Tax and Charity.

I'm not sure sure that I support the backlash against George Osborne's proposals to cap the amount an individual can give tax free to charity at £50 000 or 25% of income. "Charity" in the UK covers a very wide range and includes public (ie private fee-paying) schools, including Eton et al, posh opera at Glyndebourne, as well as the Oxfam, Save the Children and other more obviously worthy causes (although, incidentally, Oxfam's campaigning arm is not regarded as being charitable.)

It is a government's duty to spend money on what economists call public (eg street lighting, defence, public order) and merit (eg health and education) goods and services and the political process is designed to apportion the money according to the will of the people. Ideally politicians should take a long term and dispassionate view in determining the distribution of tax income, since some of these goods and services (sewage systems, offender rehabilitation) do not necessarily have much immediate popular appeal.

To allow the very rich to opt out of the public weal with very large proportions of their incomes in order to finance their own pet projects is not necessarily in the wider public interest. Many of us who are not rich would like to have more choice, such as not spending money on Trident or its replacement, but we have to abide by "the will of the people" however imperfectly it may be expressed. To allow the rich to have free range on 25% of their incomes, but require them to spend the taxed part of the other 75% as the political process determines, seems about right.

Of course there would be less painful opportunity cost in financing the less popular public projects if the rich paid all the tax to which they are liable.

VAT: worry about histroic buildings, not pasties.

There has been much publicity regarding George Osborne's decision in the budget to charge VAT on warm Cornish pasties, and I've enjoyed David Cameron's thwarted attempt to prove he is a "man of the people" and once ate one in Leeds. However, this furore is just a populist storm in a teacup (yes, I know, there ought to be a better metaphor, but I can't think of one): merely an attempt to introduce fairness by taxing hot pastries in the same way as fish and chips.

What is far more serious in the long run, and will even have consequences when we're all dead, is the decision to apply VAT on repairs and renovations to listed buildings. Historic churches will be among those affected. The Cathedral of our diocese, Wakefield, has just embarked on a major renovation project assuming that it would be VAT free. Osborne's proposal will, if implemented, add £200 000 to the expected costs, which the Church simply hasn't, at the moment, got. I'm sure donations will be welcomed.

More to the point there is apparently an opportunity for discussion, so please send your views to http://epetitions.direct.gov.uk/petitions/32056. (Sorry, can't get the link thing to work.)

In France, which has the highest number of tourist visitors in Europe, the government actually contributes towards the cost of maintaining its historic buildings. It is daft that we propose to do the opposite. You'd think that a party called Conservative would actually want to conserve our heritage, even if only for its commercial potential for attracting tourists.

50% tax rate or mansion tax?

It would be nice to both have our cake and eat it, but alas that is rarely possible, and almost impossible, I suspect, in a political coalition. So I suppose we must swallow our frustration when Liberal Democrat leaders declare that the we are not ideological committed to the 50% tax rate (what's happened to the fairness agenda and all being in it together?) and accept its abolition in return a mansion tax. Indeed, there is a sense in which a shift away from taxes on income and towards taxes on assets, especially unearned ones, and including land and property and wealth, is to be welcomed

The main problem, if such a bargain is reached, will be to make sure that the Tories don't abolish the 50% rate now and then somehow wriggle out of the mansion tax at a later date. We've been out-manoeuvred in the past: let's hope our negotiators are moving up the learning curve.

When I asked Vince Cable, at the Liberal Democrat Birmingham Conference last September, why he advocated a new mansion tax rather than extra bands to the already existing and therefore more acceptable, though flawed, council tax, he dismissed the idea. It was therefore gratifying to hear him on the Today programme this morning concede that extra council tax bands are an alternative worth considering. Pity neither he nor his department bothered to answer my letter on this topic of last September (see post of 3rd October, http://keynesianliberal.blogspot.com/2011/10/mansion-tax-or-mor-council-tax-bands.html,)in spite of the Department's promise to do so within 15 days.

Mansion Tax or more Council Tax bands?

The following letter is self-explanatory:

27th September, 2011.
The Rt Hon Vince Cable M.P.

Dear Vince Cable,

I believe you were too dismissive of my suggestion, put to you at the Guardian debate last week, that, instead of a Mansion Tax, we should simply slap a few more Council Tax bands on top of the existing ones, which in England presently stop at Band H (over £320 000.)

My argument is that your proposal of a tax on “mansions” worth over £2million (though I preferred your original proposal of over £1m, from which our party cravenly back-tracked) is politically unpopular because it is both a new tax, and appears vindictive in singling out the very rich indeed whilst letting those almost very rich indeed off the hook.

The advantages of extending the Council Tax bands are that:

1. It is merely an extension of an existing tax, and
2. It would apply progressively to the very large number of houses valued at between £320 000 and £2m (and why stop at £2m?)

Your objection, given at the debate, that the largest part of such an extension would accrue to a handful of wealthy London boroughs is invalid, in that there are plenty of houses worth more than £320 000 outside London – there are even some here in Kirklees. The excesses of revenue received by more wealthy areas could be re-distributed to poorer areas by an equalisation scheme.

The only valid objection I can see to this proposal is that, ideally, it would involve a re-valuation of all properties, from which, because it was misrepresented as a precursor to increased council taxes, the Labour government shied away. However, we are the party of honest politics, so should get on with it. If we too , choose to duck this issue, then it should not be beyond the wit of your civil servants to impute a 1992 value to all properties worth above £320 000 at 1992 prices.

Of course, as good Liberals we should see this as a temporary measure pending the long overdue introduction of site value taxation on all land. This will probably require a government in which we Liberal Democrats are the main party, so may be some time off.

Yours sincerely,



Vince Cable's department promises a reply within fifteen days. Watch this space.