Today there's been the spectacle of the Business Secretary trying to dictate the details of the Chancellor's proposals, in a way that would be slapped down very quickly in a single party Government, but which is apparently acceptable in a coalition.
Time and again, under the last Government and under this one, proposals are made and then become policy without the support of a proper impact analysis.
The 50p Income Tax rate was brought in as a political headline grabber without a decent analysis of its likely impact. There's always been concern that by driving away potential high earners, by making the UK appear less business-friendly, and by giving people a greater incentive to optimise their tax arrangements, this has actually had a negative effect on the total tax take. At least it's easy to collect, through the normal income tax system of PAYE and self-assessment returns, and payments are made direct to HMRC.
Now Dr Cable is trying to hit the rich through a so-called 'mansion tax', in exchange for which apparently his party would be happy to see the 50p rate abolished. Someone said on the BBC this morning that a 1% per annum tax on the value of properties above a £2 million threshhold could for some given set of assumptions bring in £1.7 billion, which is an improvement on the most optimistic guesses for the 50p rate. By the way, that's at least £10,000 that the owners of a £3 million property will have to cough up. Each year, and whether they have any free income or not.
|No mechanism in this country for annual charges by central government on the owners of property - it only gets involved at sale or inheritance||Would the Government ask local authorities to collect the tax and hand it over? Would they pay local authorities a proportion of the collected amount for this service? And would they ask them to identify the target properties or would a whole new register, inspectorate and system of appeals be needed?|
|Tax would be assessed on unrealised gains||Either taxes have to be paid by liquidating some other asset or they have to be put on account and collected when the asset in question is sold or transferred. And that could be a very long wait.|
|Valuations can go up and down||It's fair to charge tax against capital gains when the gain is realised, but it must also be possible to reclaim or offset tax if a loss is made|
I don't have a mansion or even an average-priced London house, but I fear that yet again, the UK is in danger of introducing a whole new piece of complexity to the taxation system. This will create jobs for the boys and girls - lawyers, tax collectors, surveyors and other hangers-on. However, it's quite likely that there will be little real positive benefit (after these costs) for the public purse, and an increasing level of misery for those affected.
It would be much better to direct the lawmaking effort aggressively at the Stamp Duty system, bringing all property in the UK under its scope, regardless of ownership, and then only giving relief against it under carefully-assessed criteria.