I was asked if I would go on the BBC News Channel to discuss Ed Miliband's tax announcements today, but childcare commitments just did not make that possible.
However, let me react. First, a Mansion Tax is necessary: property is under-taxed in the UK, especially at the high end. There are problems on valuation, and the reform may be better done by increasing the council tax bandings, but as it is it is intended to make clear it is the few, not the many, who will p0ay, and that is wise at this political juncture. The signal is clear and unambiguous: wealth is to be taxed.
At the same time the £2.2bn a mansion tax is going to raise when split between 25 million or so basic rate taxpayers comes to £100 at most each. So, that 10% band is going to be on the first £1,000 of income only.
Now you could call that a gesture, but it's an incredibly important one. I campaign for those who have least: the relief of poverty is at the core of all I want. This helps and it gives an unambiguous message that Labour is committed to redistribution. I welcome that, as I would from any party.
I could ask for more. I am sure I will. But I also recognise and welcome gains when we get them. And this is what this represents.
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I agree.
Well, it’s good that he recognizes that dropping the 10% Tax Band was one of Gordon Brown’s definite mistakes (though a relatively minor one, set against the repeated major errors of George “Gideon” Osborne), but when oh when are Labour going to bite the bullet and not only credit Gordon Brown with playing things right in the 2008 crash, but also credit Labour’s whole management of the economy in the Blair/Brown years?
It’s VERY clear that the public has still not been disabused of the egregious nonsense peddled by the Con-Dems, to the effect that Labour was profligate and racked up enormous debts and deficits – is used to justify the current self-defeating austerity strategy – when almost the EXACT opposite is true: spending was NOT out of control; revenue MORE than matched spending; Government debt was, and is, manageable; it was private debt, and especially Bank generated debt, that caused the 2008 crash.
If Labour doesn’t manage to get this over, and leaves the public believing they trashed the economy, then Ed Milliband could be the Archangel Gabriel and STILL not get voted into power. This lie (for lie it is, however often repeated) MUST be laid to rest.
You’re right
I have a ‘intellectual problem’ with this. I agree politically Labour has been too passive in its defense but is it not true that now we do have to adjust state spending particulary in terms of tax credits & current income transfers now as our city revenues fall, growth stalls, exports decline relative to others in Europe, fiscal deficit – this is after all what we read not just from Tory idealogues but in the financial press. Within Labour people surely are grappling with different demands & priorities post the economic crisis.
I could not agree more – Labour must stop allowing the lies to be peddled.
I just cannot understand this £2m threshold. How is it going to be determined? Surely it would be much simpler to use the current banding system and put the tax on all Band F and G properties.
I know that EdM doesn’t understand LVT and I suspect that EdB is resisting it like mad because he is still steeped in the neoclassical conflation of land and capital.
I tend to agree
All well and good Richard but how are you going to deal with people who live in houses worth over £2m but who have a modest income? I’ve heard that an annual tax of around £30,000 is expected. Could you afford to pay this? In my book this is unworkable. We should concentrate on fairer taxation on actual incomes and not asset appreciation which is outside anyone’s control.
Roll up the charge, as a charge on the property to be paid with interest on sale
Next problem?
Remember, the gov’t is forcing the poor in situations to move
I really don’t think this is an objection
Indeed. Isn’t it funny how policies causing real hardship for poor people are acceptable, yet policies with the same effect applied to the very wealthy are not?
The same argument was applied to the rates in justifying the change to council tax: it was that notorious single old lady on a modest fixed income. She didn’t exist then and she doesn’t exist now. But she is a powerful figure in the land, and she was strongly influential in redistributing wealth to the wealthy. That is what she is for
I am not so impressed with the 10% tax band, though I don’t object to it per se. The poorest will not benefit, and this policy reinforces the wedge between the working poor and the unemployed/inactive which is a major plank of the worst of the policies. There is nothing there to reinstate the half of the social contract which says that the rest of us must ensure there is work for all before we can demand that people contribute. Those who are the working poor are the same people as the unemployed, often: work is insecure and people move in and out of unemployment. So we will see a gain of a couple of quid a week while in work, offset by the losses in income which are imposed through the cuts in benefits: and that will do nothing at all over the course of a year or two. It is cosmetic
The focus on the level of income tax is one of the less comprehensible narratives in this country. The wealthy have persuaded enough people that high income tax is a Bad Thing that a rise is unthinkable for our political class: and that benefits no-one but those same wealthy people. To illustrate: some years ago I had a conversation with a person who was parroting the mainstream line that high income tax was a problem: it happened that this was just after a reduction in the normal rate of 1%. So I asked her how much difference that change had made for her: she hadn’t noticed it! She was not the poorest, certainly. £2 a week is significant for the poorest: but so is a cut in the benefits they are also to experience.
What needs to be tackled is the narrative that says that the rate of income tax matters to the poorest in the same way as it does to those who are far better off.
Agreed
I’m inclined to think that taxes providing an incentive for old single people or couples to move out of large houses into more reasonably sized flats are a good thing, not least when it comes to paying for carers and ease of use as they become more frail.
I might even be tempted to apply a single person in a big house premium, not a discount.
I would justify it as a measure to support efficient use of housing stock, alongside policies to deal with rich people in subsidised housing by applying full market rents.
Both policies seem obvious.
They seem a little cruel to me.
Very many people already move into smaller and more convenient houses as they age, because it suits them in many ways. But a home is a lot more than money, and a lot more than “housing stock”. Whether people are rich or poor that is true for most, I think.
The council tax is regressive and if you intend to make it a more progressive tax I would support that: but a premium solely designed to get folk to move does not seem right to me when there is a shortage of smaller houses anyway.
Where possible I prefer not to make folk do things, but rather to expand the options. We need council housing and we need it to reflect the pattern of occupation more closely. At least that is what I think I would prefer
Adding a new rate adds complexity – witness the LITRG’s comments on the existing 10% rate.
Would it not be far simpler and more effective to increase the personal allowance by £500? This would avoid adding complications, and have the added bonus of concentrating the relief at the lower end of the income scale.
Taking people out of tax takes them out of the accountability process
And means many beenfits can’t apply to them
So no is the answer
Sorry, you’ve lost me. How are people non-accountable, suddenly? At the £10k or so income level very few people are doing tax returns.
And I wasn’t aware that benefits relied on paying tax, other than pensions depending on NI, which is an entirely separate issue. Working and receivign income, yes, but that’s not the same as taxable income.
If raising the personal allowance is a bad thing, would you support say lowering it to £5,000 and putting in a £10,000 10% band instead?
I would prefer a lower PA and higher low tax band, yes
Indeed, I am working on such a proposal
When the Telegraph has said people who do not pay tax should not vote I hope you understand my concern
I don’t understand that, Richard. I cannot believe you are supporting the tea party line of “no representation without taxation” but that is how that reads. Can you elaborate a little?
I’m opposing it
And the reality is that unless people pay tax they don’t seem to votre – as studies have found
I’m not saying those who do not pay tax should not vote – although the Telegraph has
I am saying people who pay tax engage with democracy and that is welcome
So I prefer low tax starting rates and lower personal allowances
Well it is true that people who don’t pay tax are less likely to vote. Although correlation is often causation, it is not in this case IMO. People who are too poor to pay tax do not vote because there is nothing to vote for: all mainstream parties have subscribed to the demonisation of the poor and have nothing at all to offer which would make a difference. That is the democratic deficit which needs to be tackled, and I do not think the correlation you note was anything like as true in the period of the post war consensus. Engagement with the democratic process has been falling, certainly. It is often ascribed to apathy: but people are not stupid. If there is no real alternative on offer they will not vote: why should they? It gives a figleaf of respectability to a political class which does not represent the interests of the people invited to vote. That relevance can as easily be captured by policies which provide a decent standard of living regardless of one’s position in the tax/benefit continuum.
As I see it the poor have been marginalised and they are perfectly well aware of that: so they dont vote. Tax is not the cause of that, it is far wider and deeper
I’m not claiming it is just tax
But not paying tax is not paying the membership fee
And that leaves you feeling like a non-member
I think that’s now deliberate policy
I do not think that not paying tax leaves you feeling like a non-member: I think that what leaves you feeling like a non-member is the FACT of not being a member: or in other words the FACT of having no possibility of voting for a candidate who represents your interests. That is what the labour party used to do and what it no longer does.
The “membership” fee is a curious concept because what you are really saying is that there is a “membership fee” for the human race. I can’t accept that.
Where I do agree is that this is deliberate policy. But it is policy from all mainstream parties and it is founded on a narrative of “them and us”. As it happens I do believe that we do not all have interests in common: to me democracy is a system for recognising that fact, and for coming up with compromises we can all live with. One of the successes of the neoliberal analysis is masking that reality: and to a certain extent they were pushing at an open door: for we are all apt to assume that everyone is in much the same position as we are ourselves. The majority cannot truly conceive the position at the extremes: not how the very wealthy live, and not how the poorest live either.
The neoliberals from Thatcher onwards made some very curious double think acceptable. In destroying the power of the unions, for example, the mantra was “we are all on the same side if we are reasonable people” and the characterisation of alternative power bases as illegitimate. But without such alternatives there is no compromise, and that is the reason for that narrative. It is inherent in the neoliberal analysis that only the individual counts: as if there are no group interests at all. The result of that, over the longer period, was to leave only one group with power and the concomitant possibility of defending their interests: and that group is not the majority: it is the wealthy elite. That is called plutocracy in english.
Plutocracy can hide itself for a while: but it cannot hide forever. It sucks the money/wealth to itself in an ongoing process: so when the poor have no more to give the process moves up the social ladder. At this point “we are all in it together” becomes increasingly incredible, and work such as your own helps to make that explicit for the many. The opposing narrative is division, and so the poor are demonised and rendered almost a different species. People are persuaded that the pain they are feeling, exactly the same as that which was visited on the poor in the first round, is somehow different and that “their” money is not going to support the wealthy, but is rather being “stolen” by the underclass they colluded in creating.
I will not accept that narrative, and neither, I think, do you. The temptation is to accede to it on pragmatic grounds: I understand that. But it shifts the centre ground and it is self defeating in the long run. It needs to be opposed explicitly and I think that follows from your own position too: you reject the idea that the money paid in tax still belongs to those who pay it. So do I. So how can you reconcile that fact with this idea of “membership fee”? Surely that reinforces the tale of “hard working taxpayers v the rest”?
Fiona
The evidence is very clear – democracy survives when people knowingly pay tax and not when they don’t
I’m a democrat
I want the inclusivity that paying tax brings
Richard
Richard – pace Fiona’s comment, I’m sure that the words that lie behind your “membership fee” comment are those of the great FDR, who characterized tax as being “our subscription to a civilized society”, or words to that effect. Fiona’s take on this as being “membership of the human race” is way off the dial – we’re NOT talking ultimate categories here, such as species membership.
Instead, we’re talking family, community, nation, democracy – all bodies of people sharing some sort of common ground, where each member’s willingness to chip in as best he or she can is part of a common endeavour. So, if you’re living at home, and your parent ask you to chip in, in return for a roof over your head, then you do so, unless you’re stony broke/unemployed/ill/ disabled, when your parents and siblings take the strain for you. You just show willing, either with time, or talents or money – and money towards the housekeeping in a family environment is the equivalent of tax towards the running of society on a societal basis.
This is NOT an argument to justify the current Government’s inhumane (and illegal!) workfare programme, since different standards apply to units larger than a household – it’s reasonable to ask an unemployed family member to do extra chores at home, once their job-seeking activities for the day are over; it’s NOT reasonable to use the unemployed as a source of cheap labour for employers seeking to cut costs and corners. At a societal level, the fact they have paid, are paying, or will pay, tax entitles them (= membership fee or subscription) to expect society to offer them opportunity to pay by providing employment, or by supporting them with the means to survive until they can find such employment, providing they genuinely seek such employment – that’s the contract, which they buy into by subscribing to the same.
You got your first para spot on
And the rest too
Thanks
R
OK, that makes sense. Though my concern is that lowering the PA is regressive, even if there’s a wider low tax rate above it.
If paying tax does increase engagement then I could perhaps get behind the idea of increasing NMW or benefits in order to undo the regression and leave people with the same post-tax income. It’s artificial, but hey ho.
I just don’t like adding complications. Complications lead to anomalies, and to people making mistakes. The trend nowadays should be to simplifying matters.
But a lower PA and lower band then makes the interaction with beenfits easier
These are related issues
Broader and lower bands would help considerably with this
In what way is it easier? Softening the impact of increased income being taxed as well as leading to benefit reductions?
You may not realise how hight the marginal tax rates are for those on about £12,000 of income – usually about 70%
Anything that helps that is good
Oh, I know they’re unfairly high. The interface of two independent systems is always going to have inappropriate results. The question of how to integrate them properly needs a lot of thought.
Agreed but let’s massively lower the £2m limit if we are serious about helping the poor. The poor don’t tend to own houses. Taxing all home ownership wouldn’t effect them. Those who have a home can afford it and as you say let it roll up if cashflow is an issue. I’m sure you wouldn’t mind digging a bit more deeply into your pockets to help the poor, Richard (my guess is you already do).
I agree with a lower limit – £1 million however frightens London
For me it is so, so far higher than the value of my house I’d still be unaffected
But that point is important – most will be unaffected by this
Those earning under £10,000 per annum are still paying tax and hence this so-called membership fee. They pay VAT and they cause excise duty to be paid on fuel costs, transportation of food etc. The increase in VAT has ensured that the unemployed and low earners do not escape the net. Some will also pay council tax when the new local housing allowance rules commence.
People do not realise they pay VAT
It is income tax that delivers the result
Richard,
Don’t those earning below £10000 pay their “membership fee” through National Insurance contributions?
To some extent, yes
I agree
When I had a small business I made sure that the people working for me part time paid NI but not tax, which meant that they got the benefits but without paying the income tax. Oh, and I paid above the minimum wage. They definitely felt enfranchised.
This govt. is now ensuring that even people receiving a pittance are paying council tax, and that definitely politicises them.
Of course, if companies were forced to pay a living wage, as they are now trying to do in York, the problem would not arise as they would be earning enough to pay tax.
A living wage would however require a lower tax threshold
That would overcome many problems with benefits interaction
So I agree
That begs the question, what results are we trying to obtain?
@ Andrew Dickie. I don’t agree that my comment is off the dial. We are all members of this society and we contribute when we can. It is also part of membership of that society that we get the support we need when we can’t: that is seamless. There is no difference between my comment and your own in your second paragraph. But the current thrust is to pretend that only those who contribute are members: and the argument to include more people in the tax system seems to me to concede that point: if there are fewer outside it they are still othered and that is no progress at all
It seems to me that we agree on all the substantial points because you say that it is for us to support people at the point they can’t contribute. The only disagreement we seem to have is whether lowering PA and the lowest rate tax band will help by reducing the group who are excluded: or hinder by widening the perceived difference between them and the rest. It won’t in reality, for they are the same people (because of insecure employment): but they will help to reinforce the argument already adduced that they are parasites. At least that is my view. The debate needs to shift from “personal responsibility” to “our responsibility” and I do not think that this measure will help with that
Fiona
I made an observation based on research at IDS in Sussex Univ that there appears to be a correlation between paying income tax and engagement with democracy
I think it likely to be valid
People engage with a state when they have explicit engagement with it
I think that valuable
It is apparent some on the right wish to disenfranchise those who do notary tax. I do not think that coincidence
Richard
I accept the correlation, as I have already said. I do not accept the causation at all. An explicit engagement includes willing support for others when it is needed, and that is what is missing. The disengagement does not come from not paying tax: it comes from the horrible attitudes to a group of our people which is expressed in the characterisation of them as “scroungers” and in the practical form of withdrawing our financial support. People are not stupid. They know what the disgusting use of language such as “stakeholders” and “hard working taxpayers” implies. If we marginalise people in real ways they have no reason to engage, and that is a reality independent of whether they pay tax or do not pay tax at any given point, or even for the long term. We are not at odds in accepting the finding: we are at odds in interpreting the meaning of that finding
I absolutely agree that the wish to disenfranchise those who do not pay tax is not an accident: but I do not think the reason for it is as you believe: both are caused by a third factor which accounts for both: the wish to dismantle civilised society as represented by the welfare state.
> a Mansion Tax is necessary: property is under-taxed in the UK,
How would you justify that “property is undertaxed” comment, when it is only 2 weeks since the EC reported that we raise the most revenue from property taxes of any of the EU 27?
Page 47 here. We are about 300% of the average.
http://ec.europa.eu/taxation_customs/resources/documents/taxation/gen_info/economic_analysis/tax_structures/2012/report.pdf
“Two features of property taxation stand out
clearly. One is that revenue levels differ very
substantially across Member States. While no Member
State exempts property completely from taxation,
revenue levels in the country with the lowest levels of
such taxes (Estonia, 0.4 % of GDP) are almost twelve
times lower than in the country with the highest level of
property tax revenues (the United Kingdom at 4.2 % of
GDP). The share of total property taxes on the overall
tax revenue also varies widely, from 1 % to 11.9 % (see
Table 2.3).
The level of property taxes correlates weakly with the
total tax burden: it is fairly low in a number of
countries with above-average tax levels (for example,
Austria or Germany), but there are also instances of
relatively high levels in countries with moderate overall
tax-to-GDP ratios (e.g. in Spain or the United
Kingdom).”
So a universal reform is needed
The paper does not specifically address property as housing: it includes tax in the form of business rates, for example. Graph 2:1 does compare the rise in house values with the rise in income from recurrent property taxes from 2000-2008 and it does not appear to support your contention. Nor does this demonstrate that high end property is not undertaxed. Given that council tax is the main source of revenue from recurrent taxation of property in the housing field, and it is regressive, it seems that the statement is valid: though it does depend on whether you think the rates in 2000 were more defensible than those in 2008
Good call by Ed on the mansion tax and I can understand the political attraction of reintroducing the 10p rate, but economically speaking if Labour wants to cut the taxes that are hitting the poor most the best thing to do would be to reduce VAT. The distributional impact of a VAT cut is much more progressive than either raising the income tax personal allowance or introducing a 10p income tax band.
If the results are redistribution of wealth and social justice, you won’t find it using the same old methods from the same old corrupted institutions.
A couple of points about the mansion tax and the 10% income tax rate:
The decision to introduce a higher rate of stamp duty for homes over £2million pounds, the much talked about threshold for the ‘mansion tax’ has led to a fall in the sale of homes in the top end bracket. The number of houses sold for more than £2million in March 2012 — the latest month for which the figures are available — dropped to 124 from 205 the previous year, the Land Registry has said.
Read more: http://www.thisismoney.co.uk/money/mortgageshome/article-2167663/Land-Registry-Stamp-duty-hike-2m-homes-sees-40-sales-fall-house-prices-rise-May.html
So, if fewer houses are selling for £2million in areas where one would expect to see them sell for over £2million, does that not mean that the average house price in those areas, based on selling prices, could very easily go down, meaning fewer houses are valued at £2million or more? Or that people will sell the property for under £2million then sell fixtures and fittings separately to recoup the difference? Meaning a huge number of people who’ve escaped the 50% income tax rate avoid the mansion tax too? If so, it might just be introducing the 7% stamp duty rate is-and perish the thought that anybody in The Treasury would be so cynical as to do this —a way of reducing the number of houses to which the mansion tax would apply.
Secondly, it is curious that all main parties talk of reintroducing a 10% tax rate just as the cut in the 50% tax rate looms. What better way to get people, especially the working poorest, to accept this than to make them believe they are getting a real tax cut too? Consider this: Labour’s plan to introduce a ‘living wage’ should bring many people above the income tax threshold (£9440 pa from April 2013). But along with this comes a loss of means tested benefits and the criteria for social security are due to get tougher in future; the soundings from some in the Labour frontbench seem to suggest they support this line. Yet our economy has become one that depends on a low paid, underemployed workforce, a trend that is accelerating. Many of those low-paid, part time/fixed term jobs will have the 10% income tax applied individually; employers like this as it keeps down their wage bills and they pay less in employers’ NI. Yet high living costs and highly inflated daily outgoings (food inflation and heating costs are outstripping ‘official’ CPI), coupled with a harsher social security regime, mean that people are taking more than one such job to boost their income, taking their total annual incomes into the 20% bracket in millions of cases. So it’s highly debatable how many people will, in reality, be paying the lower, 10% income tax rate. At the same time, competition for such jobs is becoming desperate and will only become more so; more people will struggle for any work and be forced into poverty or unpaid workfare. So the reintroduction of the 10% tax seems designed to ameliorate the cut in the top rate of income tax, whilst ensuring that the poorest Treasury tax receipts from our poorest paid are maintained in a low wage, low aspiration economy which has become a permanent fixture of UK life.
Much of merit in there