Clegg starts Public Negotiation: Phase 2

Public Negotiation: Phase 1 kicked off on Thursday 26 January 2012. It ended on 21 March 2012. The deputy prime minister’s first demand was to allow the lowest paid to keep more of the money they earn next year by implementing more quickly the Lib Dem policy of raising the income tax personal allowance to £10,000. However badly the budget was presented, Clegg’s stance can only be judged a success: the policy was implemented significantly more quickly, with the threshold being raised by £1100 next April.

Yesterday, Clegg signalled the start of Phase 2, and it’s tax policy on which he’s focussing again. Calling for the introduction of a “time-limited” wealth tax to help reduce the deficit, Clegg told the Guardian:

If we are going to ask people for more sacrifices over a longer period of time, a longer period of belt tightening as a country, then we just have to make sure that people see it is being done as fairly and as progressively as possible.

As someone who has previously called for this sort of constructive public negotiation as an alternative to the sort of destructive internal opposition politics we have seen glimpses of during this government’s term, I welcomed Clegg’s move back in January and I equally welcome his most recent intervention. It is through differentiation of this nature that the coalition will survive; the alternatives of either total harmony or open warfare are both far more likely to lead to the collapse of the government.

Far from being merely pre-conference kite-flying, this sort of open dialogue is the way that coalition should work. Voters should be able to see the priorities of the governing parties. And if Tory MPs want to continue responding to such debates like schoolchildren (yes, Mr Jenkin, I’m talking about you), I say let them carry on, and leave the work of government to the grown-ups.

So I say three cheers for Nick Clegg. I look forward to hearing more details of the plan, and to seeing how the Tory party responds without further entrenching the disastrous view that it is the party of, and for, the rich.

* Nick Thornsby is a day editor at Lib Dem Voice.

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22 Comments

  • Bill le Breton 30th Aug '12 - 9:35am

    Nick this is post hoc explanation. You join a valient crew coming to the rescue of a fundamentally illiberal approach : the politics of proclamation. There is a vital ingredient missing prior to these so-called ‘negotiations’ – it is called involvement or engagement.

    As I have just posted in an old thread, what annoys me most about Nick Clegg and his coterie is that fundamentally they are old style politicians. The more they protest otherwise, the more their actions betray them.

    Yesterday, through the pages of the Guardian, our leader issued an edict – without warning, without involving the Party, without even warning his Parliamentary colleagues and of course without involving the great British public. Oh and without details with which we could counter the inevitable attack.

    There was then a great scurrying round by the great and the good trying to justify the merit of the initiative.

    That simply is not a Liberal Democrat approach as practiced by our campaigners up and down the country for forty years.

    I’d like to suggest that Lib Dem politics is a process along these lines: First inform. Give facts, explain problems and ask for views on the problems. Second communicate the results of these consultations and suggest a range of possible solutions. Keep the information and involvement process going and above all LISTEN.

    Campaign at the grassroots and in the institutions where decisions can be made. Carry people with us. Collect a monster petition. Create a movement for change.

    We had all summer to do this – as I begged back along. It really is the basics.

  • Open dialogue?

    The above might be what Clegg intended, but it’s not what has happened.

    The Tories have made explicitly clear that this proposal has absolutely no chance in this parliament and have humiliated Clegg in the media. That’s not a victory for Lib Dem strategists.

  • This is just political window dressing, purely for the conference audience. The problem with the rich and tax is that they don’t pay tax at anywhere near the headline rate. Raising the rate may make Mr Clegg look tough, but does anyone seriously believe it will actually raise more tax? If anything, it’s likely to lead to even more avoidance and a reduction in the tax take.

    I absolutely agree that the rich should pay more but I’m still waiting to hear any proposal that’ll get their tax rate even close to what most people pay.

  • Richard Church 30th Aug '12 - 9:52am

    Bill, that is simply not true. Increasing tax on the wealthy is already an established theme for our party, and is recognised through conference resolutions and statements by party spokespeople for years. In particular we have advocated a tax on wealth rather than income, eg through a mansion tax.

    Nick hasn’t put any flesh on the bones, he has merely re-stated an existing theme that will need fleshing out in the weeks ahead. I expect though that the Tories won’t countenance it, so this is more like positioning for the next general election when we will be offering increased taxers for the rich while the Tories propose another round of benefit cuts.

  • What I hate about the current situation is that we Liberal Democrats seem now to be panicking and caving into the “Nick is the problem” meme.

    The real problem is that our leader and by extension our party have been continually misrepresented and knifed in the back (and the front) by the press. There appears to be another wave of this going on at the moment and now is not the time to give in to it.

    As far as negotiation is concerned, I would say it is a very dangerous time to be starting to negotiate. The Tories know that we are in an even weaker position than we were after the general election because of our poll ratings. Now is the time to sit tight and not budge a further inch on the key things we have managed to achieve.

  • Bill le Breton 30th Aug '12 - 12:08pm

    Richard, I don’t dispute that, I know and support the direction of travel. I have been a long time supporter of LVT for example. My beef is with tactics, pragmatics, involvement and leadership.

    On the other thread I asked, does this make the Mansion Tax more or less likely? Will it serve the argument for a transfer from income to wealth taxes? Because it is so easily painted as self-serving, does it make us more or less trusted in the communities in which we campaign or have to campaign? Did it come from a planned campaigns and communications strategy that worked back from say the Autumn Statement to the campaigning point that would have followed the May 2012 ‘thank you’ ? Doe we have a chair of the Campaigns and Communications committee? Did he or she know this was to happen? Were the ducks in a row? We the leitenants ready and briefed? Were our grassroots ready to communicate in their communities this weekend? Were they on local and regional radio yesterday?

    Effective leadership plans, co-ordinates, enlists, motivates, involves, communicates and executes.

    With the Mansion Tax, I think there is a real chance that we have snatched defeat from the jaws of victory. I think that Lord Oakeshott on Newsnight was trying to rescue the situation by saying this was actually all about the Mansion Tax, only for the leadership, through the ever loyal and willing Simon HUghes, to keep the kite aloft with the detail of a 0.05% tax on assets, homes and pensions.

    By all accounts it was Cameron who was sceptical at the time of the budget and as a Man not a Mouse he isn’t going to give way now, is he? Will we appear stronger or weaker as a result?

  • Bill le Breton 30th Aug '12 - 12:13pm

    Sorry to have a second go, but it occurs to me that, in communication terms, our error is that we try to spin before action rather than after action.

  • Hmmm.
    So the really bad ‘wealth tax’ idea is now being tied to the £10,000 tax threshold idea – a good one.
    Trying to link the two doesn’t make the bad one any better.
    Really, the LibDs have lost their heads and lost their way.
    Get back to thinking about what is the best way to do things and think through the consequences.
    And don’t let your prejudices get in the way of doing the best thing.
    The cut in top-rate income tax might actually be a positive thing for the tax take. It wasn’t our idea, but let’s see what happens before we condemn it.

  • RC: “Now is the time to sit tight and not budge a further inch on the key things we have managed to achieve.”

    I totally oppose this. It would bring truth to Labour’s meme that we’re just propping up the Tories and not doing anything.

    If there’s nothing for Liberal Democrats to gain from being in Coalition, then we shouldn’t be in Coalition.

    Remember, Cameron needs us to stay in his job. We hold the balance of power. If Cameron won’t play ball (or can’t control his backbenchers), we can leave government and effectively kick him out of Number 10. Yes, it’d probably trigger a painful general election for us, but if we’re not going to get anything else from being in government, there’s no point delaying the inevitable.

  • A House of Commons select committee looked in considerable detail at the feasibility of a wealth tax in the mid-1970s and rejected it as fiendishly complex and likely to have many arbitrary features and therefore give rise to massive legal challenge. As a result it is unlikely to raise significant revenue, which is one of the reasons why very few countries use wealth taxes.

    Even leaving aside other considerations, the sheer administrative complexity involved in valuing everything that constitutes personal wealth makes this a thoroughly bad idea. Bear in mind that the Treasury and HMRC are struggling simply to cope with taking child benefit away from higher-rate taxpayers!

    It would make even less sense to introduce a whole new system to tax wealth* only then to withdraw it again a couple of years later – which seems to be what is implied by Nick Clegg’s call for a ‘time-limited contribution’.

    In practice the only way these one-off grabs have ever been done in the UK is by means of an extra imposition of surtax in a couple of years in the late 1940s and late 1960s which took the marginal tax rate on capital income at the top end above 100%, thus biting into the capital itself and indirectly taxing wealth. These acts of pure confiscation were euphemistically termed ‘capital levies’.

    Having recently voted to lower the top income tax rate to 45%, it would be somewhat bizarre to hike it above 100% for certain types of income as a proxy for an unworkable wealth tax!

    * A wealth tax in this sense is, as Wikipedia tells us not inaccurately: “generally conceived of as a levy based on the aggregate value of all household holdings actually accumulated as purchasing power stock (rather than flow), including owner-occupied housing; cash, bank deposits, money funds, and savings in insurance and pension plans; investment in real estate and unincorporated businesses; and corporate stock, financial securities, and personal trusts”.

    A tax of this sort couldn’t fail to damage the incentives for wealth creation. Indeed, more generally it needs to be appreciated that you won’t encourage wealth creation and investment through high taxes on investment returns (whether capital gains or capital income). Really, if greater economic welfare is what we are after, we want to lighten the tax burden on both income and capital, while shifting the burden onto land and resource use.

    For this reason, I do think that physical property – or more specifically the land it sits on – is a different case, because here we are talking about a finite resource which gives rise to economic rents. Therefore I think there is a good case in principle for a land value tax, and if one can’t be designed in a practical way (the Mirrlees Review was inconclusive on this, although it did suggest replacing business rates with a LVT) then a flat-rate tax proportionate to property value would probably be a good proxy.

    But this wealth tax proposal floated by Clegg seems to be so half-baked that I’m afraid it does look like simply posturing (differentiation and all that) before the conference season.

  • David Allen 30th Aug '12 - 6:07pm

    Alex Sabine is right about wealth tax. It doesn’t work.

    By far the most practical way to tax wealth is on death (currently this is of course “inheritance tax”). Then, it can be a simple one-off exercise, it doesn’t hurt the person who accumulated the estate, it isn’t too painful for the people who merely inherit a reduced windfall, and it doesn’t cost a bomb to collect it. Taxing wealth at death means that David Beckham can enjoy the wealth which he has (arguably) worked hard to earn on merit, but Brooklyn Beckham et al won’t just collect all the family money without lifting a finger. Taxing wealth at death provides a powerful way to restrict the growth of wealth inequality, which otherwise naturally grows ever more severe as generation succeeds generation.

    It is therefore very important for seriously rich families, who want to stay seriously rich, to denigrate taxing wealth at death. “Fortunately” they have lots of good legal and publicity advice to help them, and they can emphasise the morbid, scaremonger about death panels and the like, and bleat about hard cases and mythical poor little rich old ladies with nothing but a stately home to call their own, etc.

    Proposing a wealth tax is just a distraction from something much more practical, which would be to reverse the Tories’ massive concessions to the rich through relaxations in inheritance tax provisions.

  • Richard Dean 30th Aug '12 - 6:27pm

    A wealth tax is also one of the most unfair taxes there is, surely? Perhaps someone could correct my thinking, which I know goes wrong often ….? …

    Two people have the same after-tax income. One spends everything, paying VAT. The other consumes less, lends the extra every year to a business that creates growth, and eventually gives the total loan back. That person is now wealthy, and is getting clobbered by a wealth tax! After the wealth tax, the person spends the rest, paying the same VAT as the first person. The net result is that the second person has been taxed three times – original income, wealth, and VAT, whereas the first person has been taxed just twice – original income and VAT.

    The result is that the person who invests and creates growth is actually penalized for doing so! And it’s unfair for inherited wealth too – there was the original income tax paid by the donor, then the inheritance tax the recipient paid, and then the wealth tax, and then the VAT. If the original donor had squandered everything, only two of these four taxes would have been due!

    Is this right? On this basis I see a wealth tax as an unfair measure that might be necessary to get funds in an emergency, or might have a role in controlling where money is invested, but has a major unwanted side effect of causing investors to move the rest of their wealth to some other country.

  • David Allen 30th Aug '12 - 6:44pm

    Bill le Breton said:

    “Yesterday, through the pages of the Guardian, our leader issued an edict – without warning, without involving the Party, without even warning his Parliamentary colleagues and of course without involving the great British public. … That simply is not a Liberal Democrat approach …..”

    Couldn’t agree more.

    “I’d like to suggest that Lib Dem politics is a process along these lines: First inform. Give facts, explain problems and ask for views … communicate the results of these consultations and suggest a range of possible solutions. … above all LISTEN. … Campaign at the grassroots”

    Not so sure about that one.

    Yes, that is the way Lib Dem grass roots campaigning has worked, but, government cannot be quite like that! We should not provide Clegg an excuse for his appallingly high-handed and arbitrary behaviour by suggesting an impractical alternative.

    At the risk of heresy, may I suggest Cameron as a reasonable role model – in terms of the mechanisms he employs to reach policy decisions, at any rate? He does not, like Clegg, just race off on his own and declare brand new policies with minimal consultation. But nor does he just delay everything in long-winded listening exercises and policy commissions (as Miliband tends to do). He watches debate, smiles through it when colleagues ask whether he is a man or a mouse, and quietly reiterates the official line from time to time. Then, sometimes, he does the leadership bit, by announcing a big change, as for example he did over selling forests. But only when there has been plenty of time for debate, and his members don’t therefore (most of the time) feel too badly bounced. I hasten to add that the decisions are often rubbish, but the process of reaching them is often quite a reasonable one.

    A better Lib Dem leader would act more like that.

  • My old boss, and ex deputy gov of the Bank of England, Howard Davies, does not dismiss the idea out of hand: http://www.ft.com/cms/s/0/c027693c-f120-11e1-a553-00144feabdc0.html#axzz24yC60QgY, and the FT editorial supports a move away from taxing income to taxing wealth.

  • Richard Dean 30th Aug '12 - 8:01pm

    Ok, Tim, when all possible counter-argyments fail, drop a big name, quote a link, and make sure a poor person like me can’t open it because I can’t afford to pay, and don’t anyway want them to have my name and hound me to kingdom come?

    Was that the Howard Davies who resigned over corrupt practices and Libya? http://www.bbc.co.uk/news/uk-12642636 (this one is free)

  • @david allen

    Spot on….. taxing people’s wealth in an over the top way while they are alive just doesnt make sense if they are creating something….. for all the reasons above the idea of a temporary wealth tax is just a no-go idea that would be a nightmare to implement and control.

    Introducing a fair tax on wealth when someone has gone – setting a reasonable amount that can be passed onto children, abolishing the loopholes and fancy got up schemes for avoidance – now that I believe would resonate with the public, and would be very hard for Cameron to argue against at the present time.

  • I am sitting here with jaw dropped… the very same people who for months have been moaning about Nick, now when he does something that gets us good coverage, displays our distinct approach and marks us out as a force to be listened to, they don’t say ‘well done’ but pick holes in it.! As said above, he isn’t stepping outside our policy, and he is leading the way… isn’t that what you wanted? Being negative won’t help anyone, except our opponents… being negative will undermine the resounding courage(amazing that Nick still has any, after all the sniping) to keep up the effort needed to promote us as the right Party to form the next Govt.. that should be our target, and we all need to tune our minds to it. STOP THE CARPING !!

  • Daniel Henry 31st Aug '12 - 6:24pm

    I like it when we do public negotiation and would prefer it to be three “rule” rather than the ” exception”.

  • Bob Wootton 31st Aug '12 - 9:28pm

    It is admirable that a LibDem policy initiative has lifted the lowest paid out of the tax paying bracket. However, they are still low paid. A redistributive taxation system only alleviates an unfair system. A mere plaster on an arterial bleed of a dying/dysfunctional economic system.
    Why does the Liberal Democrat party not introduce an economic system that is fair in the first place? Surely what is needed is for everyone to be earning sufficient income to pay tax and not require benefits.

  • Donald Trump once floated the idea of a one off wealth tax on individuals and trusts with a net worth of $10 million or more to pay off the US national debt.

    The plan didn’t go anywhere, but should remind us that our national debt has to be serviced from the future cash flows of privately held income producing assets or economic and private financial benefits of public infrastucture.

    A tax designed to raise an amount equivalent to the interest payment on government debt or linked to these costs has a certain logic and could act as measure that forces detailed cost/benefit analysis of future increases in government borrowing.

    If we are going down this road, I would endorse the comments of Alex Sabine above and look to Land Value Tax on property assets, over and above the stamp duty threshold, as the mechanism.

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