...a blog by Richard Flowers

Wednesday, March 07, 2012

Day 4083: A Super Tuesday for Dr Vince


It was a GOOD day to be the President*... of the Board of Trade.

A welcome announcement of much-needed new jobs and investment always puts a spring in the stride of the Business Secretary.

Add to that a subtle hint that we Liberal Democrats might trade off the 50p tax rate that raises millions for a proper wealth tax that raises billions.

And then SOMEONE leaked a letter showing our Vince is the "Man of Vision", with a policy for social market intervention that will make George Osborne's head explode.

(And it's usually Fantastic Doctor Fox who does that!)

Many people with large property portfolios don't even NEED a large income so they don't pay lots of income tax. And with 5% of the population owning more of the wealth than the other 95% put together, it is surely fairer to ask them to contribute a bigger share.

But even before we GET to fairness, there is a good ECONOMIC case for taxing WEALTH. At a time when the economy is crying out for INVESTMENT in jobs and businesses, far too much of the nation's money is being LOCKED AWAY in PROPERTY.

That's a simple consequence of SUPPLY and DEMAND – years of planning restrictions and under-investment in housing stock means that demand for houses outstrips supply, forcing up prices. The Hard Labour Government was more than indulgent of this dangerous house price bubble; in fact, most of their so called economic policy rested on convincing people that the rise in house prices meant that they were getting richer as an excuse to keep on borrowing. Not that the Conservatory government of the Nineties and Eighties was any less guilty of encouraging house price speculation with their selling off council houses on the cheap and nation of homeowners rhetoric.

With governments of both old-Party persuasions tacitly conniving in the housing inflation, property becomes an investment that is, self-evidently, safe as houses. And BANKS prefer to lend mortgages (with a nicely-guaranteed-to-retain-its-value property to secure the loan) than business loans (which are risky in the current post-crash climate).

BUT if people had to spend LESS on just keeping a roof over their heads they would have MORE to put into investments, savings, pensions or just plain old spending – all of which are GOOD for economic growth in a way that makes locking it all away in bricks and mortar look deeply UNHEALTHY.

Now, obviously, there are DECADES of abuse laid up there, and one thing we DO NOT WANT is a property price crash to leave people with NEGATIVE EQUITY. So the government has to tread terribly softly here.

What a MANSION TAX would do is put some GENTLE pressure on house prices at the upper end while at the same time UNLOCKING some of that locked-away capital.

Meanwhile we SHOULD look at the bottom end of the house market too, because the OTHER big contributor to the swelling of the housing bubble has been the indulgent way that Housing Benefit – a benefit that benefits LANDLORDS way more than people in the house – was treated by successive governments. Daddy Alex has – quite rightly – suggested that we should be looking again at proper RENT CONTROLS.

It certainly should not be substantially more expensive to pay the rent than a mortgage on the same property – a practice that leave the HAVES (as in "have the money for a deposit") sitting pretty on their buy-to-let mini empires while trapping the HAVE-NOTS in rental dependency forever.

The best possible outcome would be to engineer STABLE house prices while the rest of the economy GROWS to CATCH UP. If anyone DOES know how to do that, answers on a postcard to Danny Alexander at the Treasury.

In the meantime, probably best just build a lot of new homes.

(*Actually, it was a pretty decent day for Barry O, too, as Mr Mitt Morony continued to play the role of wounded MOOSE, floundering through another set of Primaries, limping to near-victories while the neo-creationist fruitloops continue to bite chunks out of his synthetic credibility.)

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