Want to soak the rich, Ed? Try taxing property

Nov 30, 2010, 10:53

Merryn Somerset Webb

Posted byMerryn Somerset Webb

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With all the fuss over whether the 50% tax rate for those earning over £150,000 should stay or go in the next Parliament (Ed Miliband thinks it should stay as a "socialist article of faith" – almost no one else agrees with him) it is easy to forget just how much the well off pay already.

The richest 10% of the population pay around 50% of all the income tax paid in the UK. The top 1% alone pay 20% of it. They also pay more of every other tax than the poorest. They travel more, so they pay more airport duties, for example. They buy more stuff (and more expensive stuff) so they pay more VAT. They buy and sell houses and shares more often, so they pay more stamp duty. They pay more capital gains tax. And if they die without making provision for avoidance (which, contrary to popular belief, they sometimes do) they pay more inheritance tax. That seems entirely reasonable.

However, we should also note that there is one easy way to make sure that the rich pay less tax. And that is to put up the top marginal tax rates. Back in 1978/9 when the top tax rate was 83%, the top 10% only paid 35% of the UK's total income tax take. Even in 1986/7, when it had been cut to 60%, they only paid 39%. Higher rates really do mean a lower income tax take: so much so that The TaxPayers' Alliance has put the cost of the 50% rate to the Exchequer to be around £4.5bn.

Miliband has admitted that the high rate doesn't work as a revenue raiser, but he still thinks we should keep it on the basis that it is "fair". Fair is a word that has come in for a lot of warping recently, but in this context it really is being horribly misused. The TaxPayers' Alliance may be over-egging the pudding, but even if the policy costs only, say, £2bn you'd think it would be more fair to drop it, get more money in and spend the extra on education or some such. High tax rates might somehow feel fair, but their outcomes are not. As I have said before, if the rich don't pay tax (because they leave the UK or they avoid it) the rest of us will somehow have to make up the difference.
 
But if Mr Miliband does accept this – and presumably he will see sense at some point in his policy review – where should he turn for his next anti-rich policy? There is an obvious way to go. The top 10-20% of the population owns 80-90% of the privately owned property in the UK.

I don't think I approve of wealth taxes and I am not advocating one today. But if I were a Labour politician and I was trying to think of something "fair" to put to a banker-and-rich-people-hating population, I suspect I'd spend my time pointing out that they don't pay much tax on their ownership of this – assuming they don't buy and sell it too often (which, in the main, they do not). Which, you might think, makes it pretty lucky for them that they only pay 50% of the UK's income tax.

So I'd be talking about land taxes, second home taxes and the like. I'd be asking if it is fair that a mere 36,000 people (0.6% of the population) own 50% of the UK's rural land; that Country Life identifies a core 1,200 people who own most of that; or even that the National Trust owns an extraordinary 630,000 acres of our country.

That might at least stimulate a more interesting debate than the current one.

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  • 1. Merryn

    (30 November 2010, 11:55AM)  Complain about this comment

    More interesting comment on this subject here...

    http://stumblingandmumbling.typepad.com/stumbling_and_mumbling/2010/11/laffer-curves-for-footballers.html#comments

  • 2. Alex

    (30 November 2010, 01:21PM)  Complain about this comment

    It does irritate me how the term "richest 10%" is often applied to the "10% highest individual income earners" I believe what you mean to refer to Merryn is that 50% of income tax is accounted for by the 10% of the population earning an individual wage in excess of £44,000.

    Due to the disparate costs of living in various parts of the UK, and to the refusal of sucessive Governments to pool household income when setting income tax levels, you can find people earning in the top 10% who are materially far poorer than many in the lower tax rate bracket.

  • 3. Ellen

    (30 November 2010, 06:11PM)  Complain about this comment

    Alex, I totally agree. Also, wealth is measured on how much a person earned or what savings they have. If it were based on who lives in big detached houses instead you might find the professional Londoner would be among the poorest in the land

  • 4. JAW

    (30 November 2010, 06:48PM)  Complain about this comment

    D H Lawrence wrote a short story titled: The Rocking Horse Winner, which should be compulsory reading for every Chancellor of the Exchequer upon taking office, and for those who advocate increased taxation.

    http://readytogoebooks.com/DHL-rock1.htm

    The 0.6% of the population who own 50% of the UK's rural land... are farmers. 60 years ago you could earn a living farming just 75 acres, today you need 300 plus. Supermarket squeezed farm prices mean you need an ever increasing acreage. This partly explains why there are fewer rural landowners.

    France has a system of taxation on land... one rate for the land your house occupies, a different lower rate for your garden, and the lowest rate for any agricultural/forest land you own. Farmers can offset the tax against profits, everyone else has to pay. It makes ownership of productive land only viable if you use it yourself. Buy-to-rent becomes uneconomic.

    The rich can emigrate to avoid tax but they can't take their land with them.

  • 5. Will Richardson

    (30 November 2010, 07:53PM)  Complain about this comment

    The reason the top pays more tax than they did is because their incomes have gone up astronomically, creaming off the productivity gains of all of us, while our incomes have been held below those gains, the top earners pay a much lower share of their income as tax.

    I agree about the land value tax though, it's makes sense to tax what is a real national resource that cannot escape by loopholes profit/debt or internet manipulation.

  • 6. CarolW

    (16 December 2010, 12:00AM)  Complain about this comment

    @Jaw

    You need to understand what land value tax is before you get het up about farmers. It is what it says on the tin - a tax on the VALUE of land. Agricultural land has very low value so farmers would actually pay very little. If you think about it, what a tenant farmer pays now to the landowner would instead be for public benefit, not Charlie Windsor or Gerald Grosvenor.

    Now consider the land value tax which Grosvenor will be paying on his half of Mayfair.

    Take a look at labourland.org and landvaluetax.org.

  • 7. CarolW

    (16 December 2010, 12:04AM)  Complain about this comment

    Oh, sorry, @Jaw. I didn't read your comment properly. Anyway glad that Merryn has picked this up. I've not seen her recommend LVT in the FT yet. Actually EdM should be listening. We told him all about the benefits of LVT when we went to see him at the Treasury and he was the chair of the economic advisors.

  • 8. ontheotherhand

    (21 February 2011, 02:49PM)  Complain about this comment

    Why is it fair to take not just more from high earners, but an increasing proportion? I think it probably is fair, but to assume that notion is true without examination seems like groupthink to me.

    Imagine if instead of income taxes, we each were given 100% of our pay and then had a personal VAT rate each time we spent money so that the high earner pays many times more in tax. A median earner sits down in a restaurant and pays a fiver, and a high earner sits on the next table and pays 200 quid for the same meal. A low bracket earner takes the family to the zoo and gets given 10 quid, and a high earner pays 435. Of course, we don't do this because it practically wouldn't work, but it does make one question the concept of 'fair'. Is it in fact the bullying nature of democracy where 'From each according to ability, to each according to need' is decided by the majority who want a free ride?

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