Raising the tax-free personal allowance is the Lib Dems’ headline contribution to this Government – so popular that the Tories are trying to claim it as theirs! But when Danny Alexander said that our next manifesto should include a promise to raise and peg the personal allowance to the National Minimum Wage (almost £13,000) he was setting his tax policy working group a challenge: to find £12bn a year from elsewhere.
According to the Institute for Fiscal Studies this isn’t progressive. Highest earners and others benefit, while the unwaged and very lowest paid don’t benefit at all. But the tax policy working group believes that’s for welfare – not tax – policy to solve: helping the lowest paid by shifting taxes from earnings and enterprise to “accrued wealth” is key to its remit.
Overwhelmingly, “wealth” lies in pension pots and immovable property: land and buildings. Other financial wealth and movable property only amounts to 20% of the total.
Property in the form of land generates an annual rental income – totally unearned – of some £250bn. Tapping into this, the Party’s campaign group ALTER (Action for Land Taxation and Economic Reform) has proposed a radical shift exclusively onto land value tax, which makes the Mansion Tax (now stolen by Labour) pale into insignificance. Branded as ‘Lo-Tax’ (enabling lower taxes on work by taxing location value), it ticks all the points in the tax policy working group’s aspirational consultation paper (page 3):
- “Help the lowest-paid” – as above.
- “Be simpler” – as in Sweden, every taxpayer and business would receive a single tax bill, including “annual land rent value” as “notional income” – like Schedule A income tax (abolished in the ‘60s). It would also incorporate local taxes, each tier having its own Lo-Tax ‘precept’.
- “Help small and new businesses to get going” – the current tax system is skewed against smaller and younger firms, who tend not to own land yet are burdened with intrusive and costly paperwork.
- “Ensure the richest pay their fair share” – wealth inequality is even starker than income inequality, especially in land ownership. A ‘Homestead Allowance’ would ensure a tax-free allowance for people’s one principal residence: poorest households would pay no Lo-Tax (the rich can’t avoid it) with most people paying less than current council tax.
- “Ensure big businesses pay their fair share” – only big companies can afford the top lawyers and accountants who exploit the loopholes in taxation of movables. Land can’t be moved.
- “Prevent problems which contributed to the 2008 financial crisis returning again”. Property speculation was the root of this crisis. The Party’s last tax review was in 2006-7, so this one ought to put Lo-Tax top because it tackles just such speculation. Formation of the cross-party Coalition for Economic Justice was triggered by the same crisis.
- “Be much greener”. Lo-Tax (LVT) is widely recognised as ‘green’.
The key development with ALTER’s Lo-Tax is that land value tax would become a significant source of national tax, whilst replacing the main form of local taxation too – a much fairer ‘Local unearned Income Tax’!
* A party member for almost 50 years, Tony Vickers was Chair of ALTER from 1997 until last year.