Your Money And How They Spend It
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Former chancellor Alistair Darling reckons tax is like sex - everyone’s doing it but nobody wants to talk about it.
Nick Robinson, political editor at the BBC, clearly doesn’t agree and seeks a sensible debate about both tax and spending in his two-part series, Your Money and How They Spend It.
The programme is at its most fascinating when revealing common misconceptions about tax and the clash between politics and economics. For example, Stamp Duty raises a mere £6bn for the exchequer compared with almost £250bn from Income Tax and £100bn from National Insurance contributions.
And yet this relatively minor tax sparks more outrage than either, as seen after last week’s autumn statement. The property market seemed furious about the chancellor’s refusal to extend the first-time buyer Stamp Duty holiday past March 2012.
Another misconception was that far more people earn over £119,000 than the mere 1% that actually do. Most people also think that what the state spends on them is less than their tax bill, which is actually only true for roughly the top 10% of earners.
It all means governments that want to tax more find it difficult to justify even if the benefits are felt in improved public services. One area where politicians dare not go is property taxation - as the reaction over Stamp Duty highlights.
Robinson diligently explains the political problems of property tax with excellent coverage of the pros and cons of different aspects. He visits a £20m property in London’s Mayfair and tries to decipher what would be paid in tax.
He is accompanied by Liam Bailey, head of residential research at Knight Frank, who explains how Stamp Duty can be avoided by creating an offshore company. Instead of paying 5% the rich end up paying a mere 0.5% - saving a whopping £900,000 on the £20m home.
Robinson then explains how foreign buyers can also avoid paying Capital Gains Tax of 28% when they come to sell.
And finally he looks at how the top band of Council Tax catches all homes above £500,000 so a £500,000 house pays the same rate as a £20m property.
Business secretary Vince Cable has been vocal about reforming Council Tax and creating a so-called mansion tax on properties worth more than £2m.
It sounds good, but plans for reform have come to nothing. In an interview with Robinson former Conservative chancellor Norman Lamont says there is an obvious economic rationale behind property taxation but changes would be political suicide.
“The British are attached to housing - they see it as a source of wealth even if that grows from scarcity and inflation,” he says. “It’s not productive wealth but a property tax would be political madness.”
Former Liberal Democrat chief secretary to the Treasury David Laws agrees that politics can impede what seems fair and reasonable economically.
“Property and land taxes are popular with economists and less popular with politicians,” he says.
The programme offers a clear illustration of the economic benefits versus the political consequences of many taxes including that on property.
Robinson argues that the political barrier has led to today’s economic woes and government cuts. The deficit has been formed by successive governments’ addiction to low taxes and high spending.
Now the spending party is over, Robinson’s analysis might help us see how we can clear up the mess.
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