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Rachel Reeves won little credit last week for lifting the lid on one of the most heated tax debates of the past three decades.
Who in their right mind would consider engaging in the fight that would inevitably lead to some of the richest people in the land calling for your head?
Gordon Brown ran scared and so, too, did countless Tory chancellors.
Yet Reeves has put her hand in the fire, saying in the budget that she would revalue about 2.4m of the most valuable homes in England with a view to slapping a “mansion tax” – an escalating surcharge – on about 100,000 of them from April 2028.
As a revamp of council tax, it constitutes baby steps, as the Institute for Fiscal Studies (IFS) said in the hours after Reeves gave her second budget.
But what the IFS and many others failed to credit was the revolutionary element that could be found in the revaluation itself.
Property owners fear a value being put on their home by the state like they fear almost nothing else. There hasn’t been a spot-check on English property valuations since legislation in 1991 unleashed the council tax banding system on a nation shellshocked by the poll tax riots and the hasty departure of its most prominent cheerleader, Margaret Thatcher.
The A-to-H banding system has always been regressive – taxing lower-value homes much more harshly than those that have, in many cases, soared in value since the mid-1990s.
Under the chancellor’s new plan, from April 2028 there will be four price bands, adding a surcharge of £2,500 a year for properties valued in 2026 at between £2m and £2.5m, up to £7,500 a year for those valued in the highest band of £5m and above. The surcharge will apply on top of council tax and go straight to the Treasury.
To give a sense of how much this measure constitutes a baby step, it will raise just £400m. Compare that modest sum with John Muellbauer’s proposal to revalue the top two bands – G and H – to raise about £6bn. A £6m home paying a tax based on 0.5% of the value would pay £30,000 a year under the Oxford professor’s scheme.
Property owners don’t just shake at the prospect of being taxed at a higher rate. There is the prospect of a fall in values once homes are taxed more heavily.
In London, there are more than 68,000 properties in band H, which now includes homes worth £320,000 and above in 1991, when the properties were valued. The gains made over the last three decades are historically unprecedented. Homes worth £320,000 back then are easily worth five or six times that now.
A surcharge on existing council tax bills might make higher-value homes less attractive and values could fall. Estate agents report that homes at the top of the market have already slumped in value after the non-dom tax rise.
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In the immediate aftermath of the budget, Reeves met little resistance to the tax increase, but these are early days.
The Liberal Democrats thought a mansion tax was a good idea before the 2010 general election, but it was unpopular with the public, who sympathised with the plight of older people being forced to sell their big home against their will (even though being forced to downsize would, in most cases, be good for their mental and physical health). Suffice to say, the plan was ditched along with many of the party’s principles as the price of coalition with David Cameron’s Conservatives.
Ed Miliband backed a £30,000-a-year “mansion tax” on £2m properties in 2013. It was a crude scheme and considered a ruse to split the Lib Dems from their Tory partners. Sir Vince Cable denounced it in the Commons and the plan foundered.
Miliband revived it before the 2015 election and the Lib Dems came up with a system of more bands, but both parties lost badly in that election and the mansion tax idea – widely considered to be electoral suicide – was not heard of again.
Council tax reform or any attempt at a surcharge was not mentioned in the Labour party’s 2024 election manifesto.
Reeves, though, has offered a much more sophisticated framework than any previously, one that is not only fairer at the outset, but can be adapted in the future once the revaluations are in place.
It is, without doubt, the best opportunity for a bigger, fairer tax on wealth and one that is possible within a couple of years. There will never be a tax in Britain that is called a wealth tax. Everything in the world of tax needs to be done by stealth when ministers are endlessly fearful of a loud public backlash. It is why Reeves should get a bravery award if she can make it happen.
