Can Vince Cable and Ed Balls possibly explain their obsession with introducing new taxes on the rich before they look at the much simpler option of removing the huge, blatant loopholes in the current system of capital and property taxation which only benefit the enormously wealthy? (Front page, 6 September.)
Why, for example, do we persist with the bizarre system of bands for Council Tax under which a £50m mansion pays only twice as much as the smallest flat? Many developed countries such as Sweden have a straightforward flat-rate annual tax of around 0.7 per cent on all properties.
Inheritance Tax is riddled with escape clauses available only to the wealthiest. Why, for example, is any middle-class family home worth over £375,000 liable to inheritance tax at an eye-watering 40 per cent, while farmland worth up to tens, or even hundreds of millions of pounds is completely exempt?
Most middle-class old people tend to hang on to their wealth until they die in case they need to pay for care, leaving their family’s inheritance liable to the 40 per cent tax. In contrast the ultra-rich can hand over unlimited millions completely tax-free if it is done seven years before death.
By turning a blind eye to these grossly discriminatory and utterly unjustifiable loopholes for an idle minority, surely all politicians of left, centre or right are making a mockery of their supposed wish to encourage a 21st-century society based on hard work, fairness, social mobility and meritocracy?
There are problems with a wealth-based tax. First, an asset only has value if it can be sold. An unsaleable asset is effectively worthless, the putative value is theoretical until sold (ask anyone who enjoys negative equity). So a wealth tax is a tax on theoretical value.
Second, any wealth tax due would have to be paid out of income. Some asset owners would not be able to afford that so would have to sell the asset. This might affect very few, but would be grossly unfair on those affected.
Third, would any outstanding mortgage be deducted from the putative value of the asset? If not, then the asset owner would be taxed on property they did not own. If yes, then the tax could be avoided through remortgaging.
We read that Ed Balls is planning “a proper wealth tax” (6 September) and there has long been talk about the introduction of a mansion tax.
The answer is fairly simple. Introduce extra Council Tax bands. At present there are eight in England (A – H) and nine in Wales (A – I). The highest banded property in England (£320,000-plus) pays only three times as much as the lowest-banded taxpayer. In Wales the highest band (£424,000-plus) is charged four times the lowest band. More tax bands would ensure that owners of multi-million pound homes would carry a greater share of local taxation.