Wednesday, March 01, 2006



My eye was caught by a letter to The Times the other day. The correspondent recounts that he bought his flat 40 years ago for £7,500 and he believes it is now worth £750,000. He questions why his contribution to local taxes should be based on this latter fact, bearing in mind that he sacrificed much to buy the flat 40 years ago and that he made a shrewd purchase by identifying a property in an up and coming area well before others did.

This raises an interesting question about fairness. The Inland Revenue’s statistics for 2002 (the latest I can easily find on the web) indicate that out of 16,267,000 people who died during that year only 599,000 left estates over £500,000 and only 520,000 of them had a house worth more than £500,000. The correspondent accordingly appears to be amongst the top 3½% of the population in terms of wealth. Yet he seems to believe that when it comes to deciding what his fair share of tax ought to be the State should ignore his wealth and look only at his pension.

Personally if find that an odd concept. We have always had a tradition in this country of progressive taxes i.e. the richer a person is the more tax he ought to pay, not merely proportionally more than others by reference to their respective amounts of income but rather that the wealthier class ought to contribute more than a pro rata share of the tax payable. Of course I appreciate that the correspondent likes his flat and does not wish to sell it, so he regards the value as not contributing to his capacity to pay. But is this right? Why should he not expect to contribute the same amount of tax as a neighbour with £750,000 of assets who has diversified his investments and only left say a third of it in his house? He could move to a smaller flat and release some of his investment or, I suspect, could borrow against the investment. Why should he expect his fellow citizens to, in effect, say “You have all this wealth but we agree that your tax should not be based on this wealth because you choose not to convert any of it into a form which will enable you to meet the tax?” It would be an odd system that says that the wealthy can choose how much tax they ought to pay by their choice as to how they invest their wealth. Indeed some might regard an investment policy that is designed to remain illiquid so as to reduce ones tax burden as tax avoidance!

The Paymaster General and various high level officials within HMRC are constantly telling us that it is important that everyone should pay the right amount of tax. This letter to The Times highlights the problem that the right amount of tax is often a matter of perception and different people have different perceptions. I imagine that the correspondent genuinely feels aggrieved, whereas I believe it perfectly fair that he should be in the highest council tax bracket. Shouldn’t we have a national debate to see if we can reach a consensus as to what the right amount of tax ought to mean? Probably not, because I doubt we will ever reach a national consensus - although perhaps a national debate would at least force people to question the validity of their perceptions. Of course we all want to pay as little tax as we can, and we all think that the share that the nation has allocated to us is unreasonably high, but perhaps if we were to debate how the allocation ought to be made some people would at least feel less aggrieved than at present. That might even lead to a greater acceptance of an obligation to pay the tax that the State demands of us!

Robert W Maas


Post a Comment

<< Home