Wednesday, 7 March 2012

Taxing Times..

Budget time approaches and while we all wait with bated breath for George Osborne's speech, the debate about taxation has flared up again. Osborne has once again faced calls from wealthy entrepreneurs to scrap the 50p tax rate. These paragons of motivated self-interest claim the tax on higher earners is restricting growth, driving the best talent from our shores and styming foreign investment - the usual old sob story.

I find it amazing that the wealthy always seem to have plenty of outlets and plenty of allies in the media to put across their viewpoint - CityAM Editor and unreconstructed Thatcherite Allister Heath is basically a spokesman for the rich and his tired old Thatcherite meme shows he is stuck in the mindset of the early 80s while the rest of us have moved on.

The Liberal Democrats have argued, and, to be fair, some conservative commentators such as Matthew D'Ancona have agreed, that the lower-paid should be the priority and that lifting the tax threshhold to £10k (a Lib Dem manifesto pledge) would be a bold step forward. In addition, the Lib Dems themselves aren't wedded to the 50p tax rate - the party's line is that the higher earner rate could be reduced IF the shortfall in tax revenue is made up from elsewhere and one suggestion is a tax on higher-value properties.

Now, a little background - in 1991, the Council Tax replaced the Poll Tax and was levied on all properties which were valued on a range of bands starting at £40k and below (Band A) and going up to £320k and higher (Band H). A Council would set a median level (Band D) and houses in lower bands would pay less than the median and those in higher bands would pay more.

Houses were valued and allocated bands - the problem is there has never been a revaluation or changing of the bands. Successive Conservative and Labour majority Governments have backed away from a comprehensive overhaul of this key part of local Government finance.

The result is that a house worth £5 million pays the same Council tax as a house worth £325k. That is clearly risible and unfair. Yet the merest hint that property values may be re-assessed has drawn a barrage of fire from the usual suspects - the wealthy. In London, the wealthy have plenty of media outlets to express their frustration but the fact remains that the 1991 settlement is long overdue for reform and updating.

One solution might be to increase the number of bands and the range within each band so you could have up to twelve or fourteen bands with ranges within bands going from £50k to perhaps £200k at the very top. In the area I live (Newham), there is a huge range of property values from relatively (for London) low-cost flats and houses in East Ham and Beckton to expensive apartments in Stratford and down by the Royal Docks. Banding needs to cover this diversity and while Council Tax collection software would have to be amended, that shouldn't prove insurmountable.

It could revolutionise local and central Government finance and bring some genuine accountability back to local people.

Yet, as usual, those who stand to lose from any tax changes stand up and shout. The problem with ANY tax is that there will be winners and losers and it's not difficult to construct scenarios showing that individuals and families can appear to be penalised for making progress (earning more or wishing to move to a bigger and better home) and these are used as ammunition by those who seem inimically hostile to any form of taxation.

Let's not forget - there is a wide body of right-wing opinion which argues that not only are we too heavily taxed both in terms of income and property but also consumption but that the State remains wasteful and bloated and that cuts in public spending should be the way forward balanced by tax cuts to promote growth.

It's a seductive argument and it's expounded almost daily in the right-wing media.

The only problem is that the unfortunate suffer from this "tyranny of the fortunate" in which Government and media combine to ensure the wealthy get their point across, control public discourse and set the agenda and work to prevent any measures which would penalise those with wealth.

It's repellent that Boris Johnson, the Mayor of London, should pander to big business, banks and bosses and to the wealthy in the inner and outer suburbs yet I don't hear a word out of him about the thousands of people who sleep rough or in poor conditions right across his capital city. Ideas of providing social housing fpor those who need it are forgotten while if a major company such as the Prudential even considers leaving London, they get a begging letter from the Mayor.

I wonder if London's rough sleepers will be as pushed out of eyesight during the Olympics as those in Beijing were - I suspect so.

Tax, rather like sex, is a subject many people don't find it easy to talk about nowadays and constructive dialogue is all too often drowned out by the lobbies of the self-interested. Britain has an enormous amount of debt to repay and, as the Prime Minister once opined, "we're all in this together". The Liberal Democrats are right to argue that the wealthy, who get a very good deal out of this country relative to the middle-class majority, need to get involved and pay their way.

Let's see what George Osborne has to offer us in a few weeks time.

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