(Bloomberg) -- The U.K. should increase taxes on property and inheritance or risk tearing itself apart because of growing inequality, Liberal Democrat party leader Vince Cable warned, as Archbishop of Canterbury Justin Welby also weighed in on Britain's “broken” economic model.
In his first major policy speech since assuming the leadership in July, Cable, 74, said social mobility has waned in Britain during his lifetime, and that the best way to deal with growing inequality is not through raising income tax on higher earners, but by putting levies on wealth accumulation.
“A serious review is needed of the set of taxes which are there to mitigate the sharp, jarring difference brought about by asset inflation and unearned income,” Cable said in a speech in London on Wednesday to a social policy think-tank, the Resolution Foundation. “We must tax wealth effectively.”
The growing gap between rich and poor in Britain has come under the microscope this year as the tide of public opinion turns against austerity measures pursued over the past seven years by Conservative-led governments. There have been growing calls for Prime Minister Theresa May to relax a cap on public-sector pay rises, while a fire in June at a London tower block that killed at least 80 people brought into focus cuts to vital public services, as well as the way different social groups are treated.
“The Grenfell Tower disaster wasn't just a horrific accident with severe loss of life, but illustrated in a graphic way how the less well-off are not listened to by those with authority,” said Cable, who served as business secretary in David Cameron's 2010-2015 coalition government. “Britain is becoming a more unequal society compared to its neighbors and its past.”
Separately on Wednesday, the Institute for Public Policy Research published a report that found the gains from economic growth in Britain are feeding largely into increased corporate profits rather than wages, which have stagnated for the longest in 150 years. It called for “fundamental” reform of the economy, including a simpler tax system, better wealth distribution and the creation of regional banks to support local economies.
“Britain stands at a watershed moment where we need to make fundamental choices about the sort of economy we need,” Welby, the most senior cleric in the Anglican church and a member of the panel that produced the report, said in an emailed statement. “We are failing those who will grow up into a world where the gap between the richest and poorest parts of the country is significant and destabilizing.”
‘Effective Taxation'
Cable called for “effective taxation of inherited wealth,” the elimination of “the large opportunities which exist for tax avoidance and arbitrage,” and reforms to council tax charged to homeowners, including an increase in the number of taxation bands that are based on the value of a property. Those in low bands should pay less, and high bands more, he said, while admitting that his previous suggestion of a so-called mansion tax had been “a bit crude.”
“The problem is at the moment that inheritance tax is voluntary; you pay if you want to, or if you've got a decent accountant you don't,” Cable said, adding that ways of bypassing it, including the use of gifts, need to be reformed. If inheritance tax “is the main mechanism of wealth taxation, then it needs to be applied,” he said.
Cable pledged to make inequality “one of the main themes of my leadership” and said he is aware that proposing taxes on wealth is “difficult in a country where property ownership has almost religious significance.”
To contact the reporters on this story: Alex Morales in London at amorales2@bloomberg.net, Thomas Penny in London at tpenny@bloomberg.net.
To contact the editors responsible for this story: Flavia Krause-Jackson at fjackson@bloomberg.net, Eddie Buckle, Andrew Atkinson
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