Reforming the tax system

Written by Vince Cable MP and published in The Informer on Mon 25th Jun 2007

Over the last week I have been trying to come up with answers to one of the biggest injustices in the tax system : that middle class and low income families pay growing amounts of tax while the 'super rich' pay almost no tax.

Many people in this borough pay income tax at 40%; face an inheritance tax rate of 40% on the family home when there is a bereavement; and pay 3 or 4% stamp duty on a house purchase - which is approaching £15,000 on a typical local home. But private equity operators have found a way of paying only 10% tax on their income by dressing it up as a capital gain. These people who claim to be 'non-domiciled' can make a fortune trading in houses and pay very little tax on the gains. People with access to a good lawyer can find a way of not paying inheritance tax. Those who organise themselves as a 'company' can avoid almost all stamp duty.

Interesting figures emerged in the Evening Standard this week that of the 500 richest people in Britain barely 1 in 10 pay direct taxes to the Treasury. The problem is that such large scale avoidance creates massive cynicism amongst ordinary people. In practice, very rich people find it easy to migrate overseas to escape tax. But the government should be doing everything it reasonably can to stop such tax avoidance.

I have put forward proposals to plugging some of the loopholes which benefit the 'superrich'. By cutting avoidance of stamp duty and inheritance tax it should be possible to lift the threshold for everyone else. By eliminating the generous relief on capital gains tax it will be possible to make useful cut in the basic rate of income tax. No tax system - or society - can function without a basic sense of fairness.