Recent comments from Business Secretary Vince Cable have revealed that he and the Lib Dems may be willing to give up their hold on the 50p tax rate in return for an alternative form of taxing the rich. Three variations of what is being labelled a ‘Mansion Tax’ have emerged to fill the gap in revenue any potential reduction in income tax might fill.
The debate comes as, ahead of the Budget on March 21st, rumours are that Mr Osborne may be addressing the top rate of tax. Many politicians believe that such a high rate deters business investment from overseas, failing to attract those that can simply invest elsewhere and suffer much lower tax levies.
The Institute for Fiscal Studies has also listed a number of ways the wealthy can use to avoid paying the tax, suggesting that the actual revenue gained from the tax increase (Which was upped from 40 to 50% as of April 2010) could be negligible.
A reduction in the top rate in this year’s budget could therefore be replaced by a new Mansion Tax, taking the form of a national tax on more expensive properties, a land tax or a new higher band in council taxes.
The Liberal thinktank CentreForum has done extensive amounts of research on the subject, culminating in this report. They cite arguments including being able to catch foreigners who aren’t contributing much to the country, but who own property here (an increasing trend in recent years, see our article on the subject here), and taxing the asset wealth of wealthy individuals who avoid having a large income on paper by investing in property.
Nevertheless, stout resistance is forming under arguments that the tax would be extremely difficult to administer, requiring the revaluing of countless properties, and a disproportionate impact on the South East of England. Boris Johnson, Mayor of London, has been vociferous in his arguments, strongly stating that it would be harmful to Londoners.
Mr Osborne has kept the contents of this month’s budget fairly close to his chest and it looks as though stakeholders will have to wait until the 21st March to learn his thoughts on the issue.