Labour’s Mansion Tax: Good Politics, Bad Policy.

 

Last week Ed Miliband announced his plans to introduce a new mansion tax on houses worth over £2 million, using the money raised from this to cut taxes for those on the lowest incomes and simultaneously pushing the Coalition Marriage in a tricky spot.

This could well be considered Labour’s first genuine hard-line policy since they lost power, and it may be viewed by some that Miliband’s announcement was a very smart move politically. He was quick to distance himself from the idea that this proposal is a clever ploy to create a split between the Tories and the Lib Dems, but for us pundits to think otherwise is foolish. His announcement is a most definitely a devious stratagem, and a very cunning political move; but is it a good policy?

Not really. The mansion tax is a poor economic move on Labour’s part. It does represent a good first step in creating an agenda for the party as it does not represent a fully formed economic policy. They will struggle to sway voters away from the Tories with this trivial plan, many of whom are still unconvinced that Labour are ready to be given another chance dealing with their money.

The mansion tax is inherently wrong; it is a symbolic commitment made for the wrong reasons. We should not be taxing the rich more for simply being rich. The people who earn the top 1% of incomes already pay nearly a quarter of all income tax. The top 10% combined pay over half of it.

But it is good politics…

The mansion tax was originally a Liberal Democrat proposal, yet because of the Labour pinch from Liberal pockets, this maneuver could serve to force a wedge between the two Coalition partners. The Lib Dems will be forced to either choose between voting for their own policy, which would no doubt create a rift between themselves and the Conservatives, or against it for the good of the Coalition. Miliband’s statement comes at the time of a crucial by-election in Eastleigh, and it has created an interesting dilemma for the Lib Dems. There is little doubt that regardless of the path taken, the decision made by the Lib Dems on this policy will be criticised by Labour no matter what, and used to their advantage.

Furthermore, the mansion tax finally gives Labour some ink in their manifesto and will help in averting much of the criticism directed at the party. It is no secret that Labour has been criticised for their lack of plans to implement an agenda. The new move might be used to take the spotlight on the red corner while the party enjoys a lead in the polls. Most importantly though, it distances the party far away from Gordon Brown’s policies and will be used to represent a new Labour way of thinking; ‘we do back Britain’s workers’.

There is little doubt Labour’s policy is good party politics. They are proposing a new, different way to help those in need by taking money from those who are well off. Labour are trying to act as a modern day rebellious leader from Nottingham, taking money from the rich to give to the poor. No doubt such politics will resonate with low earners and we can be sure that it will help boost the party’s popularity amongst those currently struggling to make ends meet (the Tories are framed as being out of touch; just in case you weren’t aware).

In my view, the government should not be discriminating against the rich simply for being rich. Success should be rewarded and praised, not mistrusted and suspected. Those who Labour wish to further tax are the people creating jobs and investing in businesses, providing extra for society. By taxing the rich more we are stifling their potential to reinvest money back into the economy, spurring on natural economic growth.

There are simpler alternatives by which Labour can put money into the pockets of those on low incomes. For instance, increasing the personal allowance would be one method by which this could be accomplished. Such a move would be much less complex and easier to implement, considering the infrastructure to support it is already in place.

Ed Miliband’s mansion tax is definitely smart politics on Labour’s part. The announcement will allow them to command the media agenda for a while and has the potential to play havoc within the Coalition. It is just a shame the only way Labour can act politically cunning is through bad policy.

2 COMMENTS

  1. Great article.

    Just to add another dimension to your increased PA argument: increasing PA would also have the highly desirable effect of allowing the natural incentives of work (income) to perform their function and encourage people to aim for employment. We’ve seen decoupling in this area as welfare steps in to provide a source of income without asking much of the recipient. The more we remove taxes on low earners, the more likely it is that they’ll move to the jobs market.

    But it’s also worth noting that the most benefits are accrued when you cut top rates of tax. Whilst there is a moral argument for cutting the bottom rates of tax, an efficiency argument encourages us to cut the top rate. The more brains we can encourage to operate here, the more private sector jobs we see created, the greater the pool of potential employment. We need to encourage the wealthy to set up shop here, not deter them with another tax on the rich – a sentiment you expressed, and I endorse completely.

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