After the Labour party announced that it would introduce a mansion tax on properties over £2m a whole ton of rubbish has been spouted from all sides on the effects of a property tax. Most noticeably lots of people seem to have forgotten that the county already has a property tax, Council Tax, and that it’s not very good.

A slightly odd statement appeared in City AM yesterday morning: “owners of expensive properties already pay a disproportionately high level of taxes, especially with the recent changes to the stamp duty land tax regime”. The question that should occur to anyone reading this statement is disproportionate compared to who? As we showed in our report Unfair and Unclear, Council Tax, the UK’s main property tax, takes a much larger proportion of income from the poorest households than it does from richer ones (even after Council tax benefit is accounted for).  Whilst Council Tax is levied every year Stamp Duty is only levied when someone sells their property. Helpfully, the Centre for Policy Studies has told us that for almost a third of households with properties worth more than £2m haven’t moved in a decade and one in six haven’t for twenty years meaning they are not paying a lot of stamp duty.

The Mansionville Myth

Even more bizarre than pleas to keep supporting the rich are comments suggesting this will hit not that well off middle class families in London. One estimate says that the new mansion tax will hit 110,000 households 85,500 of which are in London. Whilst that may sound like a large number it’s worth putting to context of thealmost 2 million households living in London. If these numbers are accurate then it would hit the wealthiest 0.5% nationally and the wealthiest 5% in London. The average house price in London is close to £430k, a long way off the £2m barrier for the mansion tax.

Fiddling at the Edges

Whilst the mansion tax may reduce inequality it doesn’t transform the UK’s property taxation system into a progressive one. The Council Tax system remains broken hitting those with the least harder than everyone else and a mansion tax doesn’t fix the system so that the more you have the more you pay.

The mansion tax will be based on current property values and will be uprated in line with average property prices. At the same time Council Tax will still be based on the 1991 value of the property. It doesn’t take a tax expert to see that having a separation over 20 years and growing between different valuations for property taxation doesn’t make sense. This is why it’s even more disappointing to hear Ed Miliband suggest that there will not be a Council Tax revaluation.

To properly tackle inequality and to create fair system of property taxation the next government must revaluate Council Tax add more bands at the top end and begin the process of transforming it into a progressive property tax.

Tim Stacey, Senior Policy and Research Advisor.