Thursday, October 18, 2007

TAX AND SOCIAL MOBILITY

Last weekend I linked to an article by Polly Toynbee. Less than a month ago, she was Gordon Brown's biggest fan, echoing his supporters' contention that he was "a man of conviction, of brain, intensity and seriousness; a strategist, not a mere tactician; a long-termist, not a quick-fixer; a man on a moral mission". Following last week's pre-budget report, she has been turned off by a Prime Minister who decided to increase the threshold for inheritance tax and reduce capital gains tax for property investors.

Andrew, from Newfred, posted a robust defence of Brown in the comments box, which you should read here before you read the rest of this post. My response is rather lengthy, so I thought I would put it up as a post in its own right rather than dropping it into the graveyard of the comments box.

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To suggest that liberalising laws around the accumulation of property (whether you intend to let that property, or pass it on to your children) leads to greater social mobility does not stand up to scrutiny.

Firstly, Inheritance Tax. It is not true to say that "there has been no change in IHT entitlements" as a result of the pre-budget report. Couples could indeed seek legal aid to combine their allowances before the report, but such aid is prohibitively complex and expensive. These constraints have now been removed and it is now much easier for wealthy couples to pass on property to their children tax-free. Even before the pre-budget report, very little of the value of inherited property in the UK was paid in tax (around 6% - much less than in most European countries). Now even fewer properties will go onto the housing market as a result of the tax. Even more already comfortable children will inherit property without having to pay tax. Even less wealth will be redistributed. How might such a move increase social mobility?

Secondly, the cut in capital gains tax for buy-to-let owners. Firstly, becoming the tenant of a private landlord is not, in itself, a yardstick of upward social mobility. Fewer than half of first time buyers were previously private tenants. In our property-fixated society, becoming an owner-occupier is a sign of upward social mobility - but the substantial increase in properties bought to let in the past decade has proved to be obstructive to people looking to buy their first property. But let's look at how BTL affects tenants first.

You describe BTL investors as being "willing to let property" as if they were doing it out of the goodness of their heart. All investors are driven by profit, and some (mostly those who let only a small number of properties) manage to combine this with responsible practice. But if your vision of large-scale BTL investments and their impact on social cohesion is in any way rose-tinted, I would recommend visits to either Thamesmead in South London, or Tottenham in North London (I have had the dubious honour of working in the London Boroughs of Greenwich and Haringey in the last 12 months...).

There are high levels of BTL properties in Thamesmead within mixed tenure communities. The area hit the news earlier in the year because of a surge in anti-social behaviour and gross over-occupation. On the recently built Pinnacle Estate, for example, cars were abandoned in car parks ; furniture was dumped on stairwells ; rates of burglary and vandalism increased ; and social housing tenants reported intimidation from BTL tenants. Absentee landlords bought properties en masse, rented them out on short-term leases, often just on a handshake, and then defaulted on maintenance and service charge payments. Many non-BTL tenants, terrorised in their own homes, upped sticks after only a year or so on the estate and moved elsewhere. I suppose this is social mobility of a kind, but I suspect it is not what you had in mind.

In Tottenham, the other symptom of BTL manifests itself, with Haringey Council having to rent back the very same homes it previously sold off to buy-to-letters, at double or treble the original post.

Even before the pre-budget report, BTL owners benefitted from significant tax relief. In June, the President of the Chartered Institute of Housing argued that the phenomenal growth in BTL investments (the rate was 57% higher in 2006 than 2005) was contributing to the affordable housing crisis by pricing first-time buyers out of the market. Because BTL investors generally buy before construction has finished, potential owner occupiers have a reduced choice of accommodation ; and because BTL owners generally buy housing at the bottom end of the market, prices for the kind of houses and flats owner-occupiers might prefer are forced up.

So, from the point of view of both tenants and potential owners, I again cannot see how Alastair Darling's pre-budget report might contribute to an increase in social mobility. In fact, the evidence suggests the opposite.

Our respective views of Gordon Brown's style are as much down to personal preference as anything else. I find his image, such as it is, as manufactured as that of his predecessor, and his rival across the floor of Parliament. But his economic policies do not balance the demands of economic competence (a nice euphemism) with social change, as you say they do. As Patrick Collinson wrote in the Guardian last week,

What is extraordinary is that a Labour chancellor is shifting the balance away from capital and on to labour. Unearned gains are awarded special tax privileges, while the gains from hard work - your salaried income - could be taxed at more than twice the level of capital. Yes, there was a welcome, and long overdue, clampdown on "non-doms" but it resulted, not from a Labour chancellor wanting to tackle the abuses of the system by the wealthy, but because of pressure from - of all people - the Conservatives.

This shift towards punishing labour to reward capital accumulation shows just how far Labour have moved from any notions of redistribution and social justice. The pre-budget report was a craven submission to the demands of capital.

2 Comments:

Blogger Newfred said...

Thanks for that thorough and well-researched response.

First of all, I should say that my claims about inheritance tax were not intended to endorse the policy, but rather just to point out that the changes announced in the pre-budget report are not radical or extreme. I also didn't seek to connect social mobility with the inheritance tax issue, on which point you are clearly correct: the more property and capital you inherit, the more likely social mobility is to reduce. However, I don't see anything shocking in this policy. For decades Labour fought on a more left-wing platform and consistently lost elections because they were failing to appeal to the majority, and were failing to convince people that they could deliver a government which would make substantial improvements to their lives. The whole of the New Labour project -- which, let us not forget, brought the party to power and got rid of the far more pernicious tendencies of the Conservatives -- is inevitably a balancing act between the forces of capital, capitalism, globalisation, and a more traditional commitment to social justice. Inevitably there will be severe ideological contradictions in particular policies, but in my view this does not undermine the integrity of the project more broadly understood.

The fact is that the working classes are generally driven by as much, if not more, of a capitalist mindset as anyone else in British society. Personally, I do not view this as issuing from a lack of class consciousness, but rather just evidence that people are, and always have been, economically and materially aspirational, and often in the interests of improving quality of life for themselves and their families. This is not just a middle class syndrome.

On housing and buy-to-let property: of course there are a great many unscrupulous landlords, but I don't see what bearing this has on the economics of the situation. If anything, this requires better legislation about and enforcement of the standards which should prevail in rented accommodation (which I believe wholeheartedly). But if we start from the point that there is a need for more private rented accommodation in Britain, which I think is the case, then there is no other logical route than to incentivise investors to make property available to let.

You refer to your experience of Greenwich and Haringey, so I'll refer to my experience of working in various districts of north-east Manchester, traditionally some of the most deprived wards in the entire country. Of course Labour's successes must be qualified and held in tension with the more cynical aspects of economic policy, such as those we witnessed in the pre-budget report this year, but it is undeniable that this government has delivered a great deal in Harpurhey, Blackley and Moston, and most of it has been achieved by fostering a creative relationship between the interests of private capital and the ability of the public sector to act and intervene in service provision. As a result housing, employment, policing, education have all improved indisputably.

I'd much rather have the occasional, qualified "craven submission to the demands of capital" from Gordon Brown than I'd have Labour back in opposition and the David Cameron making such submissions a routine.

9:33 AM  
Anonymous Anonymous said...

Where are you Robert?
Haringey Mel K-S
x

3:05 PM  

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