The Wiki Man

My mansion tax solution: hit rich foreigners. But no one else

14 September 2013

9:00 AM

14 September 2013

9:00 AM

I am surprised no more attention has been given to Martin Vander Weyer’s suggestion in The Spectator two weeks ago that a mansion tax should be levied on those buyers who pay no other UK tax. Why has it taken so long for anyone to raise this idea? Where tax paid against income should be set against tax paid on property?

Let’s consider this question in psychological terms. Assume that you are eager to buy a particular house but someone else decides he wants to live there too. He is twice as rich as you are and so comfortably outbids you. Whatever the other person’s moral worth, you know two things. He has become rich under roughly the same system as you. And he has, in the process, paid more tax than you.

Now consider another scenario. This time you are outbid by a mysterious Russian who somehow bribed an official in some remote oblast to sell him a smelting works for 200,000 packets of Kent cigarettes and a Cadillac Escalade. He has paid no tax in the UK ever, nor does he intend to do so. He likes owning a house in London because our legal system gives him a safe refuge for his money and from the attentions of his former business associates. Here a mental klaxon should go off. Is it fair that people paying 40 or 45 per cent UK tax must compete for housing against people who pay none? To anyone other than an economist, the answer to this question is probably no.

Martin’s solution makes obvious sense. You should be made exempt from any mansion tax in the UK provided you are currently paying — or have paid in the past — a level of UK tax commensurate with the value of your house.

To consider policies of this kind it would help if policymakers paid more attention to a few other areas of social study besides economics. Primatologists now study ‘inequity aversion’ in capuchin monkeys and chimpanzees. What these studies seem to show is that most social primates are not egalitarian — but nonetheless have a strong sense of fair play. We should study this idea of inequity more. And devote more thought to work by social scientists such as the late Elinor Ostrom and her observations about the necessary conditions for effective social co-operation.

Much of the deadlock in political debate could be broken if government had not awarded to economists an effective monopoly among social scientists in the formulation of policy, thereby causing all political debate to be framed by a narrow set of morally blind assumptions. The reason this happened on the right is at least understandable — right-wing politicos were probably so grateful to find some academics whose work defended free-market actions that they bought into the doctrine wholesale. What’s far more surprising is that this economic autism has infected politicians on the left: immigration, for instance, is often debated by right and left as though the only relevant consideration is its effect on GDP.

The brutal truth is that economics is more influential than it deserves to be, given its hopeless record of prediction. One writer recently suggested that we should mentally replace the word ‘economist’ in all news reports with ‘shaman’, ‘astrologer’ or ‘dowser’. Thankfully there’s now software which allows you to do this automatically. The Google Chrome extension ‘In My Words’ makes your browser replace hated words with any new phrase of your choice. The original idea was to supplant phrases such as LOL with something less irritating. But its uses are limitless. It certainly transforms estate agents’ websites: ‘vibrant’, ‘up-and-coming’ and ‘scope for improvement’ become ‘noisy’, ‘dangerous’ and ‘at risk of collapse’.

Got something to add? Join the discussion and comment below.

Rory Sutherland is vice-chairman of Ogilvy Group UK.

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  • London House Hound

    interesting. did you know…. that foreigners who are not resident in the UK can also buy and sell properties in the UK without paying any capital gains tax at all. i discovered this little fact only the other day – is it any wonder that London has became such a booming global investment market when domestic investors have to pay taxes of 28%+ and compete with foreigners who pay nothing ……

  • Shinsei1967

    A little unfair on economists I feel. Forecasting isn’t a part of an academic economic education nor is forecasting anything economists have ever claimed any particular skill. They would rightly say that the vastness of human interaction and global events are just too many to be able to make predictions.

    However they are luckily very well paid for having an educated guess. And they are usually wrong.

    But then political commentators are also wrong about election results and sports commentators wrong about who will win the League.

    • rorysutherland

      But then if economists can’t predict anything, is it reasonable for them to claim – and enjoy – the status of a science?

      Always liked PJ O’Rourke: “Microeconomics deals with things economists are specifically wrong about, while macroeconomics covers things economists are wrong about in general.”

      • Shinsei1967

        Nice quote.

        I think economists are scientists in the same way that geologists are scientists. They use scientific methods to accurately explain the past but are hopeless at predictions. Geologists can tell you all about how a glacier created this valley 200 million years ago but aren’t terribly good at forecasting earthquakes or whether there is actually oil in that rock formation.

        I was told on my first day as a City fund manager that I should avoid any economics involving equations (which suited me as an arts grad) and just read economic history.

        • rorysutherland

          Vulcanologists I suppose are another example. Wonderful explanatory power – much less predictive power except in the very short term.