A former Bank of England governor has criticised potential proposals for a mansion tax, saying the government lacks a “coherent strategy” on the economy.
Chancellor Rachel Reeves is reportedly considering a mansion tax in next month’s budget to help fill the multi-billion pound black hole in the public finances.
But Lord King told Sunday Morning With Trevor Phillips that he could not identify an economic plan from the government and that adding another wealth tax would not solve the problem with the country’s finances.
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“There’s plenty of scope for reforming the tax system,” he said.
“It hasn’t, we haven’t, seen a chancellor take a strategic look at the tax system for almost 40 years.
“It’s been one kind of tinkering after another and that’s created a mess – an excessively complex one.”
Last week, Ms Reeves admitted in an interview with Sky News that she was looking at both tax rises and spending cuts in the budget.
The Mail On Sunday reported that one proposal being considered was a mansion tax which would hit owners of properties with an annual charge of 1% of the amount by which its value exceeds £2m – meaning a £10,000-a-year levy for homes worth £3m.
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But Lord King said: “Property taxes are an interaction between stamp duty, council tax, capital gains tax, inheritance tax.
“You don’t solve that problem by just adding another wealth tax to it.”
The former Bank of England governor said the chancellor needed to look at “all aspects” of tax, not just on property, “to come up with a coherent view to what it should look like”.
He said this currently did not happen and that instead ministers tried to match a figure produced by the Office for Budget Responsibility (OBR), the fiscal and economic forecaster, just before the budget.
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“What happens is the OBR produces just before the budget, a number, one number, and then they look round for ideas – almost written on the back of a fag packet – about how you can raise an extra few billion or a few billion there,” Lord King said.
“That is not a coherent tax strategy. And you could do a great deal by thinking it through first.”
Economists have indicated Ms Reeves will need to find between £20bn and £50bn to meet her goal of balancing day-to-day spending with tax receipts in 2029/30, and at least maintaining her current buffer of around £10bn against that target.
The chancellor has hinted this will be more difficult to achieve due to the OBR downgrading its assessment of productivity growth.
Another measure the chancellor is reportedly considering to accumulate extra revenue is a 2p hike to income tax – as reported by The Sun On Sunday.
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The move would breach Labour’s manifesto pledge not to increase national insurance, VAT and income tax.
Asked whether Labour was unwise to stick with those general election promises on tax, Lord King said: “Very unwise.
“I think the previous government was irresponsible to cut national insurance contributions when that was only remotely feasible, given unrealistic projections for public spending.
“And I think the Opposition didn’t need to make a commitment not to reverse that.
“And honestly, I think that would be much better now just to say to people, ‘this is where we are’.
“Be completely straight with people say, ‘yeah, we made that pledge in the heat of an electoral battle, it was a mistake, we regret it, and we’re going to unwind that’.”
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In her Sky News interview, Ms Reeves said multiple challenges meant there was a fresh need to balance the books.
She added: “Of course, we’re looking at tax and spending as well, but the numbers will always add up with me as chancellor because we saw just three years ago what happens when a government, where the Conservatives, lost control of the public finances: inflation and interest rates went through the roof.”
The Treasury has been approached for comment.
