Liberal Democrats were ‘passed over’ in ditching of mansion tax

Political Editor

A plan to drop the Liberal Democrats’ support for a mansion tax on homes worth more than £2m has provoked an angry backlash from party activists.

Nick Clegg is backing a move by Danny Alexander, the Liberal Democrat Treasury Chief Secretary, to ditch the proposed 1 per cent annual levy on the value of a home above £2m. Instead, the party leadership wants to impose new council tax bands for properties worth more than that.

But Liberal Democrat activists are furious because the switch has not been discussed by the party’s policy-making machinery. Liberal Democrat members still have a strong influence over policy.

The criticism of the plan poses a new headache for the Liberal Democrat leadership after Jeremy Browne, the Liberal Democrat MP and former minister, questioned the party’s relevance at the weekend, saying it wouldn’t “be necessary to invent an ill-defined moderating centrist party that believed that its primary purpose was to dilute the policies of other political parties”.

Gareth Epps, co-chair of the Social Liberal Forum, the biggest grassroots group on the party’s left, told The Independent: “This is only a proposal.  Danny knows full well that Liberal Democrats make policy democratically.”

Mr Epps said council tax urgently needed to be reformed or abolished, adding: “Basing a tax on property valuations a quarter of a century old is nonsense. But further evaluation is needed.”

Mr Alexander believes extra council tax bands at the top end of the property market would be less bureaucratic than a 1 per cent levy. He thinks the original plan could have prompted a flood of appeals from householders claiming their homes are worth less than £2m.

Liberal Democrat leaders believe their new plan would be more likely to win the backing of the Conservatives in coalition negotiations if next year’s general election ends in a hung Parliament. George Osborne was ready to include a mansion tax in his 2012 Budget but David Cameron did not want to impose a “new” tax. Liberal Democrats believe the Prime Minister is more likely to back the extension of an existing one.

No final decision on the level of the proposed charges has been taken. Some Liberal Democrat insiders believe it could be as high as £5,000 a year. Allies of Mr Alexander insist he is not trying to bypass the party’s machinery. “Danny has given this a lot of thought. We are not abandoning the principle of the tax. It’s about making it a reality,” one said.

The eight bands on which council tax is based in England – from A (up to £40,000) to H (more than £320,000) – have remained the same since 1991. This means the charge for a home worth £600,000 is the same as one valued at £6m or £60m.

Although the extra charge on expensive homes would be collected by local authorities, the money would be handed to the Treasury. Surveys suggest more than 80,000 properties are valued at £2m and more, with two-thirds of them in the three London boroughs of Kensington and Chelsea, Westminster and Camden.

Tony Travers, director of the Greater London Group at the London School of Economics, said someone with a lower income living in a high-value London property would have to pay the proposed tax while a person earning more than £1m living outside the capital could avoid it.

POLICY IN NUMBERS

£2m: The cost of homes on which Lib Dems wanted to impose a mansion tax

£5,000: The possible level of the tax

£320,000: The valuation on which Band H of the council tax is calculated

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