Ed Miliband is facing resistance from senior Labour MPs in London – including potential candidates to be mayor – to his flagship plan to impose a mansion tax on properties worth more than £2m, as concern grows that it will hit too many people on average or low incomes.
On Saturday night, a former Labour local government minister, Nick Raynsford, the MP for Greenwich and Woolwich, described the plan as "good politics but bad policy". He said what was urgently needed was a revaluation of council tax for the first time since 1991, to create extra bands for the highest-value properties as the basis for a "progressive" tax on property.
Raynsford said the current system, under which people in properties worth just over £320,000 pay the same council tax as those in homes worth tens of millions, was "grossly unfair" and a "complete nonsense". Reform of council tax was the way forward, rather than a mansion tax, which would create many anomalies and be complex to introduce.
Senior Labour figures fear that, under Miliband's plan, people who are "asset rich but cash poor" – having seen the value of their properties rise – will be unfairly hit by the new tax, with some being driven out of their homes. Margaret Hodge, the Labour chair of the public accounts select committee and a likely Labour candidate for mayor in 2016, said she feared the mansion tax would be seen as a "punishment tax" for those in London whose properties had grown in value.
Dame Tessa Jowell, the former Labour cabinet minister, who is also considering standing for London mayor, said: "Take one of the many elderly couples living in my constituency in Dulwich, who might have bought a house 30 years ago and are now living on pensions and are asset rich but income poor. No mansion tax should drive them from their homes."
Both Hodge and David Lammy, the Labour MP for Tottenham, who has declared he will run for mayor, also said a council tax revaluation should be the priority. Council tax is currently levied on houses according to value bands, but someone living in a home worth £10m pays the same as the owner of a home worth £321,000.
Savills estate agents say that around half of sales of prime property in central London are to foreign buyers, with more than half of these using properties as investments or as second homes.
In his party conference speech, the Labour leader announced that owners of properties worth more than £2m would pay the mansion tax, with the proceeds helping to fund 20,000 new nurses, 8,000 more GPs, 5,000 new home-care workers and 3,000 new midwives.
Labour insists that those with properties worth tens of millions will pay far more than those in a £2m home, and that there will be safeguards for people without high incomes.
The plan, which is opposed by the Tories, was derided last week by the centre-right Adam Smith Institute thinktank. Ben Southwood, the institute's head of policy, said: "It makes no sense to create a whole new property tax system at an arbitrary £2m cut-off point; instead, council tax should be revalued and remodelled along more progressive lines, to reduce the tax burden on people in less expensive properties."
The shadow chief secretary to the Treasury, Chris Leslie, defended the mansion tax plan. "How can it be right that billionaire buyers of penthouses in central London pay so little tax in this country compared to ordinary working families?" he said. "By opposing a mansion tax to fund improvements in our NHS, the Tories are once again showing that they only ever stand up for the privileged few."
An internal row over the mansion tax will be further bad news for Labour, which ended its Manchester conference on the back foot, after Miliband forgot to deliver key sections of his speech on the deficit and immigration.
Meanwhile, an Opinium poll for the Observer suggests Labour has suffered as a result.
Its lead has fallen from 8 points a fortnight ago to 2 points. Labour is on 34%, down 3, while the Tories are on 32%, up 3. The UK Independence party is on 17%, down 2; the Liberal Democrats are on 7%, unchanged; while the Greens are also unchanged on 4%.
guardian.co.uk © Guardian News and Media Limited 2010