holyrood. Mr Cable conceded that Liberal Democrats in Scotland would have to "make the case" for the policy. "It would have to be approved by the Scottish Parliament," he said. "That is a choice for Scotland."
There were also suspicions that the measure would become a new inheritance tax by stealth, as Mr Cable admitted that those on a small income liable to pay the tax, such as pensioners in larger houses, could have the payment deducted from the value of their estate. "These problems already exist under the current system," he said. "We are not inventing a new problem." Despite the questions, aides insisted that Mr Cable had discussed the policy with frontbench colleagues before it was announced.
The Liberal Democrats immediately faced accusations of launching a half-finished tax plan. Paul Smith, chief executive of Haart estate agents, said the new tax would be unworkable. "This level of taxation is absurd and will only lead to disagreements about values," he said.
Sarah McCarthy-Fry, Exchequer Secretary to the Treasury, accused Mr Cable of performing a U-turn. "They've spent years arguing to replace council tax with more income tax because they don't believe in taxation being linked to homes," she said. "Now they've managed to make the centrepiece of their conference exactly the opposite."
In his speech to delegates, Mr Cable said the Government had been "living beyond its means". He said both Labour and the Tories wanted to go back to "business as usual" in the City, and criticised the Prime Minster for failing to take on the financial sector. He pledged that the Liberal Democrats would force anyone who earned more than the Prime Minister to disclose full details of their pay, bonuses and perks.
He said he could not rule out further tax increases. "It would be dishonest and unbelievable for me to say that taxes overall should never rise," he said. "But the Liberal Democrats' starting position is to aim for fairer not higher taxes." He also had a tough message for public sector workers, arguing that their wages should be frozen as part of the cost cutting drive, saving £2.4bn a year.
Shaky foundations Lib Dems' 'mansion tax'
What are the plans? An annual 0.5 per cent tax on homes worth over £1m.
What went wrong? The Lib Dems admitted yesterday that it would only be put in place temporarily and might prove impossible to introduce in Scotland – the levy would need approval from the Scottish Parliament.
Is the policy regressive? As it taxes property, rather than income, it can be. While a pensioner's house may have accrued a lot of value over time, they may be on a low income.
So what about those pensioners? Those on council tax benefit will be spared the levy. Others would have it deducted from the value of their estate when they die, like an inheritance tax.
http://www.independent.co.uk/news/uk/politics/steady-on-says-cable-as-big-h ome-tax-unravels-1791149.html
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What went wrong is that he forgot that in many parts of London (including his own constituency) it is next to impossible to buy a family house for much under a million, and that ordinary middle class families have to stretch their income to breaking point to buy a suitable house
Owing a million pound house does not necessarily mean that you are rich, it could just meant that you owe an awful lot of money to the Bank
tim
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On Tue, 22 Sep 2009 13:45:26 +0100, "tim....."

IME most "ordinary middle class" families can't afford a million pound house, but I don't live in London.

Unless the mortgage was obtained fraudulently they would need a pretty large income to get such a loan and/or a huge deposit.
Trouble is virtually no-one believes that /they/ are rich. I know quite a few people who are much richer than me and they all moan about a lack of money.
The main problem with such a tax rule IMHO is assesing the value of houses that have not been sold in recent times. I had thought the LDs wanted to move away from property taxation so I am surprized that they are proposing a new one.
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like they were saying:

http://www.rightmove.co.uk/property-for-sale/property-23060885.html f'rinstance.
If you were to pay the asking price, you'd be looking at £1,375/year for this proposed tax. Not a huge amount in the grand scheme of things, but equally not exactly going to be popular... It's somewhere around 60% of the Band F/G (which that road seems to fall mainly into) council tax in Haringey.

ITYF that few people are first-time buyers of £1m houses. They've got to that price range by being fortunate enough to build substantial equity in previous houses on the back of the massive price rises over the last decade or two - together with substantial mortgages...

Quite. What happened to the local income tax instead of council tax?
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It might be the size of a middle-class family home but certainly not the price IMHO.

I'd consider paying £1,375 extra tax a lot, but then I'd need a much higher income to be able to afford such a house.

It could easy be a family's second house. You'd need to have made a lot on the first to gain a large enough deposit. Anyway it's a myth that rising house prices make it easier to move up the ladder. It actually makes it harder since it is the price difference that determines how much extra mortgage is needed. And the price difference increases as the prices rise BTDTGTTS.

Exactly.
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"Mark" wrote

Not necessarily!! Let's suppose you can only get a mortgage upto 90%, and have (say) a 10K deposit...
You buy a 100K house with a 90K mortgage. Let's say house prices now go up by 20%, so that you now have a 120K house with (lets say still) a 90K mortgage (30K equity).
You can now get a 300K house with a 270K mortgage. There - the rising house prices *did* make it easier to move up the ladder!
"Mark" wrote

But you might find that your limiting factor is your deposit, rather than the mortgage you can afford (see above).
"Mark" wrote

BTDTGTTS?
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Been There Done That Got The T-Shirt.
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No. Because the 300K house has also gone up 20%. If prices had remained the same then the 300K house would have sold for £250K. Therefore, in your example, you would only need a £240K mortgage. You would have a smaller deposit which could make your mortgage more expensive, however.

Possibly.
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"Mark" wrote

Yep, so you've traded-up from a house that cost 100K previously to one that cost 250K previously (ie from one that's 120K now to one that's 300K now).
Don't you think that is "moving up the ladder"?
"Mark" wrote

... which you wouldn't get, because that's 96% and you can only get a (max) 90% mortgage. The most expensive house you could get was 100K, because you needed at least a 10% deposit and only had 10K.
"Mark" wrote

Or, rather, *non-existent* in the example - because the example says "suppose you can only get a mortgage upto 90%".
Thus the rising house prices *would* help you move up the housing ladder!
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You haven't read my last post properly. Rising house prices make it more expensive to move "up the ladder".

In your example, given the low equity, then it could make it "easier" if otherwise a mortgage is not available. Given higher equity or a market where near 100% mortgages are available then this is not longer true.
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like they were saying:

You're forgetting something.
Over the years, you've paid off a chunk of that initial mortgage, so you have more equity in the house you're moving from than merely your initial deposit plus the increase in value.
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Only if you have a repayment mortgage. Even then, near the beginning of the mortgage, you are paying mostly interest. Therefore your "deposit" will have only appreciate by a small amount. It is unlikely, unless house prices rise slowly or not at all, that this would compensate you for the increase in price in the property you are buying.
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like they were saying:

Or, on moving, you've cashed in an endowment - or you've had a mortgage long enough that an endowment's matured.

Depends what timescale we're looking at. Few people scale the housing ladder in a handful of years - we'd typically be looking at 15-20 or so, minimum, I'd have thought.
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You'd have to be pretty desperate to cash in an endowment IMHO. It's possible to have a mature endowment if you had lengthened the term or got a new mortgage.

I should think the next house would have gone up a lot in that timescale though. IIRC the average period of a mortgage is 7 days so I assume that is the average period at which people move.
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like they were saying:

That's either a typo or you're trying to _seriously_ revitalise the property market...
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Mark wrote:

Not necessarily. The endowment could be underperforming so badly that you judge its future growth rate (between now and maturity) to be less than the interest rate on your loans. In such circumstances it might not be unwise to cash it in and use the proceeds to pay down the loan.
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On Thu, 24 Sep 2009 10:36:26 GMT, Ronald Raygun

Indeed. I would suspect that, in this case, the surrender value would be tiny too.
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"Mark" wrote

I was replying to your initial post that said "... it's a myth that rising house prices make it easier to move up the ladder. It actually makes it harder..."
Your previous post (see above) then said "No..." to my comment above, which was in relation to being "easy/hard" not to how expensive it would be.
Do you now agree that your first statement was incorrect?
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No. In many cases more expensive is harder. I agree with you only if the deposit is the sole limiting factor and size of the mortgage is not important.
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