The Guardian has reported this morning ion booming property prices in South East England and London, noting:
Over the past year, a typical property in the chichi W8 postcode of west London has jumped in value by more than £100,000 — or around four times average annual earnings.
There is an answer of course, and it is wealth taxation.
Wealth inequality in the UK is even worse than income inequality and underpins the injustice in our society. Now, I don't argue that all should be the same (before that absurd inference is drawn) but the evidence that such inequality harms all in society is compelling.
Our taxes on wealth and the housing stock are wholly inadequate right now. Stamp duty only tackles transactions. Council tax is capped. A main residence is tax free however big it is and inheritance tax allowances are absurdly generous.
I hope to spend quite a bit of time over the next year working on wealth taxation - because it is something I believe in.
And before everyone starts yelling - let me quietly point out that if we want any young person to buy property before their parents die something will have to be done to get us out of the absurd inequality house prices have created. It's either wealth taxes (including, of course, land value taxation) or market failure that will deliver the change. I think that tax is the better of the two options.
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Typical! Any one given the slightest thought to the postpeople,cleaners,bar staff,nurse et al? how are those people ever going to afford a place of their own? After all,they are the ones who really keep the city running (along with many more)smoothly.
I have no problem with taxing expensive houses as well as the land underneath them. You can’t hide a house (especially with Google Earth). Buildings are more difficult to value than land because of the multitude of materials involved and their state of repair. However, one way to get round this is to put the onus on the owner to state the value and have such values in the public domain.
In fact a general wealth tax could be introduced (over, say, £2m) with tapering. Make owners responsible for declaration with the risk that if they underestimate and get caught, they have to take the consequences.
This works better for physical rather than paper assets, I guess, although small valuable items are easy to hide.
It’s a great pity that a wealth tax was not in force when the National Gallery had to fork out all that money to some aristocrat’s family in order to retain its ‘Constable’ on display. There would have been a whole lot of other treasures up for sale, thus bringing down the price.
I’m very much in favour of Greg Philo’s one-off wealth tax to pay down some of the debt.
I look forward to hearing of your work on wealth taxes – I know it’s not going to be easy.
Greg is one of the people I hope to be working with
I agree – unfortunately we’re unlikely to get market failure, or it’s tamer cousin, market readjustment, with the government willing to keep pumping up the price bubble with atrociously thought-through ‘help to buy’ schemes.
In praise of inflation
It isn’t conventional wisdom, but I suggest that a far higher target rate of inflation (say 5%) would be almost entirely beneficial.
When we bought our house in the 70s, we struggled to get a mortgage, and we struggled to pay it. But within a few years inflation reduced the mortgage to a manageable part of our expenditure.
The advantages of higher inflation are
1) Higher borrowing rates create a discipline, reducing the amount that can be borrowed and reining in house prices
2) Higher inflation moves the burden of repayment forward, not leaving people crippled with debt for the rest of their lives
Maybe worth thinking about as a less controversial way of reducing inequality
Yes, but in the 70s the workforce had unions and the unions had bargaining power to protect the real value of wages from inflation. Now the workforce has no bargaining power and so suffers first from a rise in the cost of living – as we are seeing now. I’m not entirely disagreeing with your idea, but just noting we wage slaves will need some protection.
I don’t think we need a new wealth tax – I think we should link council tax to value, have a cap on main residence CGT relief and introduce a full gift tax (by extending the definition of “lifetime chargeable transfers” in inheritance tax). All three combined would be relatively easy for the Treasury to do and create less of an administrative burden than an annual wealth levy.
So you do think we need wealth taxes
That’s fine….
to be fair he did say we didnt need a “new” wealth tax, just an adjustment to the existing rules
OK!
Richard , what do you mean by “market failure” ? Surely not a market correction which would be a market being allowed to work ?
Even if we did have a functioning housing market , as someone pointed out to me the market solution is to build excessively cramped dwellings .
I’ve always found it strange that people respect ex-footballer Robbie Fowler more for having a “property portfolio” of over pre-existing 100 houses more than they respect the average P.L. footballer who spends it on a Bentley which has a high British labour content and creates work .
To my eyes it seems like Robbie Fowlers wealth is being used in a detrimental manner whereas the average P.L. footballers wealth is not detrimental to the rest of us …. is it ?
I like the idea of extending the concept of communal ownership of mineral rights to surface rights and think LVT does this best . Surely it is an advantage that three adjacent lots , one with a mansion , one with a block of flats , one empty and undeveloped attract the same LVT ?
This has got to be better than a mansion tax which appeals to the politics of jealousy and also reinforces the misconception that “someone else should pay” when it’s clear that if we want the services we all have to pay for them .
My car is 12 years old but I don’t see why bigger cars should attract higher road tax . In years gone by I used to have an old American car as a hobby which did a grand total of about 800 miles a year and i don’t see why it should attract higher road tax than a new Fiesta . Lump all the duty on fuel .
I suppose you could have a portfolio tax of say 0.25% of someones stocks and shares but maybe a similar tax would have to be imposed on notional investments like SCAPE pensions if they still exist .
Perhaps we should also do as Malaysia and several other countries do and reserve houses below a certain price for British Citizens so rich foreigners can’t deprive citizens ?
I support inheritance tax but cannot at this moment think of any other wealth taxes I support . Land value tax is imho not a wealth tax as such , it is a fee for exclusive use of the commons .
Look forward to reading your proposals .
Simon
Your comments noted
I admit I do not agree with them all
I’d start on one of them by asking why footballers are paid so much in the first place
Proposals won’t be for a while yet
Richard
You are right that it is necessary to look at the origins of the wealth rather than just tax the results retrospectively .
Before 2008 the banking industry operated like a greedy tax collector transferring money from the real economy and the Govt cared little so long as it got it’s cut (this is not a specific reflection on New Labour) .
Essentially footballers won one of life’s lotteries by being able to do something which only about 1 in 40,000 British males between the age of 18 and 34 are able do to the highest level .
As well as being born with the potential they must have had good advice from people with experience , a work ethic , self discipline and mental strength , avoided injuries and had good fortune to get the right breaks .
So long as they pay the taxes which are due to them (and regrettably some don’t) I can’t see that their wealth does any harm so long as it is not spent in a way which puts up the essentials of life or causes systemic problems like front-loaded bankers bonuses encouraging recklessness .
Football is a true meritocracy unlike many professions in the UK including politics where a PPE course at Oxford appears to be an entrance exam to the corridors of power . P.S. I only just found out that Australian poli Tony Abbott read that subject so view him with suspicion now too . He also has terrible populist tendencies .
Anyone who has enjoyed reasonable health , been born with a good brain and born or lives in a country like the UK has won one of life’s great lotteries compared with many in the World .
Any courageous government should put an end to the ‘housing potfolio’ as the social cost of this is too great -Labour allowed an asset bubble to go crazy ten years ago and were supine in the face of it. Making money out of housing is, in my view, a crime and the quintessential ‘rentier’ mentallity. A courageous state would put an end to this aberrant nonsense. As far as footballers are concerned, there are some examples of fans beginning to become a bit feisty around ticket prices and the fact that clubs are nearly bankrupting themselves to buy players – the game has no meaning any more with footballers being chess pieces on an oligarchs chessboard.
P.S.
For people who have to make provision for their old age themselves , a stocks and shares ISA is often a vehicle of choice .
Sell a NYSE share in dollars and the settlement must be converted to sterling solely so HM Customs and Revenue can check you aren’t exceeding your tax free allowance .
The number of people who will become ISA millionaires could be counted on one hand of a boxing glove yet everyone who uses one is forced to pay 1%+ in currency conversion costs to the financial services industry .
In an effort to ensure that not a single person comes out ahead everyone who participates ends up losing except the financial services industry which ends up gaining .
I mention this to show what can happen .
Sorry – but two things follow
a) Don’t abuse ISA allowances
b) Use the HMRC web site for conversion
I’m not sure what point you are trying to make
I was not suggesting abusing ISA allowances . A private pension is not a great vehicle for me because my life expectancy is not brilliant so I use an ISA .
The word I missed out was “lifetime” tax free allowances for gains in pensions and ISA’s .
The point that I was trying to make is that very , very few people will exceed this lifetime allowance as a result of gains in an ISA yet everyone is forced to settle disposals of foreign shares in Sterling which punishes them with currency conversion costs every time ostensibly because of the danger of exceeding the lifetime limit .
I suppose one sort of wealth tax we already have is that people who send their kids to private education do not (and imho should not) get a rebate for the cost of state education they do not use .
Taxing wealth could have the consequence of encouraging someone to
engage in the activity which generates the wealth on a greater scale to compensate which would be a problem if the activity was undesirable .
The system is like a game of monopoly where the 0.01% and those doing their dirty work are in an unassailable winning position and the rest of us are just throwing the dice until our money has run out because there is
no way back for us .
Once the 0.01% are dealt with would there be any need to tax the wealth of GP’s , Head Teachers and the like . How far down the ladder do you take it ?
Is there any mileage in creation of a new currency system for exchange Richard which cannot be corrupted by the status quo ?
I’m sorry – but I do not get your point
You dod not have to use an ISA
If you do you comply with the rules
What is the problem?
There is no choice except to comply by the rules – the ISA administrator will ensure that and I wouldn’t violate them anyway .
The problem is that the rules are pedantic and could be changed to have the same effect but operate in a way which did not generate so many money-for-old-rope currency conversion commissions for the financial services industry .
As you say you don’t have to use an ISA but it makes you wonder whose benefit the rules were set up for .
Then we’ve got NEST , a pensions mis-selling scandal in the making , help for house buying and numerous other sops to the financial services industry .
That all pales into insignificance in the light of what payday lenders are able to get away with .
I agree re NEST
This is a disaster waiting happen
Part of the problem with NEST is that none of the people who devised it or voted on it in Parliament will ever have to use it .
That seems to happen quite a lot .
It must have been obvious to the majority of MP’s that it was a disaster the minute they voted on it . Ignorance does not wash in this case .
Nobody was holding a gun to their head yet neither the executive of the coalition nor the opposition had the guts to flick Blackrock and the software vendor off and rethink . The backbenchers didn’t defy the whips .
Have a good weekend . Thanks for such interesting articles I promise not to comment so much in future !
I’m sure Richard will be aware of this but, just for information, some form of wealth tax has existed in France since 1982. In its present form (ISF: “impot de solidarité sur la fortune”), it kicks in at a net wealth (“patrimoine”) of over 1.3 million euros. The “patrimoine” imposable includes not only property (with some relief for main residence) and lands but also movable goods and financial products. Unlike income tax, it is imposable on persons not fiscally domiciled in France but with assets there over the threshold. Essentially based on self-declaration, I don’t know how effectively it is collected. I might add I am far from being wealthy enough to be personally affected!
http://www.impots.gouv.fr/portal/dgi/public/particuliers.impot?espId=1&pageId=part_isf&impot=ISF&sfid=50
This was exactly the tax I had in mind when I posted my above comment – I have first hand experience that it is expensive to administer, which just results in more fees for lawyers (FAOD I was not the one paying the tax!). Changing the current system would be much easier – particularly value-linking council tax.
At this point in the economic cycle, new taxes are just as damaging as cuts – both take cash out of the economy at a time when it is short. Austerity has been a disaster – and that goes for Joseph’s tax increases as much as his spending cuts (which we should remember have not actually reduced overall government stablisers, as the failure of his own policies have resulted in very significant additional expenditure via the automatic stablisers).
Increasing taxes on real estate with £ for £ cuts in income tax – targeted at those on low incomes. That’s a sensible policy. Imposing new taxes on real estate just because – that makes no sense.
New taxes are not harmful if they reallocate the tax burden from those unlikely to spend and so promote growth to those who do or if they remove the disincentives to employment creation
Your blanket comment is wrong
Is there any problem relating to markets & economics to which you do not think more taxation or state intervention is the solution?
Even the vagues familiarity of the economic history of states with greater central control and planning shows that however good the intentions, the outcome is invariably poor.
If you read what I wrote rather than lived in your own little bubble of prejudice you would know the answer to that question
You are of course more familiar with your writings than I.
So could you point me to a piece where you’ve argued for
a) a net reduction in taxes, not a reduction in one to be offset by an increase elsewhere
or
b) less state intervention (without a corresponding increase elsewhere)
I have argued for reductions in tax to stimulate the economy, often
Your second comment makes no sense. I do not discuss state intervention pe se. I discuss issues
I’m quite happy with the idea of a one off wealth tax, mainly as the top few % have such stupendous wealth at the moment that they would hardly feel the loss, assuming that they could convert the wealth into cash(or maybe it could be paid with a percentage of their property being transferred to HMRC on which HMRC or some as yet uncreated government department could charge rent giving a stream of income rather than a one off windfall).
I do however think you’re missing the simple solution which is to overhaul the supply of housing. There’s the land banking which is a problem but also the horrendous planning permission hoops which must be jumped through which limit the ability of the country to replace and expand upon our aging housing stock, the details of which would fill an entire encyclopedia!
More houses = lower cost and I can’t find any flaw in this logic no matter how much I challenge myself. I’d be interested in hearing your views on the link between price and supply with regards to low (1/2 bedroom properties suitable for single people) and medium value (young family type) home.
I think increased housing is also part of the issue – and have been arguing as such for years
I’m not sure it’s as simple as more-houses = lower cost. Unless there are legal frameworks in place to limit speculation, buy-to-let schemes we might not be able to stop another housing bubble. Indeed there is nothing in place at present to stop this 20% of the loan incentive to create another mini asset bubble that the poorest will end up paying for. Housing is the clearest example of how ‘economic rent’ makes a few rich and causes massive social misery.
I’m afraid that the shortage of housing is not the main problem with unaffordable housing. New build can and will only represent a tiny fraction of the total market. It’s the fact that there is a fixed supply of land and anything but a fixed demand for housing. True, the supply can be released by planning consent, but when everyone wants to live in the same place (e.g. London and the South East) that is not the answer. Tax the land and land hoardings disappear and thus the market price of land is driven down. Big estate owners may then be desperate to sell up and local builders and local authorities will be able to use the released land effectively. We really don’t want any more houses in places where there is no room for green open spaces for our children to play in and explore.
I don’t disagree with LVT in principle Richard, but I’m just not sure how it would work. For example in Sydney we have people who have lived all their lives in a home in what was once a working class district – Balmain – and now some of those properties are worth millions; problem is the people living in them are income poor. Do we expect these people to have to sell their homes in order to pay the LVT? And how often is the LVT to be paid? Inheritance tax makes sense to me – grab a chunk of the value when it passes from one generation to the next or is sold off.
And would LVT bring property prices down?
If there is inability to pay the debt is rilled up until death and interest p[aid on it in the meantime
That overcomes the problem
And guarantees payment
It overcomes the problem, but at what cost? That solution would be incredibly administratively burdensome and costly, in my view, and difficult to administer in practice regardless.
And I disagree…