Nick Clegg’s interview in today’s Independent is rather more subtle on tax than the headline “I won’t let Osborne cut 50p tax” suggests. For in fact the story goes on to say:
Mr Clegg made clear that the Liberal Democrats would back abolition of the 50p rate in the long run only if it is not raising much revenue and if it is replaced by new taxes on “unearned income”. These could include a 1 per cent annual “mansion tax” on homes worth more than £2m, a land tax, and restricting tax relief on pensions to the basic 20p rate.
In other words, no to a simple cut in the top tax rate but yes to the possibility of a package deal in the future that gives the Tories what they want (end to the 50p rate), combined with higher wealth taxes to make for a fairer overall tax system (what the Liberal Democrats want).
All that reinforces my view that it is a shame forms of wealth tax are not on the agenda here at the Liberal Democrats conference because:
Amongst Liberal Democrats the question of what wealth taxes to support is deeply controversial … Some are very keen on a land value tax, but it is a concept that is often ridiculed by others in the party (perhaps unfairly, though it has to be said that some of the land value tax campaigners do little to rebut the view that it is an eccentric policy). Vince Cable’s talk of a mansion tax before the last general election was not helped by a rushed and bungled consultation within the party, but even a perfectly paced and conducted consultation would not have avoided opposition – especially from those in the party who prefer more bands on council tax to any sort of mansion tax, whether it is on their values or on profits from their sale.
Meanwhile, elsewhere in today’s Independent is would appear I am “a Liberal Democrat with a nerd’s eye for odd facts”. Ahem. Guilty as charged.
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5 Comments
Restricting tax relief on pensions to the basic 20p rate would not only be fair in these very tough times for ordinary folk, but it would help the Government sell their policy of reform of pensions in the public sector.
Restricting tax relief on pensions to the basic rate would be negative in two respects. Firstly it would be another step to dissuading people to make proper provision for their pension. Secondly it would reinforce the ‘squeeze middle’ impact of government policies.
It you wanted to do something on the taxation of pensions if would be far better to reduce the annual allowance for tax relief on contributions for £50,000 to something lower.
“the Liberal Democrats would back abolition of the 50p rate in the long run only if it is not raising much revenue and if it is replaced by new taxes”
I’m glad to hear it. I’m apalled at the way some Lib Dems seem to back the 50p rate irrespective of whether it is raising more or less reveue. If it is raising less than a 40p rate would (which is very possible) then maintaining it for purely totemic reasons is grotesque.
However, whether the 50p rate raises more revenue is only half the story. It is equally possible that the 50p rate is raising more revenue but at the expense of growth. We should also be willing to scrap the 50p rate if it can be shown that it is acting as a break on economic activity, so slowing the recovery.
I’m also wary of the weasle words “not raising much.” For some, any increase in revenue is justification, but I don’t see how an increase of the marginal rate by a quarter can be justified if the revenue increase is small.
Finally, replacing the 50p rate with alternative taxes will be pointless if they, too, have a negative effect on growth or revenue. We need to carefully consider the dynamic effects of the taxes we propose.
Tom. Cutting spending also has a negative effect on growth, as did the VAT rise in January, but I don’t hear the fat cats howling about those measures.
The Treasury has already told us that the 50% rate is bringing in £3.2 billion a year. That may be just loose change to one of those City bankers who got us into this mess, but it’s a great deal of money to most people.
Removing the 50% rate under any circumstances would be politically suicidal while so many people are losing their jobs or at least seeing falls in their living standards. But then, as the next election will show, being in coalition with the Tories is as suicidal now as it was after the First World War.
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Ivan,
That the 50% rate brings in £3.2bn does not in itself tell us anything. That needs to be compared with what the 40% rate would have brought in on incomes over £150,000 (which is not 4/5ths of £3.2bn). There is also the question of whether high rates impair growth. The Treasury commission will report on all of this in the new year.
The increase in VAT actually increased GDP, because VAT is counted as Gross Domestic Product. It’s crazy, but I don’t make the rules.
It’s only by cutting spending that we have any choice of growing our economy. Our levels of debt are already acting as an anchor on growth. However, public spending is in fact rising over the next four years, so it’s a moot point.
Political suicide not withstanding, we should base our policy solely on the effect that the 50% rate has on revenue and growth.