Leader: It’s time to shift the tax burden from income to wealth

Property taxes are fair, easy to collect and economically beneficial.

In Britain, wealth is concentrated in even fewer hands than income. The fourfold increase in property prices since the early 1990s has enriched homeowners at the expense of younger generations. For decades, however, politicians have refused to tax this unearned windfall. Remarkably, the council tax bands even now are based on property valuations made when the levy was announced by the Major government in 1991.

It was the Business Secretary, Vince Cable, who broke the taboo over taxing wealth when he proposed what became known as the "mansion tax", a modest 1 per cent levy on properties worth more than £2m. When the policy was announced in September 2009, it was denounced by the Financial Times, among others, as a "batty idea". But few are now so dismissive. As the state seeks to reduce tax avoidance and identify new sources of revenue, increasing numbers of politicians and commentators recognise the merits of such an approach. In his interview with George Eaton on page 20, Tim Montgomerie, editor of the influential ConservativeHome blog, argues for a "much more progressive" system that taxes wealth creation less and unproductive assets more.

The New Statesman has long argued for the burden of taxation to be shifted from income towards wealth and assets. Following the abolition of the 10p tax rate by the Brown government, individuals pay a marginal rate of 32 per cent (20 per cent income tax and 12 per cent National Insurance) on all earnings above the personal allowance of £7,475. This, combined with VAT of 20 per cent, record petrol prices and road tax, higher train fares and pension contributions and, for the young, student loan repayments, has squeezed real incomes at a rate unknown at any other point in modern times.

If taxes on income are to be reduced, as they must be, either through a significantly higher personal allowance (as the Liberal Democrats suggest) or through a reduction in the basic rate, then taxes on wealth should be increased. In an age when capital is so mobile and the rich are so adept at avoiding taxation, property taxes have the merit of being easy to collect. Even the most determined tax avoider cannot move his or her mansion to Geneva. In addition, as a recent report from the Organisation for Economic Co-operation and Development noted, property taxes benefit the economy by shifting investment away from housing and into wealth-creating industries. Consequently, they are seen as less economically harmful than taxes on consumption, income and corporations.

Opponents of a mansion tax complain that it would penalise the equity-rich but income-poor and force some pensioners to sell their family homes. Yet this is little more than sentimentalism and special pleading. There is no good reason for the elderly to occupy valuable houses that are far too large for them and that they cannot afford to maintain.

Ahead of the Budget on 21 March, there has been discussion about introducing a mansion tax, or scrapping pension relief for high earners, in exchange for the abolition of the 50p income-tax rate. Now would be the wrong time to remove the top rate. The Treasury, which is due to complete its review of the rate in time for the Budget, may conclude that it is failing to raise significant revenues. This is an argument for reducing tax avoidance, however, not for cutting taxes for the highest earners. In the longer term, as Jason Cowley argued in a New Statesman cover report in October 2010 ("The coming battle over land and property"), the government should introduce a tax on and reduce subsidy for land, 69 per cent of which is owned by 0.6 per cent of the population. For now, a mansion tax would begin the essential transformation of our tax system from one that rewards asset accumulation to one that rewards effort, enterprise and innovation.

This article first appeared in the 12 March 2012 issue of the New Statesman, The weaker sex

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What's to be done about racial inequality?

David Cameron's words on equal opportunities are to be welcomed - now for some action, says Sunder Katwala.

David Cameron made the strongest, clearest and most high profile statement about ethnic inequalities and the need to tackle discrimination ever yet offered by a British Prime Minister in his leader’s speech to the Conservative Party conference in Manchester.
“Picture this. You’ve graduated with a good degree. You send out your CV far and wide. But you get rejection after rejection. What’s wrong? It’s not the qualifications or the previous experience. It’s just two words at the top: first name, surname. Do you know that in our country today: even if they have exactly the same qualifications, people with white-sounding names are nearly twice as likely to get call backs for jobs than people with ethnic-sounding names? … That, in 21st century Britain, is disgraceful. We can talk all we want about opportunity, but it’s meaningless unless people are really judged equally”, said Cameron.
While the proof of the pudding will be in the eating, this was a powerfully argued Prime Ministerial intervention – and a particularly well-timed one, for three reasons.

Firstly, the Prime Minister was able to root his case in an all-but-universally accepted appeal for equal opportunities. It will always prove more difficult in practice to put political energy and resources behind efforts to remedy discrimination against a minority of the population unless a convincing fairness case is made that values cherished across our whole society are at stake. Cameron’s argument, that any party which tells itself that it is the party of the ‘fair chance’ and ‘the equal shot’ must have a response when there is such clear evidence of discrimination, should prove persuasive to a Conservative Party that has not seen race inequalities as its natural territory. Cameron argued that the same principles should animate responses to discrimination when it comes to race, gender and social class. Put like that, wanting job interviews to be fair – by eradicating conscious and unconscious patterns of bias wherever possible – would strike most Britons as offering as clear a case of the values of fair play as wanting the best baker to win the Great British Bake-Off on television.
Secondly, Cameron’s intervention comes at a potential "tipping point" moment for fair opportunities across ethnic groups. Traditionally, ethnic discrimination has been discussed primarily through the lens of its impact on the most marginalised. Certainly, persistent gaps in the criminal justice system, mental health provision and unemployment rates remain stark for some minority groups. What has been less noticed is the emergence of a much more complex pattern of opportunity and disadvantage – not least as a consequence of significant ethnic minority progress.

Most strikingly of all, in educational outcomes, historic attainment gaps between ethnic minorities and their white British peers have disappeared over the last decade. In the aggregate, ethnic minorities get better GCSE results on average. Ethnic minority Britons are more likely, not less likely, to be university graduates than their fellow citizens. 

As a result of that progress, Cameron’s intervention comes at a moment of significant potential – but significant risk too. Britain’s ethnic minorities are the youngest and fastest-growing sections of British society. If that educational progress translates into economic success, it will make a significant contribution to the "Great British Take-Off" that the Prime Minister envisions. But if that does not happen, with educational convergence combined with current ‘ethnic penalties’ in employment and income persisting, then that potential could well curdle into frustration that the British promise of equal opportunities is not being kept.  Cameron also mirrored his own language in committing himself to both a ‘fight against extremism’ and a ‘fight against discrimination’: while those are distinct challenges and causes, actively pursuing both tracks simultaneously has the potential, at least, depolarise some debates about responses to extremism  - and so to help deepen the broad social coalitions we need for a more cohesive society too.

Thirdly, Cameron’s challenge could mark an important deepening in the political competition between the major parties on race issues. Many have been struck by the increase in political attention on the centre-right to race issues over the last five to ten years. The focus has been on the politics of representation. By increasing the number of non-white Conservative MPs from two to seventeen since 2005, Cameron has sent a powerful signal that Labour’s traditional claim to be ‘the party of ethnic minorities’ would now be contested. Cameron was again able to celebrate in Manchester several ways in which his Cabinet and Parliamentary benches demonstrate many successful journeys of migrant and minority integration in British society. That might perhaps help to ease the fears, about integration being impossible in an era of higher immigration, which the Home Secretary had articulated the previous day.

So symbolism can matter. But facial diversity is not enough. The politics of ethnic minority opportunity needs to be about more than visits to gurdwaras, diversity nights at the party conference fringes and unveiling statues of Mahatma Gandhi in Parliament Square. Jeremy Corbyn’s first speech as Labour leader did include one brief celebratory reference to Britain’s ethnic diversity – “as I travelled the country during the leadership campaign it was wonderful to see the diversity of all the people in our country” – and to Labour bringing in more black, Asian and ethnic minority members - but it did not include any substantial content on discrimination. Tim Farron acknowledged during his leadership campaign that the Liberal Democrats have struggled to get to the starting-line on race and diversity at all. The opposition parties too will no doubt now be challenged to match not just the Prime Minister’s rhetorical commitment to challenging inequalities but also to propose how it could be done in practice.

Non-white Britons expect substance, not just symbolism from all of the parties on race inequalites.  Survation’s large survey of ethnic minority voters for British Future showed the Conservatives winning more ethnic minority support than ever before – but just 29 per cent of non-white respondents were confident that the Conservatives are committed to treating people of every ethnic background equally, while 54 per cent said this of Labour. Respondents were twice as likely to say that the Conservatives needto do more to reach out – and the Prime Minister would seem to be committed to showing that he has got that message.  Moreover, there is evidence that ethnic inclusion could be important in broadening a party’s appeal to other younger, urban and more liberal white voters too – which is why it made sense for this issue to form part of a broader attempt by David Cameron to colonise the broad centre of British politics in his Manchester speech.

But the case for caution is that there has been limited policy attention to ethnic inequalities under the last two governments. Restaurateur Iqbal Wahhab decided to give up his role chairing an ethnic minority taskforce for successive governments, unconvinced there was a political commitment to do much more than convene a talking shop. Lib Dem equalities minister Lynne Featherstone did push the CV discrimination issue – but many Conservatives were sceptical. Cameron’s new commitment may face similar challenges from those whose instinct is to worry that more attention to discrimination or bias in the jobs market will mean more red tape for business.

Labour had a separate race inequalities manifesto in 2015, outside of its main election manifesto, while the Conservative manifesto did not contain significant commitments to racial inequality. The mid-campaign launch in Croydon of a series of race equality pledges showed an increasing awareness of the growing importance of ethnic minority votes - though the fact that they all involved aiming for increases of 20 per cent by 2020 gave them a slightly back-of-the-envelope feel. 

Prime Ministerial commitments have an important agenda-setting function. A generation ago the Stephen Lawrence case opened the eyes of middle England to racist violence and police failures, particularly through the Daily Mail’s persistent challenging of those injustices. A Conservative Prime Minister’s words could similarly make a big difference in the mainstreaming of the issue of inequalities of opportunity. What action should follow words? Between now and next year’s party conference season, that must will now be the test for this Conservative government – and for their political opponents too. 

Sunder Katwala is director of British Future and former general secretary of the Fabian Society.