For many months, ministers have been curiously coy about whether they would introduce a “wealth tax”. It was previously flatly denied and was not mentioned in the manifesto. Yet more recently, from Sir Keir Starmer down, there’s been a refusal to comment. Now, perhaps, we know why: a conscious leak from the Treasury suggests Rachel Reeves is contemplating reforms to stamp duty and council tax that would amount to a new property tax. Apparently, the chancellor has briefed cabinet colleagues about the project and they are gauging public reaction. If implemented, it would be a politically brave move.

       What does the chancellor want?

       There are few details, but Reeves’s idea seems to be to levy a new tax on homes worth more than ￡500,000 with, most likely, some adjustments to council tax and stamp duty at all levels of the property market. This new levy would replace stamp duty on owner-occupied primary residential homes (second and rental homes being treated differently already). A further annual local property tax would be added, based on an updated estimation of relative property values; this would replace council tax.

       When does she want it?

       A new national property levy could replace stamp duty in this parliament. A wholesale reform of local government finance, including a transition from council tax to local property tax and a valuation of every single home, would take years. Reportedly, that would be for Labour’s hoped-for second term.

       Why is it being considered?

       Reeves is desperate for new sources of tax revenue that won’t violate the manifesto commitment not to raise rates of income tax, employee national insurance and VAT. That doesn’t leave much, even with income tax and NI thresholds frozen. Some researchers estimate the “black hole” in the government’s budget could yawn to about ￡40bn a year by the end of this parliament – way more than the current level and beyond what fiscal rules and the markets would tolerate.

       Is a property tax a good idea in any case?

       Yes, in the sense that the British approach to taxing wealth is completely irrational. Unlike any other asset – rental properties, shares, artworks, businesses – the value of a main home is untaxed, nor are any capital gains derived from moving up the property chain. That badly distorts against investment in productive capital and in favour of consumption, and thus blunts productivity growth and living standards. The resulting concentration of wealth as it cascades down the generations with minimal inheritance tax is driving a steadily more unequal society.

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       Would a new property tax be a wealth tax?

       Yes, but it might be presented as a fairer and more rational version of the wealth taxes we already have: council tax, stamp duty, capital gains tax and inheritance tax. But it would suffer from the same drawbacks as council tax (and, to a lesser extent, stamp duty) in that it is almost completely unrelated to ability to pay. Someone lucky enough to live in what is now a very valuable home, but who has a small income in retirement, couldn’t afford an annual tax bill and would have to borrow against or sell their home (although the tax could be deferred until death and deducted from the estate at probate, making it effectively a hike in inheritance tax). It would also favour the wealthy few whose money is tied up in several properties or businesses because they would only be liable on the first property as a main home; a “proper” and efficient wealth tax would treat all kinds of assets neutrally.

       A more sensible approach to local government finance might be a local income tax – a policy idea adopted in Scotland by the SNP government in 2007 but later abandoned – and a more sensitive way of transferring money from richer areas to poorer ones. At the moment, council tax rates vary considerably between different areas, and about a fifth of local government funding comes from the Treasury out of central taxation.

       How much might it be?

       Anyone’s guess, but most likely unrelated to wages or other income. The centre-right think tank Onward, which last year came up with the original paper that inspired the Treasury, suggested that owners, rather than the residents, of a property worth up to ￡500,000 would pay various tiered rates of national and local property tax dependent on the value of their home. They would pay a minimum of ￡800 a year directly to their local authority, but who knows what living in a ￡2m townhouse would set you back.

       How would it play politically?

       Disastrously. Any such reform necessarily creates winners, who are electorally ungrateful, and losers, who are highly resentful. The last time such a change was attempted was when the “rates” were abolished in the late 1980s to make way for the flat rate per-person poll tax, triggering a riot, mass non-payment, and ultimately contributing to the fall of Margaret Thatcher. Vast accidental disparities in individual liabilities rendered the poll tax impractical and indefensible; it took some years and much cost to the Treasury to move from the poll tax to the current council tax regime with its various reliefs and exemptions.

       Memories of that painful episode mean no government has dared to touch property taxation besides fiddling around the thresholds. By making the plan part of the next Labour manifesto, but without much detail about who would pay and how much they’d pay, paranoia about the new tax would run rampant. Inheritance tax, which very few estates actually pay, is almost universally hated, and so would be a new “Labour wealth tax”. It would be regarded as a “tax on aspiration”. Whisper it, but some of the “working people” that Labour has solemnly pledged to protect own their own homes, and it is their sole source of wealth. Some imagine they will one day have a ￡1m house; they may already do if they live in London.

       Even with her proven record of poor political judgement, it is hard to understand what Reeves is playing at. At best; she is being pushed around – again – by Treasury civil servants who care nothing about politics; at worst, she’s become a little too crazed about fiscal rectitude.