Rachel Reeves’s ‘mansion tax’ Budget will target the rich but hit working people hardest

For weeks now, we have been treated to a steady stream of speculation about the Rachel Reeves’s intentions. The chancellor will deliver her Budget on Wednesday after a whirlwind of speculation and leaks about which taxes she will hike to help balance the books.

We know she is facing a hole in the public finances. Now, we hear that the chancellor has reportedly scaled back plans for a property tax but is now expected to apply a tax to homes worth more than £2 million in a move which could raise between £400m and £450m for the Treasury.

Some 2.4 million properties in the top three council tax bands – F, G and H – will be revalued to determine which will be subject to the surcharge, which will be worth an average of £4,500, according to The Times.

People will be able to defer the cost until they die or move house to avoid forcing them to sell up, according to the newspaper.

The rumours around a mansion tax are one of many that have hit the headlines ahead of the chancellor’s speech on Wednesday.

Left-wingers may think that a “mansion tax” is overdue. But while it may appeal to left-wingers, the levy would rebound. And “mansion” is a misnomer; while it evokes the image of a grand pile, it takes no account of property values in London where many apartments and terraced houses falling into that price bracket are far from mansions.

The point of scrapping stamp duty would be to increase property sales and movement in the housing market. A “mansion tax” would instead freeze it by persuading people to stay put, discouraging downsizing and worsening a housing crisis.

Elderly people would also be hit hard, as a capital gains charge would restrict their ability to sell property to pay for care fees. It is unclear how capital gains would operate alongside inheritance tax. Would some families be facing two separate, hefty bills?

The government has forced itself into a corner; not only did it rule out targeting workers in order to steal Conservative territory, but it has made no truck cutting the soaring welfare bill. With no sign of economic growth, there are few options left except to increase borrowing, which would worsen the deficit. A windfall levy on big firms would send a terrible signal to business that Labour was so desperate to woo in the run-up to the election and would be a nail in the coffin for inward investment.

In reality, Reeves is left with inheritance tax, capital gains and property. Increasingly, it’s simply the better-off who Labour wishes to make worse-off, on the assumption that they can afford it; but many wealthy non-doms have already left. A property levy, coming after VAT on private schools and ending the inheritance tax loophole for farmers, shows a clear direction of travel that could prompt a further exodus of the people who invest and spend, create jobs and donate to charities.

Treasury officials may argue they have remained true to the pledge of leaving working people alone, but many of these homes to be taxed were bought with already-taxed earnings and are lived in by workers. The chancellor risks an expensive political storm.