Breakingviews: UK needs a permanent, property-based wealth tax
(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)
The UK deputy prime minister's call for an emergency wealth tax has a whiff of political opportunism: things are tough, let's get those fat cats. Yet Nick Clegg is partly right. But a tax on the wealthy needs to be fair and predictable, not the quick grab that he advocates. Property tax is the way to do it.
Taxing the wealthy is tricky. The government reduced the top rate of income tax from 50 percent to 45 percent in the budget. George Osborne, the Chancellor, claimed on shaky evidence that the higher rate didn't raise additional revenue. Clegg's statement may be his political response. Furthermore, disappointing fiscal numbers are another spur. In the first four months of the tax year, government borrowing was 11.6 billion pounds higher than a year ago. The deficit is rising, not falling.
There is scope to raise more from the wealthy and the best way to do it is to tax their homes. Britain's wealthiest tend to live in properties, sometimes more than one, whose multi-million valuations reflect their wealth. Unfortunately the only current property tax, the council tax, is based on obsolete 1991 valuations. And the top band starts at 320,000 pounds - now the value of a small flat in some prime locations. Moreover, the rate isn't progressive enough: the top tax bill on a property stands at a paltry 2,536 pounds.
A separate mansion tax, as once suggested by Business Secretary Vince Cable, has merits because revenue from the high-end property tax would be directed towards the government's coffers, not those of local councils.
There would of course be objections. One is that some people, particularly the old, may live in large houses on meager incomes. But in such cases the tax payment could be deferred, until the property is sold.
The merit of a property tax is that it would hit significant acquired wealth and not work, and thus would seem fair in the eyes of most. And even the most creative tax dodgers might find it hard to evade. They like to live in style.
But so far the government does not seem close to a serious property tax revamp. And Clegg's comment isn't a policy.