Britain's £2m Homes Face New Tax — But the Real Fix Is Bigger

Rachel Reeves's mansion tax will capture roughly 150,000 homes valued above £2m — and Oxford economist John Muellbauer still calls the UK housing system "one of the most dysfunctional in the world." That gap between action and diagnosis is the story of John Healey's first budget.

The Resolution Foundation labelled it a "scatter-gun budget" — more about politics than economics, and unapologetically so. Critics from right and left accused the chancellor of dodging the big questions on Britain's chronic problems. Housing took up a considerable chunk of his speech. The measures, by one test — how different will the UK be at the next election, or 10 years from now — amounted to very little.

Why housing is both engine and disease

More than 80% of global investment sits in property, and the vast majority of that is residential. Countries that once had a more communitarian approach — France and Germany, with their regulated mix of social, private rented and owner-occupied stock — have succumbed to building wealth through property too.

The warnings are on record. Japan was ruined in the 1990s by a vicious property price crash. China is still suffering domestically after Beijing allowed a property Ponzi scheme to develop, enriching the already super-wealthy and leaving tens of millions of middle-income earners in negative equity.

Nowhere is the situation worse than in the UK. Prices have cooled somewhat, but remain at levels that deny younger generations a reasonably priced home and financial security. UK property has also become the vehicle by which Gen Xers pay for their parents' social care and release housing deposits for their own children. The leasehold/freehold split, meanwhile, fuels disputes and stymies investment in solar panels and insulation — nobody can agree who pays.

What did the budget actually do?

Healey revamped the much-discredited help-to-buy scheme for new-build homes, which critics say will only boost prices and line developers' pockets. He allocated more money to council housebuilding, imposed an extra tax on landlords — one that will probably push up rents — and promised to tackle homelessness.

He and Andy Burnham also put their revolutionary zeal into devolving power from London to the regions to kickstart growth. But the tax incentives are the problem, not whether decisions get made locally or centrally. Bad policy decisions happen in both places.

What would a reformed tax system look like?

Muellbauer has spent almost 40 years researching the UK's housing system. In a September article published by the British Academy, he wrote: "Many of the UK's current economic and social problems, including its housing affordability crisis, can be traced to decades of land and housing policy failures. The role of land markets is strongly dependent on institutions, including land use regulation, financial regulation and property taxation."

The Treasury and Angela Rayner's Ministry of Housing, Communities and Local Government have considered proposals from Muellbauer and others that would remodel council tax into a fairer annual levy on households — and use the reform to abolish stamp duty, which has calcified the housing market.

Reeves's mansion tax is a start, but only a start. The former chancellor was persuaded to keep the council tax banding system when she should have applied a percentage rate to the 150,000-odd homes above £2m. A database of those high-value homes could have begun a rolling revaluation until every property was logged.

Run the numbers. With a 0.5% annual tax applied to all homes, a £150,000 property would pay £750 a year. A £3m home would pay £15,000.

Who loses — and who has to say yes?

The real political problem isn't the £3m homeowner, for whom policymakers will have little sympathy. It's the professionals occupying £1.5m homes in London, the south-east and affluent suburbs around other big cities, who would see council tax more than double to £7,500.

The professional classes will be worst affected in the short term. Yet progress only comes when this powerful lobby of working and retired owner-occupiers accepts the trade-off: stamp duty disappears for those who sell.

Some in government do grasp the scale of the problem. Treasury minister Torsten Bell is one. His book, Great Britain?: How We Get Our Future Back, describes "our housing omnishambles." So far, though, they've had little influence on policy.

Without robust planning guidelines, developers keep entering arm-twisting contests with local authorities — championing flood-plain builds or tower blocks later dubbed ovens for their lack of ventilation in hot summers. The difference-maker, on this analysis, is a permanently reformed tax landscape that discourages treating housing as a store of wealth, lets people move home cheaply — especially older homeowners who want to downsize — and supports genuinely affordable homes to buy and rent.