LibLink: Nick Clegg – the Conservatives need to adopt the politics of fairness

In today’s Observer, Nick Clegg makes the case once again for a mansion tax to be introduced as the most effective way of spreading the pain of austerity. In fact, he goes a bit further saying it is inevitable:

Victor Hugo observed that it is near impossible to resist an idea once its time has come. Last week, he was again proved right as calls for a mansion tax, first proposed by the Liberal Democrats in 2009, gathered new momentum. … I offer certainty: the mansion tax, or a version of it, will happen. My party has often led the political debate – whether on climate change, on the recklessness in our banks, on Iraq or on gay marriage. The lesson is always the same: change is rarely possible overnight – new ideas are always met with outrage by people who cling to the status quo – but when you have the argument on your side, it’s only a matter of time. The mansion tax is an idea whose time has come.

And his message to the voters of Eastleigh couldn’t be clearer:

This growing support for the mansion tax may be sudden, but it’s not surprising. This levy is part of the answer to the biggest question in politics today: during an unprecedented period of austerity, how should the burden be spread? As millions of ordinary families struggle on, who can plausibly argue against the very wealthy paying a bit more? As we try to build a stronger, more entrepreneurial economy, who can possibly defend a tax system that rewards unearned wealth at the expense of hard work?

Across the developed world, property levies are the norm. And in the UK, the demand for tax fairness is not going to go away. The next election, in 2015, will be our first full-blown scarcity election: no political party will be able to duck difficult questions on further public spending restraint and tax increases to fill the gaping hole in the public finances. Tax has been the theme of the Eastleigh byelection and it is a preview of what is to come.

The Liberal Democrats started this byelection by setting out the case for fair taxes in straitened times. And as we head towards the finishing line, this remains the dominant theme. The message to Eastleigh’s voters is simple: in government, we have successfully cut income tax for more than 20 million people. But multimillion-pound homeowners should pay their fair share. Send another Liberal Democrat MP to Parliament on Thursday and strengthen our hand.

You can read Nick’s article in full here.

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40 Comments

  • Tony Dawson 24th Feb '13 - 5:21pm

    @jedibeeftrix:

    “My home is my castle,”

    Made of sand? ;-)

  • Richard Dean 24th Feb '13 - 7:30pm

    Perhaps Nick feels that Eastleigh voters would welcome a mansion tax? Are there no mansions there? Average house price is apparently around £236k, but is £400k if the house is detached – almost twice what it was 12 years ago.

    http://news.bbc.co.uk/2/shared/spl/hi/in_depth/uk_house_prices/html/24ud.stm
    http://www.home.co.uk/guides/house_prices_report.htm?location=eastleigh&all=1

    How might the tax be administered? If a council owns a tower block and rents out its 50 dwellings which it could sell at £50k each, will it be liable for the mansion tax?

    And how much might such a tax bring in?

  • Barrie Jervis 24th Feb '13 - 7:36pm

    The mansion tax is unfair. Possession of an expensive house is neither proof of unearned wealth nor of disposible cash. The inflation of house prices will put ordinary families and retirees etc into this tax bracket. Many people in these houses will be unable to pay, and should not be forced to move. This policy smacks of envy.

  • Theo Clifford 24th Feb '13 - 8:26pm

    If £200000 worth of savings should be taxed, why shouldn’t your house be taxed?

  • Richard Dean 24th Feb '13 - 8:59pm

    Is £200000 taxed? Or is it just the interest that is taxed?

    So

    If your house is LV taxed, why shouldn’t your savings be too? Their value is, after all, determined by the community’s efforts in maintaining the value if money!

    Goodbye Eastleigh?

  • Taxes have to be paid out of income which is already taxed. A mansion tax would amount to double taxation or treble if council tax has to be paid as well. Commercial property is subject to business rates and investment income whether from shares, bonds or other savings is taxed. Those who work hard and save a bit will be penalised – and for whose benefit ?

  • Matthew Huntbach 25th Feb '13 - 1:01pm

    nvelope2003

    Those who work hard and save a bit will be penalised – and for whose benefit ?

    For the benefit of those who work hard. Why do we suppose it’s so much fairer to tax actual earned income rather than wealth? If it’s all about rewarding hard work, surely it should be the other way round. Why is it thought fair to let people lead an easy tax-free life once they have made or inherited their wealth, but to tax income at a high rate to make it harder to get there?
    Barry Jones

    Possession of an expensive house is neither proof of unearned wealth nor of disposible cash. The inflation of house prices will put ordinary families and retirees etc into this tax bracket.

    Exactly – these people have done NOTHING to earn their wealth, so why is it so unfair to tax them and so much ,more fair to tax people who make money by work rather than by sitting on their word-LDV-won’t-let-me-uses and making it through owning a house?

    Many people in these houses will be unable to pay, and should not be forced to move.

    If such a policy were introduced I think it would be fair to have a state guaranteed scheme of payment by equity withdrawal which guarantees that no-one is forced to move from a property they own.

  • Matthew Huntbach 25th Feb '13 - 1:10pm

    Richard Dean

    Perhaps Nick feels that Eastleigh voters would welcome a mansion tax? Are there no mansions there? Average house price is apparently around £236k, but is £400k if the house is detached – almost twice what it was 12 years ago.

    So you think everyone in Eastleigh can afford £236k? How many young people in Eastleigh wanting to buy their first house, maybe wanting to start a family, are in despair because of the way house prices doubling in 12 years have killed their dream? Are there more or less of them than the number of people in Eastleigh living in mansions? Might not this sort of person welcome a shift of taxation from income, so they get taxed less, to property, which would make it less worthwhile holding onto property as an “investment” and so tend to bring house prices down?

    Why is so much of the political discourse in this country oriented around the need and interests of the top 5% or so in terms of wealth?

  • Richard Dean 25th Feb '13 - 1:24pm

    “Average” is not the same as “top 5%”. And no, if earners want to buy houses, they likely won’t want to continue to pay tax once they’ve bought them. Putting a tax on property increases the property’s net price (ie the purchase price + the cost of owning it) .

  • Richard Dean 25th Feb '13 - 1:31pm

    Savings come out of after-tax income.It’s unfair to tax savings, because they’ve been earned, and it amounts to taxing income multiple times. Even if I give my savings to my daughter, in the form of a mansion, it’s still unfair since I am still being taxed on my earned savings, even if ownership of those earned savings has been transferred.

  • I agree with Matthew Huntbach not Richard Dean (for a change).
    Income tax, VAT, inheritance tax, cigarette tax and council tax operating together pretty much ensure that money is taxed at multiple stages. If there is a reason why (for example) two taxes operating in series, each leaving you with say 80 percent of what you started with (so 64 percent overall) is unfair whereas a one-stage tax of 36 percent (also leaving 64 percent overall) is unfair, then the onus is on those who believe that to state why. In my view multiple stage taxation is likely to be fairer as it catches more of the different definitions of rich – ranging from the politician’s definition (it’s all about income), to the Sunday Times Rich List definition (it’s all about accumulated wealth).

    If the argument is simply that taxes are already too high so we shouldn’t add another one then I have a certain amount of sympathy with that argument, but then we could use the mansion tax money to reduce another tax.

    As I am not able to post in a thread with Matthew Huntbach without disagreeing with at least something, I would say the 5 percent vs 95 percent thing is not always how to arrive at the right answer. For a morally unambiguous example, consider the case if 5 percent of the population were state-owned slaves. For a slightly more ambiguous example from the real world, consider the case of restitution of property in the 1990s to those who had it confiscated by communist states – which clearly was a case of a richer 5 percent being prioritised at the expense of a poorer 95 percent. So basically justice (and not only tactics) does sometimes favour the richer 5 percent. I just don’t think letting off the wealth-rich at the expense primarily of the income-rich is one of those cases – in fact the present income-only definitions of rich are a case of generational injustice.

  • Richard S wrote:
    ” If there is a reason why [Tax type A] is unfair whereas [Tax type B] is unfair, then the onus is on those who believe that to state why. ”

    I suspect that Richard S meant to rebut the notion that of two tax types with the same burden one could be fair and the other unfair, though I don’t know which was meant to be the “fair” one. But then again, maybe both of them are unfair!

  • Liberal Eye 25th Feb '13 - 3:53pm

    @ Richard Dean – Is £200000 taxed? Or is it just the interest that is taxed?

    I infer you are implying that only the interest is taxed and NOT the £200k. Actually savings ARE the subject of a massive stealth tax in that the ordinary saver is able to get substantially less than the real rate of inflation which therefore erodes savings. If memory serves, the loss to savers is about £40 billion/year.

    This is not a small sum (!!!) and results from a deliberate policy choice to artificially depress interest rates to save the banks. Savers are the collateral damage of this policy.

  • Alex Sabine 25th Feb '13 - 4:00pm

    Nick Clegg states blandly that ‘across the developed world, property levies are the norm’ in support of his argument that the mansion tax is going with the grain of history.

    Well indeed, Nick, but nowhere more so than the UK, which has the highest property taxes as a proportion of national income of any OECD country.

    http://www.oecd-ilibrary.org/taxation/taxes-on-property_20758510-table7

    It would be nice if politicians would sometimes place their statements in some sort of factual context rather than peddling myths like the idea that the British government barely taxes property.

    It does, and heavily. The problem is the highly unsatisfactory and inequitable nature of its chosen methods via stamp duty, council tax and business rates. The mansion tax is a pathetically feeble answer to these problems.

    The problem for proponents of still higher property taxation is not primarily an economic one. It is the same problem that politicians wanting to introduce higher taxes more generally face:

    - In order to win public support for tax rises, political parties deem it necessary to set a very high threshold that is beyond the realistic aspirations of the vast majority of the middle classes (eg £150k for income tax or £2m for the mansion tax), since on the whole voters are only keen on higher taxes if they can be absolutely sure that they or their families won’t ever be caught by them. On that basis alone, a large number of voters are quite happy to vote for higher taxes.

    Proposals to increase taxes further down the scale, even at statistically high levels of income or property wealth – such as Labour’s infamous 1992 shadow budget or even the Lib Dems’ initial £1m threshold for mansion tax – tend to hit the skids.

    - By setting a high threshold or very narrow base for the new taxes (eg 70,000 properties for mansion tax), you immediately negate the prospect of any serious revenue being raised (as a matter of simple arithmetic, and even leaving aside any behavioural effects of the tax change). The amount raised is at best small change in the context of our enormous budget deficit; and if it is earmarked to reduce broad-based taxes like income tax or VAT, it is spread extremely thinly so that the gains are barely perceptible. It certainly doesn’t remotely justify the grandiose claims of a big tax switch, and the voters who backed it on those grounds are liable to realise it had been hugely over-sold.

    A similar phenomenon can be observed with the proposal to means-test the universal pensioner benefits like the winter fuel payment, the TV licence, bus pass etc. The Lib Dems like to talk about stopping the likes of Alan Sugar from receiving it, and I can see why this is a helpful way of framing the debate from a propaganda standpoint.

    But withdrawing these benefits from ‘the like of Alan Sugar’ really would be an exercise in utter futility. Anyone who has examined the figures will tell you that the money saved by excluding only really wealthy pensioners would be trivial, and probably exceeded by the administrative costs.

    The only way to save a worthwhile amount of money would be to take away these benefits at a much lower level of income or savings, say from all pensioners with annual income of £25k or more, or something of that order. In my view that would actually be justified in the case of the winter fuel payment and TV licence, although I would probably leave the free bus pass alone. But I don’t doubt it would be very unpopular win those who would lose out: all benefits, once extended, are jealously guarded by the recipients.

    So I don’t expect the Lib Dems to advocate this. Instead we will probably get some tokenism about asking the very wealthy pensioners to ‘make a contribution’ to austerity, combined with reassurances to the merely affluent that their benefits wouldn’t be touched. Politically this might be savvy; as with tax, though, it would open up a huge gap between lofty reforming rhetoric and underwhelming reality.

  • @David, sorry I was responding to Richard Dean, who brought up the issue of the same money being taxed twice. My point is that (for example) two 20 percent taxes operating in series are equivalent to a 36 percent tax operating in isolation. Whether or not the overall tax take is too high or too high on specific people is a separate question, but the multi-stage nature is not in my opinion inherently unfair, and actually probably fairer if they capture different definitions of “rich” (both income and wealth based).

  • Matthew Huntbach 25th Feb '13 - 6:32pm

    Richard Dean

    “Average” is not the same as “top 5%”

    No. Does the “average” person own a mansion?

    I just picked 5% as a very rough figure, it could be 10%, it could be 1%. What I meant as coverage of policies that affect adversely only a very small proportion of the population at its wealthiest end in a way that suggests, without actually saying it, that a much greater proportion of the population would be affected. The focus of attention on the “mansion tax” on the very small proportion of the population that would be adversely affected by it rather than the much bigger proportion that would benefit from it is a good example.

    From the way the south of England is covered in the media, one might suppose the whole of it is covered in houses worth at least a million, inhabited by people who work in top finance jobs in the City or as senior civil servants or the like. One might think everyone in the south of England is delighted by its high house prices, rejoicing in the happiness that brings them.

    It isn’t like that. Wouldn’t it be nice to come across the occasional comment in the media that recognises it isn’t like that?

  • Matthew Huntbach 25th Feb '13 - 6:39pm

    Alex Sabine

    It does, and heavily. The problem is the highly unsatisfactory and inequitable nature of its chosen methods via stamp duty, council tax and business rates. The mansion tax is a pathetically feeble answer to these problems

    Yes, I agree. The problem is people moan like hell about government spending cuts, the Conservatives have taken a small hit for them, the Liberal Democrats a much bigger hit. Yet when it comes to serious discussion on the lines “OK, so how would YOU pay for it?”, they have nothing to say, apart from moaning at any viable suggestions. Right now they’re turning to Labour – which has no serious answers to the problem, less even than the Liberal Democrats who have at least tentatively discussed property taxation. Or they’re turning to UKIP – whose economic policies are even more right-wing than the Conservatives, and whose hand-wavy arguments that everything can be paid for by savings from not being in the EU would be silly even if there really would be savings and no consequential losses.

  • Richard Dean 25th Feb '13 - 7:16pm

    So everyone gets taxed multiple times, except savers who get taxed multiple plus one times. Is that fair? Is it even wise, considering that one person’s savings in a bank end up as investments in stocks and shares, and so in jobs, because that is what a bank does when it lends to businesses?

    Savings that are made by direct share purchases do it directly, and savings that are made by using the money to buy mansions do it through the fact that the money goes to the builder to pay off the bank debts that were needed to pay the workers.

    So I suggest that thinking on property taxes and savings needs to come out of Envy Park and into Real World. Low house prices also mean that owners have less collateral to borrow on, so borrowing for shorter-term purposes is low, so demand is constrained too. Which appears to be the opposite of what the economy needs.

  • Liberal Eye 25th Feb '13 - 7:34pm

    @ Alex Sabine

    A well made point (or series of points). It is indeed curious that the UK has such a high rate of property tax by international standards. How did it get to be like that?

    Is it because lower and average income groups with smaller and average houses in the UK pay a disproportionate share compared with very high earners/very large houses? If a large part of the population has modest incomes and lives in modest houses on which they pay relatively high property taxes then the overall national statistic is bound to reflect this as per the linked OECD data. In other words, is it because property taxes in the UK are regressive in an important way?

    I always believed that the real aim of the Poll Tax was to reduce taxes bourne by the wealthiest. The Council Tax made only a small difference to that outcome.

  • @Alex and Liberal Eye: I believe the reason why “the UK… has the highest property taxes as a proportion of national income of any OECD country” is simply down to business rates, which are much higher than any equivalent abroad – except for the US which is similar.

  • Matthew Huntbach 25th Feb '13 - 11:44pm

    Richard Dean

    Low house prices also mean that owners have less collateral to borrow on, so borrowing for shorter-term purposes is low, so demand is constrained too.

    Oh, this is really scraping the barrel. Are the only people who have good ideas worth investing in those who not only own property but own it having paid off the mortgage so they can re-mortgage it?

    The way in which so much money can be made with so little on it through owning housing is a massive drag on the economy, leading to so much money being invested in housing rather than in building up businesses.

    Young people who have so much energy and ideas having to spend so much of their money on housing leaving so little left for investment in other things is throttling our economy, it is the enemy of incentive. If you have to pay such huge amounts to have a roof over your head, you go for the safe and boring job, you don’t try something risky and innovative. If you are exhausted and have nothing left after paying the rent or mortgage, any business ideas you might have had get thrown away.

  • Richard Dean 26th Feb '13 - 2:16am

    That’s nonsense Matthew, surely you see that? People with good small-business ideas can get finance – sure they have to look around for it, it doesn’t fall off trees, but it’s available. But there are far fewer people with good ideas than people with ideas on how to burn money away!

    Industry owns property, and industry uses its property as collateral for loans . These loans are harder to arrange than finance for small business startups because they inevitably involve much more than a couple of people starting out in a garage. Reduce property prices and industry finds it harder to get loans.

    Do we really want to nonsense ourselves into that situation? Why can people not see a difference between what is right for them personally and what is right for a country or a region collectively?

  • Alex Sabine 26th Feb '13 - 3:48am

    @ Liberal Eye and Adam

    I suspect both of those factors (the UK’s high business rates and regressive council tax) are relevant in the international comparison. I’d guess stamp duty is also part of the explanation. It has been hiked hugely since 1997 – which is a major problem since it is, as the IFS argue, ‘a strong contender for the UK’s worst designed tax’.

    When Labour came to power it was charged at a flat rate of 1% on property sales above £60,000 (half of all sales). It is now charged on sales above £125,000 (more than half of all sales) at rates rising from 1% to 7%. Its share of revenue has risen dramatically, from 0.26% in 1997-98 (£0.8 billion) to a peak of 1.22% in 2007-08 (£6.7 billion), pushed up by rapidly rising property prices up to 2007 but also by the succession of rate hikes.

    Admittedly, the share of revenue is still small, and at the peak SDLT only represented about 0.5% of GDP, so business rates and council tax are the bigger reasons. But the Treasury’s increasing reliance on stamp duty increases is a worrying trend for those of us hoping for a saner tax system.

    Obviously I agree on the need to change the regressive nature of council tax. As I’ve argued before, if we are to continue taxing domestic property as such (rather than the land it sits on, which would be preferable), the most sensible way to do this would be to replace council tax with a tax that is simply proportional to property value.

    Of course this would require a full revaluation of the housing stock (rather than the limited revaluation a mansion tax would necessitate) but this is long overdue in any case; it is surely absurd to be taxing people based on what their properties were worth 22 years ago. All property taxes require regular revaluations.

  • Matthew Huntbach 26th Feb '13 - 8:29am

    Richard Dean

    Industry owns property, and industry uses its property as collateral for loans . These loans are harder to arrange than finance for small business startups because they inevitably involve much more than a couple of people starting out in a garage. Reduce property prices and industry finds it harder to get loans.

    Oh, so you have completely changed your tune? First we were told the future for our country was young entrepreneurial types starting up new businesses, which is why we must keep income tax low so they enjoy the rewards of hard work. Now you are telling us forget all that, instead we must concentrate on the interests of big well-established businesses which already own property.

    Do we really want to nonsense ourselves into that situation? Why can people not see a difference between what is right for them personally and what is right for a country or a region collectively?

    Yes, that is the point I am making. In this country the interests of those who own property bought long ago so mortgage-free or with a low mortgage compared to their market price dominate. So they will twist and turn whatever way they can to justify that being good for the country, but it is because it is in their personal interest, they will not hear the arguments for it being bad for the country.

    If you mean me personally, I live in the house my wife inherited from her mother, bought for cash in the 1960s when they were forced to leave Kenya. Seeing the brown faces, the vendor immediately raised the price from £2500 to £3000. “Done” said my late father-in-law. The house would now sell for about a hundred times that amount. So if you suppose I am consumed with envy over people who own houses and have seen a huge increase in their price while I, being the son of council tenants, have benefitted nothing from that, you are wrong. So I suppose you will now change your tack and say I am a hypocrite, and should voluntarily donate to the government what I think should be fair tax on this property. So, there we are – if one benefits from high house prices one is a hypocrite for calling for measures to decrease the untaxed profits that come from them, if one does not, one is just following the politics of envy.

    I say what I say because I believe it is to the good of our nation, and my views on this have not changed at all through my various changes of circumstance. On the particular issue mentioned above, taxation has to be done on the basis of mutual agreement from all “I will do it if you do it”. There are many cases where this is so – an enterprise only works if there is a mutual agreement from all involved to contribute, a voluntary system whereby one contributes and another decides not to but still gets the benefit will not work because there is no benefit unless all contribute.

    My strongest belief and deepest motivating factor here is essentially a conservative one, that low house prices will make family housing affordable to those of the age to raise families, and strong families are the bedrock of a decent and prosperous society. The guarantee of council housing of a modest nature but sufficient for their needs for those who plan to raise a family responsibly is part of this too.

    That is why I put the blame on what is wrong with Britain now above all on Margaret Thatcher, with her anti-family, anti-conservative, anti-British and anti-enterprise policies. She it was who turned Britain away from a work-oriented society to a society where money is believed to be gained by sitting back owning things, whether they be shares or property. She it was who started off this privatisation mania which has resulted in our country being bought up by foreign control. She it was who pushed the idea that motivation by greed was the driving force in society, so destroying the morale and decency of British society.

  • Matthew Huntbach 26th Feb '13 - 8:43am

    Liberal Eye

    Actually savings ARE the subject of a massive stealth tax in that the ordinary saver is able to get substantially less than the real rate of inflation which therefore erodes savings.

    To call this a “stealth tax” is wrong. Those words imply a scheme whereby the government gains income, but the government does not gain a direct income from low interest rates. The idea of low interest rates is that people will not hoard money but will instead spend it and so keep the economy moving, and also people will more freely borrow for entrepreneurial purposes. However, they also mean mortgage rates are low, so people may bid more for property, so house prices are pushed up. Given that money gained from interest is taxed, it would be high interest rates that are a “stealth tax”, doubling interest rates would double the amount of money the government receives from income tax on interest.

  • Matthew Huntbach 26th Feb '13 - 9:03am

    Richard S

    As I am not able to post in a thread with Matthew Huntbach without disagreeing with at least something, I would say the 5 percent vs 95 percent thing is not always how to arrive at the right answer.

    I have struggled to understand the point you were making, because apart from mentioning “5%”, what you write seems to bear little relationship to what I wrote.

    I did not write or imply that the interests of any 5% of the population should always be outweighed in consideration of the interests of the other 95%. I simply noted that it seemed to be commonplace in political and media commentary to write of the interests of the wealthiest X% of the population as if they were a far bigger proportion. The “mansion tax” proposal is an obvious example – it has been written up so many times as “an attack on London” or “an attack on the south-east”, as if every Londoner or southerner would pay it, or if not every one of them at least a big proportion of them. Why put it this way, when any measure that would help bring house prices down, would benefit Londoners and southerners more than others, since they suffer the most from high house prices? Why are the interests of those who would pay mansion tax written up and commented on so often, while those squeezed out of housing by high costs hardly considered when this topic is discussed?

    The newspapers, Daily Mail in particular, have invented this phrase “Middle England”. When you see them write of some policy that it is an “attack on middle England”, if you look in detail you will almost always find that it is a policy that affects adversely the wealthiest X% of the population. I picked 5 for X, but sometimes it’s a bit more than that, other times a bit less. You will find they NEVER use this phrase to mean those on average incomes or average wealth. The idea, however, is I think pretty blatantly to frighten those who are on average income or average wealth into thinking they would be affected by it.

    To move from my noting this point to suggesting I hold the belief that minority interests should never be considered is, well, let’s just say, “rather strange”.

  • @Matthew – ok, yes it is over-covered, and overvalued in electoral terms. I myself left the South East for the reasons you say among other things. As a policy though it still ahs to be judged by whether or not it is just.

    @Richard Dean – “So everyone gets taxed multiple times, except savers who get taxed multiple plus one times.” not everyone, as smokers, drivers, lovers of fine lager etc. also get taxed multiple plus one times. But I recognise your basic point, that someone who earns X pounds and puts the money into a house ends up paying more tax in the long run than someone who earns X pounds and blows the money on consumer items. So yes this would punish the more responsible, but generally taxes which fall on the strong rather than the weak punish the responsible anyway and this complements other taxes (or reduces the pressure to raise them) so the fairness of this tax has to be compared to the fairness of those taxes not simply assessed in isolation.

    I would rather though that instead of this being used a Labour-style eye-catching initiative to differentiate the party from the Tories (and for the Tories to differentiate themselves from the party), if they simply used their position in government to agree with the Tories to add a few extra council tax bands on top of the system already in place.

  • Alex Sabine 26th Feb '13 - 3:33pm

    Matthew, I don’t want to take issue with you for the sake of it, so I will start by saying that I concur with a lot of what you are saying about the way the media presents and frames these issues. It’s certainly the case that some of the newspapers have a fairly skewed idea of who the ‘middle classes’ are in income and wealth terms.

    For example, I wasn’t a fan of the 50p tax rate, firstly because I dislike punitive taxation (and with employee and employers NI this pushed the marginal tax rate at the top end to a pretty eye-watering 58%, with a nasty ‘spike’ of 67% where the personal allowance is withdrawn), and secondly because there are better ways of raising money from the better-off than raising income tax rates.

    However, the likes of the Telegraph were scraping the barrel in claiming this was an attack on the aspirational middle class. That charge could fairly have been made if the threshold were much lower, as with Labour’s 1992 shadow budget which included a big rise in National Insurance for those on above-average, but by no means princely, incomes. But it wasn’t really credible when the threshold was 5 or 6 times average earnings.

    Whether they did so out of ignorance of the facts about the true average income level, or as part of a disguised agenda to protect a financial elite as you claim, I can’t be sure. I suspect it was a bit of both, since I see little awareness (and little curiosity) in the media about all sorts of facts that are relevant to public policy debates, and it is not confined to the right-wing press as you seem to imagine.

    For example, how many people who back the mansion tax start by acknowledging the data I linked to above, that the UK has the highest level of property taxes in the developed world. It’s a relevant and interesting fact in the context of a debate about property taxation, I would have thought, but one that is rarely mentioned.

    Equally when discussing welfare reform, those on the left rarely acknowledge the remorseless rise in social security spending, in good times and bad, under governments of all hues, while those on the right tend to gloss over the huge chunk of ‘welfare’ spending that goes on pensions, and thus is in some notional sense contributory (though not in a real, actuarial sense of course, since that link was always a sham and is now almost completely meaningless).

    Or, when discussing how the burden of taxation is or should be shared, left-leaning newspapers and commentators simply assert, or assume without any evidence, that ‘the rich’ as a group are a bunch of tax avoiders and evaders who make precious little contribution to the common weal. If they looked at the official HMRC statistics they would see that the top 1% of taxpayers account for a quarter of all income tax revenue, while the top 10% of taxpayers pay 55% of all income tax receipts. Left-wingers counter that this simply reflects the highly unequal distribution of private income, but this isn’t an adequate explanation, since the shares paid by the top 1% and 10% are much higher than their shares of income earned. In other words, the income tax system is highly progressive by any measure, with an extreme concentration of payments among a small segment of the population. Interestingly, it actually got much more progressive over the period 1979 to 2010, even while the top rate was slashed from 83% to 40%.

    You would have thought these facts would be food for thought for those advocating higher top rates (or objecting to the 45p rate) but no, they just blithely ignore them.

    Equally, however, the right-wing commentators overstate their case by referring only to income tax, which is clearly a huge part of our tax system but only accounts for about a quarter of total revenues. They ignore the many other taxes which are much less progressive (like NI, petrol duty, VAT) or indeed regressive (like council tax, tobacco duty etc). Focusing on income tax in isolation gives a misleading picture of how much tax revenue is contributed by the well-off.

    The problem is that it is harder to assign proportions of revenue from consumption and indirect taxes by income groups, and data limitations mean that little is known about the share that comes from high-wealth households. It is also important to be wary about over-interpreting a snapshot measure of taxes by income (since ideally we would like to know how lifetime taxes relate to lifetime incomes, since at particular points in time low-income groups can be high-spending or vice-versa – if they are borrowing or, conversely, living off savings – but over a lifetime these should net out).

    It is also extremely hard to assign the burden of certain taxes – notably corporation tax and business rates – to particular households at all, as the incidence of the tax ultimately falls on workers, consumers and shareholders but in proportions that cannot be readily observed.

    So in other words there are a whole load of caveats that need to be recognised, but the best attempts of the IFS (see their Green Budget document) and others at modelling the shares contributed to a much wider range of taxes than just income tax suggest the tax system as a whole is still progressive, with the top half of taxpayers paying about 85% of the revenue and the top 20% contributing 54%.

    So, unsurprisingly perhaps, both sides insist on choosing their own facts and presenting a slanted view of the current situation to suit their competing agendas. It makes it hard to have an informed debate, sure, and sometimes contributes to unnecessarily polarised perspectives (as opposed to adversarial debate based on a shared acceptance of the key facts, which is perfectly healthy and indeed vital in a democracy). But hey, it could be worse: just look at the current state of political discourse in the US for proof of that – and hopefully not a vision of the future!

  • Matthew Huntbach 26th Feb '13 - 4:24pm

    Alex Sabine

    For example, how many people who back the mansion tax start by acknowledging the data I linked to above, that the UK has the highest level of property taxes in the developed world

    Perhaps you could tell me how this is reckoned, as it seems to me to be contradictory to experience. I pay council tax, which is a sort of property tax, and that’s it on property taxes. Is what is paid in council tax more on average than property taxes in other countries? It’s you who have brought up these figures, I would like some more information in exactly how they were derived, so since you seem to think they are so important, perhaps you could provide it.

  • Matthew Huntbach 26th Feb '13 - 4:38pm

    Alex Sabine

    Equally when discussing welfare reform, those on the left rarely acknowledge the remorseless rise in social security spending, in good times and bad, under governments of all hues, while those on the right tend to gloss over the huge chunk of ‘welfare’ spending that goes on pensions,

    Never been a fault with me. I’ve always acknowledge that one of the biggest things happening in society is the rapid increase in life expectancy. It infuriates me how much discussion on these issues goes round this and attributes the results to other things. The other obvious big thing is the extent to which the selling off of council housing has led to a huge rise in housing benefit. The political right quotes figures that suggest the money is all going to keep welfare claimants in lives of luxury, but it’s not – it’s going straight to the private landlords. Liberals don’t like to acknowledge the the extent to which looser family structures contributes towards higher welfare bills, but this was very forcefully brought home to me in my casework load when I was a councillor.

  • Matthew Huntbach 26th Feb '13 - 4:44pm

    Alex Sabine

    In other words, the income tax system is highly progressive by any measure, with an extreme concentration of payments among a small segment of the population. Interestingly, it actually got much more progressive over the period 1979 to 2010, even while the top rate was slashed from 83% to 40%.

    Well, yes, but it would do if there was a big growth in inequality so the rich got richer and the poor got poorer. Which there was, so I hardly think you can say the system itself has become more progressive.

  • Matthew Huntbach 26th Feb '13 - 4:55pm

    Richard S

    I would rather though that instead of this being used a Labour-style eye-catching initiative to differentiate the party from the Tories (and for the Tories to differentiate themselves from the party), if they simply used their position in government to agree with the Tories to add a few extra council tax bands on top of the system already in place

    Yes, it would be nice if we could have a sensible and rational national discussion on property taxes. But we can’t, any attempt to do so gets shot down by emotional and misleading argument from the political right.

    I suspect the “mansion tax” thing was invented by a bunch of wonks sitting around asking “OK, how can we do this in a way that the right-wing press won’t be able to twist and scare off the voters?”. So “mansion tax”, see – makes it clear it isn’t going to hit most of us, while “extra council tax bands” WILL get read as “LibDems want to put up council tax”, and a whole load of voters in low-banded properties will not understand the detail so assume it means they get hit by it.

    I certainly wouldn’t argue that the proposed “mansion tax” is the best way to go about this on its own merit.I doubt many others would either.

  • Alex Sabine 27th Feb '13 - 6:14pm

    Matthew,

    Re your query about the data I linked to, it comes from the OECD, which is about the best source we have for international comparisons. Obviously I’m not able to give you a detailed account of the methodology they use to arrive at their figures, but airily dismissing it as ‘contradictory to experience’ simply won’t wash I’m afraid. I thought we believed in evidence-based policy-making…

    Likewise, the hugely comprehensive Mirrlees Review into the UK system noted that ‘tax revenues on property in the UK amounting to 4% of GDP are the highest of all the OECD countries and therefore caution should be exercised before taxing property even further’.

    As it happens, several of us took a stab at the reasons for the UK having the highest property taxes in the OECD above. You mention council tax, but you need to factor in business rates and stamp duty too.

    As Adam posted in his comment above, UK business rates are pretty swingeing: they total about £25 billion, and (with some variation depending on the size of business, rate relief etc) are charged at upwards of 45% of rateable value. Indeed, if there is to be any form of fiscal stimulus in the coming budget, cutting (or at the very least freezing) business rates would be one of the most helpful things the Chancellor could do to assist the High Street and the wider economy.

    On the point about social security costs, of course you are right that demographics – specifically the ageing population – explain much of the increased cost of pensions. That is why increases in pension ages to reflect higher life expectancy are needed to prevent the cost – and the drag on the productive economy – from spiralling in future decades. However higher life expectancy does not explain all the problems with the unfunded pension systems that have been the norm in the public sector and the systematic deception that National Insurance contributions were ever in any actuarial sense linked to retirement pensions.

    I partially agree with you on housing benefit, in that it does work as a subsidy to private landlords as well as a benefit to tenants (rather as working tax credits both top up the income of the low-paid and can also enable employers to pay lower wages than they otherwise would). That is why curbing the cost of housing benefit should not just be about imposing caps on the generosity of the benefits paid, but part of a wider package of reforms to increase housing supply. (Rent control, now fashionable again with many on the left, would be completely counter-productive in this regard.)

  • Alex Sabine 28th Feb '13 - 1:11am

    On the progressivity (ugly word, but you know what I mean) of income tax over time: Of course you are right that income inequality increased in the 1979 to 2010 period (although by most definitions it isn’t true to say that ‘the poor got poorer’ as you claim).

    If the income tax system remained as progressive as before 1979, as you say you would expect the shares of revenue contributed by the top 1% and 10% to increase, reflecting the increase in pre-tax income inequality. However, you’d expect an offsetting effect given that the top rate was reduced from 83% (and 98% on investment income) to 40% on all income by 1988, so that the shares contributed by the well-off would fall or at least not rise significantly.

    Instead, what is striking is by just how much the share of income tax liabilities contributed by the top 1% and 10% shot up over the period. In 1979 the top 1% of taxpayers contributed 11% of income tax revenue; by 2010 they accounted for 24%. The share contributed by the top 10% rose from 35% to 55% over the same period.

    At the very least this suggests there is more to a progressive income tax system than having high top rates; and that by any standard the income tax system remains highly progressive without the penal rates that prevailed throughout the postwar period. It also indicates why the Treasury is concerned about behavioural responses: given its reliance on a relatively small number of people for income tax revenue, it understandably wants to ensure that revenue doesn’t dry up…

    As I pointed out above, we shouldn’t look at income tax in isolation, and other aspects of the tax system tilt the balance the other way. This is also the case in most other European countries, since large states tend to require high taxes across the board including indirect taxes which are much less progressive in relation to income. They then try to bring about rvia transfer payments and public spending.

    Interestingly, federal taxes in the US are much more progressive than most European tax systems, and even taking into account state and local taxes (sales taxes etc) the US tax system is no less progressive than its European counterparts. The big difference is the inequality of pre-tax income which is much higher in the US (and higher in the UK than in other European countries).

  • Alex Sabine 28th Feb '13 - 1:12am

    Matthew – On the progressivity (ugly word, but you know what I mean) of income tax over time: Of course you are right that income inequality increased in the 1979 to 2010 period (although by most definitions it isn’t true to say that ‘the poor got poorer’ as you claim).

    If the income tax system remained as progressive as before 1979, as you say you would expect the shares of revenue contributed by the top 1% and 10% to increase, reflecting the increase in pre-tax income inequality. However, you’d expect an offsetting effect given that the top rate was reduced from 83% (and 98% on investment income) to 40% on all income by 1988, so that the shares contributed by the well-off would fall or at least not rise significantly.

    Instead, what is striking is by just how much the share of income tax liabilities contributed by the top 1% and 10% shot up over the period. In 1979 the top 1% of taxpayers contributed 11% of income tax revenue; by 2010 they accounted for 24%. The share contributed by the top 10% rose from 35% to 55% over the same period.

    At the very least this suggests there is more to a progressive income tax system than having high top rates; and that by any standard the income tax system remains highly progressive without the penal rates that prevailed throughout the postwar period. It also indicates why the Treasury is concerned about behavioural responses: given its reliance on a relatively small number of people for income tax revenue, it understandably wants to ensure that revenue doesn’t dry up…

    As I pointed out above, we shouldn’t look at income tax in isolation, and other aspects of the tax system tilt the balance the other way. This is also the case in most other European countries, since large states tend to require high taxes across the board including indirect taxes which are much less progressive in relation to income. They then try to bring about redistribution via transfer payments and public spending (while generating a lot of overhead in the process…)

    Interestingly, federal taxes in the US are much more progressive than most European tax systems, and even taking into account state and local taxes (sales taxes etc) the US tax system is no less progressive than its European counterparts. The big difference is the inequality of pre-tax income which is much higher in the US (and higher in the UK than in other European countries).

  • Alex Sabine 28th Feb '13 - 1:14am

    Eds – Sorry for the repeat post above…. Finger trouble on my iPad! The last one is the one I meant to submit.

  • Matthew Huntbach 3rd Mar '13 - 12:28am

    Alex Sabine

    Re your query about the data I linked to, it comes from the OECD, which is about the best source we have for international comparisons. Obviously I’m not able to give you a detailed account of the methodology they use to arrive at their figures, but airily dismissing it as ‘contradictory to experience’ simply won’t wash I’m afraid. I thought we believed in evidence-based policy-making…

    I’m not looking for a detailed analysis, just something which explains why these figures don’t seem right – they just don’t fit in with the level of tax on their property most people pay. I’m happy to accept the issue is the level of business
    rates, but then you were using it in a discussion which was on taxation of domestic property, I wasn’t talking about business rates at all, and it seems to me you wanted to fool us by bringing this in to the argument we were having on possible taxation of domestic property.

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