If Nick Clegg wants fairer taxation, he should go for effective tweaks to the system rather than pre-conference bombast
In search of wisdom I checked the flood of online posts below Nick Watt’s interview with Nick Clegg in today’s Guardian, in which the DPM and – more relevant here – Lib Dem leader suggests that Britain’s richest should pay a temporary wealth tax to help ease the country’s economic plight.
Alas, it would have been more instructive to walk around the wealthiest districts of London at night. I’ll come back to that. Online, most early posts got no further than those along the lines of “dead man walking”, “too late” and “you’re toast, mate”. It may all be true about Clegg’s prospects, though it’s still too soon to be sure. But it’s not very illuminating, is it?
We can see the merit of what Clegg is trying to say, that those with the broadest shoulders should bear the biggest tax burden and plenty of countries have wealth taxes. It might help prevent further cuts in the welfare state, which damage the social fabric as well as individual and family lives – what George Osborne has in store for us as the recovery falters, though I have always doubted he’ll be able to do it.
Will Clegg be able to do it? Politics is about practicality, about actually doing things and making them stick, not about high-blown rhetoric or posturing of which we get far too much – and always have. And he’s not alone in looking at taxation of wealth.
Tim Montgomerie, the mastermind behind the Lord Ashcroft-owned ConservativeHome website, has made himself plenty of Tory enemies (not just Ashcroft?) by backing a shift from taxes on income and wealth creation to wealth itself, notably property. Check out his constructive response to Clegg. It’s an interesting read.
Tricky stuff, eh? Montgomerie’s ideas for increasing the too-flat council tax band scale and hitting property sales harder would also help the north-south unfairness divide, he adds. The Tories need to do better in the north, but it’s not easy to see the coalition doing it. Montgomerie can be naive in a wholesome way.
But practicality goes for the chancellor as much as it does for blogger Tim or the DPM. Osborne may see himself as the hard-nosed realist, despising Clegg as a hand-wringing wet. He may be right about the personal judgment, but he’s been wrong from day one to assume that the UK economy will grow again with his austerity medicine. Not much realism about that.
And without growth the medicine won’t work. Those who say “ah, we must administer even more medicine” are engaged in bogus machismo, as dumb in their own way as panacea-merchants who say “nationalise everything” or “leave the EU and all will be well again”.
Clegg and Vince Cable are right about that too. There’s plenty that the coalition can do to rearrange public spending, making it work better for all without further depressing demand in the economy. Building infrastructure projects, houses, power stations and third runways, instead of spending the same money on unemployment benefit is only part of it. Public spending is needed to stimulate the private kind. Everyone knows that except those Tory “realists”. In their attack on Clegg today the TaxPayers’ Alliance shows how not to do it.
But how to lift flagging tax revenues and reinforce a greater “we’re all in this together” sense of fairness, which is so important to social cohesion? That’s much harder and Clegg was conspicuously vague about his proposed wealth tax in his interview, in which our Nick detected a new sense of self-confidence in the other Nick after his long coalition battering. David Cameron’s rebuff on Lords reform (with Ed Miliband’s collusion, he feels) may have put iron into Clegg’s soul.
He promises details at his party conference. Don’t hold too much breath. Those respectable UK-domiciled wealthy earners and taxpayers already pay most of the income tax collected in this country, though tax avoiders (legal) and evaders (illegal), non-domiciles and other shifty types who use our roads and are protected by our laws do not. The top tax rate has been raised (and lowered) to 45% and assorted allowances – pensions for instance – curbed. Bonus culture is under pressure. Deutsche Bank ended it only last week. Bob Diamond has gone home to New York.
So there has been progress. Amid a hail of weary abuse about “the politics of envy” (as tired slogans go “the culture of greed” still works better in 2012, I feel) and “killing of enterprise”, Clegg wants to levy a tax on wealth, not income. That’s fair enough in theory, but harder in practice. As the BBC’s Nick Robinson was quick to point out, an elderly widow living in the family home may have wealth locked up in the property, but no spare income to pay an annual wealth tax.
Such people tend to be Tory voters. Some are even Lib Dems (Labour, SNP etc too) as Cable discovered when he launched his unilateral “mansion tax” plan at the party’s conference in Bournemouth, barely a cab ride from Sandbanks, the Poole suburb with (it is claimed) the richest postcode in Britain. Cable’s target of a levy on £1m homes captured too many middling earners and rapidly became £2m before the Tories blocked it – Nick Robinson confirms the point.
Property is always said to be easier to tax because you can’t hide it in Jersey or Zurich. Alas, Osborne is only the latest chancellor to find that isn’t quite true any more. A Russian oligarch who puts his Mayfair house into the ownership of an offshore company and then sells the company to another company avoids stamp duty as the house itself has not been sold. The Treasury is trying to close such loopholes, but it’s always uphill work.
As Wikipedia’s modest summary points out, a wealth tax is levied on net assets in several countries – including Norway and, exclusively in the EU, France. Germany is among those to have recently abolished an annual levy on net worth, property as well as more liquid assets.
I’m not sure that US state and federal property taxes or UK council tax (which replaced the rates) are really wealth taxes. They are tied to property values though, albeit values which are usually well out of date, and they do deliver some of the same rough justice, taxing people who are cash-poor such as widows in the family house or flat.
As our near and comparable neighbour, France and its “solidarity tax” is the interesting case, as is François Hollande’s stance on tightening of the screw. It’s complicated, it always is, but uncomplicated is the French republican loathing of great wealth. It’s what turned voters off Nicolas Sarkozy, champion of bling and the bling crowd.
The solidarity tax (ISF) is reckoned to raise up to €4bn (£3.2bn) a year , not much but it’s supposed to make other taxpayers feel better. Or should it? Some tax buffs claim it has driven far more wealth out of France over the years – hence the joke that ISF stands for incitement de sortir de france. Is that true – or just bluff, like all those city types who keep telling the FT that they will decamp to Dublin, Singapore or Zurich but rarely do?
Here’s where finesse is required. The very rich are mobile and in many cases their loyalty is to their money. Hence my advice to tour the rich neighbourhoods of London at night. Like the Grand Canal in Venice – so glorious in sunlight – they present a sad spectacle because so few lights are on in Mayfair or Belgravia. The owners are not there. They’re somewhere else wasting their money on foolish things to keep boredom and death at bay.
Not all rich people are foolish, any more than poor people are. They know the value of family, place, community and more than pay their way via their taxes, their commitment, their charity. Think Bill Gates, think Warren Buffett. Nearer to home think the Rowntrees or the Sainsburys. So do remember that Fred “the Shred” Goodwin – that’s Mr Goodwin to you – is not the only type of banker or plutocrat out there.
So Clegg needs to refine his ideas cautiously and play down expectations that arouse the party faithful but alarm the unpatriotic rich. Small practical measures may make for feebler headlines but will divide society less and should end up producing more tax revenue – which is the prime purpose of the exercise, not phoney feel-good.
Invest more money in HMRC staff (they’ve been cutting them back) especially the special units which tackle avoidance and fraud. By all means close more tax loopholes and hammer loophole merchants harder. Do create some higher property bands for council tax, which now hits middle income families hardest and urge a revaluation of property values. That’s a form of wealth tax which most Americans, the sane ones, accept.
Don’t give in to the temptation of easy conference applause, Nick, and demand that Dave and George raise the top income tax rate to 50% again. You voted for the cut to 45% with a bad conscience under duress, but vote you did. We don’t want to drive away the rich, because we need their taxes. We do, however, want to make their role less central to the way we conduct our society.
If you really do want to make the tax system fairer so that those who won’t miss it pay more, go for small but effective changes, enforced with greater determination. If all you want to do is get through a difficult party conference season, bellow away to your heart’s content. But voters nowadays believe what you do, not what you merely say.