Mansion tax: London MPs call for rethink as Labour endures taxing time

Exclusive: Miliband urged to bring in new council tax bands for the most expensive homes

Ed Miliband wants to use money raised from implementing a mansion tax to boost NHS funding (PA)

Labour MPs in London are urging Ed Miliband to revise his plan for a mansion tax amid fears that it will cost the party votes at next May’s general election.

Senior MPs are lobbying the Labour leader and Ed Balls, the shadow Chancellor, to abandon a proposed levy of at least £3,000 a year on homes worth more than £2m.

Instead, they want Labour to bring in new council tax bands for the most expensive properties. At present, someone with a home worth £320,000 pays the same council tax as a householder whose property is worth £3m.

Labour’s group of 38 London MPs may hold a special meeting to discuss the issue. The capital is a crucial electoral battleground with 73 parliamentary seats.

Mr Miliband has promised that the £1.2bn raised from the mansion tax would be ploughed into the NHS. But some London MPs fear a backlash because more than 80 per cent of the revenue will be raised in the capital, which will receive only about 13 per cent of the NHS cash.

The issue has prompted heated debate among Labour MPs who may seek to become its candidate in the London Mayoral election in 2016.

David Lammy, MP for Tottenham and the first Labour figure to announce he wants to run for mayor, told The Independent: “It’s right that those who have benefitted most from the property boom are asked to contribute more, but it’s also right that local people should directly benefit from the taxes they pay.

“The mansion tax will be paid almost entirely by Londoners, but only a small fraction of the proceeds raised will be invested in London’s public services.”

David Lammy, MP for Tottenham, wants Londoners to benefit directly from the taxes they pay (Getty) (Getty Images)

He said new council tax bands at the top of the scale would have the same effect as a mansion tax, with the revenues going to local authorities to invest in local services.

Margaret Hodge, another former minister who is considering whether to seek the Labour nomination, said: “We are in the right territory with a high-value property tax. But we should be looking at the [council tax] bands. Older people who are asset rich but cash poor would automatically go into the council tax rebate system. This is a local property tax and the money raised should stay in the area.”

Tessa Jowell, the former Olympics Minister, and Diane Abbott, MP for Hackney North and Stoke Newington, who may also seek the Labour nomination, have also raised doubts about their party’s mansion tax policy.

The only likely mayoral candidate to defend it is Sadiq Khan, the shadow Justice Secretary and shadow London Minister, who is a close ally of Mr Miliband. He said: “Inequality is the biggest problem facing Britain today and those with the broadest shoulders must carry the greatest burden.

“Those who are opposed [to the mansion tax] have to explain why they think it’s unfair to ask the very wealthiest to contribute a little more and how they will save our NHS.

“Our plan is fair. There will be protection for the cash poor, properties worth £2m-£3m will pay just £250 a month, no new homes will be brought under the tax and it will work just like additional council tax bands. The funds will be used to hire thousands more doctors, nurses and care workers to save our NHS.”

Yesterday Mr Miliband was taunted in the Commons by David Cameron, who claimed that the singer Myleene Klass had “wiped the floor” with him when she criticised the policy on television on Monday.

Labour sources ruled out a change of policy. Last month Mr Balls tried to allay the London MPs’ fears by announcing that people earning less than £42,000 would be able to defer payment until they sell their property.

The Lib Dems support a “modest additional banded levy on top of council tax for high-value properties” to raise £1.7m.