No, Vince, No

A mansion tax is not a good idea!

This is a mansion. Looks a lot better than Vince Cable

So often in politics we go for the easy, popular option — the idea guaranteed to deliver a few good headlines — rather than the right option, which may well be a tougher sell, but delivers a better outcome.  I prefer the old-fashioned route, of doing first what we believe is right, and then explaining why we did it.  Too often we adopt populist policies for purely presentational purposes — and then wonder why things go wrong.

A perfect current example is the Coalition’s (and the Conservative Party’s) pusillanimous position on the 50% income tax rate.  George Osborne knows perfectly well that it delivers no additional revenue, and may actually reduce it.  He knows that it makes the UK a less attractive place to do business, it deters investment, it invites avoidance, and therefore it militates against growth and jobs.

This is the key insight.  The 50% tax rate is a bad thing not only (in a boring and obvious way) for high earners and wealth-creators.  It’s also bad for the guy on the dole, because it increases unemployment and reduces job opportunities.  It’s bad for the nurse in the operating theatre, because it reduces the funds available to the Treasury for the NHS.  Bad for the single mother on benefit, because there’s less money for welfare.

Of course Osborne understands the Laffer curve perfectly well.  He knows that beyond a certain level, increases in tax rates actually reduce revenues.  In that respect he’s better, at least, than some of the pundits on the Today Programme.  When asked how we avoid welfare cuts, they reply “Tax the rich instead”.

There is overwhelming evidence from dozens of countries over decades that low and flat taxes deliver faster growth and higher revenues than a high tax economy.  Counter-intuitive, but true.  We know it, but somehow we dare not say it, because Ed Miliband will declare that the Conservative Party is the party of the wealthy, and doesn’t care for the poor.

And this is exactly the error that Vince Cable makes with his “Mansion Tax”, which he assures us is “a very good thing”.  No it’s not, Vince.  It’s a disaster.

Of course there are all kinds of practical problems.  Who does the valuation?  Who pays for it?  How do we respond to changes in pricing in the market, when a £2.1 million house is re-assessed at £1.9 million?  Are we happy with what amounts to a tax on London and the South-East?  Do we really want more taxes on those wealth-creators and investors (that we’re already hitting with 60% Income Tax & NI)?

The list of deliberate policies likely to drive business and jobs and investment out of the UK is already fearsome.  Travel infrastructure and London airport capacity.  High energy prices and the prospect of power shortages this decade.  Onerous EU regulation.  High taxes generally, and now Vince’s proposed Mansion Tax.  And Osborne talks about “Making the UK an attractive place to do business”.

I appreciate that there is a problem of rich foreigners buying property in London (the Greeks are at it ahead of the looming €uro débäcle) and paying no tax in the UK.  But I have to believe that those clever mandarins at the Treasury can come up with a more targeted solution.  We must also close the loophole that enables foreigners to avoid stamp duty on investment properties.  But no Mansion Tax, please.

We’ve had enough of the Lib-Dem tail wagging the Tory dog.  I shall expect Conservative back-benchers to oppose the Mansion Tax with everything they’ve got, until the unctuous Vince Cable retires hurt.

Declaration of interest (or lack of interest): For the avoidance of doubt, I should point out that neither of these measures affects me personally.  An MEP’s salary is well below the 50% income-tax level, and while I own quite a nice house, it comes nowhere near the threshold for Vince’s proposed Mansion Tax.

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9 Responses to No, Vince, No

  1. Julian says:

    The issue is not the notional rate of tax but how tax much the wealthy actually pay. We see Mitt Romney releasing his tax return that shows he pays 13.9%. How many of the wealthy in Britain are paying similar low rates and not the 30-50% that most people pay?

    You yourself are not wealthy but you must know many very rich MEPs and others. What is their effective rate of tax? Is it lower than yours and, if so, how do you feel about that?

    • I suggest that there’s something wrong with the structure or implementation of the tax system if high-income people pay a lower percentage than the rest. But I would blame the tax structure. I wouldn’t blame anyone for honestly using the rules to minimise their tax. And if someone earns twice as much as me, I’d like them to pay twice as much tax — not four times or ten times as much.

      • Julian says:

        The problem may well be the tax structure but we don’t know. Warren Buffett has said he pays a lower rate of tax than his secretary. Is that happening in Britain or not? When will someone wealthy let us know what they are actually paying? A rich Labour or LibDem MP or left-wing broadcaster would be a good place to start.

  2. There are two very different philosophies at work here.

    Marx and certain Christians think that because man is equal, that everyone ought to have equality of income. The vulnerable should be brought up to the level of the median and the rich should be taxed down to the median. So everyone is about the same level and therefore of the same importance. Clever and ambitious people ought to provide for the good of society: the vulnerable declare their needs to society so that they can be met. To each according to his need, from each according to their ability.

    Others are more realistic. We think that people are fallen. We therefore need encouraging. Nice houses, nice cars, lots of moolah should be given to the people who make a success of their lives whether in banking, medicine, politics or especially sport. Life for us is a sorting out process where the successful succeed and the others trail out behind. Sad, but true. (Lots of politicians even from the left behave like this even if they pretend they don’t.)

    Vince Cable and the Liberals seem to be in the first camp, Mr Helmer seems to be in the latter. So do I.

  3. Simon says:

    Not only is the mansion tax a bad thing, but also Stamp Duty should be levelled, to a single flat rate above a duty-free threshold.

    I often wonder whether the income tax bands also need looking at, as to suddenly jump from 20% to 40% (albeit on the additional income above a threshold) is also a disincentive. Your thought on a flat tax rate is a good one, because as a higher-rate tax payer, I am paying substantially more than those on the lower rate, both proportionally and in absolute terms. Is that fair?

    A straight percentage (with an initial tax-free threshold), and with much of the complex regulation that allows relief and adjustments (downward) abolished, must be the fairest scheme there can be. With a single straight percentage, the more you earn, the more you pay. Simple!

  4. Malcolm Edward says:

    Taxing the possession of an asset is confiscation. It is a departure from the principle that tax is only levied on an increase in wealth, such as income or when capital gains are realised – one ends up with a smaller increase, not an absolute decrease. To me it is wrong in principle, it goes against property rights and which are instinctive to most people.
    Even if wealth tax in the form of a mansion tax is initially applied so that it only affects a small number of people – past history has shown that over time governments are tempted to widen the scope of a tax so many more people are caught by it.
    That such a tax is attractive to lib dems just shows how illiberal they are.

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