I joined the Liberal Democrats in November to help to create a more liberal United Kingdom. At a time when protectionism and populism are on the rise, not just in the UK but around the globe, it is crucial that we have liberal answers to the difficult questions.
Despite being 10 years on, we are still hungover from the financial crisis. There has been a major squeeze on incomes, structural changes that have damaged towns and the generational divide has grown.
Because of this, I decided to apply to join the A Fairer Share for All working group. Even though populism is on the rise, and liberalism may have lost some of its coolness, it doesn’t change the fact that liberalism has pulled billions of people out of poverty globally.
In Government we had some great achievements that helped to make Britain a more liberal place. We took millions of people out of Income Tax, we cut Corporation Tax, we introduced the Green Investment Bank and the British Business Bank. We should be proud of the achievements that we made, however, there is more to be done.
The answers from the coalition may not necessarily be the same as the answers for the big questions over the next five years – in part due to Brexit, but also the changing geopolitical landscape.
I come from an area (Middlesbrough) that is going through major structural changes. With the steelworks closing, people are moving towards service sector jobs. The town is seeing a large increase in restaurants and microbreweries for example. I want to use my position on the working group to ensure that we come up with policies that benefit towns, cities as well as rural communities.
The Prime Minister has talked about the British dream and One Nation Conservatism, however, the results have been different. Social divisions are high, violent crime is rising and economic growth has slowed.
I would like to take this opportunity to thank you for accepting my application to the working group, and I promise to work hard over the next 12-18 months to ensure that we have robust liberal policies that will help improve the UK. I look forward to working with my colleagues on the working group.
* Collingwood is a Liberal Democrat member in London who is known to the editorial team.
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38 Comments
@Tom,
” A Fairer Share for All”
Yes I agree. But isn’t this more socialism than liberalism?
In the USA, socialism and liberalism are closely associated. But I’d suggest this isn’t the correct use of the term in a historical context nor is it a current usage in a European context.
Many of the supposed liberal parties in Europe (ALDE group) are really quite right wing. Like the German FDP for example. They aren’t liberal in the American sense or even middle of the road.
https://www.politicalcompass.org/germany2017
@Peter Martin Hi Peter – it depends on what we are talking about. For me, a fairer share means opportunity. Opportunity to go to a good school. Opportunity to own a home or capital. Opportunity to progress through your career. Opportunity is at the heart of what I want to do. The American definition of liberal is pointless and has been used to describe so many things which are the opposite of liberal. The alt-right often use liberal as a derogatory term, it is best we ignore them.
@ Peter Martin Fairer shares for all.. “Yes I agree. But isn’t this more socialism than liberalism?”.
No.
Tom,
There are several motions/papers coming before conference in Brighton that https://libdemsalter.org.uk/en/ will seek to engage with directly, including:”Taxing Land, not Investment”
The motion addresses reform of Business Rates and Non-Residential Stamp duty – seeking to replace these levies with a site value rating.
There are three pillars of the Business Case for LVT in Britain:
• It would be good for ‘UK plc’: improving efficiency and international competitiveness right across the wealth creating economy;
• It would incentivise better use of urban land, business growth and investment and invigorate depressed regions, towns and city centres;
• A Business Model can be devised for its administration that would make its introduction cost neutral for Government.
There is a massive ‘deadweight burden’ (estimated at 30% of GDP) on the productive economy caused by a range of taxes. Much of the benefit from economic activity leaks away in the form of land value. Land ownership feeds off production and wealth creation and feeds into perverse and damaging speculative behaviours that cause the ‘boom-bust’ cycle.
Taxes on workers’ earnings and profits are paid out of money that could be invested by employers – business owners – in improving efficiency or used directly to reduce prices: either way, to gain competitive edge. A consumer-led model of economic ‘growth’ gives the illusion of wealth, by allowing house prices (i.e. land values) and a “feel good factor” to rise, without sustainable substance. It is far better to free up real growth by reducing corporation tax on returns from productive investment and income tax.
Taxation of the annual rental value of all land would dampen speculation and give stability to the economy, because the fruits of enterprise would be retained by (or returned to) those who produce.
Levied as a national tax, it would help poorer regions and alleviate pressure on over-heated ones, with no need for subsidies. It would also boost manufacture at the expense of financial services.
The first and most obvious area for reform of business taxation is Business Rates – to be debated at conference.
@ Tom,
“Opportunity to go to a good school. Opportunity to own a home or capital. Opportunity to progress through your career.”
OK. But this is hardly a statement that any politician would disagree with. Tories might even link the concept of ‘good school’ to a selective or private fee paying school. So are ‘fairer shares’ what the Tories want too? I don’t think so.
The concept of Liberalism has been perceived as being a ‘left’ force over the last 50 years or so because Liberals worldwide have had a good record in supporting social movements such as anti-Apartheid campaigns and equality of the races, equal rights for women, decriminalisation and equal rights for those of all sexual dispositions etc. But this doesn’t mean that they’ve supported greater equality in the economic sphere. It’s quite possible to support decriminalising Cocaine usage and be very right wing economically.
This attitude is quite widespread in the supposedly Social Democratic parties of Europe. To such an extent that the traditional social base of these parties, ie the working classes, have deserted them in droves. Ironically they are attracted to parties which as are supposedly of the right but are often quite left wing in their economic policies. In other words the working classes are cottoning on to the new politics. They think their traditional parties have sold them out, and it’s taking them in a direction I think we’d both be concerned about.
So when politicians talk about greater equality, they do need to be clear what they are saying. It’s not just about equality of opportunity. There’ll never be that in our present society. The luck of the draw at birth is by far the biggest influence on anyone’s life.
Joseph. Broadly agree with you about the possible benefits of a land based tax – you can’t hide it and you can’t take it with you. However, not clear how that sits with the competitive imbalance between activities requiring land eg town centre shops and those which don’t (or not to the same extent) eg Amazon.
Can we be clear ? Does Joe’s land tax proposal apply to domestic property or not ?
For example if a person has a bigger garden than their next door neighbour – but a smaller house sitting in it – how are they both affected ? Equally how would a ground floor flat compare with one on the second story ?
We need to take a more holistic approach to our society. Technological advancements can only take us so far. Not every one wants to work in the service sector for a marginal income. We could for instance reduce our reliance on mega-farms and return to a more sustainable and less mechanised farming structure.
Peter Martin is correct, the Tories often talk of opportunity, they have been known to talk about equality of opportunity, but years of Conservative governments haven’t made poverty in the UK a thing of the past.
Tom Purvis, ensuring everyone has a fairer share of our wealth is the road to a Liberal Britain. My understanding is that the main aim of this working group is to ensure that those who feel left behind benefit from the increase in wealth that has happened since 2008 which hasn’t been shared equally.
Tom, you write that you only see a fairer share though opportunity, does this mean the government intervening in the economy to increase the amount of job opportunities and proving free training to those not working? How would you increase opportunities in the north-east to ensure no one is left behind and everyone has a sufficient income to be equally free?
Chris Lewcock.
there has been considerable media attention given to large international businesses that pay little UK corporation tax, some of these businesses operate in the digital sector. The current international tax system has set rules for how and where the profits of businesses should be taxed – but these are based on countries being able to tax the profits generated from a physical presence in the country concerned, which many digitalised businesses will not have.
At the Autumn Budget, the government published a position paper in which it put forward proposals for taxing the digital economy. In that paper, the government argued that in a number of different digital business models, value is actually created as a result of the active participation and engagement of users of digital platforms. This could include revenue generated from advertising targeted at individual users of social media platforms, or commissions generated form users of online marketplaces.
The government has now published an update on its position paper, reiterating its commitment to address what it perceives to be a clear misalignment between where digital businesses are taxed and where value is created. The preferred long term option is to arrive at an international consensus, and some suggestions are made as to how the OECD model treaty should be updated. However, there is also a clear indication that the UK is prepared to take unilateral action with, for example, a royalties witholding tax. As an interim solution, the proposal is for a revenue based tax to be introduced.
Under a Land Value Tax system, all so called economic rents would be subjected to higher rates of tax. In practice, this means that company profits over and above an allowance for a specified return on tangible and intangible assets would be subject to a surchage rate of tax equivalent to the rate of LVT on land rental income. This is similar in concept to a tax on super-profits or windfall tax.
David Raw,
Tom Purvis in his article says he wants to ensure that we come up with policies that benefit towns, cities as well as rural communities.
Business rates reform is designed to do just this. Business Rates directly tax capital investment in structures and equipment rather than taxing profits or the fixed stock of land.
Taxing land means ground rents go partly to the public purse as well as to private landlords, but does not reduce investment and cannot be avoided.
Britain is too unequal geographically, and Business Rates are a drag on commercial activity in struggling areas.
In places like Oldham, Blackpool, West Bromwich, Barrow, Middlesbrough average taxes would be significantly cut, lowering the cost of doing business there and helping to rebalance Britain’s divided economy.
Business Rates particularly disadvantage manufacturing relative to less capital-intensive sectors. They also punish investment in renewables and improving energy efficiency at a time when these are needed more than ever.
Where public investment increases land value, that uplift should help fund the investment. But Business Rates are revalued infrequently, rise only with inflation and are only partly based on land values.
This land value capture would help make the business case for new publicly-funded infrastructure around the country, while businesses investing in their own property would not face higher taxes as a result.
Our 2017 Manifesto commitment was to “Review business rates and consider the implementation of Land Value Taxation.”
In After the Storm[1], Sir Vince Cable noted:
“…one of the main tasks of opposition parties [is] to redesign the archaic, inequitable and unpopular system of property taxation… to make council tax more closely proportional to the value of property. A more radical and far-reaching reform would be to give practical substance to long-mooted ideas for the taxation of land… such a reform is now long overdue.”
ALTER advocates reform of council tax along the lines of The Joseph Rowntree paper https://www.jrf.org.uk/report/after-council-tax-impacts-property-tax-reform-people-places-and-house-prices.
“In places like Oldham, Blackpool, West Bromwich, Barrow, Middlesbrough average taxes would be significantly cut,”
This must mean that taxes elsewhere would be significantly increased. Have we told people that?
Does this mean that profitable businesses operating in the not OBWBBM (Oldham, Blackpool…. etc) become unprofitable? Do they relocate to the above OBWBBM or could they choose maybe Belgium or Ireland?
Innocent Bystander,
the business rate reform proposals are revenue neutral. The revenue base is increased by ending discounts for empty and derelict premises and allowing councils to tax unfinished commercial developments beyond a reasonable construction period, increasing the supply of commercial property and reducing rents.
Empty property and land in development are currently undertaxed, reducing supply and – in terms of housing – allowing developers to deliberately limit build-out rates.
Ending discounts for empty and derelict premises, and allowing councils to tax commercial and residential developments that drag on beyond a reasonable construction period ofsets tax cuts elsewhere.
In struggling parts of the country, the impact of this on landowners would be limited as the Levy would be low in these places, while the impact would be greatest where new supply is most sorely needed.
@ Joe With great respect, Joe, I asked you a simple question – the sort of question Lib Dems will get asked on the doorstep.
You didn’t answer it and it needs an answer. Please look again at my question. Imagine you’re on my doorstep and I’ve got the bigger garden but smaller house. Try to convince me.
A one – or two – sentence answer will do.
David,
Land value tax is based on the rental value of the land. Without development rights gardens have virtually no rental value. The size of the house constructed is irrelevant. It is the value the land occupied that is assessed.
LVT is assessed on Landowners on the basis of the rental value of development rights granted. Flats owners or leaseholders are assessed in the same way as ground rents or service charges for repairs and maintenance of common areas are assessed i.e. based on a proportionn of floor area to the total floor area of the building.
@ Joe Bourke Thank you, Joe.
And the final question – will I pay more or less than I pay now ?
Tom Purvis, it is early days for the new working group, but I also hope as has been raised by two posters above that you will be thinking beyond equality of opportunity, rather a catch-all phrase favoured by centrists. I hope our party will be committing to government intervention to provide more economic development in the regions outside the south-east, with stimulus to business investment and job creation, aiming to make work worthwhile for those who are currently unemployed, on zero-hour contracts or forced to take multiple ill-paid short-term jobs. With people dotting in and out of work and benefits and always hard up, it is no wonder there is increasing child poverty and increasing mental ill-health. We need to propose radical solutions.
David,
most residents of Yorkshire very likely less than now. Investors and wealthy property owners owning higher value properties around the country considerably more.
The JRF paper above notes:
– a progressive property value tax would reduce the size of median gross bills by £279 a year compared to the Council Tax;
– the bills of almost two-thirds of households would fall by more than 10 per cent, -while fewer than one-quarter would experience increases of more than 10 per cent;
– a progressive property tax would reduce gross median bills for the poorest tenth of households by £202, and increase them for the top tenth by £184;
– London would need to be handled differently because of its high property prices;
– a property tax could have a supporting role in reducing house price volatility.
Common Law and the early stages of feudalism were based on land value tax. It was the “fee” (feu) that kept people from grabbing land they were not using. The class system was based on landlords pocketing those fees for themselves and making people pay taxes even if they had no land. In 1793 the Radical and political philosopher William Godwin wrote in “Enquiry Concerning Political Justice,”
‘First then, legislation is in almost every country grossly the favourer of the rich against the poor…. Thus in England the land tax at this moment produces half a million less than it did a century ago, while the taxes on consumption have experienced an addition of thirteen millions per annum during the same period. This is an attempt, whether effectual or no, to throw the burthen from the rich upon the poor, and as such is an exhibition of the spirit of legislation.”
Nothing much has changed over the course of the 19th and 20th centuries.
Joe,
I struggle to reconcile your “significantly less” with “revenue neutral”. Your further explanation shows major wealth redistribution but not who will pay more. Will it be homeowners in the South? And how badly will they be hit? Is this a transfer of tax demand from business to householders? Or the opposite?
I suspect you underestimate the level of demand for clear answers if this proposal ever moves forward.
Innocent Bystander,
with respect to Business rates a revenue neutral policy provides for reductions in the majority of current assessments by widening the tax base to include empty property and land in development that is currently undertaxed i.e. spreading the current level of tax collected over a wider range of commercial land. Hiigh value Land in areas of high demand such as central London and other areas of the South-East may see increased assessments as well. The purpose of the land-based assessment is to relieve business costs in poorer regions and to incentivize release of land for commercial development in high demand areas.
When Vince Cable speaks of redesigning the archaic, inequitable and unpopular system of property taxation… to make council tax more closely proportional to the value of property or a more radical and far-reaching reform for the taxation of land- he is speaking of making council tax more progressive in the first instance and a wider policy of wealth redistribution in the second case.
Council tax can be made more progressive in a number of ways. By updating valuations from the 1992 base, by extending council tax bands as Wales has done or by moving to a land value tax. Alter’s proposals for an LVT to replace council tax include a regional allowance based on median rents for a locality. Higher value property in Bands E and above would see increases while average and lower value properties would see reductions. This would be the case wherever in the UK the land was. No allowance would be available on 2nd homes including homes left empty by overseas investors and rental properties including student accommodation which contributes no council tax at present.
@Innocent Bystander
The land tax is a progressive wealth tax so it’s going to be a tax cut for the vast majority of people. I think a lot of people vastly overestimate how much property wealth they own – this is a chart created using ONS data showing the upper bounds of household net property wealth in 2012.
https://forward-thinking.org.uk/wp-content/uploads/2016/08/Upper-bounds-of-net-property-wealth-600×337.png
The question “will I pay more or less? ” does demonstrate that a LVT would have to be administered nationally rather than locally. The towns in the poorer regions do need just the same money, and maybe even more, to run their services. So, if the tax was local, they’d have to have a much higher rate of LVT than in the more prosperous areas. If rental values are only half those in the poorer areas then the LVT rate would have to be twice as much to bring in the same revenue.
So, it does seem very likely that the losers from this will be in the SE and the winners will be in the peripheral regions. Having said that, this is already the case with income tax. Incomes are higher in the SE so people there, pay more income tax than they do in the NW, for instance.
The requirement for a single rate LVT doesn’t fit in well with the move to devolution. But to be fair to Joe this isn’t peculiar to LVT. Any tax is going to bring in more in a prosperous area. So if we are going to have effective fiscal equalisation, in the pound sterling area, we need a strong central government which is democratically accountable to all voters. The problem in Scotland and Wales, now, after devolution is that this isn’t the case. Voters are fobbed off with the excuse that any problems in the health service or education, or whatever, are the responsibility of the devolved government.
@ Zak,
“The land tax is a progressive wealth tax so it’s going to be a tax cut for the vast majority of people.”
The problem with this statement is that it assumes the reason for taxation is to raise money for the government to spend. It isn’t. It is to tax the potential spenders in the economy, and so curtail demand, to prevent inflation when the government does its own spending. In other words if we make and grow just so much of everything then the price level will be dependent on total demand. We aren’t going to be any better off unless an LVT leads to an increase in production – which I’m sure Joe would argue was the case but I’m not convinced it would make much difference.
So the net result will be that, on average, we’ll be no better off. But the potential losers will be more likely to be fiercer in their opposition than the potential winners.
A few points strike me. This tax will quickly become known as the “South East England” tax because it looks like it will be the only area paying it. The one advantage of income tax is that it automatically depends upon having the income to pay it. This new tax will drive thousands in the south east from their homes.
A further effect will be that your tax will increase if the state “improves” your locality. The key question to ask any candidate for local office will be “Are you prepared to fight, tooth and nail, to run this area down and obstruct any form of improvement?”
It’s no good claiming that the householder should welcome the increase in rental value.
Unless they actually left their home and rented it.
This will be seen (as some have said) as a means of taking away from the south east it’s accumulated wealth and handing it out. We will have to see if that has electoral carry.
My regret is that if only the same intellect could be devoted to wealth creation that goes into new methods of wealth redistribution we would have something to bequeath our grandchildren.
All we ever read is the hopelessly pathetic “invest in skills and infrastructure” or “”develop an industrial strategy” (as if these haven’t been tried a thousand times before).
Joe,
I suggest a little less obscurantism. If this is exposed to the public’s consciousness then they will fill in the blanks for you and with some hostility.
“Hiigh value Land in areas of high demand such as central London and other areas of the South-East may see increased assessments” is disingenuous.
Replace the words “may see” with “will inevitably see jaw dropping increases”.
Best to be clear and open.
@Peter Martin
..Taxes do raise money for the government to spend? There can only be a finite supply of money in the economy so taxes are used to recapture that, otherwise we’d be subjected to hyperinflation if the government decided to create new currency just for itself to spend. The land tax isn’t a tax on production so it carries no economic loss. All other taxes (apart from the poll tax but that’s flat and unfair) hurt overall output as they are taxes on production, so replacing other taxes with something like a land tax would increase economic output.
Peter Martin,
One useful way to view the purpose of taxation, is to distinguish between objectives of resource allocation, income redistribution, and economic stability. The first objective, resource allocation, is furthered if tax policy does not interfere with market-determined allocations. The second objective, income redistribution, is meant to lessen inequalities in the distribution of income and wealth. The objective of stabilization—implemented through tax policy, government expenditure policy, monetary policy, and debt management—is that of maintaining high employment and price stability.
There are likely to be conflicts among these three objectives. For example, resource allocation might require changes in the level or composition (or both) of taxes, but those changes might bear heavily on low-income families—thus upsetting redistributive goals. As another example, taxes that are highly redistributive may conflict with the efficient allocation of resources required to achieve the goal of economic neutrality.
Because of the fixed supply of Land, Land Value Tax is recognised as the most efficient means of taxation. It is considered to be Pareto efficient since it does not interfere with optimal market mechanisms. The relative rental value of land is unchanged, thus avoiding inducing altered choices based on substitution effects.
As it is not collected on any improvements made to land or to buildings on land, it does not discourage productive activity. Instead, it encourages people to bring idle land into use, to improve land they own and to be as productive as possible (when you have a pure LVT, earned income isn’t taxed at all). The end result is, in theory at least, good for society, good for the state, good for equality and good for growth.
It is true that replacing Business rates and/or council tax may have only marginal effects onb productivity as property taxes account for only a smal % of overall taxation, but replacing higher rates of income tax with an LVT. for example, could have significant effects.
Innocent Bystander,
Business rates are currently based on property rental values and so are currently higher in London and the SE than other parts of the country. A change to site value rating does not change that. Modeling indicates that around 92% of local authorities, particularly outside the SE, will benefit from reductions brought about by widening the tax base to include empty property and land in development.
With respect to Council tax, as noted above, based on the JRF proposals for a progressive reform of council tax:
– a progressive property value tax would reduce the size of median gross bills by £279 a year compared to the Council Tax;
– the bills of almost two-thirds of households would fall by more than 10 per cent, -while fewer than one-quarter would experience increases of more than 10 per cent;
– a progressive property tax would reduce gross median bills for the poorest tenth of households by £202, and increase them for the top tenth by £184.
London would have a homeowners allowance based on median rents in the City.
Council tax in Middlesbrough on a Band D property is £1566. In Hounslow Borough in West London it is £1462. These local authorities would see decreases. Local authorities that are likely to see increases on average include Westminster (Band D £712) and Kensington & Chelsea (Band D £1123).
184 quid doesn’t seem bad. Roman Abramovich should be able to afford that. Are your numbers right? Vince’s famous Mansion Tax was more than that.
Innocent Bystander,
The figures quoted for council tax reform are from the Joseph Rowntree Foundation research report referenced above. This is the most comprehensive research that has been conducted on Council tax reform involving the compilation of a database of 7 million properties across the country.
Vince’s Mansion tax was a supplementary wealth tax on very high value properties not a reform of the council tax system.
Alter will be holding a fringe at Brighton in which the presenters of the motion for business rate reform will be explaining the detail of the financial modelling conducted.
Tom,
in your comment above you say “The alt-right often use liberal as a derogatory term, it is best we ignore them.”
This Guardian article gives a stark account of extreme poverty in America https://www.theguardian.com/us-news/2018/jun/01/us-inequality-donald-trump-cruel-measures-un.
The Nobel prize-winning economist Joseph Stiglitz told the Guardian it was profoundly important that international observers were speaking out about Trump’s impact. “This administration inherited a bad situation with inequality in the US and is now fanning the flames and worsening the situation. What is so disturbing is that Trump, rather than taking measures to ameliorate the problem, is taking measures to aggravate it.”
Top of the list of those measures was the $1.5tn tax cuts enacted by the Republicans last December that slashed corporate tax rates. “Can you believe a country where the life expectancy is already in decline, particularly among those whose income is limited, giving tax breaks to billionaires and corporations while leaving millions of Americans without health insurance?” Stiglitz said.
He went on to say “It’s clear that this administration is totally out of step with the rest of the advanced world that is looking at the US more askance on so many levels. For Americans who are fighting against the abnormality of the Trump administration it is heartening and reinforcing to know that the rest of the world is becoming more resolved in how it deals with the post-Trump US.”
@ Zak @ JoeB
“There can only be a finite supply of money in the economy so taxes are used to recapture that, otherwise we’d be subjected to hyperinflation if the government decided to create new currency just for itself to spend. ”
It’s true there can never be be an *infinite* (symbol: ∞) supply of anything. ∞ is just a philosophical concept. Money works rather like tickets for a football match. The club creates what are essentially its own IOUs (a promise of admission to the ground) and tears them up on receipt. The parallel is Govt spending its IOUs into the economy (a promise to accept them, ie ££ as tax receipts) . Followed by the destruction of its own IOUs when taxes are collected.
That’s just the way it is and it is more than just an academic point. Anyone who is interested in politics, whatever their position in the political spectrum, needs to understand some macroeconomics and know that the Govt, like the football club, can’t get more IOUs back than it has created and is going to be, usually, in deficit and always in debt in terms of its own currency.
It’s a little bit different in the eurozone because 19 countries are trying to share the same currency which is a pretty stupid idea! This, below, is the problem the German government is creating for itself. Germany is sucking in so many euros, which are more needed elsewhere in the eurozone, but it can’t spend them because the German Govt, as always, is worried about inflation!
https://www.wsj.com/articles/germanys-coffers-are-overflowing-but-no-one-is-talking-about-tax-cuts-1518868801
@ Zac @ JoeB,
“so replacing other taxes with something like a land tax would increase economic output.”
All other taxes? There’s really no evidence of that. Let’s get back to the title of the thread which is about a ‘liberal’ Britain. Presumably a successful liberal ‘Britain’? We can only have this if the capitalist economy is working reasonably well with an good heap of social justice thrown in to smooth off the rough edges. I’d call that a mixed economy.
A sensible LVT can be apart of that but to go the whole way and talk about it as ‘single tax’ is really just a non-starter politically. It’s too much of a change to offer the voters. They’ll never go for it. But they will go for a mixed economy which is well regulated by the state in the interests of all.
So, yes, there should be discussion of how you are going to make the economy function properly. Just like with anything else, you need to know how it works now before you start proposing big changes. Especially such big changes that you’ll be asking voters to take a massive leap into the dark.
In other words – stop harping on about a LVT!
Peter Martin,
with all due respect, I would think that most people with a good understanding of macroeconomics appreciate the role of taxation in stabilization—implemented through tax policy, government expenditure policy, monetary policy, and debt management—with the objective of maintaining high employment and price stability.
I would say that most leading economists and treasury officials responsible for policy making have a good appreciation of the economic impacts of deficit financing and both public and private debt in the economy. This includes an understanding that in a world of mobile capital, governments operate in a environment where international investors have multiple choices with respect to location of investments and currency devaluations have a direct impact on living standards.
There are countries with what amount to single tax systems based on income generated from natural resource rents among the oil producing states, but they are the exception.
Efficient and equitable systems of taxation, combing direct and indirect taxes on Land, Labour, returns on capital and consumption are part and parcel of delivering a productive economy and fairer share for all. Tom Purvis in his article says ” it is crucial that we have liberal answers to the difficult questions.”
Land Value Tax as promoted in the current proposal for reform of the increasingly burdensome business rates regime is an integral part of the liberal answers to these questions.
Innocent Bystander – the problem is Britain’s imbalanced consumption-based, debt-fuelled economic model, which has always been the case since Thatcher era. An export-led economic model should be adopted to tackle this problem, to rebalance the economy.
“Industrial strategy” has been talked about many times, but parties including Libdem never delivered a clear proposal of how such thing must be carried out, and no actual figures were mentioned. The word “how” is crucial, just look at the British Leyland case to see the disastrous consequences of Labour’s wrong approach.
Infrastructure investments cannot be avoided, but again, how. IMO, ditching the white elephant Hinkey which is also a potential threat to national security and use that money to repair/upgrade existing infrastructures with a focus on regions outside the South East will deliver quicker returns, since many of such works will be shovel-ready. Linking back to industrial strategy, improvements in energy efficiency can efffectively match the projected output of Hinkey with much lower costs. Besides, investments/subsidies in energy efficiency (as well as automation) can be carried out on a grand scale without being bogged down to cherry-picking, arbitrary pick-winner policy. Various studies showed that Britain lagged behind in both energy efficiency and automation, and investments in these areas will quickly deliver productivity gain.
Politically, just talking more about these issues, especially the trade deficit and debt-driven economy will gain us much more attention. Just look at how 45 gained massive support by bragging about American trade deficit. Why? A whooping number of voters always think that trade deficit is toxic no matter the context.
Thomas,
An export-led economic model should be adopted to tackle this problem, to rebalance the economy.
We can’t all have export led models! We get along just fine. We import BMWs, hand over our IOUs (££), the Germans then put them through their banking system, the Bundesbank and ECB between them convert them to euros, by just creating them if necessary to avoid putting too much downward pressure on the pound. In other words we get our BMWs and the Germans get their bits of paper or digits in a computer.
What’s the problem? We and the Americans are doing the big net exporters a big favour 🙂 They couldn’t manage without us!
Peter Martin – the current imbalance must be dealt with. What I look for is to cut down our trade deficit at the expense of exporters’ surplus.
The Chinese has been using IOU of importers to buy up the latter’s properties and companies, which then allows them to shift the newly acquired intellectual property and technology back to China. They also plan to use their dollar reserves for their latest Eurasia project/modern silkroad, which will be their vehicle to increase their economic influence and compete for hegemony.
Japan has been using foreign reserves to provide ODA to LDCs, which allows them to gain lucrative orders for their firms and simultaneously suppress potential local competitors. This is how a shrewd country embraces “international aid”.
Also, you can use foreign reserves to hoard natural resources such as oil. This is what Japan, a resource-poor country, has been doing.
Most economic studies also support the notion that involving in export business improves a company’s productivity.
Peter Martin – the trade deficit in the UK also reflects two problems: low household savings and over-comsumption, gutted manufacturing capabilities, as well as low productivity. The US case is different, because of its unique position: the dollar is the world reserve currency. I am particularly concerned with the second problem: British manufacturing. Continuing trade deficit in the long run will put pressure on interest rate, and also cheap imports can damage manufacturers’ capabilities and expertise. The manufacturing jobs will disappear and be shipped abroad.
Low household savings leads to over-consumption, higher debt and less capital to invest, which props up trade deficit via increased import and increased demand for foreign capital to finance investment.
Finally, the current debt-fuelled consumption-based economic model is unsustainable. Spain and Ireland, which had the same model before 2011, had paid dearly during the Eurozone debt crisis. Contrary to Greece, Spain and Ireland’s problems were caused by the fact that their deficits were financed by foreign capital inflows, which then flew into the property sector and caused massive bubbles. Next time, this may happen to the UK.