Thursday, 14 February 2013

Thoughts on 10p tax rate (I like) and mansion taxes (I don't)...

Okay, so Labour's announcement regarding some actual policies that I posted about earlier has made me want to analyse the actual policies, irrespective of party involvement (given half of the announcement was stealing a Lib Dem policy that I'm not overly sold on).  Anyway, here are my comments about each:

10p Tax Rate

The potential reintroduction of this depends on what your objectives are for a tax system.  If you are looking for a simple system that as many people as possible can understand then adding another band makes for added complications.  If you are looking to make it as progressive as possible then adding a lower band above the level of the personal allowance makes the system more progressive.

In a mutually exclusive case, increasing the personal allowance or introducing a new lower tax band, the former benefits lower earners more than the latter.  However, if you do both at the same time or if they are just being compared to sticking with the status quo then each change would be progressive.  This is one criticism that is being thrown at it, that it doesn't benefit people as much as a personal allowance increase would, however my personal opinion is that it doesn't go far enough.  My ideal tax system would have 10p, 20p, 30p, 40p and 50p rates.  

The thing with tax simplification is that tax bands don't really add too much additional complications, especially when most people are earning through the PAYE system.  The complications come in with all of the exemptions and special cases - it is there that governments should be looking to simplify the system, not with the rates.  In addition, they should scrap the other confusing complication - National Insurance contributions, rolling them into the income tax rates.  It is crazy that the basic rate "20%" tax payer effectively pays 32% tax whilst the higher rate "40%" tax payer effectively pays 42%, the money just goes into the same pot anyway.  I know not everyone or every transaction that is taxed includes NIC's, however this could be adjusted.  

The key of course is to make sure that nobody is paying more tax than they can afford to pay, whilst those who earn the most contribute the most.  

It was Gordon Brown who, in 2007, scrapped the 10p tax to help pay for the reduction in the basic rate from 22p to 20p per pound from April 2008.  This was regressive at the time and rightly he faced a backlash, however he corrected it in September 2008 for the 2008/09 tax year meaning that nobody actually lost out from this change.   This change did therefore simplify the system, but as discussed it probably wasn't the area that needed simplifying.  If this comes in, as long as it's not at the expense of increasing the personal allowance, then I'll be for it, if it doesn't correspond with a raise in the personal allowance as suggested by the Lib Dems, well it's a poorer alternative.

Mansion Tax

I've said a few times now that I'm yet to be convinced about a mansion tax.  I can see the potential desirability of a wealth tax, there is even worse equality with wealth than income in the country and it is desirable to strive for less inequality but I am not sure that this is a one size fits all, or even a good solution.  I have reasons...

Firstly, there is the practical aspect, how often will properties be reassessed?  The current Council Tax bandings are totally out of date where as this will be much more specific than that so much harder to keep up to date (Council Tax doesn't claim to be an exact science, this is an exact calculation).  Granted the complexity of implementation shouldn't be the major consideration but it should be taken into account.  Prices fluctuate, and you know any assessment will be open to debate and appeal - which will probably be lost.  Also, if a house is worth £2.1m without the tax, simply adding a tax to it will reduce it's value.  Also, every single house in the country will need to be revalued and this will have to happen regularly!

Secondly, and for me more importantly, houses are very illiquid assets.  There are many people who buy a house and expect to live it all of their lives.  Now I know we are talking about really high value houses so one assumes that the owners were well off enough to buy it, but that doesn't mean that they'll necessarily have the disposable cash/income to cover an increase in their annual tax bill just because their house's value has risen in such a way.  I've heard a lot of comments saying that if they don't have the cash then they could downsize, but how is that fair?  Forcing someone to leave the home that they purchased is hardly what I'd call a fairer tax.

I think the main reason I struggle with it is that it is effectively a double tax.  Basically any tax such as this is saying, we don't think we taxed you enough when you earned your money, so we are coming back for another crack at it.  I also don't like the way that the discussion is framed, it always seems to imply that those who live in expensive houses don't deserve to be there, they lucked into it and didn't work hard to get there. 

My final criticism is though that it only looks at one asset a person (or persons) owns.  If you want to target the wealthiest in society how does this help?  A rich person could own 10 houses all worth around £1.9million each and avoid the tax all together, where as if this was all tied up on one £19m property they'd be paying an annual tax of £170,000.  I feel that it penalises a person for a particular lifestyle choice/the way that they chose to use money that they had previously had left over from their income after already paying tax, for me the discussion in favour of this always seems to sound like it stems from jealousy.

I am fully aware that I am in the minority of my party (and probably now the Labour party) here when I say this, but the arguments for it just haven't sold me - after all, personally I'd replace council tax with a small local income tax and multiple property taxes, maybe in time though I'll come round to the idea.

So Labour finally have a policy...

I had a laugh to myself yesterday when on my Twitter feed someone had sent a tweet that mentioned that Ed Miliband has a "policy chief" - surely this must have been the easiest job in the world for the past 2 years?  (Incidentally, on further investigation the tweet was referring to Jon Cruddas, an MP, so one would assume he had other responsibilities). Yet amazingly today, Labour have announced a policy! Huzzah!  Now after all of this time to think I'm sure it's a very unique and revolutionary policy, so what is it?  Ah yes - fairer taxes... 

Well, I guess we should be happy that they too believe in Fair taxes, maybe they have a different definition of fair, or come up with a new system that they feel is fairer, lets analyse.  From the announcement this is in two parts:

1. A Mansion Tax

Now this sounds new, it's not like it's been in the news recently: here (August 2012)here (September 2012), here (November 2012), and here (February 2013).  It's not like this is a commonly acknowledge policy of another major party - that was even in a manifesto 3 years ago.
Page 14 Lib Dem Manifesto 2010.
Now personally, I'm not sold on 'Mansion taxes' (that's for another post some other time however), it would depend on how and when they are paid, but at least Labour are suggesting something unique [/sarcasm].

2. Introduction of 10p Tax Rate

Now I admit, it takes a big man to say he was wrong, at least Ed is just had to say the last guy was wrong, well, and himself as after Labour scrapped the 10p tax rate in 2008 to introduce a flat 20p tax he said:

This is a unique policy but is it necessarily the fairest option on the table?  Contrast this with the Liberal Democrats policy of increasing the Personal Allowance so that nobody on a standard set of hours on minimum wage would pay a penny in Income Tax you get two sets of results, both of which result in the lowest earners paying less tax.  

The comparison is hard to make as they haven't specified the end limit to the tax band (as it would depend on how much the mansion tax would raise) but what is clear is that those who earn between the current personal allowance threshold and the Liberal Democrat proposed threshold would be worse off as they would be paying an additional 10p per pound tax on their income earned in this band.

It's good to see Labour are finally getting some policies together, at least this way it can be pointed out that they offer no real new ideas of substance to contrast with their own politically motivated attacks on every single measure the coalition proposes.  As long as they can come up with a catchy label for it they will attack it (for instance "Bedroom Tax" sounds a lot worse than "Reduction in benefits that are deemed excessive to the persons needs").  

So yes, anyway, if you fancy supporting fairer taxes you can always sign up here, as you've been able to since the Liberal Democrats launched the site 3 months ago... a cynic would say that perhaps they only thought of the ideas after the Liberal Democrat's action day regarding this on Saturday.

-- Edit --

I've just seen the Lib Dem Voice article on the subject which has the nice graph to illustrate point 2:

Tuesday, 5 February 2013

Brace yourself, I'm going to praise a Labour legacy...

I don't do this often, I'm going to praise a Labour legacy...

Today, there is going to be an historic vote in the House of Commons, which I'm certain will lead to an end to discrimination in marriage laws on the grounds of sexuality.  I am more than confident that this will pass and which will be a great achievement for equality campaigners everywhere. 

I've blogged previously about how ridiculous I think that there's even a debate about it.  It's worth remembering that same sex couples basically have the same legal rights under civil partnerships as they will under full marriage so why is there all the fuss about them being able to say that they are the same as everyone else?  For most of the opponents it's just one of those cases (which happens a lot more than you'd think, you do it, everyone does it), just because they don't see it as a problem, they don't realise how other people are negatively effected by it.  The best analogy I've read for this is the guy leaving the toilet seat up - he's perfectly happy with it like that so why isn't everyone else (thank you - who said comedy websites can't add to serious debate).  They don't realise that they were the ones with power and that they are suppressing the rights of other people.

Opponents often state that marriage is about raising a family, children, fostering the next generation etc, but then why have I never heard the word "children" mentioned in the vows I've heard in any of the ceremonies I've been to?  Also what if the hetro couple can't have/don't want children?  Tell you what I do remember hearing a lot about, love. I genuinely feel sorry for people who think that their own marriage will be less special because a gay couple have also been able to call their union a marriage, straight marriage will still be special as will same sex marriage - they will be equally special!  The continuing separation of different forms of union helps fuel discrimination, still indicating that gay, lesbian, bisexual, transgender people are somehow still not the same.  Breaking down this separation will help reinforce the great progression that has been achieved.

Anyway, as I do so often I've digressed. I wanted to praise Labour.  They obviously could have introduced this in their 13 years in Government, which would have been nice, they didn't go this far but they did help frame the debate.  If it wasn't for the changes that they did make: 

  • Abolished Section 28, 
  • Made the age of consent 16 - equalising it with heterosexual sex,
  • Repealed the ban on homosexuals serving in the military, 
  • Outlawed discrimination in the workplace and in the provision of goods and services, 
  • Made it possible for people in same sex relationships to adopt,
  • The creation of civil partnerships,
then I don't think we'd be having this vote now, and so confident of it passing (if it doesn't I'll look foolish!) This is one area where they were liberal, and helped to stop discrimination which is allowing us to push for full equality - sometimes you need to take baby steps to reach your destination rather than risk a huge jump only to fall short of the ultimate aim.  I think Labour did a lot wrong in their 13 years, but in all of those aspects I think they can be proud.