Tax the wealthy before benefit cuts
I’m glad George Osborne said in his speech to the Conservative conference that we are still “all in it together.” But did he really mean it? How in the same speech could he rule out a mansion tax, paid by the very richest, yet push for a £10 billion cut in the nation’s welfare bill?
If we are all in it together in the battle to get the national budget into balance then surely the rich should contribute more than the poor? As far as I am concerned, we should make sure that no stone is left unturned on taxes on the wealthy before inflicting financial pain on those lower down the income scale. Also, as a general principle welfare reform should be just that – a reform that could have been made (and should have by Labour…) in times of healthy public finances. Welfare reform should be for the long term not for the short term corrective needed by the Treasury.
If my coalition colleagues accept that deficit reduction measures should be distributed fairly across all social groups then why are they so afraid of the Liberal Democrat idea of a Mansion Tax? It is the simplest form of a wealth tax, easy to assess, easy to collect and pretty hard to evade or avoid.
A mansion tax would operate as an annual levy on domestic property worth more than £2million. If the levy was say 1% then the mansion tax on a property valued at £2.5m would be £5,000 a year on the excess £500,000. The vast majority of people owning homes of this value would be able to bear such a tax. In genuine cases of “asset rich, income poor” then the mansion tax could be deferred and rolled up, becoming payable on sale or transfer of the property. A mansion tax should not strike fear into the hearts of the retired of Chelsea and Notting Hill.
A mansion tax is just one way that we should rebalance the tax system. I want to see a tax system that rewards work and entrepreneurial flair. Taxes should fall on incomes from work and rise on unearned capital gains. There should be more effective taxes on wealth held in life and inherited on the death of others. And of course, all taxes should be hard to avoid.
The coalition has made a good start. The Lib Dem plan to raise the amount of tax free pay to £10,000 is within reach. Capital gains tax has gone up by 10% for higher rate tax payers. But there is much more that we could do:-
- Restrict income tax reliefs (eg on pension contributions) to 20% basic rate. The well paid don’t need a tax incentive to motivate them to do things that are in their own interests;
- Reduce the CGT threshold to say £5,000. Small gains would still be exempt;
- Convert inheritance tax to an accessions tax on individuals, rather than on the net estate. There could be a deferral for the family home if lived in by the beneficiary. Most other reliefs could be scrapped.
The above are just some of the options. The Liberal Democrats are currently reviewing our tax policies.
Finally, the Chancellor is quite right to talk about welfare reform. The welfare system will not command public confidence if some people are able to enjoy cheap or free accommodation, income benefits and other social transfers as part of a long term life choice. The welfare state should be there to help people in times of need but not to perpetuate a dependency culture. People who work hard to provide for themselves and their families have to make adjustments throughout life as incomes rise and fall.
There are big societal and philosophical issues to discuss here. And that is the right forum for debating them, rather than starting from the need for deficit reduction. Many people contributed to our current financial problems. But the poorest are least to blame.