Polly Toynbee has an article on the inequality created by our system of tax reliefs in the Guardian this morning. It is an issue I discussed with her as recently as yesterday. I like the conclusion in particular:
Topsy-turvy tax reliefs could be radically simplified, no longer offering tax-escape valves but releasing funds for things they were originally designed for. Runaway wealth should be taxed, and inheritance rules reviewed. The Office for Tax Simplification could suggest great things. But radical reform would take great political bravery, and this government, like previous ones, talks of inequality without the nerve to pluck the wealth from the tax-relief magic money tree.
Precisely.
Much of my research is looking at this issue at present.
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I was heartened by that article. I think Polly has moved a long way in the past 12 months.
Polly quotes a figure of £155bn for the cost of tax reliefs.
The first £52bn is for the VAT zero/reduced rates. It would take a very brave politician to advocate extending 20% VAT to all food, children’s clothing, books, domestic power, sanitary products, etc.
Of the remaining £103bn, another £28bn is the CGT exemption for a person’s principal private residence. Again, it would be a brave politician to advocate taxing the sale of homes.
The next £41bn is tax and NICs relief for pension contributions. Am I peculiar in thinking that people should be encouraged to save for their retirement, rather than spending it all today?
After that, there is only £34bn left for all the other bits, a billion here a billion there. Relatively small stuff, really, compared to total UK government spending is over £800 billion.
That said, I dare say there is quite a lot that could be raised by increasing the NICs on earnings above the upper limit from 2% to 12%. Polly also wants pensioners to pay NICs, and to abolish gift aid in favour of a “charity council” that gives government money to deserving causes.
What we need is a political party to stand on a platform of
* abolishing VAT zero rates
* taxing capital gains realized on sale of private homes
* abolishing tax relief on pension contributions
* increasing the top rates of income tax (with NICs) from 47% and 42% to 57% and 52%
* imposing NICs on pensioners
* abolishing tax relief on donations to charities
And then we can see how popular all of that might be.
No one is suggesting that such blanket change would take place at once, or is needed, and it’s a total straw man argument to suggest so.
But to ask the question as to how reliefs to the wealthy can be withdrawn over time is completely fair
Why do you waste your time with silly comments in that case?
I’m all for the abolition of Principle Private Residence Relief. It fuels a property market which is toxic and not sustainable. It encourages people to treat houses as speculative assets and not as actual homes.
I’d abolish it in a second. I’d also introduce a roll-over relief (or a hold-over until death… whatever), so that any proceeds arising from the sale of a PPR would be spared CGT to the extent that it’s used to buy another home. That way we could tax the unearned income of people “downsizing”, which effectively realises a rent which escapes all taxation under the current system.
So – there’s a policy which would not stop people selling their homes with a view to gaining another, but which would bring into taxation speculative, unearned profits. Properly presented, I fail to see how that would be unpopular.
I have, broadly speaking, proposed this before now
Howls of protest follow….
VAT is a regressive flat tax and progressives (by definition?) should be working on ways of getting rid of it. A tax based on income (including capital gains, inheritance and large gifts) , increasing by steps according to increase in value is the only way of ensuring each person pays their way fairly.
(VAT is also a big pain in the tuchis for those with a turnover constantly wavering around the £80k mark)