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Taxing times for true Tories

March 5, 2012

Popular capitalism reborn? Conservatives instinctively believe in lower taxes. We believe that individuals are better able to judge where their money should be spent than the State. We support choice and economic freedom.

It came as something of a disappointment, therefore, last week to read virtually daily pre-Budget stories concerning proposals to raise taxes. Indeed this has been made worse still by recent careful coalition choreography from Downing Street allowing the Liberal Democrats to showcase themselves as promoters of tax cuts for the less well-off.

As it happens, I am not convinced that a programme of personal tax cuts at the forthcoming Budget would produce the boost to demand and growth the UK economy do desperately needs. More likely any reductions in income tax would simply be saved, necessitating further borrowing for so long as the coalition remains unable to execute significant reductions in public expenditure (despite the incessant austerity rhetoric).

First came the decision by the Treasury to rush through retrospective legislation (invariably an unwise move) to capture tax from Barclays Bank, which had designed a scheme to reduce its tax liabilities by £500million per year. These days, global banks have little vocal political capital to call upon; nevertheless I was disquieted by the Treasury’s precipitate actions. True, all large banks had agreed a detailed memorandum with the Treasury after the financial crisis began to avoid ‘unfair tax practices’. However, the scheme in question had been expressly approved in upfront discussions with HMRC. This sets a worrying precedent that will cause concern to corporations as well as banks about the previously rock solid, commercially certain reputation that the UK has diligently built up over centuries of international trade and commerce. Our nation has every reason to be proud of its central role as a bastion of commercial robustness – standing in stark contrast to the arbitrary legal decision-making of many other jurisdictions.

If the Budget is to introduce a general power of anti-avoidance in tax affairs (which I regard as undesirable and probably unworkable) it must do so together with a commitment to pre-clearance. In short it must enable individuals and companies to agree in advance with the tax authorities whether its proposed scheme falls foul of an all embracing anti-avoidance measure. Anything less will drive business away from these shores.

The other big tax story of the week surrounds the desire – initially led by our coalition partners – to impose higher property levies. In principle there is something in this – in a globally mobile world it will become increasingly difficult to raise tax income and sales, so fixed assets such as real estate are likely to attract higher levels of tax. Indeed I strongly approve of George Osborne’s plans to close loopholes that allow very wealthy foreigners from buying property free of stamp duty – although again I suspect it may prove easier said than done and will probably raise rather less in revenue than is hoped.

Where I part company with some in the coalition is over proposals for a mansion tax or increasing the number of council tax bands beyond its current total of eight. At various times Business Secretary Vince Cable has promoted an annual ‘mansion’ tax to apply for all properties valued at over £1m, £1.5m and now £2m. Amongst other difficulties that such a policy contains is the fact that many of those who live in properties of such value (a considerable proportion of whom are my constituents) are asset rich but income poor. Indeed for many their main – or only – asset is the property in which they live. An annual charge of 1% (i.e. minimum of £20 000) would be ruinously expensive for many of these so-called ‘super rich’.

Likewise the imposition of further council tax bands would run counter to the very idea of the council tax, a part personal and part property charge. It would also largely fall upon people in London and the South East, who already make a disproportionate contribution to the national tax take whilst living in cramped conditions, incurring expensive commuting costs and generally a lesser quality of life than those living in other regions of the UK. As David Cameron has often said, we need to look to General Well Being rather than simply financial assets.

Central Londoners already more than pay their way supporting other parts of the UK – I reckon it would be inequitable for us to face higher council tax bills targeted directly at those needing to live and work in the Capital and its surrounding area.