UK: Lib Dems will propose French-style tax on wealthy people's assets
30 August 2012
Posted by: SAIT Technical
By Nicholas Watt (The Guardian)
A 0.5% tax on the assets of the wealthy, modelled on the French system, and an "accessions tax" on the beneficiaries of estates will be considered by Liberal Democrats at their annual conference next month after the party leader, Nick Clegg, proposed a new levy on the rich.
As George Osborne raised concerns that a wealth tax might prompt rich entrepreneurs to flee Britain, the Lib Dems were finalising plans for a series of taxes to be debated at their conference next month.
The renewed focus came after Clegg alarmed his coalition partners by using a Guardian interview to call for fairness to be "hard-wired" into the government's deficit reduction plan through a wealth tax. The deputy prime minister said it was right there should be a "time-limited contribution" from the richest in society as Osborne draws up plans for an extra £10bn in welfare cuts by 2016.
Lib Dems are bullish about their chances of securing some form of wealth tax because they will link this to the welfare cuts. Clegg said in his interview: "Welfare reform does have a continuing role. But that has to be done in a way which starts at the top rather than starts at the bottom." The chancellor responded by saying he accepted that the rich should shoulder the burden as Britain copes with the worst downturn in more than half a century.
"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," he said on a visit to Sunderland. "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."
Treasury sources said the budget in March led to net tax increases for the rich. Cutting the top rate of income tax from 50p to 45p cost around £100m but other measures to tax the rich, such as raising the stamp duty on multimillion pound properties and capping relief, would raise £500m to £600m. Osborne says that the greatest contribution to his fiscal consolidation comes from the top 1%, even measured as a share of their income.
"We will see what Nick Clegg means," one senior Tory said. "This looks like positioning and kite flying."
The Lib Dems will examine a series of proposals for wealth taxes when they debate inequalities on the penultimate day of their Brighton conference. The conference will consider plans to:
• Introduce a 0.5% tax on the assets of the rich. The party's policy document for the conference – Tackling Inequality at its Roots – says: "We welcome philanthropy and entrepreneurial activity that creates jobs, but we also expect the wealthy to pay their far share of tax. France and some American states have demonstrated that this is feasible by levying net asset taxes of up to 0.5% per annum."
• Replace inheritance tax with an "accessions tax" on beneficiaries of estates. A section on wealth taxes in a party consultation paper talks of "an accessions tax, where the tax liability would fall on the person receiving the income rather than the estate of the deceased. This would simplify the settling of the estate, making inheritance income more like employment and investment income."
Lord Oakeshott, the former Lib Dem Treasury spokesman, will also lead a push to revive interest in the party's "mansion tax" on properties worth more than £2m. Osborne is understood to have considered introducing this in the budget in exchange for cutting the top rate of tax to 40p. David Cameron vetoed the tax, prompting the Lib Dems to insist that the top rate of income tax could go no lower than 45p. Oakeshott is pressing for the motion for the debate on inequality, which calls for "increasing taxes on unearned income and wealth", to be amended. He wants to add that this process would start "with an annual 'mansion tax' on the excess value of residential properties over £2m as a first step towards wealth taxation designed to reduce inequality. This is the one tax foreigners, non-doms and wealthy Britons cannot avoid."
The Lib Dem peer was furious with Clegg for agreeing to abandon the mansion tax in the budget negotiations in favour of what he regarded as an ill-defined "tycoon tax". Oakeshott pinched the prime minister's favourite phrase as he said: "This regular annual wealth tax the rich can't dodge is essential as well as any emergency one-off to prove we are all in it together." Clegg said the mansion tax remained party policy. His new wealth tax would be in addition to "our standing policy on things like the mansion tax".
Bernard Jenkin, a senior Tory MP who dismissed Clegg's proposal as a pre-party conference "easy clap line" inspired by the "politics of envy", dismissed the Lib Dem idea of copying the French tax on assets. In a Guardian article, he writes: "In France, it is estimated only 20,000 out of 20m households pay their wealth tax, yielding only 0.04% of total wealth in France: as ineffective for revenue raising as for redistribution. The evidence is that wealth taxes also deter entrepreneurs."