Labour is sneaking through a wealth tax in all but name
The attitude of this Government, and sadly the last government to some extent, has so far has been little short of hostile. Changes to inheritance tax, a second home premium on council tax, VAT on private schools and the abolition of non-dom status are just the headline policies that make this country an increasingly barren economy for those with the temerity to be successful.
After overnight reports that the Government is also considering radical reforms to council tax and stamp duty, it could be Christmas come early for Lord Kinnock and all the other Labour politicians who suffer from that most toxic of traits in British politics: the politics of envy.
What is the proposal? Well, according to reports, what Labour are considering is a replacement of stamp duty and council tax with a tax on the value of a property, paid by the owner.
It's not all bad, at least at face value. These proposals are based on a report by the think tank Onward, which seeks to radically reform council tax and stamp duty, two of Britain's worst, most despised taxes.
The proposal is to replace the levies with a 'horizontal, proportional' property tax. Councils would levy an average rate of 0.44 per cent on homes up to the value of £500,000, with a minimum charge of £800. Revenues from this would go to local government. Above £500,000 there would be a national property tax at an annual rate between 0.54 per cent between £500,000 and £1,000,000.
Above £1,000,000 it would be 0.81 per cent. These revenues would go to the national government. Confusingly, there are reports that the national property tax element would only be levied at the point of sale, although that would surely mean a loss of revenue.
As part of a wholesale reform of the taxation system, these proposals are not without merit. There are reasonably sound, non-distortionary tax systems with echoes of these measures.
If accompanied by, for example, the abolition of inheritance tax, capital gains tax, corporation tax, the higher rate of income tax as well as stamp duty and council tax then the introduction of a tax directly proportional to the value of a property could be a feasible measure.
But as for Labour's interpretation of these proposals, there are not just questions to be asked, there are fears to be addressed. Key to Onward's proposal is that any properties that have already been charged stamp duty at the point of purchase would be exempt from the national property tax.
Will this be the case with Labour's policy if it is to bring it in? Also key is that it is revenue neutral, with the aim being to reshape the system in a less distortionary way while ensuring no increase in borrowing: a sound principle. Do not bet against Labour dismissing these questions though, and using the positive headlines of abolishing stamp duty to justify a revenue-raising tax raid on the nation's wealth.
Because critically, if Labour does advance these proposals, it will not be accompanied by the broader reforms to the tax system needed. Instead, what we will more likely end up with is a wealth tax in all but name.
A wealth tax that allows cowardly politicians to temporarily delay the confrontation with reality they need: the fact that we simply cannot go on spending the way we are. It would also protect the Prime Minister's vulnerable left flank. And at the level that is being proposed — a tax on the value of all homes above £500,000 — this will not be a mansion tax, it will be a family home tax.
It almost feels hollow to warn of the many high earners and high net wealth individuals that may end up leaving Britain under these policies if they are bungled. Because in so many cases they've already left.
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