FAMILY FINANCES ARE SQUEEZED – WHAT CAN YOU DO TO EASE THE PAIN?

First published by: The Guardian

LOOK AT HOW TO BRIDGE THE INCOME GAP

With everything from the cost of driving, food and bills rising families are struggling. Spring will bring a chill for most of us - a combination of at least 45 tax and benefit changes will ransack household budgets already depleted by soaring food and fuel prices, and predicted interest rate rises will tip many mortgage holders into the red.

On average, households are already £480 a year worse off following tax changes introduced in January, according to the Institute for Fiscal Studies. April's reforms, including increases to fuel duty and national insurance contributions, will add an extra £200 burden. 

The problem of making ends meet is particularly acute for families. Last year households with dependent children needed an additional £650 a month just to cover everyday living costs compared to those without, according to the Consumer Credit Counselling Service (CCCS).

Families with more than three children are, on average, £45 short of the money they need to live each month. No wonder, then, that 28% of Britons are spending more than they earn each month, according to Cooperative Insurance and homeless charity Shelter. Joanna Parsley, associate director of charity Credit Action, said: "Even people who have had a marginal increase in their salaries will find it is cancelled out by rising living costs. Those with no children or on lower incomes might be better off because of an increase in the personal allowance, but for most of us there really is no way to avoid the squeeze. It is vital that everyone looks to revisit their finances and get them in order."

Homeowners are likely to be more precarious than renters, the CCCS said. On average, clients who own their own home have more than £30,000 in unsecured debts on top of their mortgages. And although interest rates on credit cards and personal loans don't usually move in line with bank base rate, a 2% rise would lead to a £307 increase in monthly mortgage payments. "It is the lull before the storm," said CCCS spokeswoman Una Farrell last week. "Mortgage holders have managed quite well because interest rates have been so low, but we are expecting a big influx of new clients as rates rise."

No section of society is safe. CCCS chairman Lord Stevenson said: "It seems likely that many more families, including better-off ones, will be increasingly prone to over-indebtedness in the months ahead. "It is also not a uniform picture: public sector cuts in terms of jobs, spending and benefits will weigh disproportionately on certain groups, and the incidence of unmanageable debt bears down harder on specific parts of the country, such as London and Yorkshire."

It is easy to blame inflation and tax rises, but are we also to blame for expecting too high a standard of living? Apparently not, if research by First Direct is anything to go by. It found that young people would have to increase their income by 55% to enjoy the lifestyle their parents had at the same age. The figures show that someone in their mid-twenties would have to earn £39,720 to buy a house, fund a wedding and afford a first child; the average salary for 20-somethings is nearer £25,000.

In November the Office of National Statistics released its latest data on the cost of UK lifestyles, which showed that in 2009 the average household spent £16 a week less than the previous year - the first time expenditure has fallen since current recording methods were introduced in 2001. "In statistical terms that's quite a robust change," said ONS statistician Giles Horsfield. "We noticed that a greater proportion of the weekly spend went on food, and less went on transport and recreation."

Figures for 2010 won't be released until the end of the year, but transport and food will almost certainly swallow even bigger slices of the weekly budget thanks to an increase of about 18 % in fuel costs over the past year, according to PetrolPrices.com, and a 4.2 % increase in groceries, according to shopping website mySupermarket.

The average disposable household income in the UK of £28,354 is clearly not enough to meet a household's daily outgoings. So, the Observer decided to look at typical and - in most cases -essential household costs to work out exactly why we are so broke, whether the situation is likely to get better or worse - and what you can do about the income gap.

Motoring

The expense of running a new car rose to £5,869 last year, with fuel (£1,300) and depreciation (£3,072) the most significant costs, according to the RAC. Owners of used cars faced an average cost of £4,441 in 2010, including £1,396 in fuel and £1,040 in depreciation. With the average cost of a litre of standard unleaded now costing 133.34p and a litre of diesel hitting 139.71p, according to PetrolPrices.com, it will come as no surprise that the cost of running a car is expected to soar this year.

Fuel duty is set to rise by inflation plus 1p on 1 April (the ninth tax increase since December 2008), adding between 3p-4p a litre at the pump and around £50 to the average annual bill. To combat rising fuel costs, drivers should make sure tyres are well inflated and should drive sensibly, get their car serviced regularly to maintain engine efficiency, avoid unnecessary use of air conditioning, and get rid of roof racks to improve aerodynamics. Also consider lift-sharing, try to find the cheapest local petrol - PetrolPrices.com is a useful source - and take advantage of discounts and supermarket deals.

To reduce insurance costs you should shop around for the best deal; consider buying a smaller car; pay your premium up front; park in a driveway or garage; consider a third party fire and theft policy if your car is low-value; and don't overestimate your mileage. Young female drivers, who are expected to be hit by soaring premiums following the recent European ruling banning the use of gender in underwriting, may benefit from the introduction of "black box" based policies which are based on the safety of a policyholder's driving habits.

Mortgages

Thanks to the Bank of England base rate staying at 0.5% for the past two years, monthly mortgage payments have dropped to their lowest levels in 10 years. The average mortgage borrower, according to the Council of Mortgage Lenders, owes £109,110 at an interest rate of 3.5%. The vast majority of mortgages are set up on a repayment basis, and the monthly premium for a loan this size would be £546.23. However, most experts expect the base rate to rise very soon, which will increase the cost of all variable rate deals. Each 0.25% rise in base rate will add £15 to a £109,110 repayment loan, according to moneysupermarket.com.

David Hollingworth of mortgage broker London & Country says most people will opt for a fixed rate to protect themselves against rises. Nationwide building society has a five-year fix at 4.39% with a 70% loan-to-value (LTV) ratio and £999 application fee, while Norwich & Peterborough building society has a five-year fix at 5.38% with an 85% LTV and £995 fee. However, those who are more confident that their finances can absorb some extra costs may prefer to take the risk that the base rate will rise slowly, opting instead for a tracker mortgage. HSBC's lifetime tracker is set at 1.79% above base and has an LTV of 60% and fee of £99.

Food

The FAO Food Price Index rose for the eighth month running in February, up 2.2% from January and at the highest level since January 1990 when the index began. In the UK, certain foods climbed in price at the beginning of the year as VAT rose from 17.5% to 20%, but other items - tea, ground coffee, butter, pasta, fruit juice, bread and vegetables - have shot up still further, according to mySupermarket.co.uk.

Dalia Mays, a spokeswoman for the site, says there to reduce the cost of the weekly shop. Try swapping your regular supermarket for a cheaper one: buy your staples at Asda rather than Sainsbury's or Waitrose. Try setting a budget and shopping online: it means you can buy everything you normally would but you won't be tempted by off-list extras. She adds: "Everyone has the brands they will never swap, such as Diet Coke or Heinz ketchup. But for things you're not too bothered about, try the supermarket own brand, or better still the supermarket value range."

Mysupermarket calculates the VAT increase will cost food shoppers an extra £66 in 2011 compared to 2010. But you can avoid VAT altogether by making crafty substitutions: buy tortilla chips instead of crisps, cream gateaux instead of arctic roll and chocolate chip biscuits instead of chocolate covered ones, unshelled salted nuts instead of shelled ones.

Utilities

Although households benefited from price cuts in 2009, the proportion of the household budget spent on energy rose substantially in 2010 thanks to freezing weather at the beginning and end of the year, and prices have risen by an average of 6.5% over the past 12 months. The average annual dual fuel bill was £819 in January 2008, but now stands at £1,132, according to uSwitch.com. Spokeswoman Ann Robinson said that if Ofgem considers current profits being made by energy companies as reasonable, and oil prices remain high, there is "a reasonable chance energy prices will go up later this year".

Consumers should check whether they can save money on bills and cut the amount of energy they use. Consider fitting an energy efficiency device to help reduce use, and turn things off when they are not in use. Insulating a home or installing an energy efficient boiler can produce longer-term savings.

Paying by direct debit each month will help reduce bills (suppliers offer discounts for paying this way) and consumers should make sure take regular meter readings as estimated bills can be disporportionately higher. Anyone who is concerned about paying their energy bills should contact their supplier to discuss the options.

Council Tax

The average band D household is expected to pay £1,438.87 for Council Tax in 2011, down 35p on last year, according to the Chartered Institute of Public Finance and Accountancy. The government has stumped up £650m to local authorities to allow them to freeze bills this year, although some are still imposing increases.

There's not much you can do to reduce the size of your Council Tax bill. But if you are the only adult in the household, you may qualify for a 25% discount. Other adults may be "disregarded", including full-time students, student nurses, young people on government training schemes or those following apprenticeships, and live in care workers. If everyone who lives in the property is disregarded there will still be a Council Tax bill, but it will be discounted by 50%. Check whether your household qualifies on the Citizens Advice website.

Credit cards

The most vulnerable to debt are those with children because they have less flexibility to reduce their expenditure, which means they are more likely to take out credit to meet living costs. If you want to reduce the interest you pay help may be at hand with MBNA's recent introduction of an 18-month 0% balance transfer card. This sparked a card price war with Virgin Money entering the fray with a deal to match the MBNA card. Barclays then stretched its own 0% interest period on balance transfers from 18 months to 20 months.

While the credit-scoring might be tougher on new cards, switching your debt to a card incurring no interest is a sensible move. Decent deals are also on offer from M&S (0% for 15 months) and Nationwide (0% for 17 months) - but make sure you compare the balance transfer fees and check the length of the offer for new purchases made on the card - the reversion interest rate is always markedly higher

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COUNCIL TAX REBATE REFORMS RISK REPEAT OF POLL TAX DISASTER.

First Published By: The Guardian 

REPORT SAYS REFORMS WILL HIT LOWEST INCOME HOUSEHOLDS HARDEST AND RISK 'SEVERELY UNDERMINING' UNIVERSAL CREDIT SCHEME

The 1990 poll tax riots in London: the IFS says 'the perceived unfairness of the poll tax was associated with non-compliance on a scale rarely seen in the UK'. Plans to give local authorities control over Council Tax rebate at the same time as cutting funding by a tenth could result in the poor driven out by boroughs seeking to save money – and raises the prospect of a replay of the poll tax debacle, a report claims.

A damning assessment by the Institute for Fiscal Studies of the proposed Council Tax benefit changes, which start next April, says that although the reform's £480m a-year savings equate to an average £19 per household, the working poor would be hit hardest. The government proposes to allow councils to design a local benefit system but in return says it will cut funding for it by 10%. With 5.9 million recipients, it is more widely claimed than any other means-tested benefit or tax credit.

The cut in funding will be larger, says the think-tank, in areas where Council Tax benefit spending is highest – the more deprived areas of Britain. It estimates the cut in funding will range from around £5 per dwelling in the wealthy City of London to £38 per household in Haringey, the fourth most deprived borough in the capital. The report also notes that the requirement to protect pensioners in England means that the cut in funding of a tenth translates into a 19% cut in support for working-age claimants. Those local authorities where pensioners account for an above-average share of Council Tax benefit spending would need to make larger percentage cuts to support for working-age recipients. For one in 10 English local authorities it would be more than 25%, with the highest value being 33% in East Dorset and in Craven, North Yorkshire.

The IFS also says cuts to Council Tax support are bound to hit lower-income households, as 85% of the benefit goes to the lower-income half of households and almost half goes just to the lowest-income fifth. The report's authors warns that to limit their spending councils will have "an incentive to discourage low-income families from living in the area" and that raises the possibility that councils will – like the ill-fated poll tax of the early 1990s – be left to chase desperately poor people through the courts for small amounts of unpaid tax. The poll tax led to riots and played a part in the downfall of Margaret Thatcher. Recalling these events, the IFS says in 1990 "the perceived unfairness of the tax was associated with non-compliance on a scale rarely seen in the UK".

However, the new scheme replicates some of the worst aspects of the poll tax. "These policies mean that all households, even those on the lowest incomes, would have to pay some Council Tax. The poll tax experience showed how difficult it can be to collect small amounts of tax from low-income households that are not used to paying it," they say, noting that the poll tax was "quickly replaced". The proposed scheme also risks "severely undermining" the government's flagship universal credit scheme, which will replace six of the seven main means-tested benefits and tax credits for those of working age with a single benefit. However, the seventh means-tested benefit will be "localised".

James Browne, a senior research economist at the IFS and one of the authors of the report, said: "Cutting support for Council Tax and localising it are two distinct policy choices: either could have been done without the other. Whether you think that cutting Council Tax support for low-income families is the best way to reduce government borrowing by £500m will depend on your views about how much redistribution the state ought to do.

"But the advantages of localisation seem to be outweighed by the disadvantages, particularly as it has the potential to undermine many of the positive impacts of universal credit." The local government minister, Bob Neill, said: "Labour fostered a culture of welfare dependency with Council Tax benefit more than doubling on their watch. "People who have worked hard all their lives and paid taxes need to know the spiralling benefits bill is being controlled and that work pays. "It is right that local authorities, who collect Council Tax, have a strong incentive to put in place a fairer local Council Tax support scheme that helps their residents get back into employment based on local priorities.

"I find it astonishing that the IFS are following the Labour party's lead and recommending the abolition of the single person's discount. "We shouldn't be punishing single mums and pensioners who have worked hard all their lives and paid their taxes simply because they live on their own. There is a gross sense of injustice at raising taxes that could force people out of their homes."

Labour said that the universal credit programme risked descending into chaos. Stephen Timms, the shadow work and pensions minister, said: "We've been warning for the last 18 months that universal credit was so badly thought through that chaos would ensue. Now, the IFS has revealed that the new benefit will be torpedoed by changes to Council Tax benefit. One part of government doesn't seem to know what the other part is doing.

"It looks like two parts of government are simply at war with each other; and it's poor old ratepayers who could pick up the tab, with higher bills or worse services. Thousands could find themselves suddenly better off on benefits than in work. "With the work programme sinking, the benefits bill spiralling up by £9bn and huge questions over universal credit, the government's welfare reforms are looking more chaotic by the minute."

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'GRANNY FLATS' TO GET TAX BREAKS UNDER NEW PROPOSALS

First Published by: The Guardian 

ERIC PICKLES ANNOUNCES PLANS TO SCRAP COUNCIL TAX BILLS FOR LIVE-IN ANNEXES AND MAKE IT EASIER TO CONVERT GARAGES

Eric Pickles says the plans should benefit many families and pensioners. Hundreds of thousands of families could benefit from tax breaks on "granny flats" under plans being considered by the government. The communities secretary, Eric Pickles, said he was keen to scrap Council Tax for live-in annexes, arguing the current rules were "fundamentally unfair". 

It is believed ministers are also considering overhauling planning regulations and fees to make it easier for home-owners to convert garages and other outbuildings. 

Pickles told the Daily Telegraph: "We are keen to remove tax and other regulatory obstacles to families having a live-in annexe for immediate relations. "We should support homeowners who want to improve their properties and standard of living. These reforms should also play a role in increasing the housing supply."

The MP said it was unfair for households to be charged twice by paying Council Tax on their homes and annexes - which are regarded as separate dwellings. It is estimated that as many as 300,000 households in England could benefit from the change. The reforms are expected to form part of a package of policies to increase housing supply and address the shortage of affordable homes over the next two years.

Labour said it was unclear who would benefit from any further relaxation of the tax rules as annexes occupied by dependants aged over 65 are already exempt. Government sources conceded that the timing or detail of any change, which would probably require primary legislation, had not yet been considered. Such a move would also reduce the income of local councils at a time when town halls are already being forced to implement severe spending cuts.

The shadow communities secretary, Hilary Benn, said: "This is a decidedly peculiar claim by Eric Pickles as occupied granny flats have been exempt from Council Tax since 1997. "It is therefore extremely unclear exactly which pensioners the government expects to benefit from these changes, and the granny-tax fiasco doesn't give us confidence that they will get this right.

"This seems to be nothing more than an attempt to deflect attention from their housing crisis. What we need is to get building and get the economy moving again. That's why Labour is proposing to build 25,000 new affordable homes and a temporary cut to the rate of VAT. " Under the 1997 regulations, Council Tax is not paid on annexes occupied by relatives who are over 65, "mentally impaired", or "substantially and permanently disabled".

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UNOCCUPIED, UNLOVED: LONDON MANSIONS LEFT TO CRUMBLE BY ELUSIVE OFFSHORE OWNERS

First published by: The Guardian

COUNCIL OFFICIAL DESPAIRS: 1 MILLION EMPTY HOMES IN LONDON AND ACROSS THE UK

Empty property in Mayfair, London. There are 3,000 empty properties in Westminster, London, an increasing number of which are being squatted. "When I was a boy I used to come up to London and see houses like these and think 'Wow. Who lives there?'" says Paul Palmer, gazing up at a pair of seven-storey mansions in Park Lane across the road from Hyde Park. "Now I know – no one. These are owned by two different companies registered at the same address in the British Virgin Islands. 

They haven't been occupied for at least seven years, apart from when the squatters were there in January." There are an estimated 1m empty homes in the UK, and as empty properties officer for Westminster council, Palmer is responsible for about 3,000 of them. Every day, he visits some of the ritziest addresses in the capital and does his best to get them lived in again. What makes his job unique is the staggering value of the properties on his books: some of his Mayfair mansions are worth as much as £50m, even in their dilapidated state. What makes his job difficult is that many of the biggest and most expensive are owned not by dusty old dowagers down on their luck but by mystery investors hiding their identities behind offshore companies.

"I feel it is a tragedy," says Palmer. Many of these buildings have wonderful histories, and are part of our heritage. For them to be left vacant and unloved for a such a long time, pawns in a real-life game of Monopoly, is disgraceful." The properties usually aren't abandoned for reasons which might prompt sympathy. Palmer believes many elusive owners don't have the slightest intention of bringing them back to life. "So often offshore owners have little or no interest in the property as a building - it is merely an asset to be traded as they see fit," he says, adding that offshore firms are very tricky to track down.

Take the Park Lane townhouses, which Palmer estimates are worth £10m apiece. The key leaseholds on each are held by Konzeo Ltd and Weleta Ltd, two companies incorporated in the British Virgin Islands (BVI), a tax haven in the Caribbean. Both firms ignored multiple letters from Palmer asking them to explain why the buildings were unoccupied and threatening to issue a compulsory purchase order – until a gang of squatters, plus their dogs, moved in and were pictured on the front page of the Sun in January.

Builders appeared after the squatters were evicted, but Palmer says they were on site for only a few days and have never returned. "It's just the same situation as before," he says, peering through the letterbox nine months on, "only now they've left the lights on." Within a five-minute walk of Park Lane are 21 of the grandest properties on Palmer's list, worth between £6m and £50m each by his estimation. Of these, seven are registered to BVI companies, with others owned by firms incorporated in Jersey, Guernsey and Switzerland. 

Many are registered at the same address in Road Town in the BVI's capital of Tortola, just under different post office box numbers, says Palmer, who confesses he has often gazed at the satellite picture of Road Town on Google Maps and wondered what secrets lie beyond the satellite's range. John Samson, a property law expert at Taylor Wessing, says offshore-registered firms buy expensive London property as an investment, just like art or any other commodity. "One of the reasons that people buy property in London, and in particular Mayfair, is that there is almost always a demand for it," says Samson. "Investors believe the value will not only be maintained but will go up, regardless of whether it is lived in or not." Amanda Royce, a property solicitor, says Mayfair is a particularly attractive investment location for foreigners now because of the weak pound. 

"The owners leave them empty sometimes because they lose track of their properties. Often they have a place in New York, a place in Monte Carlo, one in the south of France and so on."In some cases where property is owned by offshore companies, UK capital gains tax will not be payable, says Samson. "If an investor with a British-registered firm bought a property for £1m one year and sold it the next for £2m, he would be liable for 18% capital gains tax on the £1m profit."

Upper Grosvenor Street in Mayfair ought to be one of the most desirable addresses in London. The heavily fortified American embassy occupies a square halfway down. Le Gavroche, with its two Michelin stars and Michel Roux Jr in the kitchen, is just around the corner and Hyde Park is at the end of the road. Yet four grand properties on the street have remained empty for up to eight years, abandoned and left to ruin by their offshore owners.

No 21, registered to Boss Holdings in Jersey and worth around £15m, has been vacant for at least eight years. So has No 18, which is believed to be owned by an Abu Dhabi prince who bought the property in June 2006 via a company registered in the British Virgin Islands. He has never lived there, but others have: the 30-plus rooms of the grade II-listed residence were squatted last November by a raggle-taggle of artists calling themselves the Da! Collective.

No 18 is registered to a firm called Deltaland Resources, which, according to property developer Mo Ghadami, is owned by Sheikh Sultan Bin Khalifa al Nahyan. When the Guardian contacted Deltaland's lawyer, Costa Keliris, at Maxwell Winward in London, asking whether the sheikh was the true owner, he did not respond. Whoever owns No 18 looks to have been shamed into actually developing the property. Last week, builders were on site, tut-tutting at the graffiti left by the squatters and sprucing up the building's crumbling exterior.

Down the street, the handsome twin townhouses at Nos 41 and 42 have both been empty for around five years. The leaseholds on both belong to BVI firms. One, Merix International, paid £25.85m for No 41 in 2007. Around the corner in Park Street are three more empty mansions, which Palmer says have not been occupied for up to eight years but are worth a total of £40m, even in their current sorry state. "Look at this one – it's massive!" he says, pointing to a monolithic red brick mansion opposite the Grosvenor House hotel. It has Sellotape across the top of the front door. "Aha," says Palmer. "The squatters have been scoping this one out. They do it to see if anyone is coming in or out."

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BILLIONS NECESSARY TO FUND NICK CLEGG'S PROPOSAL

First published by: The Guardian

LIB DEMS EXAMINE OPTIONS TO FAST-TRACK £10,000 TAX THRESHOLD PLANS

Clegg has called on the government to go faster to lift allowances, claiming lower income groups were in a state of emergency due to a squeeze on living standards. The Liberal Democrats have started examining ways to raise billions in higher taxes on the rich to fund Nick Clegg's call for the government to go faster in lifting the personal income tax threshold to £10,000. 

Clegg's officials admitted that the rate at which the threshold could be increased would depend on what schemes can be developed before the budget to fund the proposal. Tax avoidance, aviation taxes and wealth taxes will all be examined by the Treasury. In a speech on Thursday Clegg called on the government to go faster in lifting allowances, saying lower income groups were in a state of emergency owing to a squeeze on living standards. Alex Henderson, tax partner at PricewaterhouseCoopers, suggested each £100 increase in the personal allowance cost the government at least £500m, and raising the threshold from £8,105 to £10,000 would cost £11bn. 

No 10 reacted calmly to Clegg's call, pointing out that the goal of a £10,000 personal allowance threshold is existing coalition policy. But Tory MPs were divided, with some warning the chancellor, George Osborne, not to let the Liberal Democrats grab credit for the policy and others warning the idea was expensive and unlikely to boost business confidence.

David Ruffley, a Conservative Treasury select committee member, warned: "There are no free lunches here and I think many of us believe the best way now to boost business confidence is not pushing it up to £10,000 to put some more money in the household pockets, but to actually go for payroll taxes." On the left, many analysts argue lifting the threshold is not as progressive as it seems since it is not aimed at household income.

Clegg will be delighted that he has highlighted what is a relatively simple tax policy, saying in his speech: "Cutting income tax is one of the most direct tools we have to ease the burden on low and middle earners." The income tax threshold was raised by £1,000 to £7,475 in the 2010 budget, and the government plans to increase it further to £8,105 this year.

In his speech Clegg continued to insist he was interested in a mansion tax, even if some of his officials doubt that such a radical policy can be pushed through the Treasury by the time of the spring budget.

Lord Oakeshott, the Liberal Democrat peer, urged Clegg to stick to his guns on the mansion tax, saying: "If we really want to tax the wealth of the super-rich, mansion tax is the game changer – the only tax the nondoms and City sharks cannot dodge."

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VINCE CABLE: LIB DEMS ARE READY TO CUT A DEAL ON 50P TAX RATE

First published by: The Guardian

LIB-DEMS ARE WILLING TO BACK TORIES

Vince Cable said Lib Dems were also working on raising the lowest earners out of the tax system altogether. Vince Cable has confirmed that the Liberal Democrats are ready to scrap the 50p top rate of tax in exchange for a new tax on multimillion-pound properties. His party leader, Nick Clegg, has opposed calls for the abolition of the top rate of tax, but Cable indicated there was a deal to be done in the run-up to the budget amid pressure on the chancellor, George Osborne, from the business lobby and fellow Conservatives to scrap the measure. 


The business secretary stepped up the pressure on Osborne as he became the first cabinet minister to confirm there was a "very broad understanding" in the coalition of a reciprocal deal that would see the tax shift from income to wealth. The Lib Dem minister also signalled that new higher rates of Council Tax bands could be the levy of choice. He said a possible trade-off for ditching the top rate of tax was just one part of a "complex set of negotiations which my colleagues are conducting".

The Lib Dems have campaigned for a "mansion tax" on properties worth more than £2m, to pay for the poorest workers to be lifted out of the tax system. Cable told BBC Radio 4's Today programme: "If the 50p rate were to go – and I and my colleagues are not ideologically wedded to the 50p tax rate – if that were to go, it should be replaced by taxation of wealth, because the wealthy people of the country have got to pay their share, particularly at a time of economic difficulty.

"How exactly that is configured is a detailed matter for negotiation, but that principle must be upheld, and the mansion tax is actually a very economically sensible way of doing it. But there are different ways of approaching it." Cable did not rule out new, higher Council Tax bands on multimillion-pound properties. "There are vast numbers of extraordinarily valuable properties now around the south of England netting very large gains for their owners – many of whom come from abroad, incidentally – and it's not taxed at all," he said. "Basically, you get people with multimillion-pound properties paying exactly the same Council Tax as somebody in a three-bedroom semi. So the system doesn't work."

Cable said the Lib Dems were also emphasising in negotiations the importance of lifting low earners out of tax altogether – one of the party's key themes. "We are making progress with that," he said. "That's certainly an important part of the mix as well." Jeremy Browne, the Lib Dem foreign spokesman, signalled over the weekend that the Lib Dems were not "ideologically wedded" to the 50p rate of income tax.

But Boris Johnson, the Conservative London mayor, who has repeatedly called for the 50p rate to be scrapped, balked at the idea of a mansion tax. He said he was under the impression that there was "no agreement in the coalition". Johnson said on Sunday: "Obviously, in a city like London … you're going to find many more people who might be hit by such a tax. I'd much rather that we stop focusing so much on bashing people and started thinking what we can do to help people into work."

A London Tory MP echoed Johnson's concerns, claiming that the tax would hit London the hardest and hurt middle-class families. Malcolm Rifkind, Conservative MP for Kensington and Chelsea, said 81% of properties affected would be in London, half of which are in his constituency backyard. He said the levy would be "arbitrary, disproportionate and unfair" and declared himself "resolutely opposed to such a tax".

Many homes costing more than £2m are "fairly ordinary townhouses", he wrote. "Such a wealth tax would target not mansions but desirable locations," he said, adding that it would affect people with "comfortable but not wealthy middle-class incomes", many of whom had bought their homes prior to the "explosion in house prices".

It would be "extraordinary" if a Conservative-led government incorporated such a levy into the tax structure, he said. "If we are to target the super rich for taxation, the least we can do is ensure that carelessness doesn't leave middle-class families in the crossfire. Failure to do so could force hard-working Londoners out of homes they have lived in for decades."

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TORY COUNCIL TO CHARGE CHILDREN £2.50 FOR USING PLAYGROUND

First published by: The Guardian 

PLAN WILL TURN PLAYGROUND INTO A NO-GO AREA FOR THE POOR

Wandsworth council said its playground in Battersea Park was 'more than just swings and roundabouts'. For the children of Wandsworth, the age of innocence ends this autumn when their council puts a price tag on playtime. 

To help fund £55m worth of budget cuts, councillors in the south London borough have decided to charge children £2.50 to use the local playground. The Tory-run council will pilot the charge at weekends from October at an adventure playground in Battersea Park. 

Labour politicians have described the charges as "unbelievably mean-spirited" and an attempt to turn play areas into no-go areas for the poor. An e-petition lodged on the council's website had gathered 154 signatories by Thursday. The council said the park was "more than just swings and roundabouts" and that because the adventure area contained zip wires and 40ft structures, there were added health and safety staffing costs that needed to be recouped in difficult economic circumstances. The council also said the charge was being introduced to provide the "best value for money" for local taxpayers.

A survey carried out at the playground by the council revealed that half of the children came from neighbouring boroughs. "Why should Wandsworth taxpayers subsidise children from other boroughs?" a council spokesperson said. The borough admits it is not expecting to make much money from the scheme and has no income target in mind but says the playground would have to close if it did not introduce the charge. "The difficult economic situation we face means we have to consider every aspect of the work we do and the services we provide. The adventure playground is a very popular but also very expensive facility to run.

"Introducing a pilot charging scheme at weekends will allow us to carry on investing in the playground, recoup some of those costs and allow us to continue providing the best value for money we can for our Council Taxpayers. At around half the price of a child's cinema ticket we do not believe the fee is excessive." In Wandsworth, band D Council Tax bills are £687 a year, about half the London average. Sadiq Khan, the shadow justice minister and Labour MP for Tooting, which is part of Wandsworth, said: "This is unbelievably mean-spirited, even for Wandsworth council. It will be children from the poorest families who lose out. "As families are squeezed by the Tory-led government's cuts, Wandsworth should be promoting low cost healthy activities, like those on offer at Battersea Park, not driving poorer children and families away."

Ken Livingstone, the Labour candidate for London mayor, said that parks and playgrounds should always remain free. "Only the Conservative party could consider charging kids to play. I believe London's parks and playgrounds should be free for London's families and I am deeply concerned at this attempt to turn publicly funded playgrounds into areas which only the rich and privileged can enjoy." The council says it will review the charges in the summer of 2012.

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