Nine reasons why Conservatives should oppose a wealth tax
I was encouraged to see Eric Pickles’ robust rejection of the Lib-Dems’ Mansion Tax in Saturday’s Telegraph, but rather surprised to see Tim Montgomerie of ConHome, usually the soundest Conservative around, appearing to support the idea of such a tax. Certainly the idea is current in the blogosphere: Bagehot of the Economist takes a long, cool look at it, but at the end of the day comes down against.
Where would the money go? Tim makes the point, quite rightly, that family breakdown is hugely expensive, and therefore that interventions that reduce the level of family breakdown are good value. But I hope and suspect that Tim does not have in mind armies of social workers intruding on “problem families” with intensive programmes, but rather the creation of family-friendly fiscal policies to remove the disincentives to marriage (and dare one even say to promote marriage?), plus a robust defence of the traditional family, and an end to the mealy-mouthed circumlocutions that welcome “all kinds of families” (which is usually leftist-speak for domestic arrangements that are scarcely families at all).
With all the usual caveats about the fine job done by some single parents, who deserve our respect, it remains a fact that the traditional family is the best environment for raising children, and I commend those few politicians, like Iain Duncan Smith, who are prepared to say so.
Tim suggests that we could fund extra support for families in part by reducing unnecessary benefits for better-off families, and he is right. George Osborne agrees, which is why the Coalition has removed child benefit from higher earners. Tim points to benefits like the free TV licence and the winter fuel allowance, and it is difficult to see why families paying higher-rate tax should enjoy these hand-outs.
But his big idea is a wealth tax, in the form of a mansion tax on homes over £1 million, and there I suspect that many Conservatives, and not just Eric Pickles, will disagree. Let me list just of the few reasons that led me to think “over my dead body”.
First, as a Conservative, the phrase “No new taxes” is burned into my DNA.
Second, any attempt to soak the rich and to punish success cuts across Osborne’s laudable objective of making Britain an attractive place to invest and to do business. There is an excellent economic case for a flat tax, and part of the philosophy of the flat tax is to avoid itsy-bitsy targeted hits on small segments of society, in favour of a single, clear, simple tax rate that we can all understand — with zero exceptions and allowances.
Third, an impost on wealth and property comes very close to breaching the right to property, enshrined in various charters of rights. OK, we have Council Tax, but that is (at least in theory) a payment for services, not plain confiscation.
Fourth, while Tim proposes a modest 0.5% tax on value over £1m, this would be an open door for future (perhaps Labour) administrations to ramp it up. What price 5%? 10%?
Fifth, if we can tax mansions, what about other property? Cars? Racehorses? Pension funds? ISAs? Where do we stop?
Sixth, the plan involves huge administrative costs. Who gets to do the valuations? Are we bringing back the Home Information Pack by the back door?
Seventh, Tim says that the wealth tax should be offset by lower taxes elsewhere. It should be revenue-neutral. It should not become a device for raising total revenue. But we’ve heard that before, and no one trusts a Chancellor under pressure to respect it. Giving politicians a new tax and asking them to be revenue-neutral is like giving a bunch of five-year-olds a box of chocolates and telling them not to eat them.
Eighth, this would in effect be a tax on the South of England. It would also impact very severely on pensioners who may be property-rich but income-poor. As Bagehot remarks, replacing the 50% income tax rate with a mansion tax could be presented as giving money to bankers at the expense of cash-strapped pensioners.
Ninth, and perhaps most important: it will not have escaped your notice that for those who have a nest-egg, its value is already being eroded by inflation and low interest rates. There is now almost nowhere that money can be invested and maintain its value. Even the pittance of interest currently paid on deposits (at a lower rate than inflation) is taxed. Houses, which at times seemed to be a sure-fire investment, have fallen in value and may not recover for years. Now is a poor time to propose further taxing the assets of those who are already taxed on their wealth, month-in, month-out, by the retrospective effects of the failed policies of Tony Blair, Gordon Brown and their Labour government.
The wealth tax is the thin end of a very nasty wedge. Conservatives should say No. Period.