Nick Clegg appeared on the Daily Politics show today, talking about Liberal Democrat tax cut plans and how the party is ahead of the curve. You can watch the piece here.
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37 Comments
Not that Nick might have any bias in his assessment of the Lib Dems 🙂
I’m pretty much with da Fink on this one. If we are serious about tax cutting, then this must entail deep and lasting cuts in public spending. We then hand the money back from whence it came. As the evil rich paid more of it in the first place, they get more of it back. Anything else is just window dressing, and unconvincing to the public at large who are not stupid.
Laurence! I’m half-impressed, you agree on two out of three points with our dear leader, so it is also a shame that you credit a journalist affiliated with our opponents as the prime informant of your view.
That is, unless you think it ever likely we will be able to tempt Danny boy into crossing over to our side.
Oh dear. The response to the observation that the 4p cut will be funded by other tax rises is again to fall back on the possibility of “real” tax cuts coming out of the hypothetical £20bn of public expenditure savings. Why not just say, “Yes they will be paid for by other tax rises, but they will leave X% of the population significantly better off”?
And he has no answer to Finkelstein’s point that this will be no good for the recession. In fact he makes matters worse by suggesting the income tax cuts will give people more money they can save – which is the last thing you want them to do.
And I noticed he said the savings would be identified “in the next few weeks”. I suspect that was another instance of his tongue overriding his brain. Expect Finkelstein to be asking for details in a few weeks!
He started out life on our side. We lost him.
“He makes matters worse by suggesting the income tax cuts will give people more money they can save – which is the last thing you want them to do.”
And another thing. If we call ourselves liberal, then that means that people can do what the hell they like with the money we give back to them.
One final bit of confusion. Clegg has recently said it would be wrong to fund tax cuts from borrowing. But here he says it’s OK to fund capital investment from borrowing. That may sound a reasonable enough distinction, but is the line really that easy to draw?
Some of the capital investment he was talking about would (presumably) under the party’s previous plans have been funded from the hypothetical £20bn savings. So if it was funded from borrowing instead, and that freed up money for “real” tax cuts, how is that different from funding tax cuts from borrowing?
There’s no real distinction. There’s just one big pot of money and debt as everyone knows.
CCF,
Clegg doesn’t need to respond to Finkelstein’s blatantly partisan assertion – because it blatantly is a partisan assertion.
I also dispute the assertion that any benefit gained from the tax switch would only be helpful to the economy if it is all pumped back in increased spending, it it extremely sensible to ensure you make some savings or at least pay down debt levels.
If we call ourselves liberal, then at least people should have this option.
“If we call ourselves liberal, then at least people should have this option.”
Of course people have that option – there’s nothing anyone can do about that without abolishing property. But if you’re trying to stimulate the economy by giving them tax cuts, it’s not very helpful if they do that.
So if you recieve £2 you should spend both of them for the good of the nation?
“People can do what the hell they like with the money we give back to them.”
Well of course they can. Whether we are liberal, or not!
However – If we want to protect jobs – We should avoid, if we can, giving people money that we think they will just stuff into the bank. Because that won’t save any jobs.
That’s one good reason for favouring the poor – because they will assuredly need to spend most of what they get given.
If Clegg goes on about saving, when what is needed now is for people to do the opposite, it just sounds dumb!
Our new membership renewal form should read:
I wish to renew my membership at
– £10
– £20
– £50
– Don’t be a Lib Dem! Go out and stimulate the economy instead!
Ah, but if you donate to the Lib Dems, and they print a Focus, a struggling printer gets to hang on to his job, so…..
Would that Lib Dems still got printers to produce their Focuses – most of them are bashed out on Risos these days (but thanks to my remaining customers!)
CCF: If I got given a pot of cash, I would first pay off my debts. That has two substantive benefits for the economy:
a) the amount of money I pay in interest and charges is reduced, increasing my disposable income from then on
b) the bank has money back that it can now lend to someone else, like a small business looking for setup capital, etc.
Same also applies to savings: the bank can invest that money, and the interest I earn can be useful. Saying that people getting more money and saving it would be bad for the economy is only true if you believe consumer spending to be the best drive for the economy: it’s frequently small business and trade that does the economy the most good.
MatGB
Well, I agree nothing’s simple in economics, and that putting money in the bank does have some beneficial effects.
But Nick Clegg’s counter-argument against Finkelstein is clearly supposed to be that the tax cuts would be of net benefit to the economy because the winners would be more likely to spend the money than the losers. This is what he said in his response to Finkelstein before:
Of course, not all tax cuts help the wider economy. The Tory inheritance tax cut for millionaires isn’t just unfair. As any GCSE economics student will confirm, the vast majority of people on high incomes simply pocket tax cuts in savings. Tax cuts for people who are really feeling the pinch, by contrast, lead to increased consumer spending on the high street.
Apparently he forgot this part of the script in the interview today.
Laurence Boyce wrote:
“money back from whence it came”
Tautology!
Laurence, you remind me of the late Ray Gunter (or “The Grunter”, as Private Eye called him), who famously proclaimed: “I am going back to the folk from whence I came.”
That was the only thing the man ever said that anyone remembers, and it was a solecism.
According to Private Eye’s front cover that week, Harold Wilson replied: “Folk off!”
A trifling point, but I always find it slightly odd when people talk about tax cuts as “giving people’s money back to them” surely it’s a case of not taking it from them in the first place?
It is indeed a trifling point.
Well it is interesting to note that public services are NOT going to be reorganised to deliver more efficiently. Not that that was ever a realistic objective. Instead the Nick Clegg reckons that the savings can be made from cutting back on existing public spending. Of course we are aware of existing committments like our opposition to ID cards. But Nick is saying that before we have even done our research into this, we can cut £20Billion.
This £20Billion is obvious to him, but not obvious to Labour and Conservatives who would love to do the same thing if it was.
And this £20Billion is £20Billion that we ourselves could not find at the last general election, despite the odd collection of cuts that we did come up with.
To me this policy has the hallmarks of being a shambles. It reminds me of the set of policies the SDP tried to impose on the Liberal Democrats upon it’s formation, a document that quickly became known as the dead parrott document.
We really should have learnt from that cock up.
Geoffrey,
I think it is premature to label a policy a shambles before you’ve seen any details.
At the moment your complaints are based purely on supposition and speculation about what and cuts are and where they are to be made – what you are doing is pre-emptive scaremongering rather than analysis.
Clegg has been quite clear about how closing loopholes which only the rich are able to access.
Doesn’t it strike you as perverse that if you earn £100m as a hedge-fund manager you pay 18% on your income (as capital gains) while your cleaner on £20k pays 20% (at basic rate income tax above allowances)?
Don’t you think that inverting or at least equalising this state of affairs is both affordable and capable of raising revenues for additional priorities (depending on at what level the rates are set)?
“Doesn’t it strike you as perverse that if you earn £100m as a hedge-fund manager you pay 18% on your income (as capital gains) while your cleaner on £20k pays 20% (at basic rate income tax above allowances)?”
That isn’t the policy Geoff is criticising though. That change is part of the way of paying for the cut in the basic rate from 20 to 16p.
The £20bn of savings is all about identifying current government spending that we can cut/reallocate.
Our fully-costed 2005 manifesto cut Labour’s spending plans by 3%, the money to go on other things.
£20bn is 3% of Labour’s current spending plans.
Sensible and consistent. We have just changed in the circumstances what we would do with that money.
Labour and Tories didn’t copy our 2005 plans. They have different policies and beliefs than us. Why should our policy only make sense if they copy it (Geoffrey’s point)?
“Doesn’t it strike you as perverse that if you earn £100m as a hedge-fund manager you pay 18% on your income (as capital gains) while your cleaner on £20k pays 20% (at basic rate income tax above allowances)?”
I’ve never really thought too hard about this line of argument, but now that you’ve spelt it out I’m beginning to think that we may have got this one wrong too. Surely the way capital gains works is that when you make a capital gain, you have to pay tax – at 18% according to what you say. But when you make an equivalent loss the next year, the government doesn’t give you a rebate do they? They take the tax when you make a gain, and say “tough luck” when you make a loss. It would therefore be outrageous if the tax was at a level of 40% say.
What exactly is our policy proposal regarding these evil bastard hedge-fund managers?
I’m not a tax expert, but the way my accountant has it set up is that I am employed on PAYE by a limited company of which I am a 50% shareholder. The limited company pays me a salary on which I pay 31% (I think) income tax and national insurance (over and above my personal allowances). I am also entitled to take a dividend from the company (as long as it is making a profit) and on that I pay capital gains tax at 18% (I think), so it’s a lower rate of tax but more to the point you don’t have to pay national insurance on it. What are your thoughts now, Laurence?
Laurence,
if you’ve got sufficient capital to gain materially from it and are not living hand to mouth (or payday-to-payday) from your labour then there is no reason for the state to incentivise your risk-taking by providing you with insurance at no extra cost – why should the haves get something for nothing when the have-nots often don’t get what they pay for?
My thoughts are that I still don’t know what our proposed solution is to this perceived problem.
which percieved problem?
The problem of evil Satan-worshipping hedge-fund managers paying far less tax than their saintly hard-working cleaners.
Isn’t it a problem of their paying proportionately less tax, as the nominal amount would be far higher whatever the rate?
Yeah, whatever. We want to get more money off these bastards to fund a 4p cut for nice people. So what exactly is the proposal?
“But when you make an equivalent loss the next year, the government doesn’t give you a rebate do they?”
To an extent they do – You can AIUI set capital losses against CGT liabilities and I think you can do that for gains in the near future.
Doesn’t fairness mean treating people equally? If it does then pegging the CGT bands to those used for income tax simplifies matters hugely.
There’s a strong case that it would be both fairer and simpler to tax capital at the same rate as income, as Nigel Lawson did in the 1980s. You would solve the problem of people ‘converting’ income to capital for tax avoidance reasons and remove market distortions.
The problem is that we are not in the 1980s and we are not starting from a blank of sheet of paper and designing a brand new tax system.
The system of CGT ‘taper relief’ that Gordon Brown introduced in his 1998 Budget was highly complex, created anomalies and arguably lacked a sound economic justification. But it was clearly intended as a pro-enterprise measure – and, to the extent that it dramatically reduced the tax rate on investments held for a few years, genuinely was. It was one specific measure he could point to bolster his otherwise dubious claim of being a pro-enterprise Chancellor.
Jacking up a rate that was recently 10% all the way back to 40% again to align it with the top rate of income tax would make the tax system neater and more logical, perhaps.
But I suspect it would also be roundly condemned as a sledgehammer to crack a nut: dealing with the problem of private equity partners paying 18% tax on what is effectively income by hitting entrepreneurs in general.
I also have my doubts that we will raise anything like the revenue from this CGT hike that we are projecting and which partially finances the 4p income tax cut we are proposing… In the short term, at least, the revenues from capital taxes are likely to plummet – which does call into question our claim that this is a ‘funded’ tax cut.
There is also the global aspect to consider. I may be wrong about this, but I reckon a 40% CGT rate would be high by international standards, even though a 40% top income tax rate is pretty middle of the road. Equally, a 40% corporate income tax rate (which obviously we’re not proposing) would be just about the highest in the developed world.
The only way you can really tax all forms of income and capital at the same rate is if you go for a flat tax – but this would either require much smaller government than we have now or a comparatively high rate that would squeeze middle income earners.
Alex,
that makes pretty good sense. But…
If we assume that strict equality is the principle on which we are to base our policy then there is no wiggle room to manage a transition to the desired state of affairs.
If, however, we accept that fairness is the principle on which we are basing our policy and that there should be correlation between CGT and Income Tax, then the differential pegs can be set at proportional rates rather than exact 1:1 rates without giving a massive shock to the relevant sectors of the economy.