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Letter: Tax and the ability to pay

IN HIS penetrating article on the tax system ('Time to be direct about higher taxes', Business, 7 November) Christopher Huhne says the best taxes to maximise incentives are lump sum taxes where everyone pays the same regardless of income.

This is not the whole story. Economics theory also teaches that the same advantage applies to taxes on the actual or imputed income from property, especially if they are based on the rental value of the underlying land alone. Such taxes are broadly related to ability to pay, since owners of valuable land cannot be considered poor.

A tax reform of this magnitude is not, of course, an option open to the Chancellor, but other changes in a similar direction are. These include: abolition of 50 per cent relief for vacant business premises; closure of the loophole for reducing business rate assessments by 'constructive vandalism'; abolition of the agricultural rates exemption; rating of vacant and underused land; making council tax payments directly proportional to the valuation band assessment; reduction or abolition of the council tax discount for single occupancy.

These measures would have raised more income than VAT on fuel, with less controversy.

Henry Law