Following on from last weeks proposals from the Labour Party regarding taxing ‘nom-doms’, this article points out the imperfections of the current tax policy.
As the Equality Trust said in a report last year, taking the system as a whole, including regressive VAT, as well as income and property taxes, the poorest tenth of households pay 43% of their income in tax, while the top tenth pay 35%. That’s partly because politicians have reached for quick-and-easy VAT changes as a money-raiser in recent years, hoping they are less noticeable than piling a penny on income tax, which shows up in black and white on pay slips.
The Equality Trust finds that even with rebates and council tax benefit taken into account, the poorest tenth of households now pay almost 6% of their income in council tax, against 1.39% for the richest tenth. It argues for extra bands for the most valuable properties and a commitment to regular future revaluations. That might be less popular than Labour’s “mansion tax” on £2m-plus properties or Osborne’s recent decision to increase the burden of stamp duty for richer buyers.
Comment Overall there is a strong case for raising income tax at the higher income levels and also including National Insurance in this reform. [National Insurance effectively ends above a specific threshold].
On Council tax which is by its very nature regressive, a novel approach would be to create a system which combines house value and income levels. For each valuation band the tax would vary according to household income making the system more progressive and also ensuring those with second homes would pay more.
There are questions here as to why tax housing as distinct from other forms of wealth? and why not just use income as the means of evaluating ability to pay?