We must build more homes to tackle bubble, not tax more

Allister Heath
IF you want to know why a wealth tax should not be adopted in Britain, look no further than France. Over 8,000 French households were hit by tax bills that topped 100 per cent of their income last year, Les Echos reported this weekend, citing finance ministry data. For these people, the only way to pay their taxes was to dip into their savings, sell some of their assets or borrow money.

That is hideously unfair and a clear case of the tax system turning into a device to confiscate private property. Of course, were indirect taxes such as Vat to be included – because they are not usually part of tax returns, they are harder to trace – the total might be even higher.

It has become far too expensive for wealthy people to live in France. No wonder so many successful French professionals, entrepreneurs and entertainers are leaving the country, merely the latest wave of departures in a nation that is committing economic suicide. Many are moving to London, and especially to the South West and West of our capital.

Wealth taxes – on property, cash, equities and other assets, including unrealised gains – always mean that some people will end up paying more in tax than the amount they earn – while this might sound crazy, it is a feature, not a bug, of the system. The whole point is to make people poorer and to reduce their overall wealth. By contrast, income taxes and other levies on new income – as well as on realised capital gains – only reduce the increase in wealth, rather than seizing previously earned and taxed income. There is a big difference between those two approaches.

It is not just the Liberal Democrats who back a wealth tax on expensive properties in the UK. Labour also appears to support a mansion tax. When Francois Hollande first became France’s president, Ed Miliband, Labour’s leader, was quick to try and associate himself with him, hoping to ride on his coat-tails.

But with Hollande’s far-left presidency turning into a disaster, and France plunged in a bitter and seemingly never-ending recession, the Labour leader has now distanced himself from him. If Miliband had any sense, he would also ditch his support for a mansion tax. The coalition has done many things wrong, but one of David Cameron’s achievements has been to stop Vince Cable and his Lib Dem colleagues from introducing such a tax.

Of course, one reason why so many people do support mansion taxes is because of the runaway housing market. After a long period during which UK house prices fell in nominal and especially in real terms, the market has bounced back, buoyed by the government’s desperate attempt to reflate the market, including through help to buy, a reckless scheme that Sir Mervyn King rightly warned against making permanent at the weekend.

Rightmove’s latest survey suggests that the national average asking price has hit a nominal record of £249,841 in May, with five consecutive monthly rises pushing up prices by 9.1 per cent year-to-date, the strongest start to a year since 2004. The South East and East Anglia have hit all-time nominal highs, while prices in London have smashed through the £500,000 barrier, hitting a record £509,870. These are crazy bubble-like prices, and reflect a lack of supply in the market.

We are not building enough. Annual housing starts in England were a shockingly low 101,920 in the 12 months to March, down 3 per cent compared with the year before; completions totalled 108,190, down 8 per cent. This is an absolute scandal. The solution is far more housebuilding, not yet more taxes.

Follow me on Twitter: @allisterheath