A fortnight ago today [Oct 15th], I received the following email that was headed “Unfair and Inefficient” from the Business Secretary, Vince Cable:
Our system of taxation is both unfair and inefficient. People on modest incomes are paying their fair share of tax while the super rich can too easily avoid paying their share.
It is a particular scandal that some of the world’s wealthiest people who own property in the UK worth millions pay virtually the same council tax as owners of a modest family home.
I want to change this – I want a new ‘mansion tax’ on the most valuable properties – we propose 1% of the value of over £2million. This will be paid by the wealthiest 0.16% of property owners.
Unlike taxes on income, it is impossible to dodge a mansion tax. After all, a mansion can’t be hidden offshore.
There is plenty of opposition from top investment bankers who would have to pay more tax. And the Tories don’t like it either; it will hit some of their friends.
Polls show that this idea is very popular. The public want fairer taxes, as we do
Vince Cable MP
PS. Those who benefit from the current system are not short of help or money.
As an immediate response, I replied to Vince Cable as follows:
Dear Vince Cable,
I totally applaud your aim of establishing a fairer tax system, but feel that the idea of a mansion tax is unhelpful in this regard. As a direct consequence of the recent housing bubble, house prices have generally become over-inflated and in some regions of the country there are many properties with prices in the region of or around your seemingly arbitrary value of £2 million. If house prices begin to rise again, which is something that might easily happen given the long term inflationary impact of the government’s policy of quantitative easing, then the level of the mansion tax will come into the range of many more moderately well off individuals and families. Alternatively, once the tax is established, then to increase revenues it might be very tempting for the government (yours or a future one) to slowly lower the threshold. And what guarantee can you offer than this will not happen? So the mansion tax appears not so much as a way to hit (as you put it) some of the more affluent friends of your Coalition partners the Tories, but rather as the Sword of Damocles about to hang over rather more ordinary mortals within the ranks of the semi-affluent upper middle classes.
But let’s step back a moment and ask why you need this money in the first place? I can think of two immediate and obvious reasons. Firstly, because of the failures of successive governments, with your own very much included, to close the offshore tax loopholes of the corporations and genuinely super-rich. Here is an enormous amount of potential tax revenue that should rightfully be collected. The second reason is those same governments inability to rein in the catastrophic excesses of a financial industry they themselves had slowly helped to deregulate. It has been nothing more or less than irresponsibility on the part of successive governments and regulators, combined with incompetence and malfeasance within the highest echelons of the financial sector, that has led us to what is – and this is becoming increasingly obvious – a global economic depression.
You speak of fairness and inefficiency, when you ought more properly to speak of justice. But if you really want greater efficiency then you might instead try rewriting the hundreds of pages of tax rules and removing from them so many ready-made means for avoidance. Then you might also close down the multitude of offshore tax havens that operate as British dependencies. You could also draw in revenues by taxing the financial industry directly, levying a modest Toban Tax – say 1% to keep it in line with your proposed mansion tax. Unlike the rest of us, those buying and selling for profit within the markets still pay no tax whatsoever. How can this be fair? Finally, if you want fairness – or rather justice – then we need to begin prosecuting the banks and the other agencies who have been responsible for the rampant and systemic fraud that has evidently taken place (for example, in the rigging of Libor) and continues to take place within the City.
In short then, I am against your modest proposal because it calls for people in the middle to foot more of the costs, instead of seeking proper repayment for damages from those at the very top. It is also simply too modest. It is like offering a sticking plaster for an amputated limb. It represents just more fiddling whilst Rome burns… a pasty anyone?
On November 27th (six weeks after I sent my letter) I received a reply from Vicky Gallagher of the Correspondence and Information Rights Team for HM Treasury writing on behalf of Vince Cable. It read:
A mansion tax would be complex to introduce, involve the revaluation of many homes and raise fairness issues about the ability of those liable to pay the tax. For example, it would risk penalising those people, in the main pensioners, on low incomes who have seen their homes appreciate in value. Under a mansion tax they would face a substantial increase in taxes without having the income to pay them, which could potentially see them forced out of their homes.
The government judged that rather than make such people pay more, it was fairer to target owners of high value property who are avoiding paying their fair share in the first place. We therefore have no intention to introduce a mansion tax at this time.
I will add only that all of this was abundantly clear from the outset. The fact that the government has U-turned in less than two months going to show that they hadn’t properly thought the idea through in the first place.