Chancellor Rachel Reeves is confronting a significant backbench rebellion over her proposed 'mansion tax' plans, with Labour MPs expressing panic about a potential backlash from aspirational voters ahead of the Budget announcement.
Last-Minute Negotiations and Political Tensions
Reeves effectively confirmed at a reception this week that a policy targeting high-value properties will be unveiled in the upcoming Budget. However, the precise shape of these proposals remains unclear, with sources indicating that last-minute negotiations are ongoing with concerned Labour backbenchers.
London MPs are particularly adamant that any annual percentage levy should only apply to properties valued at more than £2 million. This higher threshold would affect fewer than 150,000 homes across the country. In contrast, a lower threshold of £1.5 million could impact approximately 275,000 properties, creating significantly wider political fallout.
One Labour MP told the Financial Times: 'There are a lot of talks taking place on this and we've been told that the levy will not kick in for homes costing £1.5 million. It will be higher than that.' Another MP voiced deeper concerns about the political consequences, asking pointedly: 'Do they literally want to lose every seat in London?'
Council Tax Changes and Regional Implications
Meanwhile, government sources have been attempting to calm fears that residents in the South East could face council tax increases exceeding 10 percent. There has been speculation that Chancellor Reeves might announce the removal of rules that currently force local authorities to hold referendums before implementing large tax hikes.
However, government insiders have insisted that no immediate changes are planned to the current rule allowing councils to raise tax by up to 4.99 percent without a public vote.
Ministers are understood to be considering relaxing the council tax cap for a 'very small' number of central London authorities, including Westminster, which maintains some of the lowest council tax levels in England. Government sources suggested these councils benefit from outsized revenue streams, though they stressed that no final decisions have been taken and no announcement is currently scheduled.
Broader Financial Context and Alternative Proposals
The mansion tax deliberations occur against a challenging backdrop where a swathe of councils have warned they face bankruptcy amid mounting spending pressures in critical areas like social care and Special Educational Needs and Disabilities (SEND) provision.
Earlier this year, the Government granted permission to six local authorities in England to raise council tax by up to 10 percent.
Reeves is preparing for another difficult round of potential tax increases as she works to address a public finances hole estimated to reach up to £40 billion. After performing a sudden U-turn on plans to increase income tax last week, she is now believed to be examining a 'smorgasbord' of smaller tax increases.
Other mansion tax options previously considered include doubling the top rates of council tax, which would affect more than a million families. This would mean dramatic increases from approximately £3,800 to £7,600 for residents of Band G households in England, and from £4,560 to £9,120 for those in Band H properties.
Further possibilities include adding extra council tax bands. Any such measures would disproportionately impact London and the South East, where property prices are substantially higher. Critics have warned these policies could create serious difficulties for pensioners on fixed incomes and families who have stretched financially to afford their homes.
The political manoeuvring comes as a YouGov poll found Sir Keir Starmer's personal ratings have hit a record low of minus 54, adding pressure on the government to carefully manage its tax policy announcements.
