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Archive for September, 2009

The Liberal Democrats kicked off the party conference season with some controversial policies, earning them a decent amount of press coverage.

The policy that’s received the most attention is what is being called the “mansion tax”.

The tax would hit 250,000 properties worth more than £1million under plans outlined by Treasury spokesman Vince Cable.

Under the controversial proposals, Owners of houses worth more than £1million would pay an additional tax of up to half a percent on the value above £1m.

This 0.5 annual levy on the most expensive homes would raise around £1.1billion pounds.

The problem with this idea is that it goes against our understanding of taxes, which is that they are based upon a flow of income i.e economic activity rather than on the value of your assets increasing in value.

This prevailing belief dictates that taxes should be based on income which is the flow of funds into households and firms or on the flow of consumer purchases.

The inherent problem with a property tax is that whilst it may appear to be redistributive, in the medium to long term the effect is that it will hit the elderly and those without income who see the value of their homes increase in value. The value of your home is not related to your income.

Even with the proposal to increase the starting rate of income tax to £10,000 – there-by moving thousands out of taxation – the question still arises as to whether it is fair to impose another level of taxation irrespective of the person’s income or ability to pay.

And after all, whose valuation will be accepted?

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Hello world!

Public spending and debt has risen in prominence on the political agenda, and is likely to feature as a key battleground issue at the next general election.

The Conservatives have recently voiced that Government spending and public debt levels are too high and that action and cuts are needed now. In Gordon Brown’s speech today at the TUC conference in Liverpool, he faced up to the issue of cuts after weeks of prodding and prompting from the opposition.

Gordon Brown’s speech today has given indication as to where the Labour Party will make savings and the Government’s approach to tackling public debt. “Growth is the right antidote to debt,” said the Prime Minister.

The Labour Party will address issue of tackling public debt by cutting costs for unnecessary programmes and saving £500m from Whitehall’s early exit schemes for staff. The Prime Minister did pledge that there would not be cuts in front-line services.

However, what still remained unclear was the specifics on cuts and the programmes that Labour have earmarked or would deem as inefficient. How does the Labour approach differ from the Conservatives?

George Osborne laid out the Conservative plan to get Britain back on track in a speech to the Spectator’s “Paths Back to Prosperity” conference. The Shadow Chancellor explained that his proposals would repair the foundations of the British economy. Explaining that serious reform would be required, Osborne outlined the three key components of Conservative strategy: •

Monetary activism – keeping the interest rates charged on our huge private and public debt burden down for as long as possible while continuing to ensure that lower rates are passed on by the banks • Fiscal responsibility – because irresponsible fiscal policy puts low interest rates at risk •

A comprehensive programme of supply side reform – to equip the economy for the opportunities that any global recovery will bring He also pointed to other key proposals in the Tory economic programme, including: •

Lower corporation tax rates and a simpler tax system • Radical school reform, welfare reform and better skills • More private investment in infrastructure and other long term productive assets such as high speed rail and smart energy networks • The transition to a low carbon economy •

Regulatory reform to create a financial system that serves the long term interests of the economy, not its own short term interests Source: http://www.Conservatives.com Increasingly it seems the next election will be fought with the issue of cuts in public spending being at the forefront.

This is a far cry from the last election when accusations of “Tory cuts” may have been enough to sway public sector enthusiasts away from the Conservatives.

Opinion polls now show that the public accept the need for cuts in public spending; the million dollar question is whose cuts they opt for…. “Labour cuts” or “Tory cuts”.

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