Taxing the wealthy
by John Humphrys in Commentary and Editor's picks
Wed August 29, 4:13 p.m. BST
Could Clegg's tax proposal be the answer to Britain’s economic woes, asks John Humphrys
Anyone coming back from their holidays hoping that the British economy would have transformed itself in their absence will have returned to a big disappointment. The economy is just as much stuck in the doldrums as it was in the early summer and there are no immediate prospects – indeed, some would say no medium-term ones either – of things getting any better. What’s to be done? Nick Clegg thinks he may have the answer.
On the eve of a month of party conferences, the Liberal Democrat leader and deputy prime minister has got his idea in first. He says we are in a long economic war and that the burden has to be shared more fairly than it has been up to now. He wants people of ‘very considerable wealth’ to be taxed more.
In an interview with The Guardian newspaper he said: “What we are embarked on is in some senses a longer economic war rather than a short economic battle.”
He added: "If we are going to ask people for more sacrifices over a longer period of time, a longer period of belt-tightening as a country, then we just have to make sure that people see it is being done as fairly and as progressively as possible…If we want to remain cohesive and prosperous as a society, people of very considerable wealth have got to make a bit of an extra contribution…Is there a time-limited contribution you can ask from people of considerable wealth so they feel they are making a contribution to the national effort?"
His deputy, Simon Hughes, pointed out that Britain was becoming a less and less fair society and that there was greater wealth inequality now than at any time since the 1920s. As well as being wrong in itself, this greater inequality "impedes growth", he claimed.
The Liberal Democrats are anxious to distinguish between wealth and income.
Mr Clegg is not advocating a higher rate of income tax: indeed, he agreed to a cut in the top rate of income tax from 50% to 45% in the last budget.
What he has in his sights is greater taxation of people’s assets (rather than what they earn every year). For a long time it has been Lib Dem policy to introduce a mansion tax, which would impose an annual levy on the value of houses worth more than £2 million. But even though this is not yet government policy (and may well not become so), the Lib Dems are starting to look beyond this specific measure at others. Mr Hughes spoke of perhaps imposing a half percent tax on other assets, such as the value of pension funds or other investments.
But for such ideas to become government policy, Mr Clegg’s Coalition partners in the Conservative Party would first have be convinced and it is far from obvious that they will be so.
In response to the Deputy Prime Minister’s ideas, George Osborne, the Tory Chancellor of the Exchequer, said he was in favour of taxing the wealthy, which is why he had increased the tax on very expensive property transactions in his last budget. But he added: "We also have to be careful as a country we don’t drive away the wealth creators and the businessmen that are going to lead our economic recovery."
Whatever the theoretical merits (or otherwise) of wealth taxes, there are practical issues which make their introduction very difficult.
Experience both in Britain and in other countries has shown that it is hard to target assets in a way that is likely to raise much revenue. Very rich people are adept at moving their assets precisely in order to minimise their tax liabilities. And although some assets (like very expensive houses) can’t physically be moved, their owners can sell them and move abroad if they want to. The amount of money that could be raised from the value of houses in which people continued to live is thought to be pretty small unless the threshold is pitched at so low a level that it would in any case cause a political outcry.
Some critics of what Mr Clegg had to say will object that it is next to absurd to suggest that any form of wealth tax that stands a chance of being implemented would have anything more than a negligible effect on economic growth (and that that might even be negative). If he wants to see faster growth in the economy, they will argue, then he should do something, for example, about the stalemate over Britain’s airport policy which saw the Government yet again this week rule out a third runway at Heathrow without suggesting the alternative that many commentators think is essential.
Some of his critics will suspect that his purpose in floating the idea of taxing the wealthy more has much less to do with promoting economic growth and much more to do with his forthcoming party conference and the need to make noises about greater equality that go down well with his party members. It will do him no harm there, they will point out, to be seen making suggestions that are unpalatable to the Conservatives.
So is Mr Clegg’s idea just a political ploy to get the party conference season going, or is it a legitimate contribution to the debate about how Britain should fight the economic war he says we are in?
What’s your view?
- Do you think taxing the wealthy more is a good idea or not?
- If you think it is, do you think it should be for a time-limited period (as Mr Clegg advocates) or in perpetuity?
- What’s your view of the mansion tax?
- What other sort of wealth tax (if any) would you support?
- Irrespective of your own support or otherwise for wealth taxes, do you think they would promote economic growth or do you think they can be justified only on grounds of fairness?
- Do you think Mr Clegg is proposing this genuinely as a contribution to economic debate or simply as a political ploy to please his supporters?
- And do you think he’ll be able to persuade his Tory Coalition partners?