Putting the party’s message in a distinctively liberal context – Part 3: a fairer society

Liberal Democrat badge - Some rights reserved by Paul Walter, Newbury, UKThis is the third of three posts looking at the party’s messaging. The introductory post was published here, and yesterday’s on the economic part of the message is here ; this last and final post concentrates on the second part of the message: social justice.

The second part of the party’s message is “building a fairer society”. Fairness was, of course, the theme of the party’s 2010 manifesto, linking the four key policy platforms on which we fought the election (fairer taxes, a fair start for every child, fairer politics and a fairer, more balanced economy).

If creating a stronger economy is about government doing what it can to ensure that economic prosperity is sustainable in order to maximise opportunity, the demands of social justice are first to use the state’s influence to ensure people are able to maximise those opportunities, and secondly to redress some of the unfairness inherent in a capitalist economy.

On the first of these – public spending – there is no end of potential things on which to spend tax revenues. What I think is most useful, therefore, is as a party to decide – and communicate – what our spending priorities are.

In my view, fundamental to creating the sort of opportunities I talked about in my introduction is education policy. It is through education that the state can harness its power in the most effective way to really transform the lives of those (in particular) who are born into families where the odds are stacked against them from birth.
The challenge for the party is to come up with big and bold ideas that can build on the fantastic pupil premium and continue the essential work of reducing the shocking disparities in achievement between children from the poorest and wealthiest backgrounds.

In these straitened times, of course, prioritising and increasing investment in areas like education means (in my view) reducing spending elsewhere. That forces us to confront yet more difficult choices.

One of the areas Liberal Democrats need to think carefully about is welfare spending. We seem too quick to be backed into the corner of defending Labour’s welfare system, despite knowing its many flaws all too well, because we think it is either that or take the Tory line. We need a distinctive, liberal approach to a social security system that helps the neediest, incentivises work and is affordable within the levels of taxation which the public are willing to accept.

The welfare system is one of the ways in which we redress some of the unfairness inherent in capitalism. For example, frictional unemployment will always exist in market economies; those in that situation need society’s support.

Another of the ways in which we remedy some of that unfairness is through the tax system. Progressive taxation has become an almost universally accepted principle, and the UK tax system overall appears pretty progressive.

But that is not to say there are not changes we should seek to make. The lowest paid still pay some of the highest marginal rates. Continuing to reduce the income tax burden on these people is good first start to changing this, but there other areas to look at.

National insurance is the obvious next candidate, but after that the majority of taxes paid by those on the lowest incomes are those on consumption, particularly VAT and fuel duty. Unless one has complex rebates or opt-outs of consumption taxes, the only way to reduce the burden of these taxes on the lowest paid is to reduce rates overall. A big shift away from taxes on income and consumption and onto wealth has to be a liberal priority.

Building a stronger economy in a fairer society can be a message that resonates with the public, with the Liberal Democrats as a party that can uniquely combine the joint aims of economic responsibility and social justice.

But to make it more than a soundbite, the message has to be backed up by strong, distinctive, liberal ideas. The challenge for Nick Clegg and the party is to remain disciplined in selling the message while setting it in such a context.

* Nick Thornsby is Thursday Editor of Liberal Democrat Voice and blogs here.

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28 Comments

  • I agree that there are “shocking disparities in achievement between children from the poorest and wealthiest backgrounds.” It has recently become very clear to the nation that being a Liberal Democrat in no way precludes one from ‘playing the system’ in order to avoid being on the wrong end of these ‘shocking disparities’.

  • Alex Sabine 1st Feb '13 - 2:33pm

    Nick, I agree with many of your themes: education, welfare reform and tax reform are all keys to building a society in which free individuals can flourish irrespective of background.

    I also agree that is a legitimate, and important, role of the state to soften some of the rough edges of capitalism, though we should also remember the insight of the great German liberal Ludwig Erhard, the architect of West Germany’s postwar economic renaissance. He advocated a social market economy, but he did not mean the social model of high public spending and welfarism that later evolved in much of Europe; for him, the prefix ‘social’ was meant to amplify rather than conflict with the ‘market’ – ‘the market IS social’, he reminded people: in fact, ‘the freer an economy is, the more social it is’.

    In that vein, liberal social policies should work with the grain of markets and individual aspiration – widening and deepening the participation in things like property ownership, share and employee ownership, personal saving and pension provision; and looking at the potential to use consumer and citizen power to improve the delivery of public services. It should certainly not

  • Alex Sabine 1st Feb '13 - 3:10pm

    (oops, pressed the wrong button there…)

    It should not be about defending either the failed welfare state we have now, which traps people in inter-generational poverty, or about defending monopoly power in public services which very often puts the user’s interests below those of the management, workforce and politicians to whom those managers are (wrongly) accountable.

    On tax, I agree with the need to reform – indeed ultimately to scrap – National Insurance, and (as I’ve argued before) a first step would be to realign the starting threshold with the income tax personal allowance, which would also be more progressive than further rises in the PA as it happens. The aim should be to get both of them to the level of full-time minimum wage earnings and then peg them at that level, but this will be very ‘expensive’ in Exchequer terms so will take a number of years.

    You are of course right that VAT and fuel duty bite heavily into the incomes of those on modest incomes (although more regressive by far is actually the excise duty on tobacco!). It would be nice to reduce these consumption taxes, and I certainly think cutting fuel duty would be a big vote-winner given its political sensitivity and importance to the household budgets of the ‘squeezed middle’.

    However I don’t think it would be easy to fund a significant reduction in these taxes by heavier taxes on wealth, at least not if we also want the kind of dynamic economy you called for in your piece yesterday.

    A wealth tax per se is a really bad idea, given the huge administrative problems associated with devising, implementing and enforcing it, as well as the economic damage that would ensue from some those aspects of it that hit productive investment and capital accumulation (which is of course the foundation for the economy’s future growth).

    Of course we do already have taxes that seek to capture certain aspects of wealth, usually on its transfer or realisation (inheritance tax, stamp duty, CGT) and what these have in common is that they are all widely regarded by economists of different persuasions as extremely inefficient taxes. Inheritance tax is widely hated, full of loopholes, and ripe for reform. Stamp duty offends against basic economic logic by taxing transactions and in the case of property is a bad way of capturing some benefit for the community from the uplift in land values (a better way being LVT or simply ending the CGT exemption on gains from primary residences) . CGT adds hugely to the complexity of the tax system, depresses the return to capital and thus deters investment, leads to double taxation of dividends and profits (which are subject to income and corporation tax respectively) while allowing gains on the sale of property, fine wine and art to be completely tax-free, and all this for a paltry amount of revenue. Its main redeeming feature is as a backstop to the income tax system (theoretically preventing people taking what is in effect income as capital gains), but there are surely better ways to do this.

    So ‘taxing wealth’ is a good slogan but we need to distinguish between things that would hit investment and wealth creation – which we surely want more of, and which requires there to be returns on the investment and incentives to wealth accumulation – and taxing ‘unearned’ wealth which accrues to individuals as a result of the ownership of finite resources that belong he community (ie land, oceans, mobile spectrum etc). The revenue gains from the latter could be substantial, but not enough to raise the personal allowance, the NI threshold, cut VAT and fuel duty into the bargain…

  • Alex Sabine 2nd Feb '13 - 1:26am

    Geoffrey,

    I note that you don’t engage with my specific arguments but instead impugn my motives (as usual), but I will try to offer a reasoned response to your criticism.

    Firstly, I think the reference to ‘Labour’s welfare state’ reflects the fact that the contours of the current welfare system overwhelmingly bear the stamp of Gordon Brown, who made it is his personal domain throughout his tenure as Chancellor and then PM (in the process upending the traditional role of the Treasury and turning it into a spending department to add to all the other ones).

    It also refers to the current Labour front bench’s reflexive opposition to every particular welfare change, even while claiming to be welfare reformers in principle (since their polling tells them that the public finds the current system unfair and indeed perceives the concept of ‘fairness’ largely in terms of duties and conditionality rather than entitlements).

    With the possible exception of the Universal Credit – still to be implemented – the coalition’s reforms to date have merely attempted to rein-in the remorseless growth in welfare spending rather than to remould the welfare system on new principles or new practices. Thus, opponents see cheese-paring all round, while reformers are frustrated with the lack of transformational change.

    But whichever way you look at it, the outcry (from campaigners, not from the general public it should be noted) over every individual welfare change shows the extent to which Brown’s legacy still frames the debate, and proves the point about it being much harder to withdraw a benefit than to extend it to new clients. (If you doubt this, wait to see the reaction if a future government has the audacity to scale back pensioner benefits like the winter fuel payment, which didn’t even exist until Brown’s time but is now widely seen as sacrosanct).

    I don’t doubt that Brown had some creditable motives (as well as some base partisan ones in building a large ‘client state’) in moulding the welfare and tax credit systems in the way he did. As the inimitable Peter Hennessy put it, if Tony Blair was a kind of chief scout Anglican preacher, Brown was from the Church of Scotland Missionary Society: you give people a tract, a Bible, a plan of how to dig a well, and a pot of money.

    The problem is that his mixture of exhortations to good behaviour and open-ended public largesse delivered depressingly meagre results in terms of their stated intentions: reducing poverty by getting people off welfare and into work. Indeed the number of people not in education, employment or training was on an upward trend even during the boom years, and the welfare bill soared in real terms despite low official unemployment.

    The irony is that in opposition New Labour chastised the Tories for their high welfare spending, branding it as ‘the bill for economic and social failure’, even though at the time (1994-97) unemployment was falling rapidly. Yet despite a decade of credit-fuelled prosperity, Labour in power delivered higher welfare spending in almost all categories (out-of-work benefits including in-work, housing benefit etc), a modest reduction in measured child poverty, but a stubbornly high level of long-term worklessness and inter-generational poverty, and a dysfunctional tax credit system riddled with complexity, under- and over-payments, fraud and error, and a bewildering array of tapers that together created big disincentives to work and independence.

    Grappling with this legacy is inherently difficult, and bound to lead to some hardship and even injustices during the transition, although of course the government must try to minimise these. (Much the same can be said of bold tax reforms that I also support, such as the introduction of a land value tax, or the reforms to child benefit.)

    But too often the opposition to the coalition’s reforms has come across as a lazy defence of the status quo: rarely is an alternative vision of what the welfare system should look like put forward, nor is there any recognition that the expansion of welfare spending in the past decade has put unsustainable pressures on the overall public budget which now need to be addressed if we are to retain public support for its core functions within levels of taxation that people are willing to pay.

  • Alex Sabine 2nd Feb '13 - 1:50am

    And on the ‘Tory’ name-calling, I would just say that I’m not currently a member of any political party but I do regard myself as a liberal, and one who is sympathetic to the Lib Dems in their more reformist guise even if I’m often frustrated with the crude positioning that passes for ‘differentiation’ under the coalition.

    As it happens I’m not sure the ideas I’ve put forward here and elsewhere on deregulation of the planning system, taxing economic rents including land value, liberalisation of the immigration laws or scrapping some of the big-ticket items of defence procurement would endear me to die-hard Tories, let alone my views on secret courts or gay marriage or the drugs laws.

    But hey, as long as you’re happy putting people into neat little partisan boxes and impugning their motives then I guess liberalism is in safe hands…

  • I can agree with parts of the article but once again this fails to set out how social justice/fairness fits into the Liberal Democrat philosophy; how principles, policies and actions fit into this process; and how economic policies (which in your case seem to have been taken from an economics text book!) have human, social and environmental consequences. Anyway, back to the real world……….

  • Richard Dean 2nd Feb '13 - 5:13pm

    The challenge for LibDems is to have something that is different and at the same time looks like a manifesto for government, rather than a manifesto for protest. I wonder whether “Building a stronger economy in a fairer society” might actually be a message that is meaningless for the public – do we really believe that Labour or Conservative politicians would claim to disagree with it?

    Frictional unemployment is about people who are transitioning from one job to another – the present system probably serves them reasonably well. Long-term unemployment is a more serious issue, causing far more damage than transitioning, particularly for the young, and the present welfare system does not seem to recognize this at all – it even perhaps seems to assign blame to those who are damaged the most.

    Many people would like to be wealthy and, if they can’t do that, they’d like their sons and daughters to earn well and become wealthy. So a tax on wealth might not necessarily achieve wide support, and might even have counter-productive consequences, particularly if it turns out that the taxable definition of “wealthy”includes savers and home-owners who do not feel like that at all.

  • “Building a stronger economy in a fairer society” is a decent message, if the policies to be promoted truly deliver what it says on the can.

    I agree with commentators above calling for root and branch reform of tax and welfare sysytems and see the creation of mass opportunities for productive work as the key to economic recovery.

    I would like to see our Manifesto for 2015 build on this theme from the bottom up include five basic points, as follows:

    1. Basic Citizens Income for all , equivalent to current JSA, to replace personal tax allowance and out of work benefits.
    2. Minimum wage Job gaurantee and employment skills training program for anyone willing and able to work.
    3. Housing benefit and social housing tenancies restricted to the disabled, pensioners and the employed including job guarante participants.
    4. Combined flat rate of tax equivaent to current basic rate tax and employee NI rate (32%) on all sources of income.
    5. Higher rate income tax replaced with Land Value Tax on top 15% of property holdings with transitional relief available for low income earners (i.e. the small number of asset rich, income poor retirees).

  • Liberal Eye 2nd Feb '13 - 7:20pm

    The difficulty with fairness is that it’s a dimensionless concept. It means quite different things to liberals and conservatives and doesn’t lead to a coherent political narrative despite LDs (and the SDP/Lib alliance before) spending 25 years trying to spin one out of it. Moreover, in practice its application by LDs is confined to a rather narrow spectrum of concerns centered on welfare and the like. This is important but difficult stuff and has been well picked over by every government so, unless we go for really BIG transformative ideas, we are competing to pick up pennies in front of a road roller. In practice, the party doesn’t do big transformative ideas (think LVT or drugs for instance) so we really are limiting ourselves to pennies.

    Additionally, the party is remarkable blind to unfairness in the marketplace. For example, just this last week it was reported that the woldsale price of lamb has fallen sharply but retail prices only slightly. The farmgate price of domestic lamb is down by 17% but retail prices by only 2% while NZ lamb wholesale prices are 23% down but retail ones only 12% compared with a year ago. So, someone (presumably the supermarkets) has pocketed a huge increase in gross margins instead of some combination of higher income for farmers and lower prices for consumers. This is grotesquely ‘unfair’ but I don’t expect to see much action from the Lib Dems; it’s almost as if this were happening on a different planet.

  • David Allen 3rd Feb '13 - 12:17am

    Alex Sabine,

    So, when it comes to drug policy and gay marriage, you say that your views are liberal. You write this, out of context, into a thread which is about economic policy. You do so because somebody has suggested that your economic views are indistinguishable from those of the Tories, and because you would like to claim otherwise. Well, argument by distraction isn’t valid, sorry.

    So, while spending a great number of words on slagging off those who disagree with you, you see no contradiction in sternly admonishing those people that they should stick to the issues. Very well. Let’s pick taxation of wealth. You argue that all the methods known to man whereby wealth can be taxed are highly flawed. You mention some snags, but don’t suggest ways of overcoming any of them. So we have to infer that your policy would be not to bother trying.

    You then argue that it is wrong to tax wealth whenever it is involved in investment and wealth creation, and that wealth should only be taxed when it involves ownership of a “community” resource, such as land. So, the wealthy will have only to sell land and buy shares, and their wealth will then become untouchable, should you become Chancellor.

    I advise you to propose your ideas to Mr Cameron. I suspect, though, that he will turn them down. There are limits to what he will support. By all means find ways that rich people can avoid taxes, but, don’t make them too blatant!

  • Who is Joe Burke and why isn’t he on the manifesto working group?

  • Richard Dean 3rd Feb '13 - 10:06am

    Joe Bourke’s idealistic thinking would need a huge amount of work – and change – before reaching the status of a practical and realistic set of economic policies. Here are some issues

    1. a huge change to a system that is in the midst of a huge change – recipe for disaster if not managed well
    2. no point having a job if there’s nothing to do
    3. bang goes any support we have from other types of social tenant
    4. needs careful planning and explaining, 32% is more than many people pay now
    5. unworkable in its present form, as explained by David Allen
    6. A few important things missing, like how to handle debt, demographic change, unions, europe

  • Alex Sabine 3rd Feb '13 - 3:25pm

    @ David Allen

    You accuse me of the cardinal sin of going ‘off-topic’, apparently to distract attention from my economic views. This is really rather bizarre, not least because I went into great (indeed, probably excessive) detail about the economic issues that Nick’s post and the comments raised, whereas I devoted about half a sentence to other policy areas.

    Geoffrey said that he finds me indistinguishable from a Tory, so I thought it was fair enough for me to point out some areas where that claim might not bear much scrutiny. Several of the ones I listed were in the economic sphere. I gave the examples of planning deregulation (the most vocal opposition to which, in case you haven’t noticed, has come from Tory councils and the Daily Telegraph), introducing a land value tax, and liberalising the immigration system (which I see as partly an economic issue, in that Tory attempts to cap immigration through a quota system reek of the kind of bureaucratic state planning that economic liberals should view with a pretty jaundiced eye).

    I then mentioned, en passant as it were, that there were plenty of other non-economic issues on which I would take issue with traditional Tories, including secret courts and gay marriage (both of which I regard as civil liberties issues) and drugs law reform (which I regard partly as a freedom issue but also in terms of harm reduction).

    Strictly speaking I was venturing off-topic (for all of 20 words or so), but the point I was trying to make was that I don’t see my approach to politics as having ‘Tory’ views on the economy, ‘Labour’ or ‘Lib Dem’ ones on social policy or whatever, but as an approach which seeks to advance individual freedom and opportunity across the whole gamut of policy areas from the economy to public services to civil/judicial liberties to personal behaviour. Ultimately I support those other non-economic freedoms that I mentioned for much the same reason as the economic ones, not as a kind of counterbalance to my supposedly Tory views on the economy.

    For those who call that libertarianism, I suppose the distinction for me is that I don’t conceive of freedom solely in terms of anti-statism (though it is an important instinct for a liberal to have), since sometimes state action is required to give people more meaningful choices in their lives. I also accept that it is sometimes necessary to prioritise other considerations (security, for example) if a strong enough case can be made that restrictive measures proposed are absolutely necessary. Liberals should have a strong presumption in favour of freedom, but not a dogmatic adherence to it in all circumstances.

    I guess it is true that in economic policy I am generally closer to the Tories than to Labour or the more statist Lib Dems. However I have many disagreements with the Tories not just on technical issues of economic management or tax design but on what I see as their sometimes warped priorities (such as prioritising inheritance tax cuts at the last election, or obsessing about tax breaks for married couples) and because their economic liberalism is lopsided (exemplified by their statist approach to immigration, their previous support for distorting mortgage tax subsidies, farming subsidies and so on).

    There are some genuine economic liberals in their ranks, but in many cases the rhetorical commitment to freedom is a cover for the defence of a variety of vested interests. This is a perfectly legitimate thing for a political party to do, of course, but they shouldn’t get away with dressing it up as a great crusade for liberty.

    So, yes, although I think there is plenty the coalition is getting right, I do sometimes criticise the likes of Cameron and Osborne from what some (bizarrely) regard as the Right on economic policy: for example they are too keen on faddish industrial interventionism (of the kind that Vince Cable used to rubbish but now embraces with the zeal of the convert), their immigration policy is starting to damage the economy, and their reluctance to pursue serious tax reform has left us with an even more complex tax code than the one bequeathed by Gordon Brown.

    You can put whatever party label you like on my sort of economic views: in most parts of the world they would simply be called ‘liberal’ (certainly in France where it is, alas, something of a dirty word, or in Germany, or in Asia, or in economics textbooks) and I certainly don’t claim they are particularly original! I do, however, find it saddening if supporters of Britain’s avowedly liberal party simply concede economic liberalism to the Tories, define themselves against it, and regard that opposition at the litmus test of modern liberalism.

  • “I then mentioned, en passant as it were, that there were plenty of other non-economic issues on which I would take issue with traditional Tories, including secret courts and gay marriage (both of which I regard as civil liberties issues) and drugs law reform (which I regard partly as a freedom issue but also in terms of harm reduction).”

    Considering that there seems to be more opposition to secret courts coming from backbench Tories than from Lib Dem MPs, I’m not sure where that places you …

  • Alex Sabine,

    although I will not always reach the same conclusions as to the optimum remedies for our current economic and social problems that you do, I can’t fault the accuracy of your analysis.

    You will find a highly respected fellow traveller for your admiration ofthe great German liberal Ludwig Erhard; your views on the efficacy of economic liberalism; and your criticism of immigration policy in Samuel Briitan A case remains for economic liberalism

  • Alex Sabine 3rd Feb '13 - 4:19pm

    And on wealth taxes I was simply cautioning against moves that would disincentivise wealth creation and saying that instead we should focus on taxing economic rent, such as the tax-free capital gains that accrue to property owners (this is also, of course, a function of the rigid planning laws that bid up development land prices), and on closing the loopholes in the tax system that keep the tax avoidance industry in such rude health…

    It’s true I didn’t give you a full blueprint of how I would do this in my earlier post, partly because I was focusing on the issue of income tax and NI allowances, but also because quite honestly I am not sure about the best way to do it. That doesn’t mean I can’t see the pitfalls in simplistic remedies that we hear from time to time like the Robin Hood Tax or a wealth tax.

    I do think LVT should be seriously looked at, and if this is deemed too technically complex (which the IFS fear it might be), then maybe the next-best thing would be a revamped council tax with an annual charge proportionate to property value. I also think it would be far better to tax capital gains on house sales than to charge stamp duty on purchases, from both an economic efficiency and equity point of view, but I can’t see any party making that case. One way or another we need to tackle the distortions in the housing market created by the combination of the tax system and the planning laws.

    We also need to remove the bias in favour of debt finance over equity finance in the corporate tax system, which again would be controversial but needs to be confronted in my view.

    There are many other things which could be done, but they need to be looked at in terms of their effect on the system as a whole, not as isolated policy changes, if unintended consequences are to be minimised.

    For example, Gordon Brown’s tax changes for small companies looked great until you looked at the huge incentive they created to incorporate for purely tax reasons, and there followed a succession of damaging U-turns; the coalition’s original child benefit changes were a dog’s breakfast, and even in their improved form are pretty unwieldy; raising the income tax personal allowance is great but the lack of parallel reform of NI means earnings are being penalised relative to other forms of income. Et cetera…

    By and large my view is that the simpler we make the tax system, and the more neutral in the sense of not favouring one form of income or activity over another with reliefs and breaks and different rates, the better. If that deprives interventionist Chancellors of the tools they constantly tinker with in order to encourage this or discourage that, so much the better.

    Moving in that direction would do far more to shut down tax avoidance than the (literally) thousands of pages of tax legislation now being churned out to try to close down particular schemes, and without the economic damage of high marginal rates and distorting reliefs. This is the best way to make sure that the rich pay their share, and are not able to use tax arbitrage in a way that isn’t available to those on PAYE.

    (I also think we need to be careful about the rhetoric here, since the income tax statistics make it quite clear that the affluent and indeed rich do, as a group, account for a very large proportion of total income tax revenue even allowing for their high incomes; the vast majority do ‘pay their share’ but the system does create loopholes which are uniquely available to the well-off with the most discretion over how they take their income and these should be addressed by systemic tax reform.)

  • Richard Dean,

    1. Basic Citizens Income . You comment “a huge change to a system that is in the midst of a huge change – recipe for disaster if not managed well”. See Frank Field – the poverty csar – on potential disasters Universal credit scheme will rot soul of low-paid, says Frank Field . He writes “Means testing only encourages dependency, and the universal credit is, in one sense, the ultimate form of means testing. It obviously gets extra money to hard-working families who earn low wages, but in doing so it rots the soul. Recipients have to be saints not to take the loss of credit payments into account when deciding whether to work longer or to train for a more highly paid job.”

    For a simpler, fairer and Liberal approach to welfare reform See Citizens Income Trust .

    2. Minimum wage job guarantee.. You comment “no point having a job if there’s nothing to do”. The DWP published its impact report into the UK’s previous job guarantee scheme ‘The Future Jobs fund.’ Impacts and Costs and Benefits of the Future Jobs Fund .

    The Future Jobs Fund was introduced in 2009 to address the problem of long-term youth unemployment. About 100,000 people in the 18-24 age group out of work for a year or more were guaranteed a job for six months. Later the threshold was reduced to six months. An additional 50,000 guaranteed jobs were available for people of all ages in selected unemployment hotspots. The DWP report found that the program was successful in moving participants into regular employment:

    According to the report, two years after starting their jobs with the scheme, participants were 16 per cent less likely to be on benefits than if they had not taken part and 27 per cent more likely to be in unsubsidised employment. The net benefit to society of the scheme was £7,750 per participant, after accounting for a net cost of £3,100 to the Treasury .
    Unfortunately, we went along with Tory condemnation of this Labour scheme as a failure, for political and ideological reasons, eventhough it was certainly better than anything that has replaced it, so far.

    3. Housing benefit and social housing tenancies restricted to the disabled, pensioners and the employed including job guarante participants. You comment “bang goes any support we have from other types of social tenant”. What other types of social tenant do you have in mind? Would that be able-bodied, working age persons who refuse to accept any kind of guaranteed employment offerred to them?

    4. Combined flat rate of tax of 32% on all sources of income. You comment “needs careful planning and explaining, 32% is more than many people pay now”. This proposal was well supported by participants at the tax consultation meeting I attended at last years Brighton conference. It is promoted by the Chancellors office of tax simplification National insurance and income tax should be merged, says chancellor’s tax thinktank and endorsed by the IFS.

    5. Higher rate income tax replaced with Land Value Tax on top 15% of property holdings. You comment “unworkable in its present form, as explained by David Allen.” See OECD report Tax Policy Reform and Economic Growth. The report concludes, in line with a plethora of other tax policy experts, that recurrent taxes on immovable property are the least harmful tax and far prefarable to higher rates of income tax.

    As regards you other comment re: debt, demographic change, unions, europe. They are all discussed in various forms (by me among others in articles and comments) elsewhere on this site. Nick Thornsby, the author of this article directs our attention to the message of Liberal Democrat on social justice.

  • David Allen 4th Feb '13 - 6:38pm

    Richard Dean, I don’t think I “explained why LVT would be unworkable.” I argued that there would be problems if LVT was the ONLY form of wealth taxation we adopted, because of the high incentives to switch wealth into other forms. Those problems can be dealt with if we balance it with other forms of wealth taxation, such as capital gains tax and an effective general inheritance tax.

  • Richard Dean 4th Feb '13 - 7:02pm

    David Allen, Joe Bourke suggested a scheme in which other forms of wealth taxation did not see to figure. Within this scheme, your explanation of the tricks rich people could use to avoid LVT is valid? Indeed, by switching ownership from individuals to companies, and by then allowing members of the public to buy shares in those companies, many more people end up paying LVT, not just Joe Bourke’s richest 15%.

    I suggest that any policy that we might propose needs to be accompanied by a practical way of changing from present policy to the suggested new policy. Without such a way, introducing a new policy is likely to cause a lot of unexpected consequences and unplanned pain or harm, like the LVT one. Really that means there needs to be a path of many small, incremental changes from one policy to the other. I wonder what the paths might be for Joe Bourke’s suggestions?

  • Simon Banks 4th Feb '13 - 8:44pm

    Alex Sabine:

    I agree with some of what you say, but why do you think it wrong that public service managers are responsible to elected politicians? There is a thing called democracy, and the greatest fault of modern economic liberalism, it seems to me, is to view everything in terms of the individual operating in the market and leave no room for communities of other freely-formed groups co-operating – which is, after all, the root of local government. I understood the Liberal Party I joined to be trying to rediscover those roots, not destroy them.

  • Richard,

    The Mirrlees tax review is the most comprehensive review if the UK tax system in a generation. The report condemned the current system as costly and inequitable, concluding it is “ripe for reform in ways that could significantly increase people’s welfare and improve the performance of the economy”.

    The Review argues that a coherent vision for the tax system is needed and lays out recommendations for radical reform. It says that imposing two separate taxes on earnings – income tax and national insurance (NI) – is unnecessarily complex, and that recent changes have introduced a “bizarre” marginal rate structure rising from 40% to 60%, then falling back to 40% before rising again to 50%. The UK also has a highly complex array of welfare benefits which are difficult for people to understand, and which impose very high effective tax rates on some low earners. Instead, the review recommends the rate structure for income tax should be simplified and merged with NI, while a single integrated benefit should be introduced to replace all or most current benefits.

    Nobel laureate Sir James Mirrlees, who chaired the review, said ” It is undeniable that some of the proposed changes would be politically difficult. But failure to reform imposes enduring costs.”

    In the proposals above, I have suggested a flat rate of tax on all souces of income (i.e. whether categorised as earned or unearned, income or capital gains, corporate profits or dividends). To avoid double taxation of company distributions and equalise the tax position with debt interest , I would allow dividends as a deduction against company profits and eliminate the system of attaching a tax credit to dividends.

    LVT is imposed on Land holding values regardless of whether title is held individually or via companies or trusts. The same anti-avoidance rules of attribution for close companies and connected parties that apply in the income and capital gains tax system now would apply with the tax base for LVT.

  • Richard Dean 5th Feb '13 - 12:34am

    Joe,

    The Mirrlees Review is over 1800 pages long, but just to please you I will try to speed read it over the next day or so. I might even start tonight, as Mr.Insom Nia is visiting again.

    Company tax is taken out of the profit and loss account before dividends. This means that if a company has to pay tax, less money is available to be distributed in dividends or ploughed back in for growth. So, either the shareholder gets less than would otherwise be the case, or the company does, or both. In this way, making companies pay LVT is equivalent to taxing shareholders.

    So, as David Allen argued, your proposal will allow rich people to transfer their tax burden onto less wealthy shareholders, while effectively retaining control on the taxed asset. That seems to be about the worst design of tax system that can be imagined, and the least consistent with LibDem policy.

  • Alex Sabine 5th Feb '13 - 1:22am

    I largely agree with Joe on Mirrlees, which we’ve discussed at some length before in other comments threads. It may not be perfect, it probably won’t all be politically feasible – but it is by far the most comprehensive ‘audit’ of the UK tax system accompanied by a set of recommendations that I have seen. I’m not expecting any political party to adopt it wholesale, but I do think it should be the starting point for policy makers who are serious about tax reform to start from.

    What really won’t do is a line of thinking that roughly proceeds as follows: We don’t much like rich people, they hardly pay any tax, if we can’t charge punitive income tax rates which should look to clobber them in any other way we can think of, capital gains are mostly ill-gotten so that’s an obvious target, financiers are another so let’s slap a Robin Hood Tax on them because it sounds redistributive and worthy (never mind that it is economically illiterate), and why not go back for another tilt at the pension tax regime (because it’s been so successful since Gordon Brown began the process in 1997…)

    This approach to taxing the rich will lead much the same way as Labour’s grandstanding attempts in the 1960s and 1970s. There are better ways – I have suggested some of them, and Mirrlees goes into great detail – but they do involve accepting the limitations of taxing the rich, they do involve trade-offs between economic efficiency and equity, and they don’t start from a punitive or moralising perspective but ask things like ‘what does equity in taxation mean?’ (ie concepts like horizontal equity, intr-generational equity, trying to avoid double taxation and retrospective taxation are as important as equity in a purely distributional sense).

    Or ‘why do we tax capital gains made by entrepreneurs but not property owners?’ or ‘is stamp duty on shares – which depresses share prices, particularly for firms whose shares are frequently traded, increases the cost of capital faced by firms and thus deters investment and retards economic growth – really better than taxing final consumption through a Financial Activities Tax or surrogate VAT?’ Et cetera.

    Equally, I don’t accept the counsel of despair that nothing can be done to create a fairer and more efficient tax system. On the contrary, we cannot go stumbling on with the present mess for much longer if we want to remain a dynamic economy with efficient resource allocation mechanisms, and if we want to tackle the kind of distortions that in part led to the unsustainable housing and debt bubbles.

    Of course you are right, Richard, that any proposed solutions need to be practical, and need to map out a way of getting from here to there. As Joe says, provides a useful resource from which to forge a coherent multi-year agenda.

    I also completely agree about being wary of unintended consequences and about not stifling the aspirational middle class. Indeed, I sometimes think Lib Dems forget the lessons of John Smith’s 1992 shadow budget in this respect, but then at other times they seem to assume that everything can be funded simply by squeezing millionaires, which is another comforting delusion…

    At the end of the day in a country that spends nearly half its GDP, tax rises inevitably hit the bulk of the working population, and most people know that – which is why they collectively put an effective constraint on what they will allow the British government to fund without recourse to borrowing (historically between 37pc and 40pc of GDP as Jedi delights in pointing out…), and why the government is – painfully – having to re-engage with that reality.

  • Richard,

    when you have finished reading the Mirrlees tax review you might want to make a start on Tolleys 18,000 page guide, to improve your knowledge of the UK tax system. It is a source used by many of us tax accountants in our daily work.

    LVT is paid on Land rental values. In companies it would replace the current charge for Business rates or NNDR. The Libdem 2010 election manifesto included a proposal to “Reform business rates, creating a fairer system where rates are based on site values rather than rental values and are the responsibility of local authorities.”

    The manifesto of the Cooperative Party contained the statement “In order to prevent similar problems [of unsustainable property booms] emerging in the upturn, the Government should use taxation to change incentives within the property market, ensuring that it incentivises the productive use of land rather than expected capital gains in an upward market. The Government should replace council tax and national non-domestic rates with a land value tax. While this would be a new method of taxation in the UK, countries such as Denmark, Hong Kong and Taiwan utilise land values to help their economies. Local Authorities in parts of Australia, New Zealand and North America have all adopted local forms of land value taxation. This is likely to not only improve economic stability but also stimulate investment in more productive elements of the UK economy over the medium to long term.”

    The Mirrlees Review argued very strongly for the economic case of moving business rates onto a site value basis concluding “This is such a powerful idea, and one that has been so comprehensively ignored by governments, that the case for a thorough official effort to design a workable system seems to us to be overwhelming. In particular, significant adjustment costs would be merited if the inefficient and iniquitous system of business rates could be swept away and replaced by an LVT.”

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