Tax wrangles will go to the wire

The government is divided over how to reform Britain's tax system. Are we unfairly taxing work and endeavour when we ought to be raising more money on property? Emily Hohler reports.

Budget negotiations are "entering their final phase", and the main disagreements are not between the Conservatives and the Liberal Democrats, but within the Tory party itself, says Rachel Sylvester in The Times.

Discussion centres around whether extra taxes should be levied on income or wealth, dividing the party into two camps: The Economist magazine Tories, who see property as an asset (George Osborne), and the Country Life Conservatives who feel "an Englishman's home is his castle" (David Cameron).

At present, 44% of taxes come from income, 20% from business, 33% from consumption and 5% from land and property. Since taxes on labour are a "levy on endeavour and merit, whereas some part of accumulated wealth, in the words of John Stuart Mill, falls into our mouths while we sleep'", a mansion tax makes sense, says The Times.

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Some people have lived in properties for decades and earn little, but they could pay the bill out of their estate. The top 1% of taxpayers already contribute 28% of income tax and the 50p rate makes Britain a less attractive place to do business.

The 50p rate "repels entrepreneurs and raises no money", which is why Gordon Brown waited until the final six weeks of his 13 years in Downing Street to implement it, says Fraser Nelson in The Daily Telegraph. He set a "bomb" under the public finances and bet the Tories hadn't "the nerve to defuse it". Britain's top rate of tax is the fourth highest on the planet.

Haven't we learned our lesson? When Nigel Lawson cut the rate from 60% to 40% in 1989, Britain became a "magnet for the world's entrepreneurs" and the "tax share collected from the top 1% soared". A Treasury report into the 50p rate's effects is underway, but figures suggest it's a flop, says the Daily Mail. The Centre for Economic and Business Research says it could end up "losing money" for the Treasury.

Scrap the "unloved" 50p rate, but property should be properly taxed too, says Simon Jenkins in The Guardian. "Housing is the most inefficient, mal-distributed, under-taxed and... over-priced asset in the land." Britons live more "lavishly" than any other big European nation, council tax is unfair, and some 100,000 properties are avoiding stamp duty in offshore tax havens. What's more, the "biggest unexploited housing resource in Britain is empty and under-occupied property".

Nick Clegg says the Liberal Democrats would scrap the 50p rate in return for a 1% levy on properties worth more than £2m, but he and David Cameron have "called a truce" on the mansion tax, says Roland Watson in The Times. The government is examining new curbs on the tax relief on pension contributions given to higher earners, particularly those earning more than £150,000, and other ideas for a crackdown on the wealthy are being discussed. "Wrangling" before 21 March will "go to the wire".

Emily Hohler

Emily has extensive experience in the world of journalism. She has worked on MoneyWeek for more than 20 years as a former assistant editor and writer. Emily has previously worked on titles including The Times as a Deputy Features Editor, Commissioning Editor at The Independent Sunday Review, The Daily Telegraph, and she spent three years at women's lifestyle magazine Marie Claire as a features writer for three years, early on in her career. 

On MoneyWeek, Emily’s coverage includes Brexit and global markets such as Russia and China. Aside from her writing, Emily is a Nutritional Therapist and she runs her own business called Root Branch Nutrition in Oxfordshire, where she offers consultations and workshops on nutrition and health.