Tuesday, September 22, 2009

Lib Dems property tax suffers same fate as plans for local income tax

Some years ago I attended a breakfast presentation given by Charles Kennedy and Vince Cable at the ICAEW. They talked, inter alia, about their plans for a local income tax.

I recall asking how such a plan would work. It became evident that despite the headline grabbing idea they had not a clue about how to make it a reality. They were unable to say whether we would all have to file a second (local) income tax return or whether our normal tax returns would suffice. No thought had been given to the unwaged, employees and pensioners who were not required to file tax returns and there was no apparent understanding of the time lag before the self employed pay income tax on the money they earned. And it was also clear that the plans to establish and critically to operate a system of local income tax had not been costed - even vaguely. In short the policy was little more than an idea that had yet to be fully thought through.

I was reminded of this exchange yesterday when I heard about the (outline) Liberal Democrat plans for what was promptly dubbed a 'mansion tax'. Like many commentators my first thought was for the practicalities. Who would value these properties? How often would they be revalued and how would people with low incomes in large properties be expected to pay the supplemental council tax? Who would pay the tax on mansions owned by offshore trusts and how much would this new system cost to put in place and keep uptodate as compared with the tax it might raise?

It has since become apparent that there is little in the way of practical answers, and attempts to deflect such questions reveal a similar lack of understanding of the related issues as was apparent in the context of a local income tax.

This is a shame as, in an ideal world, we should be able to debate the pros and cons of tax policy without having to worry about HOW changes would be implemented. We should be able to discuss ideas and agree as to what would be fairer policies. Then, once there is a consensus we could work to find ways to make them a reality.

In the real world however we do not have such luxuries and have to start from where we are. If new ideas are not costed and practical they will be dismissed ab initio. That is, unless they are put forward by the Government of the day....
(How many such illogical, uncosted and impractical such plans can you think of from recent years? Please add your comments below)


  1. Martin Wolf writes about this issue in today's FT -p.17.
    I agree with his arguments: property is easy to tax as it doesn't move. It is also relatively easy to value - as Martin says all you need is data on recent transactions and a computer program. You won't get a perfect result, but a pretty good sample to base broad valuations on.
    Due to valuation uncertainties the mansion tax should be based on bands, like council tax. As such it will look like an extension of council tax, which the Lib Dems wanted to abolish!

  2. Whilst generally not having a problem with something broadly along the lines suggested by born-again Vince, one has to wonder over the cackhanded nature of the announcement. People living outside of London may well think that everyone in London is loaded and lives in mansions, but the reality is very different. When many cannot afford the most mediocre of two bed flats, at say £500K, to imply to the uninformed that £1M buys a mansion is laughable.

    Whilst I tend to the view that Cable is a strawman and a hypocrite (you don't spend years as chief economist of a multi national oil company without getting your hands seriously dirty with international tax avoidance), even within the man's limitattions, one has to wonder over how he didn't see fit to pitch in at, say, £5M plus, and at a higher percentage.