Ed Balls: Mansion tax would start at £250 a month

Ed Balls has said most people who own homes worth between £2m and £3m will pay £250 a month in "mansion tax" under a future Labour government.

The shadow chancellor said owners of homes worth "tens of millions" and second home owners would pay much higher rates of the "progressive" tax.

The threshold for the tax will rise in line with average prices for high-value properties, not inflation, he added.

Several Labour MPs in London have expressed concerns about the policy.

It is one of Labour's main 2015 manifesto commitments, with the proceeds due to be used to fund the recruitment of 38,000 new GPs, nurses, midwives and other NHS professionals.

Some Labour candidates for Mayor of London in 2016 have sought reassurances from the party leadership amid concerns that the steep rise in houses prices in the capital in recent years will see family homes become liable for the tax.

'Cash poor'

In particular, they have called for safeguards for people on low or middle incomes who bought properties decades ago and have seen their market value rocket.

Analysis by head of statistics Anthony Reuben

Someone with a property worth between £2m and £3m will pay £3,000 a year, which is between 0.1% and 0.15% of its value.

Under the Liberal Democrats' original proposals for a 1% levy on the value of a property above £2m, someone with a £3m property would have been paying £10,000.

They would be quite relieved by today's suggestions, but someone with a property worth just over £2m would not have expected to be paying very much at all.

If Labour gets £3,000 from 100,000 homes it will raise £300m, which is well short of the £1.2bn it aims to raise, so clearly there will have to be considerably larger amounts raised from properties in higher bands and from foreign owners with a second home in Britain.

Writing in the Evening Standard, Mr Balls has given more details and sought to allay concerns about the scope of the tax.

He said "asset-rich, cash poor" homeowners who do not earn enough to pay income tax at 40% would be able to defer payment of the mansion tax until "the property changes hands".

Mr Balls said it was "simply untrue" that homes worth much less than £2m right now would end up paying the tax in future as a result of what is known as fiscal drag.

Linking the threshold at which people start paying the tax to price inflation in the £2m plus bracket rather than average inflation, he added, meant Labour were able to "guarantee that more modest properties are not brought into the scope of the tax".

'Progressive'

"This will ensure that the number of properties paying the tax will not increase," he wrote.

"If prime property prices continue rising then by the time the tax is introduced the starting point will be higher than £2m."

Mr Balls told the BBC that owners of £2m to £3m houses would be paying less in tax as a proportion of the value of their property than most council taxpayers.

"But clearly on houses worth £3m, £5m, £10m they'll pay proportionally more," he said.

Using a banded system to determine the market value of properties would mean an "administratively simple" system, Mr Balls added, with owners able to submit their own valuations.

He said he could not set out the rest of the bands without more information but was confident the measure would raise the £1.2bn budgeted for.

'Unravelled'

Labour has said there are about 70,000 homes worth more than £2m although market estimates of the number of such properties range from less than 60,000 to about 110,000.

The south London MP Tessa Jowell, a possible contender in the 2016 Labour mayoral race, welcomed the announcement.

"A big step forward that Ed Balls has recognised the potential hardship to asset-rich, income-poor Londoners through a so-called mansion tax," she tweeted.

But east London MP Dianne Abbott, who is also thought likely to stand, said it was "still a tax on London" and would have a "dysfunctional effect" on the property market.

The Lib Dems originally put forward the idea of a mansion tax before the 2010 election but have since refined their policy, saying they will overhaul council tax bands for the most expensive homes.

The Conservatives and UKIP are opposed to the idea, describing it as an attack on aspiration.

Treasury minister Priti Patel said Labour could not hope to raise the £1.2bn earmarked from the tax for NHS spending on the basis of their current calculations.

"It is barely a month old, yet Labour's NHS promise has completely unravelled," she said."

"This panicked change in policy shows Ed Miliband's and Ed Balls's homes tax won't raise the money they say it will. You can't protect the NHS if you can't make the sums add up."