Heather Stewart 

Pitt’s rule for non-doms is only one tax that belongs in the dustbin of history

As Labour and Tories argue over repealing legislation passed in 1799, other outdated forms of taxation need to be made clear, simple and fair
  
  

Poll tax riots
Margaret Thatcher’s poll tax led to more protests than anything William Pitt did. Photograph: Gill Allen/AP Photograph: Gill Allen/AP

George Osborne, the arch-tactician, surely has at least one pre-election lollipop up his sleeve for Tuesday’s Tory manifesto launch; but so far in the general election campaign, Labour have made the running on tax.

When Ed Miliband announced his party’s pledge to abolish non-domiciled tax statutes, the Conservatives – unsure whether to attack Labour for destroying a useful quirk of the UK tax system, or condemn the policy as half-hearted “tinkering around the edges” – became bogged down in arguments about how much revenue abolition would raise.

Yet, as the clear public support for the policy in subsequent polls suggested, voters aren’t interested in the niceties of whether it would bring in a few million pounds, a billion, or even nothing: they’re concerned about fairness. And a few days on, looking up from the maelstrom of the campaign, that suggests two wider thoughts.

For one thing, the non-doms debate was a reminder of just how much our tax system is silted up with decades’ worth of historic detritus. As Labour took delight in pointing out, the notion of a non-domiciled status for tax purposes was introduced by William Pitt the Younger in 1799.

It was an artefact of Britain’s colonial past, which, like curry and our chippiness about the Yanks, had gone largely unquestioned ever since. Labour introduced a charge on non-doms in 2008, but only after Osborne mooted the idea in his 2007 conference speech. Abolishing the privilege had still largely remained the concern of committed tax campaigners, such as the Tax Justice Network, which has highlighted the iniquities of non-dommery for many years.

Elsewhere there’s a tendency to resort to the British version of the Gallic shrug: one which says, this is the way we do things; it’s the accretion of hundreds of years of history; let it be (I experienced this phenomenon most recently while watching the flummery of the black-stockinged functionaries in Michael Cockerell’s excellent Inside the Commons series).

One of the refreshing things about Miliband’s politics is that he seems willing to ditch this kind of business-as-usual approach where it can, and should be, trumped by fairness.

And that’s the second thought which remains after the non-dom shenanigans. Once we start to subject Britain’s tax system to the test of basic fairness – even plain logic – there are plenty more arcane accretions that should be swept away.

As the Equality Trust said in a report last year, taking the system as a whole, including regressive VAT, as well as income and property taxes, the poorest tenth of households pay 43% of their income in tax, while the top tenth pay 35%. That’s partly because politicians have reached for quick-and-easy VAT changes as a money-raiser in recent years, hoping they are less noticeable than piling a penny on income tax, which shows up in black and white on pay slips.

And it’s also because of a more recent historical deposit than anything Pitt ordered. Margaret Thatcher’s deeply regressive poll tax, abandoned in the face of mass public protest, was replaced with a council tax based on 1991 property values. It was never completely proportional, but the intention was for regular revaluations, so that the tax would keep pace with house-price inflation.

Yet successive governments wary of upsetting a key demographic – the comfortable homeowner – have repeatedly failed to carry out revaluations, despite rocketing prices. As the Institute for Fiscal Studies’ authoritative Mirrlees Review of Britain’s tax system put it, “any revaluation inevitably creates losers and winners – and losers tend to be very vocal”. It called the failure to revalue council tax bands, “one of the most egregious demonstrations of the ‘tyranny of the status quo’ as a block to desirable change”.

The Equality Trust finds that even with rebates and council tax benefit taken into account, the poorest tenth of households now pay almost 6% of their income in council tax, against 1.39% for the richest tenth. It argues for extra bands for the most valuable properties and a commitment to regular future revaluations. That might be less popular than Labour’s “mansion tax” on £2m-plus properties or Osborne’s recent decision to increase the burden of stamp duty for richer buyers, but it would be much fairer, while increasing the costs of leaving properties standing empty, one of the myriad causes of Britain’s housing crisis.

In fact, the Mirrlees Review suggested replacing council tax with a “housing services tax”, directly proportional to a property’s value . Over time, it suggested, its value could be increased so it would completely replace not just council tax, but the notoriously distortionary stamp duty too.

And while on the subject of dusty, outdated corners of the tax system that should be looked at again in the light of fairness, national insurance is now a nostalgic relic of a contributory social security system that bears little connection to today’s reality. It’s poorly understood, based on a different definition of earnings to income tax, and has different rates and thresholds, petering out almost completely for the highest-paid.

Osborne may yet announce that a Tory government would merge the national insurance and income tax systems, a change he first mooted back in 2011 and which has repeatedly been rumoured as a runner for the Tory manifesto. That would be a sensible move which would give taxpayers a clearer idea of their total financial contribution.

And that’s the real challenge to iniquities such as continued existence of non-dom status. You can read public enthusiasm for abolishing it as the politics of envy, a desire to bring the super-rich down a peg or two. But there’s also a sense that not paying tax means you’re a taker, not a giver; semi-detached, not a real member of society.

Politicians tend to couch tax promises to the electorate as if some distinct and unsympathetic group – mansion-owners; super-rich foreigners; City bankers – will pay the price of nursing the sick and educating our kids. In fact, it’s down to all of us. And the more taxation is clear, simple and fair – the mark of a civilised society, instead of an optional extra the rich can skip out off – the more loudly that argument can be made.

 

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