50p tax v ‘Mansion Tax’Tuesday, March 13th, 2012
George Osborne referred to it as temporary and said that it could do lasting damage to the economy. Boris Johnson said that it was harming the City of London and last week we reported that over 500 business leaders had called for the abolition of the 50p Additional Rate in a letter to The Daily Telegraph.
Now, Business Secretary Vince Cable has stepped into the ring. In an interview on Radio 4’s Today programme, he indicated that the Liberal Democrats were not ‘ideologically wedded’ to the 50p rate and using the phrase ‘if it were to go’, indicating that it was on Mr Osborne’s agenda for his Budget on 21 March. However, Mr Cable has said that his party would support a ‘taxation of wealth’, recognising that ‘the wealthy people of the UK have to pay their share’ (of the debt). This taxation of wealth if frequently dubbed the mansion tax.
So, what is the mansion tax? There is no definition as far as we can see; however, suggestions are that it could be a hybrid-type tax. The one consensus does seem to be that it will affect owners of properties worth £2 million or more. As regards the increased tax that these owners would pay, some may be funded by a new ‘super-band’ Council Tax banding, another part by a property tax calculated at a percentage of the value of the property in excess of the £2 million threshold.
At the same time as Mr Cable was promoting this wealth tax alternative to the 50p band, Conservative MP Sir Malcolm Rifkind wrote in The Evening Standard against such a move. He claims that 81% of these mansion properties would be in London, with 40% of those in his constituency of Kensington and Chelsea, and such a tax would not take into account those who were ‘asset rich but cash poor’.
There appears to be growing tensions within the Coalition Government over taxation of higher earners. Both parties are committed to raising the tax threshold and exempting more low earnings from tax altogether. The Conservatives appear keener to drop the 50% rate than their Liberal Democrat colleagues, though a major consideration appears to be the timing of such a move. A Budget announcement seen to be helping the higher paid does not make for a good political message to be sending out to voters.
However, the fact that politicians are speaking out, like Mr Cable, could be seen as an indication that there will be an announcement, one way or another, of the future of the Additional Rate. There is one thing that does come to mind – if it was to be abolished, when would this be effective? I don’t think that we really want to see the situation we had a few years ago when we had to effect changes in the middle of May but backdated to the start of the tax year.