Chancellor responds coolly to Nick Clegg’s proposal to impose a time-limited emergency tax on Britain’s wealthiest
George Osborne has responded coolly to a plan from Nick Clegg to impose an emergency levy upon Britain’s wealthiest, warning it would endanger economic recovery.
As a prominent Tory backbencher dismissed the deputy prime minister’s proposal that the rich should face a time-limited tax to avoid a breakdown in social cohesion as a pre-party conference “easy clap line”, the chancellor said the wealthy already paid more tax and the country should be wary of driving away wealth creators.
During a visit to Sunderland, where he announced an extension to the north-east enterprise zone, Osborne said: “I am clear that the wealthy should pay more, which is why in the recent budget I increased the tax on very expensive property transactions. But we also have to be careful as a country we don’t drive away the wealth creators and the businesses that are going to lead our economic recovery.”
In a sign of increasing tensions between Conservative and Liberal Democrat coalition partners, Bernard Jenkin, the chair of the Commons public administration committee, said: “If the politics of envy made a country rich, we’d be very rich … Most rich people are contributing far more in tax than other people.”
Speaking on BBC Radio 4’s Today programme, Jenkin added: “I know this isn’t a very fashionable view, but if you go on raising taxes on rich people – and that’s why we had to cut and why Nick Clegg agreed to cut the top rate of tax from 50p to 45p – you drive wealth abroad.”
“We’ve seen a lot of hedge funds moving abroad because of the tax system in this country. We’ve got to be very careful we don’t strangle the goose that lays the golden egg.”
In an exclusive interview, the deputy prime minister told the Guardian he was embarking on a campaign to persuade his Tory coalition partners of the need to ensure the rich shoulder a greater burden of the economic pain.
“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,” Clegg said.
“While I am proud of some of the things we have done as a government, I actually think we need to really hardwire fairness into what we do in the next phases of fiscal restraint. If we don’t do that, I don’t think the process will be either socially or politically sustainable or acceptable.”
Labour also dismissed Clegg’s idea. Chris Leslie MP, the shadow Treasury minister, said: “Nick Clegg is once again taking the British people for fools. He talks about a tax on the wealthiest, but he voted for the tax cut for millionaires in George Osborne’s budget.
“And he has supported a failing economic plan which has pushed Britain into a double-dip recession and is leading to borrowing going up by a quarter so far this year.”
The shadow business secretary, Chuka Umunna, echoed the sentiment, tweeting: “Clegg thinks by calling for a mansion tax, people will forget he gave a tax cut of over £40K to many thousands of millionaires. Well we won’t.”
Speaking in defence of the proposals, the Lib Dem Treasury spokesperson in the Lords, Baroness Kramer, said there was “a long-standing Liberal Democrat commitment to trying to shift away from income taxes” and moving towards wealth taxes, which she said were more effective in terms of collecting money.
Kramer admitted, however, that she had not been briefed on the proposals beforehand. Speaking on the Today programme, she said: “It’s going to be very interesting to hear the details.”
She said her party had got rid of the 50p tax because it was not effective. “At the upper end, income tax probably doesn’t work effectively and therefore looking at a wealth tax is a very interesting way to go,” she said.
Asked whether very wealthy and mobile people would just take their money away, she said: “You have to be part of the society in which you live.
“You can’t give a free a ride to people. I don’t think anyone ought to stand up anywhere in politics and say there is a group that are so wealthy that they should be given a free ride and should be excluded from having to carry the kind of burdens that other people have, particularly in a time of austerity like this.
“If we’re going to be a coherent society, and that is absolutely fundamental to our success and our prosperity, everyone has to carry a share of it.”
Clegg’s tax proposal, which calls for a “time-limited contribution” from the richest in society beyond the party’s current policy for a mansion tax on properties worth more than £2m, came in an interview following his return to Britain after a two-week family holiday in Spain.
“What people once thought might have been a short sharp economic battle, a short sharp recession, is clearly turning into a longer-term process of economic recovery and fiscal restraint. That begs big questions,” he said.
Clegg expressed fears for the cohesion of Britain unless the rich did more to help tackle the deficit.
“If we want to remain cohesive and prosperous as a society, people of very considerable personal wealth have got to make a bit of an extra contribution,” Clegg said. “In addition to our standing policy on things like the mansion tax, is there a time-limited contribution you can ask in some way or another from people of considerable wealth so they feel they are making a contribution to the national effort? What we are embarked on is in some senses a longer economic war rather than a short economic battle.”
Clegg indicated that the new tax would fall on wealth, rather than income, because there were no plans to change the new 45p top rate of income tax. “The action is making sure that very high asset wealth is reflected in the tax system in the way that it isn’t now, making sure that we continue to crack down very hard on tax avoidance, making sure that tax breaks don’t go disproportionately to people at the very top,” he said.
Clegg will outline specific proposals for a wealth tax at the party’s conference in September. His call for higher taxes on the rich shows that he will embark on a more aggressive strategy of differentiation from the Tories. “This is the time when we can start spreading our wings more,” he said.