Edward Miliband in confusion over tax

Edward Miliband had just announced he’s going to restore the 10p rate of Income Tax if anyone is stupid enough to vote for him. Interesting. He’s going to pay for it with a divisively-named “Mansion Tax” on properties worth more than £2M. This may be appealing for the numerically challenged, but does it makes sense? What are the figures  The BBC is reporting this kind of stuff without bothering to work it out.

First off, how many houses are worth more than £2M? No one really knows, but according to the Land Registry, 1,620 houses worth £2M+ were sold in 2012. Let’s say they change hands every ten years on average, so there are about 16,000. I don’t know if this is the correct figure, but hacks reporting the story aren’t even asking the this question.

How much did it cost when Gordon Brown scrapped the 10p rate of income tax?  Apparently it raised £3.5B. I’ve seen 7Bn bandied about, but £3.5Bn was the figure Alistair Darling was working with (according to reports in the Guardian at the time). So that works out at £218K tax a year per £2M house in the country. That’s more than 10% of the value of the asset. It’s not that difficult for someone in London to end up living in a £2M house but to otherwise be of limited wealth; it’s their house not their income. They certainly won’t be earning the kind of money to pay such a huge levy – they could very well be pensioners, albeit likely to have a relatively good private pension. But not that good!

So the arithmetic doesn’t work; is anything else thought through?

In Bradford today, Miliband said: “We would put right a mistake made by Gordon Brown and the last Labour government.”

Funny that. In 2008 he said of abolishing  the 10p rate, “When you make a big set of changes in the tax system, some people do lose out. That is a matter of regret. Of course it is. But overall these changes make the tax system fairer.”

So having a 10p rate of tax is unfair? Taxing an asset value is certainly unfair.  Today he’s proposed to do both.

And that’s before you start looking at the practicalities – who knows the value of a property? A lot of it is already owned by overseas companies in order to avoid disproportionate taxation anyway.