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Dear Chancellor

Published on November 21, 2017

Dear Chancellor,

I know that you’re in a difficult position, one in which many FDs would empathise: borrowing is high; problems, especially social care/health and housing, need solving; and tax rises (cost cutting to an FD) aren’t popular.

If you think that you can “kick the can down the road” by borrowing more, then good luck. Markets will correct in the next year or two and conventional economics dictate that interest rates should fall. Unless they have risen by then this won’t be a cure, as Japan’s experience demonstrates. And if they rise the cost to the Exchequer will start to pinch other budgets.

If you think that the Government’s fortunes will be decided by Brexit and nothing can be done until it’s clear, then I suggest you hand over the reins to someone with more vision.

If, as I hope, you espouse the virtues of every politician – to want to make a positive difference – then would you consider the following changes to Council tax and Residential housing gains?

At present there is a 25% reduction in Council Tax for people who either live on their own or live in a house where they are the only adult. On the face of it, it seems fair that people who live alone are helped. But with an acute housing shortage is it still a good idea to incentivise people to occupy houses that are too big for them. I’m told that 30% of houses are in this category so if the subsidy was removed completely then Councils would benefit by 10% (30% of a 33% increase), which may not be enough to fund an increase in social care but it would be a significant contribution. People could choose to continue to enjoy single occupancy but would be paying for the privilege. Some would choose to downsize, thereby not expanding the housing stock but expanding its occupancy rate. The exemption for those with children would remain and the exemption could be retained for lower bands.

Or how about this? Residential housing gains have been considered sacrosanct but I have mentioned it in my blogs; G.O.D. ( Gus O’Donnell) mentioned it as a market distortion last year, and now the newspapers refer to it – “economists say that this exemption isn’t good for the economy” since it incentivises investment in the least productive assets. So how about this as a tentative first step? Gains are calculated from a base day (say 1st January 2018) and divided by at least two. This gain is allocated to each owner of the house. So if there are the expected two owners or more the tax is zero. But if there’s only one, then half the gain is taxable. Such gains would only accrue from the time that the house became solely occupied and there are no other adults: so children could stay in their home and share the gain when they turn 18. Those that choose to stay in large houses whose increase in value will help with their care costs will pay some tax to assist those that don’t or can’t.

I’m sure that there will be some howls of protest at the prospect of paying more tax. But it seems to me that these changes would only tax the luxury of living in a house larger than you need, which is essentially investing. My second suggestion would also remove the anomaly that two unmarried people “living apart together” can make capital gains on two houses whereas two married people living together have to pay an excess on a second home.

What say you Philip? Are you following your leader’s policy of helping the J.A.M.s or will you stick to the jammy ones?