George Osborne holds freshly minted coins during a visit to the Royal Mint in Llantrisant, Wales on March 25, 2014. Photograph: Getty Images.
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The public want a more progressive tax system - and they're right

Ninety six per cent of people support a fairer system, with the richest paying more than double the poorest.

Tax is a regular area of public and political debate in the UK. Who pays what, who avoids tax, and whether tax is "fair" are questions that are regularly tackled in our press and in Parliament. But much of this debate is shrouded in misinformation, half-truths and downright lies. When people make bold commitments to lift the "low-paid out of tax" for example, or "ensure those on the national minimum wage pay no tax" they rarely mean it. What they actually mean, more often than not, is to lift people out of paying income tax. This may sound like semantics, but there is a rather important difference.

Alongside commitments to lift the poor out of paying tax, we also occasionally hear wild claims made about how "the richest 1 per cent pay 30 per cent of all taxes". A good headline no doubt, but unfortunately, complete nonsense. Again, the richest 1 per cent pays about 30 per cent of all income tax. That is, they pay 30 per cent of a tax that accounts for only 27 per cent of all taxes. The problem with such comments isn't just that they are plainly wrong, it is that they distort the debate and skew public perceptions of our tax system towards sympathy for a supposedly overburdened, hard-working "elite", punished for their success by high taxes. At the other end, we're led to believe that the poorest pay little enough tax so that it is a simple move to lift them out of tax altogether. 

New research from the Equality Trust shows just how misleading these sorts of statements are, and just how far they take us from the truth of what the richest and poorest are taxed. Analysis of ONS data shows that  when all taxes are taken into account, the poorest 10 per cent of households actually pay 23 per cent more of their income in taxes than the richest 10 per cent of households. In fact, they pay a huge 43 per cent, whereas the richest pay just 35 per cent:  the same as the average household. 

But public understanding of how much others in society are taxed is now wafer thin. Polling conducted by Ipsos MORI in partnership with the Equality Trust found that nearly seven in ten (68 per cent) people actually believe the richest 10 per cent of households pay more of their income in tax than the poorest 10 per cent. Particularly shocking is the fact that on average the public under-estimates what the poorest 10 per cent pay in tax by 19 percentage points, believing they pay just 24 per cent of their income in taxes.

This lack of understanding is more shocking when we see just how little support there is for our regressive tax system. Further polling found that 96 per cent of people believe that the tax system should be more progressive than is currently the case. On average, people believe the poorest 10 per cent of households should be taxed just 15 per cent of their income, 28 percentage points less than they currently are. They believe the richest 10 per cent should be taxed 39 per cent, or 4 percentage points more that they are. On average they believe the richest should be pay more more than double the total tax rate of the poorest.

Even more interesting is the fact that although there are some small fluctuations, there is majority support for a more progressive tax system across political party lines, gender, age and even income groups. 

It is true that the poorest 10 per cent of households contains those that are unemployed, as well as students and other people who receive various welfare payments. But while we often hear about how much the "lazy" and "indolent" undeserving poor receive in government payments, we rarely hear about how much of that money is then clawed back. 

Our report "Unfair and Unclear" shows just how far our current tax system is from the public's preferences on how much people should be taxed. Moreover, when looking at the richest and poorest 10 per cent of households, the system is in fact hopelessly regressive. So what can we do about it? There are number of sensible approaches that have so far been resisted by most policy makers and politicians. The first it to tackle our absurdly regressive council tax by transforming it into a progressive property tax, by re-evaluating properties and creating new bands with higher rates for higher value properties. The second is to raise the upper limit of National Insurance Contributions to ensure that the tax is progressive across all deciles. We would also expect to see Government aim to reduce VAT when it has a budget surplus, at the very least. More importantly, we are calling on all parties seeking to form the government from 2015 to commit to the principle that any changes in tax policy are progressive.

Tax plays a hugely important role in people’s lives. It can determine the affordability of basic necessities like food and household bills, but it can also determine the quality of local services, healthcare and education. It is important that people are aware of who pays tax and how much, but equally we must build a tax system that better acknowledges the values of the vast majority of the electorate.  The gap between public perceptions, preferences and reality when it comes to our tax system should be of deep concern to politicians of all hues. Building a system that is fit for a fair society must now be a priority.

Duncan Exley is the director of the Equality Trust

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The tale of Battersea power station shows how affordable housing is lost

Initially, the developers promised 636 affordable homes. Now, they have reduced the number to 386. 

It’s the most predictable trick in the big book of property development. A developer signs an agreement with a local council promising to provide a barely acceptable level of barely affordable housing, then slashes these commitments at the first, second and third signs of trouble. It’s happened all over the country, from Hastings to Cumbria. But it happens most often in London, and most recently of all at Battersea power station, the Thames landmark and long-time London ruin which I wrote about in my 2016 book, Up In Smoke: The Failed Dreams of Battersea Power Station. For decades, the power station was one of London’s most popular buildings but now it represents some of the most depressing aspects of the capital’s attempts at regeneration. Almost in shame, the building itself has started to disappear from view behind a curtain of ugly gold-and-glass apartments aimed squarely at the international rich. The Battersea power station development is costing around £9bn. There will be around 4,200 flats, an office for Apple and a new Tube station. But only 386 of the new flats will be considered affordable

What makes the Battersea power station development worse is the developer’s argument for why there are so few affordable homes, which runs something like this. The bottom is falling out of the luxury homes market because too many are being built, which means developers can no longer afford to build the sort of homes that people actually want. It’s yet another sign of the failure of the housing market to provide what is most needed. But it also highlights the delusion of politicians who still seem to believe that property developers are going to provide the answers to one of the most pressing problems in politics.

A Malaysian consortium acquired the power station in 2012 and initially promised to build 517 affordable units, which then rose to 636. This was pretty meagre, but with four developers having already failed to develop the site, it was enough to satisfy Wandsworth council. By the time I wrote Up In Smoke, this had been reduced back to 565 units – around 15 per cent of the total number of new flats. Now the developers want to build only 386 affordable homes – around 9 per cent of the final residential offering, which includes expensive flats bought by the likes of Sting and Bear Grylls. 

The developers say this is because of escalating costs and the technical challenges of restoring the power station – but it’s also the case that the entire Nine Elms area between Battersea and Vauxhall is experiencing a glut of similar property, which is driving down prices. They want to focus instead on paying for the new Northern Line extension that joins the power station to Kennington. The slashing of affordable housing can be done without need for a new planning application or public consultation by using a “deed of variation”. It also means Mayor Sadiq Khan can’t do much more than write to Wandsworth urging the council to reject the new scheme. There’s little chance of that. Conservative Wandsworth has been committed to a developer-led solution to the power station for three decades and in that time has perfected the art of rolling over, despite several excruciating, and occasionally hilarious, disappointments.

The Battersea power station situation also highlights the sophistry developers will use to excuse any decision. When I interviewed Rob Tincknell, the developer’s chief executive, in 2014, he boasted it was the developer’s commitment to paying for the Northern Line extension (NLE) that was allowing the already limited amount of affordable housing to be built in the first place. Without the NLE, he insisted, they would never be able to build this number of affordable units. “The important point to note is that the NLE project allows the development density in the district of Nine Elms to nearly double,” he said. “Therefore, without the NLE the density at Battersea would be about half and even if there was a higher level of affordable, say 30 per cent, it would be a percentage of a lower figure and therefore the city wouldn’t get any more affordable than they do now.”

Now the argument is reversed. Because the developer has to pay for the transport infrastructure, they can’t afford to build as much affordable housing. Smart hey?

It’s not entirely hopeless. Wandsworth may yet reject the plan, while the developers say they hope to restore the missing 250 units at the end of the build.

But I wouldn’t hold your breath.

This is a version of a blog post which originally appeared here.

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