Its party conference time so I’m going to focus my attention over the next three blogs (starting with this one) in trying to make layman’s sense out of what we are being promised by each of the main parties as they compete for our votes at next May’s election.
First off the blocks is Ed Milliband's promise of a ‘Mansion Tax’. This is quoted in various papers as being worth between £1.3 billion and £2.5 billion which will be spent on the National Health Service. Leaving aside the fact that he’s nicked the idea from the Lib Dems, what does this actually mean? Well, according to the Independent Ed tells us that it will pay for 20,000 more nurses, 5,000 more care workers, 3,000 more midwives and 8,000 more GPs. Is he telling a lie? Are his lips moving?
Ivan Pavlov would have been proud of the way Ed rang those socialist bells. NHS: ding, ding, ding. Nurses: ding, ding, ding. A tax on the rich: ding, ding, ding. You could practically see the party faithful salivating.
By the way, don’t get distracted by the promise of a levy on the tobacco industry to help fund the health service. Most of the tobacco companies are foreign owned and we know the record foreign companies have when it comes to paying UK taxes.
The first problem is that Ed neglected to mention the £30 billion deficit that the NHS is currently running. Any new tax revenue will simply disappear into this black hole. If it doesn’t it won’t end up creating more nursing or care workers’ jobs, it will end up paying for the pay rises of the army of bureaucrats that cling like leeches to the NHS. I can pretty much guarantee that if Labour wins the next election then in five years and 8 months’ time there will be hardly a single extra nurse, care worker, midwife or GP working in the NHS. Please feel free to keep the evidence of this blog to use against me if I’m wrong.
I would have been far more impressed if Ed had promised to reform the bloated NHS and cut out the bureaucrats that cost us so much money but add so little value, but of course there’s two reasons he won’t do that. Firstly there’s no votes in it; the word 'reform' has been twisted to mean 'privatisation' and we know what a dirty word that is. Secondly the bureaucrats belong to trades unions and guess who funds the Labour Party. There’s only votes in promising us new nurses and doctors. Up in Manchester you could almost hear the knees jerking.
But of course the idea of a mansion tax will play well in the working men’s clubs and the trades union halls, because its about sticking it to the rich. But will this tax really do that? Will it really raise £2.5 billion or any other made up figure? Of course not and I’ll tell you why.
First of all there’s the stately homes of England (and Scotland, Northern Ireland and Wales). I’m not concerned about the
financial welfare of their owners but are they, the owners themselves, concerned? Are the Duke of Bedford and the Marquis of Bath tossing and turning in their beds wondering how they will pay this new tax? Not for one minute. Why?
Because they won’t pay the tax, we will.
The cost of this tax will appear in the increased entrance price for Woburn and Longleat and all the other stately homes, so Joe and Josephine public will pay for it when they go visiting. It will also appear on the price of a chalet at Centreparks and the other resorts and golf courses and all the other money making enterprises that sit within the estate boundaries. Well done Ed, once again you’ve made sure the public picks up the tab for a politician’s promise.
Of course, that little bit of the mansion tax will be paid and my main argument is on how the tax won’t be paid but avoided.
Well, there are the foreign property owners who own so much of the more expensive property in London and a few other cities. They don’t pay tax in this country so they won’t pay this tax either. Whether they’re oil sheiks or Russian oligarchs or just the employees of foreign businesses with offices in Britain, they won’t pay. Sorry, Ed, there’s no money there.
Well, there’s lots of others who will pay, aren’t there? A BBC article estimates there to be about 58,500 homes that fit this
category. That sounds a bit low, but who am I to argue with the Beeb? So how many of these 58,500 homes will have
the tax levied on them. I suggest it will be almost zero.
Corporate property owners who rent out expensive houses won’t pay the tax because they spend millions of pounds a year on tax lawyers and accountants in order to avoid paying taxes. This will just be another entry on a tax lawyer’s ‘to do’ list.
OK, who’s next? The tax exiles who own a place in Britain to use for the few weeks a year they actually deign to visit us. They’re easy to deal with. They don’t pay tax here at the moment so they’re almost certainly not going to pay this mansion tax.
So those are the low hanging fruit, the ones it’s easy to identify as not paying the tax, but they aren’t the majority of the
58,500 house owners. Well, I’m sure that the army of tax lawyers that currently help the wealthy to avoid paying taxes will get to work on this one and find the two big loopholes that I’ve already spotted.
Loophole 1. Under British tax laws we don’t have joint tax liability. You can’t tax a husband for anything his wife/partner earns or owns and vice versa. This became apparent when the Conservatives introduced an income cap for child benefit . If one partner earned more than £50,000 then the family lost child benefit, but if both partners earned £49,999 then they didn’t. The same principle will apply here.
If a couple have joint ownership of a house then one party can’t hold tax liability for the whole value of the house. They can each only be held liable for half its value. So if the house is worth £2 million then they hold £1 million of tax liability each and won’t have to pay the tax because they can't be jointly taxed. The mansion tax threshold for them will be £4 million, not £2 million. If they choose to add a third joint owner, such as one of their children, then that threshold increases to £6 million and so on if they add more joint owners.
To levy this tax Ed would have to change the fundamental basis for either British tax law or British property law, or possibly both and I can't see him getting enough support from his own party to do that.
If Labour wins the next election I can see lots of solicitors becoming very busy as they change the ownerships of £2 million houses from single to joint ownership.
Loophole 2. You create a company in an overseas tax haven such as, say, The Republic Of Ireland and you transfer ownership of your house to that company, which is then rented back to you at a peppercorn rent. What Vodaphone, Amazon, Starbucks, Google et al are already doing may become the norm for someone who owns one of these mansions.
You will also avoid UK Stamp Duty, Inheritance Tax, capital gains tax etc if you were liable for any of them when the house is eventually sold. The "Wealth Managers" -people who, for a fee, will help you to avoid paying taxes - must be opening up whole case loads of glee with which to rub their hands.
How can I be so sure about either of these loopholes? Easy. There are many politicians and Labour supporters who own houses that fall into the £2 million plus category. They will not support the introduction of a tax that they will have to pay.
Now if I can spot those loopholes why can’t Ed Milliband?
Finally there’s the valuation loophole that already exists in relation to Council Tax banding. That’s getting a valuation done that sits just below the tax threshold. That one will be rife among those whose houses are currently valued at just over £2 million, even with the threat of fines for misstating the value of the house (how do you prove that?).
Because house prices fluctuate you can’t use purchase price as a basis for taxation. Each house will have to be valued in relation to the housing market at the time. Once one £2.1 million house has been valued at £1.999 million it will set the market value for the rest. All of a sudden there will be a slump in house prices that is peculiar to a particular price bracket. But it won’t be a real slump because there’s more than one way to kill a cat (sorry cat lovers).
Instead the owners will over value the non-taxable fixtures and fittings that will be left behind when the house is sold, while the house itself will be valued just below the £2 million threshold. Anyone fancy paying me £200 thousand for this lovely shag pile carpet? £100,000 for me to leave all the light bulbs behind?
Of course, lowering the purchase price of a house will have knock on effects. The amount of Stamp Duty raised will be reduced, as will inheritance tax, capital gains tax (where applicable) so the net benefit of the mansion tax will be reduced, even if someone is actually mad enough not to avoid paying it in the first place.
There will be some people who are too lazy or too stupid to avoid paying this mansion tax, if it ever becomes law. There will be some (don’t ask me who) whose moral values will make them pay the tax and paste on a smile while they do it, but I don’t think there will be many of those. There will be some who won’t even realise that the new tax applies to them until
it’s too late, but I can assure you that when the dust settles and Parliament reviews the effectiveness of the legislation they will find that the tax revenue will fall well short of the lowest estimate of £1.3 billion. So how will Ed pay for all those new nurses and GPs? Either he’ll have to increase other taxes or he won’t employ any new nurses or GPs at all.
What Milliband should have done, and what the electorate is crying out for a government to do, is promise to close down the tax loopholes that are currently being exploited and which are costing this country billions of pounds in lost tax revenue. But he won’t do that because some of his best mates are exploiting them (as with all the major parties – they’re all guilty of it). And if you want to know which mates just look along the rows of celebrities and politicians that were cheering Ed to the rafters last Tuesday. Do the same in Birmingham next week and Glasgow the week after.
Of course we mustn’t forget our Chancellor in waiting, Ed Balls and what he had to say about Labour’s future fiscal policy.
One of his proposed policies was to slow down the rate at which we reduce the fiscal deficit, thereby leaving him with more tax revenue to pay for public spending.
For those of you that don’t know, the fiscal deficit is the difference between the amount of money the government
raises in taxes each year and the amount it spends on delivering public services. Basically it’s the government’s overdraft. But of course that deficit doesn’t just disappear at the end of each financial year. It gets added to the national debt. The overdraft becomes a bank loan.
Think about this in small, manageable numbers. If you borrow £1,000 at a generous 5% interest and pay it back at the end of the first year you will pay £50 interest. But if you delay paying it back until the end of the second year you will pay £102.50 interest. If you delay repaying until the end of the third year you will pay £157.53 and so on and so forth for
each additional year. Eventually, if you delay repaying the debt long enough, you will pay more in interest than you borrowed in the first place.
Any self-respecting debt counsellor would tell you not to be so silly and to get the debt paid off as quickly as possible. But this is the opposite of what Ed Balls is proposing to do and the amount of interest we’re talking about isn’t 50 quid or so each year, its £40 billion - and that estimate is probably on the low side.
By delaying the reduction of the fiscal deficit Ed Balls will be adding to the national debt. This in turn adds to the amount of interest that must be paid each year to service the debt, which means that Ed will actually have less money to spend on public services, not more. What sort of economics is that? Tax payers money should be spent on public services, not paying debt interest. But of course by doing it this way Ed can keep his promises to spend money in the short term, keeping his trades unions paymasters happy, while the long term problem can go hang itself. He won't be around to pick up the pieces. It will be our children and our children's children that have to do that. Whe the day of reckoning comes Labour will blame someone else, probably Margaret Thatcher.
Ed Balls will try to tell you that the debt crisis isn’t labour’s fault, it’s all down to the banks and the banking crisis. This is
the mythology Labour is trying to create. But this is just another political lie.
Northern Rock publicly declared it was in trouble on 14th September 2007, which was the first public sign of the banking crisis that was to follow. By that date the fiscal deficit was already at £32.2 billion from a fiscal SURPLUS when Labour
took office on 1997. Our 'prudent' Chancellor Gordon Brown had been quietly overspending for 10 years. By 2010 the deficit had risen to £156 billion. That deficit wasn’t created by bailing out the banks, it was created by public spending. If it had been created by the banking crisis the deficit would have spiked upwards in 2007/08 when the banks were bailed out, then fallen back in 2008/09 and 2009/10, but it didn't. It continued to rise. Using the excuse of a banking crisis Labour went on a spending spree.
In 2007 the national debt stood at £450 billion, up from £350 billion in 1997. So Labour had added £100 billion of public debt over the ten years BEFORE the banking crisis, mainly caused by the fiscal deficit they were running. The debt rose to
£800 billion by 2010. Some of that additional £350 billion was as a result of bailing out the banks, but only about £65 billion of it, as most of the bailout was made up by underwriting debts, not by giving the banks money. The rest of
the debt was made up by the fiscal deficit that had been created in the three year period 2007 to 2010.
Guess who was at the Treasury as Gordon Brown’s number two for the period 2006 to 2007. Step forward Ed Balls. Are you going to trust this man again? Are you going to trust Labour fiscal policy again? Even more importantly are you going to believe the lies about how the fiscal deficit was created?
Back in 1971 The Who sang a song called Won't Be Fooled Again which was all about politicians promises. I quote two lines from it: “I get on my knees and pray / we don’t get fooled again.” Well some people will be fooled again. Will you be one of them?
OK, this week I’ve been quite harsh about Labour but rest assured I will be equally as critical of the other two parties in my next two blogs. Next week it’s off to Birmingham for the Conservative Party conference. Open wide Dave, I’m sure you’ve got room for both feet.
Please feel free to share this blog with yoru friends by e-mailing the link to them.
The cost of producing this blog, at national minimum wage hourly rate, was £39. You got to read it for free.
First off the blocks is Ed Milliband's promise of a ‘Mansion Tax’. This is quoted in various papers as being worth between £1.3 billion and £2.5 billion which will be spent on the National Health Service. Leaving aside the fact that he’s nicked the idea from the Lib Dems, what does this actually mean? Well, according to the Independent Ed tells us that it will pay for 20,000 more nurses, 5,000 more care workers, 3,000 more midwives and 8,000 more GPs. Is he telling a lie? Are his lips moving?
Ivan Pavlov would have been proud of the way Ed rang those socialist bells. NHS: ding, ding, ding. Nurses: ding, ding, ding. A tax on the rich: ding, ding, ding. You could practically see the party faithful salivating.
By the way, don’t get distracted by the promise of a levy on the tobacco industry to help fund the health service. Most of the tobacco companies are foreign owned and we know the record foreign companies have when it comes to paying UK taxes.
The first problem is that Ed neglected to mention the £30 billion deficit that the NHS is currently running. Any new tax revenue will simply disappear into this black hole. If it doesn’t it won’t end up creating more nursing or care workers’ jobs, it will end up paying for the pay rises of the army of bureaucrats that cling like leeches to the NHS. I can pretty much guarantee that if Labour wins the next election then in five years and 8 months’ time there will be hardly a single extra nurse, care worker, midwife or GP working in the NHS. Please feel free to keep the evidence of this blog to use against me if I’m wrong.
I would have been far more impressed if Ed had promised to reform the bloated NHS and cut out the bureaucrats that cost us so much money but add so little value, but of course there’s two reasons he won’t do that. Firstly there’s no votes in it; the word 'reform' has been twisted to mean 'privatisation' and we know what a dirty word that is. Secondly the bureaucrats belong to trades unions and guess who funds the Labour Party. There’s only votes in promising us new nurses and doctors. Up in Manchester you could almost hear the knees jerking.
But of course the idea of a mansion tax will play well in the working men’s clubs and the trades union halls, because its about sticking it to the rich. But will this tax really do that? Will it really raise £2.5 billion or any other made up figure? Of course not and I’ll tell you why.
First of all there’s the stately homes of England (and Scotland, Northern Ireland and Wales). I’m not concerned about the
financial welfare of their owners but are they, the owners themselves, concerned? Are the Duke of Bedford and the Marquis of Bath tossing and turning in their beds wondering how they will pay this new tax? Not for one minute. Why?
Because they won’t pay the tax, we will.
The cost of this tax will appear in the increased entrance price for Woburn and Longleat and all the other stately homes, so Joe and Josephine public will pay for it when they go visiting. It will also appear on the price of a chalet at Centreparks and the other resorts and golf courses and all the other money making enterprises that sit within the estate boundaries. Well done Ed, once again you’ve made sure the public picks up the tab for a politician’s promise.
Of course, that little bit of the mansion tax will be paid and my main argument is on how the tax won’t be paid but avoided.
Well, there are the foreign property owners who own so much of the more expensive property in London and a few other cities. They don’t pay tax in this country so they won’t pay this tax either. Whether they’re oil sheiks or Russian oligarchs or just the employees of foreign businesses with offices in Britain, they won’t pay. Sorry, Ed, there’s no money there.
Well, there’s lots of others who will pay, aren’t there? A BBC article estimates there to be about 58,500 homes that fit this
category. That sounds a bit low, but who am I to argue with the Beeb? So how many of these 58,500 homes will have
the tax levied on them. I suggest it will be almost zero.
Corporate property owners who rent out expensive houses won’t pay the tax because they spend millions of pounds a year on tax lawyers and accountants in order to avoid paying taxes. This will just be another entry on a tax lawyer’s ‘to do’ list.
OK, who’s next? The tax exiles who own a place in Britain to use for the few weeks a year they actually deign to visit us. They’re easy to deal with. They don’t pay tax here at the moment so they’re almost certainly not going to pay this mansion tax.
So those are the low hanging fruit, the ones it’s easy to identify as not paying the tax, but they aren’t the majority of the
58,500 house owners. Well, I’m sure that the army of tax lawyers that currently help the wealthy to avoid paying taxes will get to work on this one and find the two big loopholes that I’ve already spotted.
Loophole 1. Under British tax laws we don’t have joint tax liability. You can’t tax a husband for anything his wife/partner earns or owns and vice versa. This became apparent when the Conservatives introduced an income cap for child benefit . If one partner earned more than £50,000 then the family lost child benefit, but if both partners earned £49,999 then they didn’t. The same principle will apply here.
If a couple have joint ownership of a house then one party can’t hold tax liability for the whole value of the house. They can each only be held liable for half its value. So if the house is worth £2 million then they hold £1 million of tax liability each and won’t have to pay the tax because they can't be jointly taxed. The mansion tax threshold for them will be £4 million, not £2 million. If they choose to add a third joint owner, such as one of their children, then that threshold increases to £6 million and so on if they add more joint owners.
To levy this tax Ed would have to change the fundamental basis for either British tax law or British property law, or possibly both and I can't see him getting enough support from his own party to do that.
If Labour wins the next election I can see lots of solicitors becoming very busy as they change the ownerships of £2 million houses from single to joint ownership.
Loophole 2. You create a company in an overseas tax haven such as, say, The Republic Of Ireland and you transfer ownership of your house to that company, which is then rented back to you at a peppercorn rent. What Vodaphone, Amazon, Starbucks, Google et al are already doing may become the norm for someone who owns one of these mansions.
You will also avoid UK Stamp Duty, Inheritance Tax, capital gains tax etc if you were liable for any of them when the house is eventually sold. The "Wealth Managers" -people who, for a fee, will help you to avoid paying taxes - must be opening up whole case loads of glee with which to rub their hands.
How can I be so sure about either of these loopholes? Easy. There are many politicians and Labour supporters who own houses that fall into the £2 million plus category. They will not support the introduction of a tax that they will have to pay.
Now if I can spot those loopholes why can’t Ed Milliband?
Finally there’s the valuation loophole that already exists in relation to Council Tax banding. That’s getting a valuation done that sits just below the tax threshold. That one will be rife among those whose houses are currently valued at just over £2 million, even with the threat of fines for misstating the value of the house (how do you prove that?).
Because house prices fluctuate you can’t use purchase price as a basis for taxation. Each house will have to be valued in relation to the housing market at the time. Once one £2.1 million house has been valued at £1.999 million it will set the market value for the rest. All of a sudden there will be a slump in house prices that is peculiar to a particular price bracket. But it won’t be a real slump because there’s more than one way to kill a cat (sorry cat lovers).
Instead the owners will over value the non-taxable fixtures and fittings that will be left behind when the house is sold, while the house itself will be valued just below the £2 million threshold. Anyone fancy paying me £200 thousand for this lovely shag pile carpet? £100,000 for me to leave all the light bulbs behind?
Of course, lowering the purchase price of a house will have knock on effects. The amount of Stamp Duty raised will be reduced, as will inheritance tax, capital gains tax (where applicable) so the net benefit of the mansion tax will be reduced, even if someone is actually mad enough not to avoid paying it in the first place.
There will be some people who are too lazy or too stupid to avoid paying this mansion tax, if it ever becomes law. There will be some (don’t ask me who) whose moral values will make them pay the tax and paste on a smile while they do it, but I don’t think there will be many of those. There will be some who won’t even realise that the new tax applies to them until
it’s too late, but I can assure you that when the dust settles and Parliament reviews the effectiveness of the legislation they will find that the tax revenue will fall well short of the lowest estimate of £1.3 billion. So how will Ed pay for all those new nurses and GPs? Either he’ll have to increase other taxes or he won’t employ any new nurses or GPs at all.
What Milliband should have done, and what the electorate is crying out for a government to do, is promise to close down the tax loopholes that are currently being exploited and which are costing this country billions of pounds in lost tax revenue. But he won’t do that because some of his best mates are exploiting them (as with all the major parties – they’re all guilty of it). And if you want to know which mates just look along the rows of celebrities and politicians that were cheering Ed to the rafters last Tuesday. Do the same in Birmingham next week and Glasgow the week after.
Of course we mustn’t forget our Chancellor in waiting, Ed Balls and what he had to say about Labour’s future fiscal policy.
One of his proposed policies was to slow down the rate at which we reduce the fiscal deficit, thereby leaving him with more tax revenue to pay for public spending.
For those of you that don’t know, the fiscal deficit is the difference between the amount of money the government
raises in taxes each year and the amount it spends on delivering public services. Basically it’s the government’s overdraft. But of course that deficit doesn’t just disappear at the end of each financial year. It gets added to the national debt. The overdraft becomes a bank loan.
Think about this in small, manageable numbers. If you borrow £1,000 at a generous 5% interest and pay it back at the end of the first year you will pay £50 interest. But if you delay paying it back until the end of the second year you will pay £102.50 interest. If you delay repaying until the end of the third year you will pay £157.53 and so on and so forth for
each additional year. Eventually, if you delay repaying the debt long enough, you will pay more in interest than you borrowed in the first place.
Any self-respecting debt counsellor would tell you not to be so silly and to get the debt paid off as quickly as possible. But this is the opposite of what Ed Balls is proposing to do and the amount of interest we’re talking about isn’t 50 quid or so each year, its £40 billion - and that estimate is probably on the low side.
By delaying the reduction of the fiscal deficit Ed Balls will be adding to the national debt. This in turn adds to the amount of interest that must be paid each year to service the debt, which means that Ed will actually have less money to spend on public services, not more. What sort of economics is that? Tax payers money should be spent on public services, not paying debt interest. But of course by doing it this way Ed can keep his promises to spend money in the short term, keeping his trades unions paymasters happy, while the long term problem can go hang itself. He won't be around to pick up the pieces. It will be our children and our children's children that have to do that. Whe the day of reckoning comes Labour will blame someone else, probably Margaret Thatcher.
Ed Balls will try to tell you that the debt crisis isn’t labour’s fault, it’s all down to the banks and the banking crisis. This is
the mythology Labour is trying to create. But this is just another political lie.
Northern Rock publicly declared it was in trouble on 14th September 2007, which was the first public sign of the banking crisis that was to follow. By that date the fiscal deficit was already at £32.2 billion from a fiscal SURPLUS when Labour
took office on 1997. Our 'prudent' Chancellor Gordon Brown had been quietly overspending for 10 years. By 2010 the deficit had risen to £156 billion. That deficit wasn’t created by bailing out the banks, it was created by public spending. If it had been created by the banking crisis the deficit would have spiked upwards in 2007/08 when the banks were bailed out, then fallen back in 2008/09 and 2009/10, but it didn't. It continued to rise. Using the excuse of a banking crisis Labour went on a spending spree.
In 2007 the national debt stood at £450 billion, up from £350 billion in 1997. So Labour had added £100 billion of public debt over the ten years BEFORE the banking crisis, mainly caused by the fiscal deficit they were running. The debt rose to
£800 billion by 2010. Some of that additional £350 billion was as a result of bailing out the banks, but only about £65 billion of it, as most of the bailout was made up by underwriting debts, not by giving the banks money. The rest of
the debt was made up by the fiscal deficit that had been created in the three year period 2007 to 2010.
Guess who was at the Treasury as Gordon Brown’s number two for the period 2006 to 2007. Step forward Ed Balls. Are you going to trust this man again? Are you going to trust Labour fiscal policy again? Even more importantly are you going to believe the lies about how the fiscal deficit was created?
Back in 1971 The Who sang a song called Won't Be Fooled Again which was all about politicians promises. I quote two lines from it: “I get on my knees and pray / we don’t get fooled again.” Well some people will be fooled again. Will you be one of them?
OK, this week I’ve been quite harsh about Labour but rest assured I will be equally as critical of the other two parties in my next two blogs. Next week it’s off to Birmingham for the Conservative Party conference. Open wide Dave, I’m sure you’ve got room for both feet.
Please feel free to share this blog with yoru friends by e-mailing the link to them.
The cost of producing this blog, at national minimum wage hourly rate, was £39. You got to read it for free.
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