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Mansion Tax Or Rate Cut For The UK's Wealthiest?

by Robert Lee, Tax-News.com, London

08 August 2011


The row over the UK's top rate of tax refuses to go away, as one senior government figure says that the rate could be replaced with a "mansion tax" and the media reports that talks are underway on a rate cut.

In the wake of disappointing GDP growth figures released last week, the UK's politicians have clamoured to outline their stance on the 50% marginal rate of tax. Former Conservative Chancellor Norman Lamont and London Mayor Boris Johnson, also a Conservative, both slammed the rate, arguing that it harms the UK's competitiveness, with Johnson also questioning the revenue benefits the rate is actually said to bring. In response, Treasury chief Danny Alexander, a Liberal Democrat, said those contemplating the idea of a rate reduction were living in "cloud cuckoo land".

Now Business Secretary Vince Cable has waded in, telling the Telegraph on August 4 of his plans for an alternative way of taxing the wealthy. Cable, who also belongs to the junior coalition party the Liberal Democrats, told the paper that his party had always accepted that the rate would need to be dealt with "at some stage". He went on to again reiterate his desire to see a form of so-called "mansion tax", stating that “if the top tax rate was removed it would need to be replaced with something else - primarily something associated with wealth or high value property.”

This is not the first time that Cable has featured in the debate over a mansion tax. In June, Cable was among those politicians rumoured to be working on plans for the tax, and earlier in the year he spoke of the need to assess "a proper base for taxing property", saying this was one of the things the government would need to look at as it moves away from high marginal rates. Indeed, as far back as the Liberal Democrats' 2009 party conference, Cable outlined proposals for a levy of GBP5,000 on houses worth over GBP1m, a figure which was later increased to GBP10,000 on those worth over GBP2m. The Lib Dems dropped the proposals, however, as part of last year's coalition agreement.

The day after Cable's comments came out, the Independent newspaper published claims that the Prime Minister and Chancellor were discussing proposals to slash the rate by 5% to 45% as part of next year's Budget, due in April. The paper also quotes unconfirmed Treasury analysis that as much as 70% of the expected GBP2.4bn revenue brought in by the 50% rate would still be collected at 45%. In addition, according to another Conservative source, it is a question of when, not if, the rate will be reduced.

TAGS: individuals | tax | economics | fiscal policy | budget | United Kingdom | tax rates | tax reform | individual income tax

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