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March 4, 2012 9:17 pm
Is the party of capital about to embrace taxes on wealth? Nick Boles, one of the sparkier of the new intake of Conservative MPs, has championed a land tax. Mr Boles is a loyalist to prime minister David Cameron but his adventurousness is shared by a Tory euro-rebel of the same parliamentary vintage: Mark Reckless. He has said his party “should not rule out a ‘mansion tax’ or similar proposal”. George Osborne, the chancellor, is reported to be studying a new council tax band for high-end properties – which, unlike a mansion tax, would not require a new bureaucracy. What is going on?
Conservative romantics would argue that their party and wealth taxes are not strangers. For example, Iain Macleod pondered a wealth tax before the 1966 election – but Edward Heath’s shadow cabinet rejected the proposal, and that it did so is a reminder of how resistant Tories are to such schemes. Indeed, the present support for wealth and property taxes is less idealistic than practical. Conservative MPs are desperate for what David Davis has called “shock and awe” tax cuts – cuts to national insurance and corporation tax and the 50p rate – to refire growth.
But the chancellor does not believe in supply-side tax cuts (at least, not when keeping interest rates low is his strategy’s cornerstone), and there is a limit to the speed at which public spending can be reduced. That leaves swapping tax rises for tax cuts, as Margaret Thatcher did by cutting income tax but doubling value added tax after she was first elected in 1979. Such a gambit might also allow more lower earners to be taken out of tax altogether, which would allow Nick Clegg, deputy prime minister, to proclaim a Liberal Democrat policy success.
So what is stopping Mr Osborne from striking a grand tax bargain – swapping a cut in the 50p rate and a rise in thresholds, say, for new council bands, to blue and yellow applause alike? Perhaps nothing, but the problem with this scheme is that if there are to be shock and awe tax cuts, it follows that there must be shock and awe tax rises too. Eric Pickles, communities secretary, has made no secret of his distaste for new property taxes, warning that “a mansion tax on high-value homes could hit many ordinary middle-class families because of high property prices in some areas”.
He will have been thinking of London in particular – one of the crucial battlegrounds at the next election and where his party performed poorly in 2010. His department is concerned that either a mansion tax or new council tax bands would mean a revaluation, which the coalition has pledged not to introduce. Such a move would also raise awkward questions about timing. Labour’s 2005 revaluation in Wales took three years from the introduction of legislation to issuing of bills. No prizes for working out what major electoral event is due to take place in three years’ time.
The tax grand bargain is also vulnerable at the other end. Downing Street was fearful last week of voters’ imagination being gripped by the toffish image of an Old Etonian prime minister astride an elderly police horse. Imagine, then, the alarm with which it views the possible consequences of scrapping the 50p rate – which Labour would try to present as the ultimate refutation of Mr Osborne’s claim that “we’re all in this together”. Fortunately for him, he is likely to have an escape route from scrapping the rate outright: the Revenue & Customs review of the rate’s effects. It would be surprising if this found the rate’s effects damaging enough to recommend abolition.
The chancellor is political operator first and economic theorist very much second. Lib Dem conspiracy theorists have claimed to detect his hand in last week’s campaign against the 50p rate. He may indeed have been holding his finger to the wind at one remove. But a big wealth tax initiative would be risky with the mass of Conservative MPs, whose silence to date on the subject is eloquent. Mr Osborne may fiddle with stamp duty avoidance by the rich here or UK non-resident exemptions from capital gains tax there. He may even find room for some raising of tax thresholds, which would please the Lib Dems. But he will ultimately be mindful of his own party, which is no less suspicious of slapping taxes on wealth and property than in the days of Heath.
The writer is a former Conservative MP and executive editor of Conservative Home
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