Vince Cable on Lib Dem mission to reduce inequality

For me, the Liberal Democrats have always been about reducing the inequality that poisons our society, that holds people back from opportunities.

We have always talked about it, but perhaps in the last few years the language has been a bit different. I was really chuffed when Vince talked about the need to tackle inequality so explicitly in his leadership manifesto. Today, his first major speech since becoming leader is on this issue and you can watch a clip here.

The full text of the speech is below. It’s thoughtful, serious stuff as you would expect.

Yes, under his leadership we’ll be looking for the exit from Brexit, but our main mission as a party is to do something about this inequality.  That works for me.

Politicians talk at length about fairness and unfairness. Verbal confetti. Bland. Something almost everyone can relate to emotionally. And it can be defined in so many different ways that it can be applied in almost every situation, for about every audience. Inequality narrows the subject down a bit but, again, has a wide range of definitions and meanings.

Putting aside the health warnings and the academic qualifications there is however, in the UK in 2017, something stirring around the idea of inequality: something new and worrying. It starts from the observation, or the belief, that inequalities of income, wealth and opportunity, between classes, regions and generations, are getting worse; that Britain is becoming relatively as well as absolutely unequal when we look at comparable countries, especially in Europe; and that this inequality is not merely offensive to the sensibilities of progressive minded folk but is doing serious damage to the wider society and economy.

Sometimes an event crystallises this feeling. The Grenfell Tower disaster wasn’t just a horrific accident with a large loss of life but illustrates in a graphic way that relatively poor people were not listened to by those in authority and attracted a casual approach to life threatening risk. And close by geographically, but light years away socially and economically, lived London’s super-rich.

What motivates me personally and politically is the way this this new Britain contrasts with the more egalitarian culture and mobile society that I grew up with: parents who progressed in 20 years from being factory workers living in a terraced house with an outside loo to being part of the professional class living in a detached house; from parents who left school at 15 progressing though ‘night school’ to a son at an elite university. There were of course ‘posh’ people in post-war Britain but they were few and largely inconspicuous; and there were poor people on the council estates but they were distant relatives or friends and we played and watched football together. A provincial British city, even today, does not have the jarring contrasts of London; but my sense is that even there, big differences in living standards and opportunities have opened up.

The Evidence

It is possible to argue interminably about definitions. There are however some trends that are strong.

First, in the UK, gross real earnings of the top 10% of full-time workers doubled between 1978 and 2008; the median grew by 60% and the lowest 10% by 25%. After the financial crisis, overall gross real earnings fell by 8% over the next five years; have barely recovered to the 2008 level; and are now falling again. The combination of absolute decline following generations of widening inequality explains much of the current sense of malaise and unfairness.

Second, the standard measure of income inequality. The Gini coefficient, shows Britain’s post-tax inequality, rising strongly in the 1980’s (from 28% in 1978 to 41% in 1990) though it has stabilised a little since (to around 37%). But from having been one of the more egalitarian developed countries, the UK is now one of the least, well behind Scandinavia and also behind Germany and France. The Scandinavian comparison is telling in that, pre-tax incomes there, are significantly more unequal than in the UK but, after tax and benefits much less. We are less unequal than the US, post-Communist Russia, Mexico, Brazil and South Africa though that isn’t a very high bar.

Third, and in common with other countries, there has been an extraordinary concentration of rewards in the hands of the top 1%, and within that group, the top 0.10%. The top 1% consists of roughly half a million individuals with an income of just over £150,000: mostly middle aged men in financial services and senior management or the upper reaches of professions like law and medicine. The super-rich – the 0.10%- are roughly 50,000 people earning £1 million or more a year. This group consists on the one hand of people with unique talents in sport and entertainment and on the other of business executives and investment bankers on large bonuses. Public attitudes seem to differ considerably as between those groups which suggests that the issue is not inequality as such as the route to it. When Arsenal or Tottenham football players complain about being underpaid on £200,000 a week the fans’ reaction is less one of anger at the players as at their managers for risking losing them. I have never detected any such appreciation of top business executives (which had a collective pay rise of 440% between 1998 and 2013, when the FTSE index rose by only 11%). Or for the bankers fretting about a shrinking bonus pool.

Fourth, wealth inequality is greater than for incomes and is growing; a trend apparent in almost all western economies, as Piketty, Atkinson and others have shown. In the absence of compensatiing wealth taxation, high earners can turn their high income into assets and the value of assets can be compounded through investment (and passed on as inheritance)

In the UK, what is particularly striking about wealth inequality is the impact on different generations. The age group 26 to 44 have estimated average net assets of around £75,000; under 25 year olds, no net assets; and 55 to 64 year olds net assets of around £430,000. Rising house prices relative to earnings boost the wealth of older owner occupiers, unencumbered by mortgages and exclude younger people from home ownership. For low to middle income households under 35 the population of home owners has fallen over 20 years from 60% to 25%. The position is worsening.

Fifth, and lastly, social mobility is declining. My parents’ experience of economic and social mobility would be very difficult to achieve today. The housing market no longer acts as an escalator for the growing numbers who cannot get on it. There is also high correlation between educational attainment, especially at elite institutions, and the education attainment of the next generation. My three children followed me to Oxbridge and my grandchildren look as if they are headed the same way: no surprise. And, in the OECD, the UK (like the USA) is one of the worst performers in terms of social mobility with an exceptionally large wage premium for children growing up in a well-educated family (and, conversely, a wage penalty for those from less educated families).

Measures like the pupil premium, which Lib Dems introduced during the Coalition Government, are helping to narrow the attainment gap but we are far from being able to say that no one need worry about inequality because Britain has compensating social mobility. It doesn’t.
Does Inequality Matter?

If inequality is growing and social mobility is declining, why do we put up with it? There is an obvious, if cynical, explanation that the wealthier, usually older, people are better at defending their interest than the poor: more conscientious and motivated voters; more articulate; better connected.
The one serious argument put up in support of inequality is that it is a necessary evil: a concomitant of a dynamic, capitalist, economy in which there must be incentives to innovate, invest, save and work. Yet there is no obvious explanation as to why the top 1%, and especially the top 0.1%, have accelerated away, since Western economic performance has deteriorated in the last decade, not improved. Moreover, this phenomenon of widening inequality (with indifferent economic performance) is largely a US-UK phenomenon with nothing like the same story in Germany, Scandinavia and Canada (or France and Japan, though they have had economic difficulties).

Indeed, there is quite a lot of cross-country evidence that too much inequality can harm economic performance and redistributive politics can do good, or at least no harm. Studies suggest that higher levels of inequality are associated with unproductive, ‘rent-seeking’, activity; contribute to financial instability; feed ‘asset bubbles’ rather than productive investment; weaken demand leading to a growing dependence on personal debt to sustain consumption; and lead to underinvestment in human resources through education and health.

What is to be done?

The clear conclusion is that inequality as an issue should no longer be seen as the presence of idealists and socialists who yearn for a better world. Too much inequality is bad for all of us. Put simply, growing inequality is linked to poor economic performance, greater economic instability, more social tension, insecurity and unhappiness. There should be a broad basis of support for measures which are seen to reduce inequality and contribute to a reduction in economic and social ills.

A less comfortable conclusion is that many of the inequalities of wealth and opportunities are embedded in a highly dysfunctional market for property and land. Britain is a country where wealth accumulation is achieved by requiring property (or land) and watching the price go up rather than by technological innovation and developing overseas markets. Bank financing is heavily skewed to reinforce that bias. For the fortunate segment of the population which owns their own home property isn’t just a home but an investment, a pension, a mark of status. Tackling inequality in this context is, therefore, fraught with political difficulty.

It is also the case that inequality is multi-dimensional, not just about income and assets. There are inequalities of geography, ethnicity, gender and generation. Inequality and social immobility involves complex issue around parenting, early years’ education, post-16 education and training, health, access to housing and employment. I will attempt to deal in more depth with some of these issues on future occasions but I will stick here with the more tangible inequalities of income and wealth.

Pre-distribution

One question to be addressed is whether these inequalities should be addressed at source – pre-distribution – or by mitigating the impact of market driven inequalities through progressive taxation. The socialist (and populist) traditions in politics have tended to concentrate on the former; more social democratic, and liberal, tradition – such as mine – on the latter. There is currently some common ground amongst Trump supporters in the USA and the radical left and between the National Front in France and the far left to blame inequality on ‘globalisation’ and (according to taste) on trade and immigration or (in Brexit Britain) on European integration There is some, albeit rather weak, evidence that unskilled wages have been negatively affected by openness to trade and/or migration. But the costs of economic nationalism far outweigh the benefits; technology is a far more potent driver of these inequalities; and there are fiscal and other ways of offsetting them.

But there are aspects of pre-distribution which do have to be addressed:

I spent much time in government reforming corporate governance around executive pay and the evidence is that the empowering shareholders, and greater transparency, has moderated the behaviour of FTSE 100 chief executives, though not to a radical degree. I support measures to toughen up the regime by publishing pay ratios and shareholders’ voting data. The current government’s proposals, last week, are useful but modest tweaks to the reforms we introduced in 2013. However Institutional shareholders do not have high levels of motivation to temper egregious executive pay since they are often in receipt of very large remuneration themselves. But unless they do there will be a demand for far more intrusive interventions.

Top pay has symbolic importance far in excess of its actual contribution to the distribution of income. It signifies fairness or the opposite. The pay of vice-chancellors for example has become the causus belli for those demanding fundamental reform of university finance and tuition fees and, in particular, bringing universities firmly within the control of the state. In practice, university vice chancellors’ pay will account for only a tiny fraction of university teaching and administrative costs. But unless those at the top in business or public institutions learn to exercise restraint, these will build up an irresistible demand for detailed state control of pay or for prohibitive taxation.

The same is true in reverse in relation to the exploration of low paid labour. The minimum wage system, with a minimum wage set on the advice of the Low Pay Commission, had – with hindsight – a broadly beneficial effect of lifting wages without negatively impacting on employment. We are yet to see the full impact of a more politicised National Living Wage driven by ministers rather than in response to Commission advice. There are potentially negative consequences for skill development of squeezing the differential between minimum and average earnings; and a system which rewards households with multiple earners rather than single earner, poor, families has perverse consequences. But, overall, the minimum wage system has had benign effects, raising wages but not at the expense of employment and is an important fixture provided it remains subject to evidence based disciplines.
Distribution and Tax

Progressive income tax is often seen as the most politically appealing route to greater equality. The British Left remains very attracted to very high marginal tax rates on the rich variously defined. Yet the experience of the countries, including those in more egalitarian Scandinavia, is that marginal tax rates of anything much above 50% are counterproductive and lead to rapidly diminishing returns. Sweden has top tax rates of 60% but is now an exception. There is greater merit in trying to eliminate the large opportunities which exist for legal tax avoidance and arbitrage: cutting the differential between capital gains and income tax; equalising rates of tax relief on pension contributions between high and low earners, and ending the remaining tax privileges of those who are resident but not domiciled in the UK. A big cultural shift could be accomplished if the UK were to move to the Scandinavian model of full public disclosure of tax returns.

Incentives created by the income tax system matter just as much as the bottom end of the tax range as the top since there are already steep rates of benefit withdrawal which create a disincentive to work or seek overtime. The Lib Dem coalition made considerable progress lifting the income tax threshold for low earners but extending it further is an expensive tax reform which benefits high as well as low income tax payers. National insurance employee contributions kick in at much lower incomes and future tax cutting policies should concentrate on lifting the NIC’s threshold. The whole national insurance system has long since departed from its original purpose of financing the welfare state and creates numerous tax anomalies (the shifting boundary between employed and self-employed; the exemption of working pensioners). It would make more sense to integrate fully the income tax and employee national insurance systems recognising however that there are serious ‘cliff edge’ problems and unintended consequences for which careful planning would be needed.

It is widely believed on the Left that the root cause of inequality is a shift from wages to profit: a modern version of standard Marxist theory. In the UK, wages (widely defined to include all earnings, including earnings and bonuses of the highly paid) as a share of national income fell from 65% in 1975 to around 50% in the early 1990’s as a consequence of policy changes – the Thatcher era. But it recovered to 54% and has remained largely unchanged since, so hardly an immediate source of grievance. Nonetheless, ideas like worker share ownership ensure that workers benefit directly from larger profit margins and are very much to be encouraged.

The left has often jumped to the conclusion that the way to rectify this measure is to tax profitable business – raising corporation tax – or taxing profitable business activities – like the proposed tax on financial transactions. There is actually a good, pragmatic basis for reversing competitive corporation tax cuts (my party argues for keeping the CT rate at 20%) and also for reversing the exemption of financial services from taxes like VAT. But this has nothing to do with inequality. Businesses are merely legal entities and business taxes are passed on to consumer or back to wage earners.
If Britain is to become a more equal society, a serious review is needed of the set of taxes which are there to mitigate the sharp, jarring, differences brought about by asset inflation and unearned income. We must tax wealth effectively.

The present system is a patchwork of different taxes, all flawed in different ways and full of loopholes. Inheritance tax allowances have grown more generous reflecting house price inflation and there is considerable scope for avoidance through gift before death. Capital gains tax too has a plethora of reliefs. Britain has no tax on property values as such and council tax serves as a very unsatisfactory substitute based on ancient property values and not proportional to property or land values. One could add various wealth related charges like stamp duty. Together these taxes raise around £50 bn a year of which half is council tax: representing, overall, half of one percent of household net wealth.

I do not doubt that unravelling this complex and uncoordinated system by reforming the taxes individually or through a unitary wealth tax would be a major undertaking.

One relatively straightforward way of reforming the system would be to reform council tax by creating more bands and making the tax rate proportional to property value. Low bands would pay less; high bands more. In the long term there is scope for more radical reforms shifting the tax base to land so as not to disincentivise property improvement and building.

It is also necessary to ensure that there is effective taxation of inherited wealth. Inheritance is a major factor perpetuating inequality of wealth and inhibiting social mobility. That is why genuine meritocrats – like Bill Gates for example – argue for aggressive taxation of inheritance. In fact, policy in the UK has moved in the opposite direction.

Wealth taxation should not be anti-business. Well designed wealth taxes encourage long term investment and entrepreneurship while discouraging speculation, inheritance and passive asset ownership. On Monday this week the influential entrepreneur Luke Jphnson argued for taxing property more and income less. Nor should wealth taxation be seen as a cash cow for government; I would like to see increased wealth taxation channelled back, perhaps hypothecated, in the form of learning accounts for young people.

I have no doubt that tackling the inequality of wealth, and particularly property, is deeply uncomfortable in a country where property ownership has almost religious significance. But, unless we are willing to do so, rhetoric about unfairness will become a rapidly devaluing currency.

Conclusion

Income and wealth inequality is a continuing social and economic weakness in the UK. It undermines any attempt to build a national consensus on the future of the country and helps to explain why the country voted Brexit (though it is likely that their own position will be worse as a result).
My party and I want to major on the issue of how to reduce inequality. Our 2017 manifesto was judged the most redistributive of the three by the IFS. There is a Coalition legacy of measures like the Pupil Premium, improving minimum wage enforcement and disciplines on executive pay, and seeking to lift low earners out of tax . This will be a theme of my leadership.

* Caron Lindsay is Editor of Liberal Democrat Voice and blogs at Caron's Musings

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55 Comments

  • Helen Dudden 6th Sep '17 - 9:33pm

    In Bath we have a serious social housing crisis. Property value is well above the affordability of many, other than the very wealthy. Food Banks are needed, renting privately could cost £1000 per month. That takes some earning. I’m told there is 4000 on the list for a home. Student properties grow every day, they are using family homes as well as the massive building programme. We can’t blame students, they did not plan the large intake by the universities. We have now a very difficult, unfair situation. The problems with Mulberry Park and Curo rumble on. Sometime ago The Duchy wished to build at Newton St. Loe, a landlord with credibility and good standards. This was a no, no. We need to varied housing, a few should not be allowed to prevent progress, its quickly proving just how one sided things are

  • I wish I could be more positive, but I’m afraid Vince’s speech is descriptive and discursive with a lot of circling round the issues. Unfortunately it’s very short on actual proposals.

    “My party and I want to major on the issue of how to reduce inequality.”

    Good, but I’m afraid being ‘thoughtful’ and tip toeing round the tulips is not enough. Let’s have some practical detailed proposals and something I can say to someone using a food bank because they can’t afford to feed their kids at the end of the school summer holidays..

  • Here are a few that the lib dems are too psychologically scared to embrace:

    Reform jcp and jsa and make the jcps a real job agency type environment. Break down every barrier to training and employment with strict targets for work coaches including loans for courses required on the same basis as student loans. Or even free.

    Outlaw zero hours contracts except for new start ups with proper monitoring. Outlaw trial shifts that are not part of a structured interview process. Name and shame.

    Embrace brexit with a liberal visa system that makes the above work.

    Move the parliament to Midlands or the north.

  • Very welcome speech from Vince.

    “… eliminate the large opportunities which exist for legal tax avoidance and arbitrage: cutting the differential between capital gains and income tax; equalising rates of tax relief on pension contributions between high and low earners, and ending the remaining tax privileges of those who are resident but not domiciled in the UK.”
    “…integrate fully the income tax and employee national insurance systems.”
    “…worker share ownership ensure that workers benefit directly from larger profit margins and are very much to be encouraged.”
    “…reform council tax by creating more bands and making the tax rate proportional to property value. Low bands would pay less; high bands more. In the long term there is scope for more radical reforms shifting the tax base to land so as not to disincentivise property improvement and building.”
    “taxing property more and income less”
    “…tackling the inequality of wealth, and particularly property, is deeply uncomfortable in a country where property ownership has almost religious significance. But, unless we are willing to do so, rhetoric about unfairness will become a rapidly devaluing currency.”

    This is exactly what we require to get the party back to a position where we are once again a radical reforming government in waiting.

  • David Becket 6th Sep '17 - 11:06pm

    This speech is reflected by the report from the Commission on Economic Justice, which claims our economy is broken and inequality is a major issue.
    Whilst Vince’s speech and the report give some pointers for the way forward David Raw is correct, there is a lack of specific proposals. This party already has some proposals, e.g Land Value Taxation, but there is a lot more work to be done.
    This issue should be a major feature at our Conference, it is of such importance to the future of the country and presents the opportunity for our party to put clear water between others. It however appears as if our risk adverse FCC and FPC are reluctant to debate major controversial issues.
    We should be coming away from conference in three weeks time:

    Having debated current policies that go towards reducing inequility

  • David Becket 6th Sep '17 - 11:14pm

    The last comment went off too soon.
    It should have ended
    * Having Debated current policies that go towards reducing inequality
    * Having had a consultative session on policy development
    * Having established a powerful working party to review future policy and to take evidence from within and outside the party
    * Have the Working Party to report back at every conference until the work is complete

    The debate could be organised by the Leader or FPC submitting an emergency motion
    The session could be organised by replaving F29 with a consultative session looking to the future. Looking ahead is more effective than naval gazing.

  • I agree about the lack of detailed proposals, but at least there’s an acknowledgement of the scale of the problem at the top of the party. Let’s put some flesh on the bones!

  • Vince identifies the major issue we need to address but his solutions are depressing. He identifies that for the lowest 10% of earners wages only grew by 25% between 1978 and 2008 while for the top 10% they doubled, but he has nothing to say to sort this out. In fact he is negative about the National Living Wages as a method of sorting this out.

    He identifies that the older a person the more net assets they have and that for low to middle income households under 35 the number of home owners over the last 20 years has fallen from 60% to 25%, but he has nothing to say. The answer is simple build enough houses to reduce the price of houses so young people can afford to buy a home of their own.

    He identifies a problem with high pay at the top in business or public institutions and again has no real solutions. The answer has to be nationally imposed pay ratios to bring them back over time to their 1960’s level.

    He does identify two solutions, which are aligning other tax rates with the Income Tax levels and it is implied that the highest rate of Income Tax needs to be increased to 50% and expanding National Insurance to every form of income.

    He mentions worker share ownership, but says nothing about making it compulsory to expand it.

    He suggests reform of Council Tax to make house values and the amount of tax paid more proportional. This could be party policy if we put LVT on the back burner as a replacement for Council Tax.

    He talks of Inheritance tax and Capital Gains tax without setting out any vision on how he would reform them to reduce the impact of inherited wealth. He recognises the sacred cow of home ownership without setting out the need to protect first generation home occupiers ability to pass on average priced homes to whoever they wish, tax free and the need to tax large inheritances more than smaller ones.

    He fails to mention that pursuing the economic aim of full employment (unemployment less than 3% of the working age population) was the biggest factor in reducing economic inequalities after the Second World War. He doesn’t mention he would like to see the government guarantee a job or meaningful training to every working aged person who wants one as a means to increase wages at the bottom of society. He doesn’t mention restoring welfare benefits to the 2010 real term values as a way of reduce economic inequalities for the poorest in society.

  • Ruth Bright 7th Sep '17 - 7:35am

    I am 50. My father was a bricklayer who went to prison. I went to the LSE. There comes a point in middle age when it is pretty tedious to trade on humble roots. I am much, much more worried that a young person now with such a background would find it much, much more difficult to improve their prospects.

  • Steve Trevethan 7th Sep '17 - 8:00am

    When will we decide upon our preferred measure of wealth distribution?
    What is our target range?

  • Katharine Pindar 7th Sep '17 - 9:42am

    These radical ideas on reducing inequalities are so welcome that I hope they can be somewhat discussed, selected between, and agreed for further work on developing and promoting them at our forthcoming Conference. David Becket is obviously up for this; I hope Michael BG and Joe Bourke are both coming to Bournemouth as well and can talk to and work with Vince and our conference organisers to move things forward on this vital policy front.

  • Neil Sandison 7th Sep '17 - 10:17am

    Much welcomed analysis by Vince particularly around wealth and income but we also need Vince to have the passion of Tim Farron on affordable social housing .It is more difficult to improve your own life chances if you do not have a secure home as the bedrock of your life .We need real investment to enable councils to regenerate their own land holdings replace ageing and unfit for purpose housing stock and yes build more council houses. Enpower local communities to meet local needs without the dead hand of the Secretary of State for communities holding councils back .Chamberlain ,Lloyd George and Mac Millian did not have the ideilogical hang ups the current tories have on affordable homes ,trickle down isnt working its time for a radical liberal agenda.

  • Vince seems to be selective for example Sweden does indeed have 60% income tax (this country does between £100k-£123k due to the tapering of the personal allowance, which is immoral given those earning considerably more would be 45%)However in Sweden 30% of it goes to the local goverment and the other 30% central so it is not quite as simple as that.

    Also its ironic he points to USA and UK inequality/wealth/ IHT when the countries with close to the highest IHT in the world is the US and UK !! and the countries he refers such as Scandanaivian ones 2/3 of them have no estate tax at ALL zilch (Sweden/Norway) and Canada equally zilch and Germany above the equivilant of our exemption half ours 20%. Meanwhile Cyprus, Malta, Portugal,AUstria, all the baltic states, Czech republic, Slovakia, Hungary , Romania, Bulgaria equally do not have any either. Italy 4%, ‘Far left’ Greece 1-12%. So I would wager inequality is high because the very rich can manage to avoid it while more ordinary do not and can not, I dont see vince saying he will lower it for most but ensure the very rich do. For him to cite Bill gates is questionable given his company is said to have avoided corporation tax are we really to believe he happy pay full whack of estate duty?? I would say the countries ills are primarily based around vast amount of money spent poorly.

  • Sue Sutherland 7th Sep '17 - 1:21pm

    This is a welcome analysis from Vince. I wouldn’t expect him to come up with solutions because party members must be a part of that process through working groups and conference debates. I would have liked to see him emphasise the need for better provision in health, social services, education, housing etc as a means of reducing inequality as well by providing a more level playing field. I’m hoping this will come at conference where it will be easier to deliver a punchy message than in a more academic speech.

  • Laurence Cox 7th Sep '17 - 2:33pm

    We had a 60% top rate of income tax for most of the time that Maggie was PM, so I don’t see what is wrong with it now. I would like to see a more progressive income tax with more rates (it is much easier now everything is computerised):

    With integrated Income Tax and NI, we could have:
    Below £8k: zero
    £8-12.5k: 10%
    £12.5-45k: 30%
    £45-80k: 40%
    £80-150k: 45% (with no removal of personal allowance)
    £150-500k: 50%
    £500k+: 60%

    Apart from the 1% and 0.1% almost everyone else would be paying a similar amount of tax as at present. This would also deal with those receiving unearned income or over State Pension Age being better off (because they don’t pay NI at present), but it still requires bringing Capital Gains Tax into the same structure. One option would be to treat Capital Gains as income, but allow it to be spread over several tax years, to reflect the time that the asset has been held (six years might be a suitable maximum).

  • Laurence,

    there is a lot of merit to the idea of integrating income Tax and NI – a proposal put forward by the Office for tax simplification. Income Taxation, while important, will not address the economic distortions brought about by capital and wealth accumulation as identified by Piketty and the British economist Atkinson.

    The IPPR commission on economic justice has published an interim report this week https://www.ippr.org/files/2017-09/cej-interim-report.pdf. It is is mooting new wealth taxes, ‘fiscal devolution’ to the UK’s regions, stronger trade unions and a regulatory crack-down on digital monopoly companies.

    The report argues that the UK economy requires a structural overhaul on the scale of the founding of the welfare state by Labour in the 1940s and the Thatcher rollback of the state in the 1980s. It likens the 2008 financial crisis to the Great Depression of the 1930s and the stagflation of the 1970s as a crisis that necessitates an institutional and policy rupture.

    They say “The persistent economic problems we have experienced since the 2008 financial crash won’t be fixed with a bit of tinkering. There is a growing consensus across business, trade unions and civil society that a radical new approach is now needed.”

    The Archbishop of Canterbury comments “Britain stands at a watershed moment where we need to make fundamental choices about the sort of economy we need. We are failing those who will grow up into a world where the gap between the richest and poorest parts of the country is significant and destabilising”.

    As evidence of Britain’s broken economy the commission cites the fact UK GDP growth has decoupled from inflation-adjusted average weekly earnings, with the former rising by 12 per cent since 2010 while the latter has fallen by 6 per cent. The commission also notes that the share of national income going to wages, as opposed to capital, has declined since the late 1970s.

    The report describes Brexit as a “momentous change” that will “require – and may create opportunities for – the British economy to become more resilient and competitive, focussed on higher productivity and export performance”.

  • @ Katharine Pindar

    Unfortunately I can’t afford to attend Federal Conference and even if I could I might find it difficult to attend. I just hope others read my ideas and if they like them they will try to get them adopted as party policy.

    @ Sam

    I expect you are correct that the very rich avoid inheritance tax while those with a few assets and their own home end up paying it. Perhaps inherited assets should be taxed like income, so the beneficiary pays the tax with people but not trusts having a tax allowance, perhaps the same amount as the Income Tax Personal Allowance multiplied by their age for the whole of their lifetime (e.g. a 30 years old £345,000, a 70 year old £805,000). Hopefully people can see some advantages both for the state and the people inheriting for this increasing allowance. At the moment the rate is 40%, perhaps new higher rates should be set – 50% for the amount inherited over the personal allowance plus £1 million and 60% after another million.

    Perhaps we should increase the gift tax free limit to the personal allowance and then tax gifts above this rate and abolish the tax relief by how long ago the gift was given. We might have to look at deferring the tax until death or paying in instalments. For example a grandparent buys their grand-child a house worth £650,000 at 40% tax the bill would be £260,000 and they may wish to pay it in ten instalments and if they die before it is paid off, the balance would be paid out of the estate.

    @ Laurence Cox

    Why would you want to tax anyone on income between £8-12.5k?
    Why do you want to give a tax cut for those earning between £45-80k?

    Why not just roll up Income Tax and National Insurance and add 10% where it is currently 2%

    0-11.5k – nil
    11.5-45k – 32%
    45-150k – 52%
    Over 150k – 57%

    I think party policy is to increase Capital Gains to the marginal rate of Income Tax, 20%, 40% and 45% and it would make sense to increase it to the combined levels of Income Tax and National Insurance. I don’t understand when the gain on capital investment cannot be spread over the duration of the investment and treated as deferred income.

  • Sorry there were mistakes in my last post.

    45-150k – 50% (not 52)
    Over 150k – 55% (not 57)

    “When” should have been “why”
    I don’t understand why the gain on capital investment cannot be spread over the duration of the investment and treated as deferred income.

    The other issue with inheritance tax are the reduced rates:
    down to nothing on private businesses which are not listed;
    and cut in half on a controlling interest in a listed company.

    Perhaps we need to look at applying this to a limited amount, maybe £1 million of value.

  • Katharine Pindar 7th Sep '17 - 6:39pm

    These deep-rooted and complex problems and possible routes to alleviating them should surely be discussed somewhere at the forthcoming Conference. Joe B., do you go along with some of the IPPR interim report you post the link to, and are you coming to Bournemouth? David Becket, I will certainly try to get to the Your Liberal Britain fringe, but could you perhaps through Vince’s questions or/and bearding FPC officers seek to get a powerful working group established to review and develop policy on reducing inequality?

    Michael BG, I am sorry you are not coming to Conference, but is there anyone from your local party who is and who could advance some of your radical ideas? Additionally, have you and David B. thought of using the Facebook Lib Dem Policy and Conference Groups to voice ideas and make contacts? (I only recently discovered them myself, and they can’t offer the depth of LDV discussion, but they would allow ideas to be mooted and promoted in the next few days, when it is too late to raise any new emergency motion for Conference.)

  • David Allen 7th Sep '17 - 6:41pm

    We are drowning in ideas for sorting out the inequality problem. Yet it just goes on getting worse. What we’re short of, as a nation, is not ideas. It’s the political will.

    Vince talks about “offensive” inequality which causes “serious damage”, which sounds good. But then he says things like “unless those at the top in business or public institutions learn to exercise restraint, there will build up an irresistible demand for detailed state control of pay or for prohibitive taxation”. A cynical translation would be “We will exhort those at the top to moderate it a bit, and we will try to encourage them to do so by making bloodcurdling remarks about the threat from the extreme left.” Well, we know that exhortation isn’t going to work, don’t we?

  • John Littler 7th Sep '17 - 6:45pm

    If you were to start again in designing a tax system, you would surely start by taxing accumulated wealth rather than just income. That accumulated wealth would include significant holdings of land, which if taxed would neither go away, nor become any less productive. Nor would it prevent the production of land, since bar bits re-claimed from the sea, no one is making any and taxed or not, people would still want to own it. It might however reduce the value of property on it and make it more affordable to farmers, which would not be such a bad thing.

    Instead, taxes are on income, including on the very poorest and part time workers, reducing their incentives and on company income, reducing their incentives to produce, sell and export, as well making the UK extremely unequal and excessively poor at the bottom end.

    Companies exporting and earning valuable foreign currency should surely be the most valuable type of activity and surely should be incentivised and not taxed. Instead, inheritances of up to £2m are untaxed, land is untaxed and is often subsidised and large properties are barely taxed compared to their value ( Council tax) or when compared to the old rates.

    This taxation system has surely allowed the UK to become one of the most unequal and unfair places on earth, certainly compared to other industrialised nations.
    Of course people holding large amounts of land and property portfolio would howl, but let them. In any case, most vote conservative, as they prop up their interests.

  • John Littler 7th Sep '17 - 6:58pm

    Inheritances have to be the most unfair type of income going, as they provide no incentive to doing good works or in being productive and can do the opposite as they can encourage people to give up working. They are not in any sense fair either, as they usually stay within the families of the privileged and are not in any way available to people according to how hard they work.

    For the Tories to make inheritances tax free up on estates of up to £2 million while they attempted to make the poor to middling sell anything of value they owned to pay for care in old age or infirmity, is the most glaring example of rich privilege being locked in and re-enforced by Tory laws and taxation, while they make the non rich pay their own way.

  • Katherine,

    I will be attending conference over the weekend. I will be helping with manning ALTER’s stand and chairing the ALTER cross-party fringe on Sunday evening on the theme of “A progressive alliance for Land Value Tax as a solution to the housing crisis. Vince Cable is president of ALTER. Colleagues will submit feedback on housing and tax policy at Monday’s session manifesto session.

    I do think IPPR have produced a valuable piece of work. They will continue consulting on these issues until they issue their final report, and ALTER will give its input to the committee on economic justice.

    John Littler’s comments above are highly salient. Economic rents are the natural base for funding public services and not just on land. Implicit state guarantees to the banking sector have been valued at up to £220 billion in 2009 and 2010 http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/9295880/Banks-received-implicit-taxpayer-subsidy-of-up-to-220bn-Bank-of-England-says.html.
    These subsidies allowed banks to generate profits and pay at levels they would otherwise have been unable to. The value of such guarantees should be recovered in taxes and levies to fund much needed public services and welfare benefits.

    As Mervyn King notes “In good times, banks took the benefits for their employees and shareholders, while in bad times the taxpayer bore the costs. For the banks, it was a case of heads I win, tails you – the taxpayer – lose.” Surely, we need to flip that coin around in the banking sector and elsewhere where monopoly rents cream off excessive surplus value from the population as a whole.

  • Katharine Pindar 7th Sep '17 - 10:46pm

    Thank you, Joe B., I am learning fast from these exchanges, and will be sure to visit the ALTER stand, though unfortunately your fringe event clashes with the ALDE one. It will be good to bring LDV discussions to life at Conference and encounter knowledgeable people such as yourself there, though I am sorry they will not include Michael BG,

    David Allen: at least the ‘political will’ exists in our party, David, and if you have been an activist any length of time you will be aware of how, through our ideals and intelligence and, I suppose, time out of government to consider things thoroughly, we have often generated effective policies which are then taken over and put into effect by the other parties. Perhaps however we can take a lead now in these matters of economics and inequality, while the two main parties glare and preen to each other and try to keep their internal divisions from showing. I am interested in the way you yourself are at once so clear-sighted, articulate and committed, and yet so sceptical. What is your local party, may I ask, and are you coming to Bournemouth?

  • Joe at risk of sounding like a broken record but as I said to you a while back if vince proposes the land value tax twinned with increased IHT it will go down badly with ‘middle england’ types whom I would imagine are the backbone of the lib dems? So maybe you should engage with vince about the extent of countries that have abolished theirs and are not demonstrativly much worse than the uk is. In fact its comical vince points to the US and UK as inequality issues yet its the UK and US that have close to the highest IHT taxes world over.

    Michael the thing even if (BIG IF) the rich paid it unless it literally goes up 100% it will always effect those far down the chain. Take your idea of 60% above a million that would disproportionetally effect those around that figure but if a pop star worth 100’s x that it would still be lots left even after succesive generations but slashing 50-60% between the various allowances you simply stop those famallies from accumilating more over the generations. And by the way it is not 40% the rate now due to the main residence allowance, cuz it is tapered the rate is now 80% between £2 mil and £2.3 this band will only get bigger because the allowances will slowly increase but the starting point that it gets tapered does not. Kinda like the personal allowance has been tapered since 2009 and so was once 60% income tax between £100k and £112k but cuz the allowance has increased now its 60% income tax between £100k-£123k.

  • Laurence Cox 8th Sep '17 - 12:05pm

    @Michael BG

    I chose the levels that I did to replicate what people currently pay at the bottom end (NI employee contributions start at a weekly income which is equivalent to £8k a year). I are rather concerned that you are advocating 50% income tax on anyone earning over £45k; this would hit many middle-income earners and would make the policy more difficult to sell to the voters. My 45% rate would cut in at the same level as Labour’s proposals, which I think are fair.

  • Sam,

    LVT is part of a system of economic reforms to fund public services from the collection of economic rents and tackle the root causes of poverty.

    Fair economic system=fair distribution of the factors of production=aligned incentives=optimal economic efficiency. All the above are one and the same thing.
    Produced factors should remain private, otherwise transfers of income/capital from producers to non-producers via taxes distorts incentives.
    And the value of the non-produced factor, Land, should be shared equally. If not it’s value when capitalised into selling prices/rental income merely represents a transfer of wealth and welfare from producers to non-producers which again distorts incentives. A common feature of monopolies.
    As Land by value is highly concentrated towards the wealthiest end of the population, a fair economic system would see a large reduction in wealth and income inequality.
    Only one caveat. As Winston Churchill noted, land may be the Mother of all monopolies, but it isn’t the only distortion that affects our economy.
    Treating the root causes of dysfunction, rather than the symptoms via taxing income/capital and redistribution, is the correct solution.
    Good things happen when we align incentives. Fairness, freedom, prosperity and peace.

    Economic rents are to be found mostly, but not exclusively in the rent and financing of housing i.e. the income of Landlords and financial institutions that earn interest on lending for land purchases. Economic rents arise wherever the state grants a licence for exclusive right to property, this includes patent rights, rights such as airport landing slots and rights to exploit bandwidths within the radio spectrum by broadcasters and mobile phone operators.

    Owner occupiers have little to fear from LVT. It will for most substantially eliminate the current council tax charge and properly constructed allow for the elimination of inheritance tax on owner occupied residential properties.

  • Thanks Joe. I get your views/points. I am just getting at what Vince is saying that if anything IHT does not go far enough when for as I said it certainly does for ‘middle england types’ After all there aparently is 5 million second home owners in the uk and lord knows how many with holiday homes abroard. All is required to breach the exemption is have a house in London and a holiday home and ping breached (I’de love to be in that position myself but I really do not think they should be the target of a 40% tax when passing away). The thing is all I see from politicians if this subject is brought up they always say they will get the very rich (normally undefined ) but then still dont let of the middle england types one bit and yet the very rich still do not pay anything. To my mind when the Duke Of Westminster died last year with little to NO political reaction spoke volumes about who the target of wealth taxation will be. And vince having the nerve to imply that tax is not high enough while mentioning countries that do not even have that kind of tax adds insult to injury. That is why vince will find it mighty difficult to get traction in my view. Lord bernett (Lib dem lord) 10 years ago thought of a comprimise he said in return for the rate being 20% above £1 mil (remember 10 years ago) get rid of the 7 year gift allowance but vince is suggesting remove that and keep 40 rate. On top of this I saw no suggestion from vince about the domicile issue where again the very rich could just leave all the legislation would not effect them.

  • Sam,

    Lloyd George would be turning in his grave if he could see how the non-dom status he created in 1914, to exempt from UK taxation “citizens of Empire who live in one of our colonies”. was being used today.

    Non-dom status proves particularly attractive to the world’s super-rich who have spread their wealth internationally – including to low-tax offshore jurisdictions. Because non-doms are technically tax resident in the UK, many are able to use this to declare themselves non-resident in a country where they have declared as their ultimate home. This is a manoeuvre that can unlock huge tax benefits.

    In addition, non-dom status can be combined with offshore trusts to construct complex ownership structures above business investments in the UK, again generating big tax savings.

    The crown dependencies of Jersey, Guernsey and the Isle of Man, as well as the Cayman Islands, British Virgin Islands, Gibraltar and others, have built up a substantial industry administering trusts associated with business empires created by UK-based non-doms.

    Theses non-doms are not just international footballer stars shielding remuneration disguised as image rights from tax. or hedge fund and private-equity managers in Mayfair diverting billions in fees and profits from investment management funds, but an estimated 800 UK born super-wealthy including Lord Rothemere of the Daily Mail born, brought-up and resident in the UK.

    To tackle this mass-avoidance we have to reform the tax system at its root – taxing the economic rents based on the capital from which income is generated i.e. Land, Intellectual capital and financial assets.

    As long as the office cleaner is paying a higher share of her small earnings in taxes then the super-wealthy partners in Investment management funds, we will have a serious issue of inequality to be addressed in this country.

  • @ JoeB “Lloyd George would be turning in his grave if he could see how the non-dom status he created in 1914, to exempt from UK taxation “citizens of Empire who live in one of our colonies”. was being used today.”

    I’m not entirely sure about that. Lloyd George, money,the sale of honours and how he could afford a large property (Bron-y-De) near a golf course in Surrey (with a nearby cottage for Frances) plus a property in Criccieth, plus funding his own staff and party organisation is a subject that doesn’t bear too close an examination.

  • Peter Hirst 8th Sep '17 - 6:00pm

    Extreme inequality especially of opportunity. wealth and basic needs such as decent housing are a curse on our society. There is also inequality of income that while not deterring incentives to better yourself can be done while preserving these. What is a reasonable level of inequality?

  • @ John Littler
    “inheritances of up to £2m are untaxed”

    You are wrong, it is only if left to a spouse that there is no inheritance tax otherwise inheritance tax starts at £325,000, or £425,000 if left by one parent to children or £850,000 if left by both parents (https://www.gov.uk/inheritance-tax).

    The average house price in London is about £650,000 according to Zoopla (https://www.zoopla.co.uk/house-prices/london/). I think anyone who works and buys their own home should be able to leave an averagely priced home to their children. For liberals the amount of inheritance which we feel is a problem is the amount which leads to different levels of power. If someone inherits a house and doesn’t have one this is not likely to make them more powerful than others. If someone inherits another house and already has one I don’t think this will increase that person’s power. However if someone inherits two houses and already has one this might increase their power.

    @ Sam

    Please see link above there is no Inheritance Tax rate above 40% currently.

    I did link my inheritance tax reforms to the gift rules, to bring into tax larger gifts made 7 years before someone dies, which I think is a major way the very rich avoid inheritance tax.

    If we take two 60 year olds inheriting an estate, under my scheme each one could inherit £690,000 before paying any tax. If the estate was worth £3 million under my scheme £648,000 (21.6%) would be paid in tax; if worth £5.38 million, £1.8 million (33.46%), would be paid in tax, if worth £9.38 million, £4.2 million (44.78%) would be paid in tax. I think with setting the highest rate of Income Tax at 55% and applying it to gifts a higher rate than 60% would not be feasible. Does this deal with your concerns about “middle England types”?

  • @ Laurence Cox

    I think you don’t know what the current rates for both Income Tax and National Insurance are.
    There are (including NI Category A):
    0-£8164.52 – nil
    £8164.52-11.500 – 12%
    £11,500- 45,000 – 32%
    £45k-100k – 42%
    £100k-123k – 42 (marginal rate 62%)
    £123k-150k – 42%
    Over 150k – 47%

    My rates included extending the 12% National Insurance rate to everyone earning above £45,000 and have no one pay either Income Tax or National Insurance on an income of £12,500 or less. The reason is that the government has an aim to increase the Income Tax Personal Allowance by 2020 to £12,500 and we have a policy of increasing the starting level for paying NI to the same as Income Tax.

    According to the IFS only 2% of adults earn more than £80,000pa, according to Labour the top 5%. According to the government in 2014-15 only 13% of the population earned more than £44,900pa and therefore they shouldn’t be a problem. If you wanted to increase the rate for those above £80,000 by 5% you need to increase it to 47%.

    Therefore you could have:
    0-£8164.52 – nil
    £8164.52-12.500 – 12%
    £12,500- 45,000 – 32%
    £45k-80k – 42%
    80k-100k – 47%
    £100k-123k – 42 (marginal rate 62%)
    £123k-150k – 47%
    150k-500k – 52%
    £500k + – 60%
    This ensures that everyone only gets the benefit of the increase from 11k to 12k and you are not giving a large tax cut to those earning about £45,000 while you are increasing rates for some by 5% and 13%. I do not see any reason for those earning between 150k and 500K to not get the 5% increase you are giving those earning over £80,000.

  • No officially there is rate above the 40% it is cuz via slight of hand tapering of the latest allowance at a rate of 50p in every £1 above £2 mil will in effect cause a rate of 80% (just like income tax) And I was arguing just like the tapering of the personal allowance starting point has not increased while the allowance has since it was announced way back in 2009 It does take much to my mind think the I h t allowance will go up but the tapering will not cease or tapering start point will not increase and so more and more will caught by that net. After all the people who are caught by the 62% income tax band use to be a few hundred thousand when first announces and in the next few years will be a 1 million people. You may be right about only 13% earn around 40k but disproportionetaly they are the disproportionately the middle class type jobs such as GP or head of a department at a school. Already there are people leaving this country cuz they cant be asked to work for comparatively little in return. The repeated cuts to the lifetime allowance for the pensions show the direction of travel will only exacerbates this in my view

    You seem to not mention that pension wealth is not free of any IHT at all, which is rather curious that all the MPS that oppose the main residence allowance seem curiously silent. Its not cause all long standing MPS (vince being one of them) have a rather large pension they want to pass on is it? Especially as if memory serves around the time when Osborne announced the change in treatment of pensions mused the idea pension withdrawals should be taxed in the way in but not on the way out of them, so if that were to happen it be even bigger tax break than it is.

  • I forgot to add forgive me, its not all about the gifts if you were not aware there is another loophole much more serious. That is unless I mistaken there is a gifts from ‘surplus income’ exemption which I understand are immediately exempt provided 1) Come after the payment of income tax 2) Does not effect standard of living. If you truly are very rich with say for the sake of argument income of £10 mil per year you can easily demonstrate giving £1 mil per year do not effect either. It has no cap whatsoever so you can imagine the potional of that. I am of the opinion it should be just got ridd if its good enough for getting on half of europe it cant be so bad here. If it results in what s ‘idle rich’ I would wager if someone truly does not go out to work for a while cuz of said windfall it makes way for someone else to get the job at least. After all currently someone who received a very succesful family business currently could just hire someone to manage the company and you gussed it can be idle so it is just the small time house owner/house owners that this really effects. After all would these big ‘instituional landlords’ who will be renting hundreds of homes/flats be subject to any charges? If not, why should small time landlords be , etc?
    The thing is even if and thats a big if say the duke of westminsters holdings all was shrunk of 55% (as you would put at over the relavant amount) it would still take several generations to get the wealth below £1 billion so really if preventing idleness is the objective you need to pretty much have a confiscatory regime for the truly rich.

  • Laurence Cox 9th Sep '17 - 11:44am

    @Michael BG

    I am quite aware of the current rates and levels, but I didn’t consider it necessary to use exact figures for the NI threshold because it is a tax based on weekly earnings, and so your figure is only correct if someone earns exactly the same amount each week of the year. I also think that we should be reducing income tax rates on lower earners, which is why I suggested a 30% band rather than your 32% band for the Basic Rate.

    The important point is to introduce more rates for higher earners to make Income Tax more progressive.

  • As others have said actual proposals remain a work in progress. However, it’s NOT something that will be fixed by some combination of changes to tax and benefits, necessary as they are.

    Thatcher promised “trickle down” but actually delivered “trickle up”. I don’t for a minute think that was an unfortunate error – it suits the powerful plutocrat element of the Tory party perfectly.

    Since 1979 the economy has gradually been optimised for financialisation so the City is doing fabulously well (if you discount that it blew itself up in 2008 and looks set to do so again) but the rest of the country has nothing. There is some limited trickle down in London but very little outside the south east. Everywhere it is massively outweighed by the vast increase in house prices that is just one consequence of financialisation. Meanwhile things that are absolutely essential for a modern economy like *quality* training in trade skills have been totally neglected – and not just by the Tories.

    The Tories always claim that the government can’t pick winners but that is exactly what they have done by default in putting all the nation’s eggs in the City basket so, apart from the economic damage it has done to most people (younger ones especially), the continuing financial crisis has left the country without a workable business plan.

    Reversing this is a generational challenge. It is one that will be fiercely resisted by the 0.1% desperate to retain *all* their wealth and by those who have taken their shilling. The press (thanks to Murdoch et al) will brand challengers as “clueless”, “hard left” or worse to discredit them in the eyes’ of the majority irrespective of the facts.

    So one thing we must say loudly and clearly is that the neoliberal turn of the last 40 years is a comprehensive failure. Soaring inequality is just one manifestation of that and fixing it will impact every area of policy.

  • @ Sam

    I still think you might misunderstand the Inheritance Tax changes. Currently the rules are if you leave to a spouse there is no inheritance tax otherwise inheritance tax starts at £325,000, or £425,000 if left by one parent to children or £850,000 if left by both parents. However by the tax year 2020-21 the amount you can leave to children increases to £500,000 for one parent and £1 million for both parents (http://www.which.co.uk/money/tax/inheritance-tax/guides/inheritance-tax-property-changes).

    Please can you post a link where it is stated that currently Inheritance Tax is higher than 40%?

    You are correct there is a strange rule about Christmas or birthday presents not being taxed and maintaining your standard of living. I think the rule means that the present cannot be purchased from your assets it must have been purchased from income and so does not affect income. Therefore if a person gave as a Christmas present 10% of their shares this would not be free of the seven year gift rule because the giver’s income would be affected. If the rules were reformed as I suggested this rule would be abolished as the limit for tax free gifts would be only £11,500 per year increasing in line with the Income Tax Personal Allowance.

    I don’t have a problem with people not working, especially if they have unearned income to live on.

    @ Laurence Cox

    I think increasing the level when someone starts paying National Insurance to £12,500 is better than cutting the rate to 10%. My cut to a starting wage of £12,500 would give everyone a £520.25 NI cut and £200 Income Tax cut.

    Someone earning £45,000 would have a National Insurance and Income Tax cut under your rates of £736.71 per year and I don’t think they should have more than those lower down the tax rates (someone earning £12,500 would only receive £86.70 NI cut and £200 Income Tax cut under your scheme). A person earning £80,000 would get a further £700.

    Even under my scheme someone earning £45,000 would get a £720.25 Tax and NI cut nearly as much as under yours. While someone earning £80,000 would be £2779.75 worse off under my scheme but £1436.71 better off under yours.

    Cutting tax for those earning more than £45,000 and even more for those earning £80,000 while only giving a cut of £286.70 for those at the bottom does not seem liberal to me and does not help to reduce economic inequalities.

  • Like I said Michael, if you taper at rate of 50p in every £1 above £2 mil while liability for i h t is is there and payable that results in regular i h t at 40% above the 2 mil already there and then you have the tapering what was already given resulting in the 80% issue.

    The other thing about this tax is unlike cgt where allowances are given for selling said asset with iht there is no allowance so given how many auction houses (judging by dickinsons real deal lol) charge around 15-20% can be quite hefty, so I would wager that would be good to impliment. Further what disproportionately effects the beneficary whom is not affluent is if you do not have the money to pay the tax they will have to get a big loan with probably not inconsiderable itnerest attached but if they are well off already they can just get the cheque out and pay it and thats it. IE in this case the better of beneficary pays in effect less than someone who is worse off. I believe a lib dem policy paper from 2013 made a reference to this.

    You have no problem with people not working? Thats ironic from what I have heard from people who support this tax they normally state that is why they support it to make it less likely they will stop working.

    I just think given tory pledge they made in 2007 resurrected their fortunes and soem tories actually like the EU I just think if the LIB DEMS said abolishing i h t and a land value tax in its place it may just may actually get some tories vote for them and some green supporters. Could be wrong of course. As I outlined to you it is rather ironic lib dems are most pro eu party yet when it comes to i h t they seem to totally ignore what almost all of the continent is like in this regard (ie almost half of european countries literally have no e s tate tax at all and a number that do its far less such as Italy 4% Croatia 5% and Greece 1-12%.

  • @ Sam

    I am sorry I am not sure I understand you. Are you saying you are advocating Inheritance Tax at increasing rates say first million over allowance 40%, 2nd million 50%, 3rd million 60%, 4th million 70%, 5th million 80%. Is 80% your top rate?

    Are you suggesting also having increasing rates of Gift Tax at the same rates above the allowance?

    Inheritance tax is paid from the estate and gift tax should be paid by the person giving the gift.

    As I have said Liberals should be interested in power and inheriting huge amounts of wealth includes inheriting power.

    According to the Guardian (https://www.theguardian.com/money/ng-interactive/2015/sep/17/how-does-uk-inheritance-tax-compare-with-that-in-other-countries) France’s top rate of inheritance tax is 60% with a much lower tax free allowance, Germany’s is 50%.

    You are correct introducing a Land Value Tax an all land and abolishing Inheritance Tax would benefit those who have a large income from which they can pay the LVT and hit hardest those who have a small income. Those with small incomes will not be able to pass on their home free of tax, while those with a large income will be able to. This might appeal to the wealthy, but I don’t think we should have policies to appeal to them. The only sections of the community we should have policies especially to appeal to are students, graduates and public service workers who we let down when in government.

  • No I am not suggesting a top rate of 80%. I was saying that IS what is happening now due to tapering of the latest allowance and if tapering the personal allowance since 2009 is anything to go by (ie the starting point of the taper not increased but the allowance has) more and more will be caught by that net.

    for your information when you say germany has a rate of 50% that is indeed correct HOWEVER that is only if it goes to uncles/grand parents in the situation where it is most likely and relevant as in the kids of the deseased it is only

    €75,000 – €300,000 11%
    €300,000 – €600,000 15%
    €600,000 – €6,000,000 19%
    €6,000,000 – €13,000,000 23%
    €13,000,000 – €26,000,000 27%
    Over €26,000,000 30%
    Given I would wager almost certainly 90% if the revenue raised from the taxed are in the german bracket of 600k- 600,000,000 of 19% it the german tax again in most cases is less than here by a long margin. Like I said most eurpean countries it is far less. The irony is in this country inheritancws goes to ones kids actually are taxed the same as complete strangers where as on the continent they tax the kids less and the more distrant relatives/friends more. Such as portugal there is no tax on kids/spouse but to everyone else its 10%

    As for land value as far as I understood it, from joes version of it (there are different approaches) it would not be an issue for most home owners or small scale landlords

  • @ Sam

    Unfortunately Joe Bourke version of LVT does not seem workable (see our discussion http://www.libdemvoice.org/55093-55093.html#comments). The tax for every home owner except single people appears to decrease if they are basic rate income tax payers (this is why is appears to be unworkable). Some of these single people will be worse off, because of the abolition of the single persons discount under Joe’s version. Also every home owner who currently receives Council Tax benefit about 1.4 million households and half a million home owners in the bottom poorest 20% of households who own homes in band E and above will have to owe some LVT which becomes payable on their deaths. This assume of course that landlords do not pass on the LVT to their tenants, if this happens there will be further millions adversely affected, all of whom are not the wealthiest people in the country.

    I have asked you to provide a link to these tax rates you think exist. I have provided a link that makes it clear that in the UK there is only one rate for inheritance tax, it does not taper upwards. The Conservatives have introduced a new zero rate allowance for children which is increasing each year until 2020-21 (again I have provided a link).

    You are correct if tax allowances are not increased every year with inflation more and more people will have to pay the tax (or with income tax the higher rates). With regard to income tax during the coalition not increasing the higher tax allowances meant that these people did not gain as much from the lower allowance increases as the poorest. However the coalition did decrease the highest rate of income tax from 50% to 45% (with NI making only an effective 47%).

    Can you provide a link to the German rates you give? The Guardian link states that for Germany the tax free amount for children was £356,000 in 2015.

  • Here is a link to the german issue
    https://www.hg.org/article.asp?id=30964
    a better guide is from a website called global property guide and look at the page about germany and then the inheratamce section and make understand the issue of the various classes. If I was you I would look at the various countries across the world that have no estatee tax at all or its much lower in most cases (as in to family). Given the guardian newspaper supports higher taxes the idea they would mention the tapering results in the rate being 80% is a nonstarter in my view. The IFS concur with my analysis https://www.ifs.org.uk/publications/7707

  • If I was you I would use the property site I referred to then you can verify what it i says is broardly accurate (like I did one evening when was bored lol) for example the german rates may be 5 years old but are still the same apart from the 75k euro bracket where it is 11% is in fact now 7%.. Even the guardian article admits oz and New Zealand have no such tax at all. Even the labour party in new zealand are not saying they will bring such a tax in. The thing is do policy makers want to it to be a revenue raiser or way of bringing down the vast fortunes of the landed gentry. Cuz if it was just the very rich ie billionaires it would raise very little if the target was more ordinary wealthy it would bring in more.. The thing appauling about vince is he correctly rechonisis some of the wealthy may use the gift to avoid but he does not offer any relief on people that do not or cannot, if he did I expect people would not be so enraged.

  • Sam,

    I don’t think you are wrong to conclude “if the LIB DEMS proposed abolishing IHT (at least on a single main residence) and a land value tax in its place it may just may actually get some tories vote for them and some green supporters.

    ALTER is yet to publish its proposals for reform of council tax, but it likely to be focused on shifting taxes from renters to landlords and minimising taxes on owner occupiers/basic rate taxpayers. . Consider e.g. student accommodation. Landlords would be assessed to business rates on the value of rents from Land at circa 47% of such rents. Student renters would continue to pay no tax. Landlords can no more pass on their business rates bills to students then they can their mortgage payments. They will charge whatever students can afford to pay as they do now.

    Corporate landlords and real estate investment trusts investing in residential property would also be subject to business rates where none is collected now. These sums are an order of magnitude higher than the council tax collected from tenants. The rents payable by tenants would continue to be determined by supply and demand i.e,. what tenants are willing to pay and not determined by the individual Landlord’s outgoings or tax band.

    Council tax and inheritance tax on owner occupied homes are both equally resented by the tax paying public and in need of reform and modernisation as part of addressing the increasing levels of housing and wealth inequality.

  • If business rates resulted in less income tax to compensate that would be not such bad thing. But given rates can easily be in several thousands for small premises if a landlord had that liabiity twinned with current income tax it would be rather punitive and given many UNI’s do not cater accomidation beyond the 1st year would be rather bad news for people like who would have to have the funds for the increased rent that would be all but inevitable. After all business rates on a rent producing building (call it business) where say rents are only around say 10-25k rates of several thousand on top of income tax would be a lot where as a business that may have say turnover of £100k the rates would not be such a burden so I would imagine a lower rates bill to reflect the lower amount realisticaly achieved by the landlord would be surely an idea? After all remember 2/3rds of landlords are basic rate payers including other income and if memory serves only 1-5% of landlords have incomes over £150k.

  • Sam,

    small landlords would benefit from small business rate relief just as small business owners do now. Their rates would not be based on full rents, but land rents only. Land rents are generally between about 30% and 75% of actual rents depending on location. Business rates are a tax deductible expense, so income tax liabilities would reduce proportionately.

    Increased rent is not inevitable or even likely. Rents are based on supply and demand, not an individual landlords costs or taxes. Rents are determined largely by the level of disposable income in the target market. Several thousand pounds a week for luxury flats in Central London; the amount of housing benefit or close thereto at the lower end of the market. Student rents are largely based on HMO’s rents for rooms in shared properties. Students don’t pay council tax and have no more disposable income as a result of shifting taxes to Landlord’s. Students will offer no more than what maintenance grants provide in many cases. There is therefore no room for any significant landlord rent increases. This is why LVT is a tax that does not increase prices/rents. Rents are already at the limit of what Landlords can charge based on the demand for the available properties and can only increase as disposable incomes increase.

  • That is where you are wrong some landlords (mainly the smaller ones) to have more certainly of letting the place charge much less. For example my landlord charges me 65 per week for a EPC rating of C room in HMO. Now cuz she only owns a couple she would not apply to smal biz relief (and there is no relief where the rents are over a certain amount). Now copare the situation where her ‘competition’ can and getting around £85-99 per week for sometimes smaller rooms and epc rating of E. They do this by leafleting halls in October over and over again (with the worst fear mongering) which they are not suppose to do but somehow the student union despite numerous attempts by me and others to say surely you can stop it just do nothing. That is apart from a small article on the union website union head to say dont rush for housing. But stuff like posters saying dont rush for housing outisde the halls or even paying someone to hand out leaflets like t he bigger landlords do, and thats when they are not putting leaflets under the doors. Does not stop the student union having housing week in feburary and releasing their lists then as well. They say this so people can get to know each more, which I agree with but all this delay til feb does is make a shed load of students think they got themselves a bargain (compared to hall) for £85-99 etc, until they later realise there is plenty of choice. Does not stop the big landlords once lobbied to ban the to let signs around, after all cant have the student see other properties avaliable. That with their tactic of saying almost all will be gone by christmas and doing viewings 1 after another simultaneously so reinforced the idea to students must take the property quick.
    . Just think about most of these students have barely known the people they are signing to live with little more than 2 months and are commited to living with them till they are practically third years.

  • Sam,

    I am not sure what you are getting at here. You won’t pay business rates on a property with a rateable value of £12,000 or less. For properties with a rateable value of £12,001 to £15,000, the rate of relief will go down gradually from 100% to 0%. Landlords with a single property and land rents below these levels won’t have to pay rates. Landlords with multiple properties and rents from Land only in excess of £15,000 per year will not be eligible for rates relief. . The rent a room scheme also allows landlords renting out rooms in their own houses to be exempt from income tax on up to £7,500 of annual rents.

    I understand some Landlords will prefer to discount rents for certainty of lettings, but that is a matter of individual landlords risk preferences. Rents in the economy overall (or Landlord risk preferences for certainty of lettings) are unaffected by individual landlords tax bands.

  • @ Sam

    Thank you for the link to the German inheritance tax system, it is not very simple!

    The IFS link is to an article dated 12 April 2015 talking about Conservative proposals. However I have another link (http://www.moneysavingexpert.com/news/family/2017/04/inheritance-tax-changes-to-be-rolled-out-from-tomorrow—what-it-means-for-you) (which might be clearer) that states that the new rates were proposed by George Osborne in the summer 2015 budget and will come into force in April 2020. This states that the higher rate only lasts so that the non-paid tax on the extra £175,000 (or £350,000) is paid. For example no inheritance tax is paid on £175,000 (should have been @ 40% £70,000) an extra 20% is paid on £350,000 above £2 million = £70,000.

  • So you can confirm the Guardian article was not exactly being straight with people when most/you would just think , ‘ O the German system taxes more than the UK ‘ when in fact in most the relevant examples it is less. The french system as you said is not so generous, but not exactly a good example to hold up as they have hardly had a great economy the sometime now. Also you see the latest tax break was actually rise waiting in the wings as in the 60%. In a nut shell from my reading on the matter (some would say I am obsessed I just like to be informed on things I comment on)but in a nut shell from my reading on the matter among the countries world over that even have the tax only France, South Korea, and Japan is it more and tied for 4th with USA but they have even by 2020 3/6x the exemption. And Japan the rate is only higher for those with ‘wealth’ quite a lot higher than above the exemption here.

  • The German system is different from the UK one and if someone inherits a small amount (say less than €600,000) they would be worse off, but if more than £500,000 they would be better off.

  • It is per recipiant remember. But yes you are correct, but the point ultimately is unless the lib dems want to start raising various amounts below the now exempt amount. The idea the actual rate should be higher flies in the face of what other countries do, as to act like they probably would do to imply the rate is not high enough which If had courage they would condeed all the points I have made. But they won’t cause then they would look unreasonable and current status quo is contentious enough.

  • I would like our inheritance tax to be per recipient too. Rates of taxation are not uniform across countries and are not even uniform across the EU, therefore the UK could have very different rates from other countries. I do think rates could be higher for larger amounts, but I am not sure they should be higher than the combined highest Income Tax and National Insurance rate.

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