The UK’s public finances are “on an unsustainable path”, the Office for Budget Responsibility said last week. Since it has been saying as much for years, even before Covid-19 provoked a surge in borrowing, the analysis was hardly a surprise. The difference now, however, is that the debt numbers are so large that the government is obliged to consider big, radical, long-term solutions.
Here’s one such idea, from Michael Johnson, a former banker and actuary, in a paper for the Social Market Foundation thinktank: introduce a capital gains tax on primary residences.
A seller, or an estate if the last owner has died, would pay a percentage of the difference between the price at which a property was bought and the price at which it is sold. Levied at a rate of 10%, and assuming houses rise in value by only 1% a year, the tax would raise £421bn over 25 years for the Treasury, calculates Johnson.
That figure, note, would be after deducting the loss of receipts from two necessary parallel changes – abolition on stamp duty on house purchases and the exclusion of main homes from inheritance tax liabilities. A net gain of £421bn is serious money, even when it arrives over a quarter of century. The idea deserves a hearing.
It’s also politically toxic, of course, since a suggestion of a wealth tax on home-owning older voters (which is what this is, in essence) always creates a storm. Others will fret about the effect of house prices, another landmine for politicians.
Yet the list of virtues is long. It starts with fairness. “Unearned gains on property are a better target for new taxes than workers’ earned income,” argues the SMF, a sentiment that, in today’s world, stands a good chance of commanding broad electoral appeal. Even the beneficiaries of 30 years of house price inflation should be able to see that the UK’s current debt-to-GDP ratio of 100%, if unaddressed, is a burden on the young. One of these years, buyers of gilts may demand some interest on their government IOUs.
Then consider the technical advantages. The cash would be collected at the moment it is available, so the “asset rich, cash poor” problem with mansion taxes wouldn’t arise. What’s more, inheritance tax has become a voluntary tax for those with access to offshore funds and smart accountants. A capital gains tax on a primary resistance would be a less dysfunctional approach (assuming, as Johnson suggests, that a higher rate than 10% would apply as gains approach £1m).
In the end, there are only two places a hard-up chancellor can go to raise large sums slowly – pensions and property. The former presents even more political pitfalls, so the £5.1tn of wealth that is estimated to sit in home equity looks an easier place to hunt for tax reforms that will truly move the dial. In practice, one suspects Rishi Sunak won’t go near this territory. But he should.
Don’t be lulled by Unilever’s little triumph
“We have demonstrated the resilience of the business,” declared Alan Jope, chief executive of Unilever. Well, yes, but a qualification is required: the Dove-to-Marmite titan used to aim to grow sales consistently at 3%-plus. Now, in the current climate, no growth in a quarter is considered a triumph.
The performance, though, is definitely better than expected. City analysts, whose predictions can be entertainingly wrong these days, were braced for a revenue figure of minus 4%. Unilever contains many moving parts. On this occasion, a boom in cleaning products and ice-creams compensated for a drop-off in skincare and food for bars and restaurants.
The impressive part was the positive cash flow of €2.9bn (£2.6bn), an increase of €1.3bn on a year ago. Yes, that element does genuinely qualify as resilient. Cash is what investors want to see these days and the shares rose 8%, enough to make Unilever the UK’s largest company.
Do not, though, draw many wider morals from Unilever’s experience. Jope was clear that a “deep, global recession” still lies ahead. And, if you’re a commercial property landlord, the news gets bleaker. Unilever is enthused by “hybrid” working – office staff operating from home a couple of days a week – as a semi-permanent arrangement. If that catches on, office rents are going down.
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