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Why is the tax on a London mansion a tiny fraction of that in New York?

The Guardian logo The Guardian 08/02/2019 Simon Jenkins
Kenneth Griffin © Getty Kenneth Griffin

Editor’s note: The opinions in this article are the author’s, as published by our content partner, and do not represent the views of MSN or Microsoft.

Three of the most expensive homes in the world have been sold recently, and to one man. He is the American hedge-fund billionaire Ken Griffin.

One will overlook Buckingham Palace at Hyde Park Corner and will cost £100m. Another is a new townhouse across the park at Carlton House Terrace, costing £95m.

The third is a penthouse atop a “pencil block” at New York’s 220 Central Park South, costing $238m (£200m). All have been eulogised as “stunning”.

Related: London remains top property investment destination despite Brexit uncertainty

Something else is stunning, but is not reported. The property tax that Griffin will pay to New York on his £200m home will be at least an eye-watering $280,000 a year. But dry the starting tear. He can afford it. Instead, switch to London. Here the sum total of what Griffin will pay Westminster for his pieds-a-terre is just £2,842 – that is the council tax on two H-band properties.

a bird flying over a city: ‘The property tax that Ken Griffin will pay to New York on his £200m penthouse at New York’s 220 Central Park South will be at least $280,000 a year.’ © REX/Shutterstock ‘The property tax that Ken Griffin will pay to New York on his £200m penthouse at New York’s 220 Central Park South will be at least $280,000 a year.’ This is the lunatic reality of Britain’s hyper-centralised public finances.

The Treasury happily squanders money on its favourites, on defence procurement, high-speed trains and universities. 

But local government can go hang. Last week came another pathetic bleat from its association, after hearing how much it will not have to run its services next year.

The answer is 1.4% lower than four years ago in real terms. This is on top of a 49% real-terms cut in central government funding of local councils between 2010 and 2017.

For a decade councils have been stripping out optional or “discretionary” services, not specifically ordained by central statute.

It has butchered youth clubs, health centres, daycare for the elderly, libraries, museums, parks and gardens.

Now councils claim they are barely able to sustain statutory “core” services, notably to the old and very young.

© Getty Councils have long cried wolf. But any observant user of local services knows a real wolf is at the door.

We may not all use youth clubs, home visits or homeless shelters, but we can all see potholes deepening and bin collections dwindling. We see parks untended and museums and libraries closing.

We see councils such as Northampton declaring themselves close to bankruptcy.

Last week the commons public accounts committee described the government as “in denial” on the state of council finances, and chastised it for “lacking clear plans for ensuring long-term sustainability”.

Councils were allowed to increase local taxes only by inflation, but have received far less central government money as a result. Business rates remain centralised, and anyway tend to benefit richer areas.

Former Prime Minister Margaret Thatcher © Getty Former Prime Minister Margaret Thatcher The withering away of local taxes has been a tacit and cynical power grab by Britain’s political establishment, ever since Margaret Thatcher capped domestic rates in 1985. 

She and her successors have sought to make councils little more than executive agencies of Whitehall. Local taxes, according to the OECD, comprise just 1.6% of GDP in the UK, against 5.8% in France, 11% in Germany and 15.8% in Sweden.

This is localism in collapse. Accountability through the ballot box is all but insignificant when revenue is so low.

© Getty

Had domestic rates remained in place as a property tax under Thatcher, and risen in line with inflation (not property values), most people would now be paying double what they are.

Domestic rates on my old house in Camden were £3,400 a year in 1989. Today, council tax on the property is just £2,600. With inflation, the tax should be running at £7,200.

People may dislike such a rise, but indexation is hardly unreasonable.

Crazier still, council tax bands were fixed so the highest was only three times the lowest, and were never adjusted to reflect rising house prices.

Within the top band, West End palaces pay the same as modest terrace houses. As a result, councils have been unable to benefit during the house price boom, as New York did under its former mayor Michael Bloomberg.

Stamp duty is Britain’s only price-related property tax, and that goes nowhere near a local council.

© Getty An expert on local taxation, Professor Tony Travers of LSE, finds this incomprehensible and absurd. He points out that: “Whitehall treats Britain as if it were a failed state.

It is as if local institutions were so weakened that only ministers should be allowed to make decisions on local matters.” Hence the occasional dollops of headline cash for potholes or mental health, carefully ring-fenced so councils cannot “steal” it. 

As it is, the world’s rich park their wealth in London with good reason. It is dirt-cheap to do so.

I cannot see why Griffin should pay New York a quarter of a million to be kept secure, clean and transported, and not pay a similar amount to Westminster. 

© Getty The rich plead that there are too few of them to make much difference. That is rubbish.

The annual tax take from one of Manhattan’s pencil towers must be in the region of £10m a year. That would be one-fifth of Westminster’s total council tax revenue, from one block.

No healthy democracy should deny local people the right to vote and tax themselves for their own benefit. It is democracy’s second nature.

Britain is not a banana republic, or a bureaucratised communist state. Taxation is about fairness, and Britain’s local taxes are unfair.

There are a thousand Griffins, and tens of thousands of people who, like me, can vote for higher taxes for better local services for everyone. By what distorted ideology is that not permitted?

Related: From J.Lo's condo to Bruce Willis' estate: star homes for sale in February (Lovemoney)

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