The Staggers

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Clegg: property taxes should replace the 50p rate

Deputy Prime Minister says 50p rate will be scrapped once low and middle incomes are “breathing more

By George Eaton Published 28 March 2011 10:45

If George Osborne's hint in last week's Budget wasn't enough, we now know for certain that the 50p tax rate will be scrapped at some point during this parliament. In an interview with the Financial Times, Nick Clegg suggests that the tax will be abolished once those on low and middle incomes are "breathing more easily" and will be replaced with a range of new property taxes.

As Clegg points out, Osborne won't want to scrap the 50p rate until he's certain that he can offer relief elsewhere. Polls show that the tax is relatively popular with voters and Labour would seize any opportunity to portray the Chancellor as a friend of the rich. It's notable that while the progressive 50p rate is "temporary", the regressive VAT increase is "permanent".

Senior Lib Dems, most notably Vince Cable, have long spoken of their desire to divert taxation away from income and towards property. In his recent New Statesman essay on reclaiming Keynes for the coalition, the Business Secretary wrote of the need to shift taxation "away from profitable, productive investment (as opposed to unproductive asset accumulation, as with property)".

Before this, in his speech at last year's Lib Dem conference, Cable also argued for higher taxes on land as well as property (the subject of a recent NScover story by Jason Cowley).

He said:

It will be said that in a world of internationally mobile capital and people it is counterproductive to tax personal income and corporate profit to uncompetitive levels. That is right. But a progressive alternative is to shift the tax base to property, and land, which cannot run away, [and] represents in Britain an extreme concentration of wealth.

Over the weekend, Cable returned to this theme in several interviews and spoke of the need to "shift from high marginal rates of tax on income which are undesirable, to taxation of wealth, including property". Asked if he was considering a so-called "mansion tax", he said: "I'm sure that's one of the things we're going to have to look at."

Clegg's FT interview is short on detail, although, unlike Cable, he rules out a version of the "mansion tax" proposed by the Lib Dems at the last election and supported by David Miliband during the Labour leadership contest. Instead, he suggests the coalition will "look at the way the council tax system is structured; the way stamp duty is structured".

Another option, as Jason suggested in his piece, would be to introduce capital gains tax on the profits made from the sale of first homes.

On taxation at least, the Lib Dems can now claim to be exerting serious influence on the Tories. Osborne has embraced their plan to raise the personal income-tax allowance to £10,000 by the end of this parliament and is now set to restructure the taxation of top earners along liberal lines.

Labour must hope that the 50p rate raises some significant revenue. If not, the party could be left on the wrong side of the tax debate.

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Tags: Vince Cable Nick Clegg

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16 comments

Mon, 2011-03-28 16:33 — Dave C (not verified)

Scrapping the 50p rate would be tricky for the Tories and Lib Dems.

People on ordinary incomes will have seen cuts in their living standards through zero and low pay increases that don't keep up with fairly high inflation, redundancies, loss of services and loss of benefits. They would not be pleased seeing the rich favoured.

Secondly, the 50p rate will bring in about £2.5bn a year. If reducing the deficit is paramount as Osborne argues, the case for scrapping the 50p rate is weak until the deficit is eliminated (in 2015 according to Osborne).

If the the 50p rate were scrapped, or the Coalition stood on a manifesto to scrap it, the Tories and Lib Dems would suffer accordingly.

Mon, 2011-03-28 16:39 — capt-price (not verified)

Dave C:

I think by and large the rich are favoured. It would seem that citizens of more modest means are, or will feel the effects of Tory policy soon fairly soon.

Thu, 2011-03-31 18:08 — Orwin O'Dowd (not verified)

Adam Smith once traced economic malaise back to the Middle Ages, to cliques taking control of city corporations to impose restrictive practices on the labour market with an eye to property speculation.
That's the whole story, from ancient caste systems through the Great Fire of London to the Raj, apartheid and the final melt-down in US housing.
But any real solution must take in skills, fees (40% of disp. income in India today!), access and land-use planning.
At minimum, Nick Clegg gets to kick off in a new political game.

Tue, 2011-03-29 15:21 — Captain Sensible (not verified)

God bless ye Johny Clegg and the rest of the pirates ye have made a 100000 dubloons on ye old house. Tax the prudent bastards with savings and the old folks who bought their own house unlike you !

Mon, 2011-03-28 20:09 — matthew fox (not verified)

With the Government projected to still be borrowing in 2015, where is all this money coming from to fund tax cuts ?

Tue, 2011-03-29 17:49 — manningtreeimp

There is a strong argument for a switch to land and property taxation...but is this what Cable proposes ?

As far as I can see the Mansion Tax (MT) will merely be an extension of the current Council Tax. There are problems with this:

1. CT is currently based on 1991 levels of value. If the MT amounts to one or two new bands at the higher end then a full CT revaluation must surely be required. However, that does not mean people in existing bands will pay more, the bands will merely be revised upwards to ensure the tax take is broadly neutral...but there will be the inevitable losers and winners...politically risky.

2. CT is collected and set locally (unlike business rates which uses a national multiplier.)If Cable sets MT at a national fixed value of the property such as £2million then high property value areas will benefit more, to the detriment of low value areas...

3. Does Cable propose to keep CT collected locally and the revenue from the "Mansion" tax bands passed on to the centre ? Sounds expensive to administer...

Land Value Tax is a different animal altogether and I do not think the LibDems will get this past the Tories easily, if at all.

Mon, 2011-03-28 11:01 — swatantra

A move away from 'income' to 'property' would be unwise. If the Council Tax isn't going to be realistically re-banded,then lets have a local income tax. 'Property' can be 'wrapped up' in legal jargon whereas income cannot.

Mon, 2011-03-28 22:32 — Robert (not verified)

Avoidance of the mansion tax should be pretty easy - splitting a property from some of its land (so losing the marriage value) might be effective.

Mon, 2011-03-28 12:21 — Dark Heart of Toryland (not verified)

Why not a mansion tax AND the 50% higher rate? That might go some way towards making our tax system slightly less regressive.

Thu, 2011-03-31 22:23 — DNAse (not verified)

The proposed 0.5% levy on properties over £1M will STILL not prevent the current council tax from being regressive. Around here a 1 bed flat is liable for about 1% of the value as council tax. Whereas a £1M house pays only about 0.3% of the value. In Northern Ireland they levy a flat rate 0.7% IIRC this is a more valid property tax and should be adopted nationwide. Properly implemented land taxes would prevent the boom-bust property cycles and claw back some of the private taxes (rents) pocketed by the banks and landowners. This is wealth that has been produced by the work of society and as such deserves to be returned to the state and not given to private hands as unearned income.

Mon, 2011-03-28 11:45 — shaved or spiked (not verified)

"Clegg's FT interview is short on detail"

Of course it was. No one could ever accuse Clegg of not 'saying' really good stuff. The point is he will be lying again.

Mon, 2011-03-28 13:59 — Culverin

Clegg's a loser.

As Deputy PM he has very little influence on anything and he knows it. Remember when he was on holiday when he was supposed to be in charge?

What he says are just lies to keep people interested because he knows he's losing his party.

Tue, 2011-03-29 00:16 — elrob

Some of the government "discussions" are of tax changes I would wholeheartedly support. I have longed believed that income should not be taxed until people pay for the necessities in life: rent, bills, food, transport to work costs, and a move to £10k is probably fair (though it may not be for a single-income household in London). Also the briefings on aligning tax and NI should be welcomed.

I'm incensed when people say we are taxed 20%. We're not. The marginal tax rate for most people is 31% (20% 'income tax' and 11% nat ins. Nat isn is tax on income, ergo it's income tax. Align and people would see this.

Marginal is 31%, and an average wage-earner pays about 24-5% in tax on her income.

Furthermore, I think those on the Right are wrong to think people would suddenly become small govt advocates by realisng how much they are taxed. Rather, they will finally see that higher rate payers do not pay dbl tax, the rate rises from 31 to 41% (40 'inc tax' and 1% NI - marginal NI falls to 1% on higher rates).

Tax income tax, NI and VAT together and the poor are taxed as heavily as the rich.

For that and reasons given by Cable I also think a switch to land and property tax is definitely progressive.

In fact Labour should call for at least a 1% tax on land as it would fix about a third or even half of the structural deficit, depending on who you believe on the size of the structural def.
Land tax is progressive, the rich cannot squeal "I'm off with my land to Switzerland", and it will boost the economy: people will have to invest or work in wealth creation rather than buying plots of land and a hollow column of bricks. See Germany for how property taxes boost wealth creation.

As for the Lib Dem, I'll believe this when I see it. Don't trust Clegg as he is a Tory or a very-Tory wing of LibDem (a Whig?) in all but name.
Labour, grasp the moment. Wanta be noticed and have fresh ideas. Land/Property tax plus cut VAT. Vote winner, progressive and wealth creation.

Tue, 2011-03-29 00:21 — elrob

But I would keep 50p rate or 49 plus 1 NI, if deficit remains high at election time.

Wed, 2011-03-30 23:06 — Eddy S (not verified)

looking at policy from an effectiveness point of view rather than symbolic then a 50p tax rate should be replaced by a land tax.

it is better to tax unproductive resources such as land rather than avoidable taxes such as income.

people caught in the 50p bracket change there behaviour over time (i.e. find better work life balances, opportunties in other countries where highly skilled work is rewarded further or pay more into their future pensions etc) so 50p tax will raise less than a land tax ever will.

it's also better to tax unproductive resources and encourage hard work and enterprise - this is better longer term.

Mon, 2011-03-28 15:31 — capt-price (not verified)

The man is a complete arse, and as we all knew, and have since had it confirmed, a complete ass kisser.

Culverin is absolutely right, he has no real influence and he knows it. He also has no electoral credibility. The gang of four, Clegg, that sneaky little shit Laws, Grandpa Cable and the treasury stooge Alexander were all complicit in foisting this top hatted, sneering, arrogant Tory govt upon us.

And for what? they have made life worse for the vast majority of people in this country- not better, despite what they delude themselves by thinking.