Vince Cable dismisses so-called jewellery tax as 'wacky', but says party will also consider backing Labour's mansion tax plans

This article is more than 7 years old

This article is more than 7 years old

The Liberal Democrats are considering an assault on pensioners' anomalous tax privileges by imposing national insurance on any earned income, and capital gains tax on property or assets sold at death.

The proposals are in addition to a mansion super tax that would cover all property assets including second homes. The ideas are set out in a policy consultation paper due to be put before the party's spring conference next month.

The business secretary, Vince Cable, said, however, that proposals also contained in the party's consultation for a net wealth tax, branded a "jewellery tax" by the Mail on Sunday, were "wacky" and "completely impractical" and would not be pursued.

Cable added he was prepared to see what form of mansion tax Labour was considering before deciding whether or not to back proposals Ed Miliband first aired last week.

Labour has said it will table a Commons motion on a mansion tax, after throwing the party's weight behind such a measure last week. The issue is unlikely, however, to come to a vote in the Commons before the Eastleigh byelection on 28 February.

Cable said his party's stance would depend on how Labour phrased the motion. "If it's purely a statement of support to the principle of the mansion tax, I'm sure my colleagues would want to support it. But very often in these opposition days they can't resist the temptation to make party political point scoring and dragging other issues in like the 10p rate. If that happens I'm sure we will not. It's up to them to be statesmanlike and sensible in how they approach it."

The Lib Dem consultation paper forms part of the party's internal policy-making, and though the process is incomplete it will provide the Conservatives with ammunition in the Eastleigh byelection campaign as the Tories try to portray their coalition partners as a tax and spend party.

The paper is probably more significant in showing that the Lib Dems are still to finalise their plans for a mansion tax, asking whether it should be levied on property or the value of undeveloped land.

The paper says: "If successfully designed this would ensure taxpayers with multiple properties would be liable for a mansion tax on the cumulative value of their holdings above £2m."

That would mean that those who have invested in buy-to-let property could be liable for the tax, even if none of their properties individually was worth more than £2m.

The reference to jewellery comes in a passage considering the virtues of a French-style net wealth tax that would require taxpayers to conduct a self-assessment of their net worth. The paper concludes this would be "difficult to administer", and might have to include tax inspectors visiting homes to ascertain whether assets had been correctly valued.

The paper notes that a net wealth tax would target a similar group to a mansion tax, and overall seems unenthusiastic about the plan.

Speaking on Sky News, Cable was more blunt. "Taxing jewellery is completely impractical and intrusive … it's wacky … these ideas are not party policy."

The paper considers a wide range of revenue-raising measures, including:

• Restricting relief on pensions further from £40,000 to £30,000 and lowering the lifetime allowance from £1.25m to £1m.

• Capital gains tax on death. The paper says "CGT is forgiven at death and is not paid by the deceased's estate. This creates a perverse situation whereby someone selling property prior to death must pay CGT but the exact same assets are not liable if disposed at death."

It points out the independent Mirrlees review had recommended this relief from CGT be removed, which would raise £490m.

• A land value tax designed to dampen property prices, including a holding charge for owners of under-used sites.

• Council tax reform so that the upper band does more to differentiate between properties in the £320,000 to £100m price range.

• Imposing sunset clauses on all tax relief.

• Extending national insurance contributions (NICs) to benefits in kind, so clamping down on so-called salary sacrifice schemes.

• Introducing NICs on pensioners' earned income, and extending the period during which gifts can be paid to reduce inheritance tax to 15 years.

The paper also considers raising the tax-free personal allowance to £12,000, the level of full-time work on the minimum wage.

It proposes measures to clamp down on the use of excessive debt to fund business growth by changing the treatment of interest payments, and restricting the ability of businesses to offset losses in previous years against profits in the current year to reduce their tax bill.

The consultation rejects raising the 45p income tax rate, saying the current structure of income tax is broadly progressive.