Osborne warned against “clobbering” people who lived in expensive homes, while Cameron said simply it is “not going to happen”. Osborne repeated his robust opposition in the autumn statement in December.
A mansion tax is the Lib Dem policy for a 1 per cent annual levy on residential property worth more than £2m. It would mean people with a £2m house would be forced to pay at minimum £20,000 fee to the Government.
A tax on expensive land or property has been a 100-year-old Liberal Democrat dream to move the tax burden from earned income to so-called unearned and unproductive wealth.
But despite the two most powerful politicians in the country rejecting it, the mansion tax is back with a vengeance. Cameron and Osborne have been caught in a pincer movement by business secretary Vince Cable and Labour leader Ed Miliband.
Last week, Miliband unveiled plans to introduce a 10p tax rate for people earning £1,000 above the personal allowance. It currently stands between £8,105 and £9,105 with plans to rise to £10,000 to £11,000 by 2015.
The giveaway to the low-paid would be funded by the exact same mansion tax proposed by the Lib Dems.
Thinktank Policy Exchange says the 10p tax rate will not give those affected £100 a year more, as suggested by Labour, but around 67p a week extra when in-work benefits are taken into account. The Institute for Fiscal Studies also questioned whether a narrow mansion tax would raise enough to pay for a new 10p income tax rate.
While the economics may be shaky, the politics are clear. It is now highly likely that Labour will propose a motion in parliament and dare the Lib Dems to oppose their cherished mansion tax policy.
Cable has indicated his party would support such a Labour move, while ex-Lib Dem Treasury spokesman Lord Matthew Oakeshott is actively urging Miliband to push ahead with a Commons vote.
Lib Dem MP and current Treasury spokesman Stephen Williams slammed Labour for “stealing” Lib Dem policies but was silent on whether he would join forces with Miliband. Some Tories may also vote with Labour, leaving Cameron and Osborne in a possible minority within parliament.
When Labour and the Lib Dems last joined forces to back a Commons motion to block News Corporation’s bid for BSkyB in July, the Tories quickly caved and followed suit. Then they feared being seen as a crony of Rupert Murdoch and now they may fear being labelled as the party of the rich.
The Lib Dems are even proposing a mansion “super-tax” by extending the levy on the cumulative value of all property owned including buy-to-let and holiday homes.
The annual Budget battle between Lib Dems and Tories over a mansion tax has a new dimension with Labour support. The only question is whether Cameron on Osborne will cave to the pressure or stand firm.